SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d)
[X] of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1997
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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
-- --
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
--
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 December 1, 1997, was $581,840,564.
The number of shares outstanding of the registrant's Common Stock as of December
1, 1997 was 21,349,688.
Documents Incorporated by Reference
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The following documents are incorporated by reference:
Portions of the Registrant's 1997 Annual Report to Shareholders for the Fiscal
Year Ended September 30, 1997 - Part I, Part II.
Exhibit Index on Page 53.
<PAGE>
<TABLE>
<CAPTION>
NEW YORK BANCORP INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
<S> <C> <C>
Item 1. Business............................................................................ 3
Item 2. Properties.......................................................................... 42
Item 3. Legal Proceedings................................................................... 43
Item 4. Submission of Matters to a Vote of Security Holders................................. 43
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................................... 43
Item 6. Selected Financial Data............................................................. 43
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 43
Item 8. Financial Statements and Supplementary Data......................................... 44
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 44
Item 11. Executive Compensation.............................................................. 46
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................................... 51
Item 13. Certain Relationships and Related Transactions...................................... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................................... 52
</TABLE>
2
<PAGE>
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, 1997, the Company had
total assets of $3.2 billion, deposits of $1.7 billion and shareholders' equity
of $169.1 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. At September 30, 1997, the Bank
maintained thirty-one full service branch offices located in Kings, Queens,
Nassau, Richmond and Suffolk Counties, and seven 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 $810.6 million and shareholders'
equity of $84.1 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.
On October 7, 1997, New York Bancorp signed a definitive merger agreement with
North Fork Bancorporation, Inc. ("North Fork") whereby the Company will be
merged with and into North Fork. Under the terms of the agreement, each share of
common stock of the Company outstanding at the time of the merger will be
converted into 1.19 shares of North Fork common stock. The transaction, which is
expected to be completed during the first quarter of calendar year 1998, is
subject to approval by the shareholders of both the Company and North Fork, the
approval of the appropriate regulatory authorities, as well as the satisfaction
of certain other conditions. The merger is expected to be accounted for as a
pooling of interests.
3
<PAGE>
Home Federal has been, and continues 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 and New Jersey.
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
thirty-one branches, creating a team of skilled employees who market the
products offered to customers. New checking accounts were emphasized as a means
of developing core banking relationships with new customers. Additionally, 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 $1.8 million for fiscal
year 1997. 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 five full-service
branches in supermarkets, and is presently planning to open six additional
supermarket branches in fiscal year 1998.
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
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
--------------------------
composition 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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1997 1996 1995 1994 1993
-------------------- -------------------- --------------------- --------------------- ---------------------
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 $ 970,617 47.49 % $ 1,046,763 55.82% $ 927,529 54.86% $ 719,421 49.16% $ 716,913 50.40%
Multifamily
residential 365,324 17.87 171,099 9.12 101,065 5.98 101,063 6.90 95,070 6.68
Commercial
real estate 450,596 22.05 383,181 20.43 355,507 21.02 337,468 23.06 296,808 20.86
Construction, net of
loans in
process 5,468 .27 4,369 .23 8,902 .52 4,966 .34 -- --
--------- ----- ------------ ----- --------- ------ ---------- ----- ---------- ------
Total first
mortgage
loans 1,792,005 87.68 1,605,412 85.60 1,393,003 82.38 1,162,918 79.46 1,108,791 77.94
----- ----- ----- ----- -----
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized premiums,
unearned discounts,
deferred loan fees
and allowance for
possible loan
losses (21,010) (19,366) (22,828) (28,036) (29,831)
--------- --------- --------- --------- ---------
Net first mortgage
loans.... 1,770,995 1,586,046 1,370,175 1,134,882 1,078,960
--------- --------- --------- --------- ---------
OTHER LOANS:
Consumer.... 12,302 .60 9,227 .49 8,580 .51 13,067 .89 16,944 1.19
Cooperative
residential 113,628 5.56 123,034 6.56 141,902 8.39 150,520 10.29 163,431 11.49
Home improvement 645 .03 1,035 .05 1,526 .09 9,637 .66 8,101 .57
Guaranteed
Student 45,674 2.23 51,151 2.73 56,673 3.35 54,693 3.74 55,180 3.88
Commercial.. 11,092 .54 12,351 .66 11,214 .66 15,336 1.05 7,085 .50
Secured by
deposits 7,056 .35 8,078 .43 7,917 .47 8,401 .57 7,411 .52
Second mortgage 1,540 .08 2,211 .12 2,147 .13 2,605 .18 2,819 .20
Home equity. 42,657 2.09 44,277 2.36 46,845 2.77 36,890 2.52 42,152 2.96
Purchased auto
leasing 17,178 .84 18,702 1.00 21,063 1.25 9,385 .64 10,665 .75
--------- ----- --------- ----- --------- ----- --------- ----- -------- -----
Total other
loans 251,772 12.32 270,066 14.40 297,867 17.62 300,534 20.54 313,788 22.06
----- ----- ----- ----- -----
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized premiums,
unearned discounts,
deferred loan fees and
allowance for
possible loan
losses (2,351) (2,950) (3,099) (3,062) (4,331)
------- ------- ------- ------- -------
<PAGE>
Net other loans 249,421 267,116 294,768 297,472 309,457
------- ------- ------- ------- -------
Total loans. $2,043,777 100.00% $ 1,875,478 100.00% $ 1,690,870 100.00% $ 1,463,452 100.00% $ 1,422,579 100.00%
========== ======= ============ ======= ============ ====== ============ ====== ============ =======
Total net
loans $2,020,416 $ 1,853,162 $ 1,664,943 $ 1,432,354 $ 1,388,417
========== ============ ============ ============ ============
</TABLE>
(1)Of the amount in total first mortgage loans, $1,521,015, $1,324,063,
$1,016,693, $760,951 and $695,371 represent adjustable rate mortgage loans at
September 30, 1997, 1996, 1995, 1994 and 1993, respectively.
5
<PAGE>
ORIGINATION, PURCHASE AND SALE OF LOANS. Set forth below is a table
---------------------------------------
showing the Bank's total loan origination, purchase, sale, amortization
and repayment activities for the years indicated.
<TABLE>
<CAPTION>
Year ended September 30,
1997 1996 1995
--------------- ---------------- -------------
(In Thousands)
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
At beginning of year................................ $ 1,605,412 $ 1,393,003 $ 1,162,918
First mortgage loans originated..................... 491,461 371,670 332,253
First mortgage loans purchased...................... 15,217 199,785 100,314
Securitization and transfer to mortgage-
backed securities available for sale............... -- (65,785) (11,695)
Transfer of loans to real estate owned.............. (2,569) (3,692) (3,879)
First mortgage loans sold........................... (43,634) (74,455) (37,942)
Amortization, prepayments and other................. (273,882) (215,114) (137,927)
Hamilton's net activity for the
quarter ended December 31, 1994(1)................. -- -- (11,039)
-------------- ------------- -------------
At end of year...................................... $ 1,792,005 $ 1,605,412 $ 1,393,003
============== ============= =============
OTHER LOANS
At beginning of year................................ $ 270,066 $ 297,867 $ 300,534
Other loans originated.............................. 52,946 53,425 57,046
Other loans purchased............................... 7,174 6,174 14,427
Transfer of loans to real estate owned.............. (472) (770) (576)
Other loans sold.................................... (2,447) (3,017) (1,499)
Amortization, prepayments and other................. (75,495) (83,613) (69,229)
Hamilton's net activity for the
quarter ended December 31, 1994(1)................. -- -- (2,836)
-------------- ------------- -------------
At end of year...................................... $ 251,772 $ 270,066 $ 297,867
============== ============= =============
</TABLE>
(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.
Total loan originations increased to $544.4 million in fiscal year 1997
compared to $425.1 million for fiscal year 1996, and $389.3 million for
fiscal year 1995. The increase in loan originations in fiscal years
1997 and 1996 was primarily attributable to the development of a
multifamily lending department in fiscal year 1996 which originated
$213.3 million in such loans during its first full year in fiscal year
1997 and $80.0 million during fiscal year 1996. Loan purchases totaled
$22.4 million for fiscal year 1997, compared to $206.0 million in
fiscal year 1996 and $114.7 million in fiscal year 1995. The loan
purchases in each of these fiscal years were primarily adjustable rate
one-to-four family first mortgage loans.
Loan sales were $46.1 million, $77.5 million and $39.4 million for the
years ended September 30, 1997, 1996 and 1995, respectively. 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.
6
<PAGE>
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, 1997
-------------------------------------------------------------------------------------------------
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......... $ 2,023 $ 6,002 $ 11,399 $ 4,950 $ 403 $ 3,149 $ 27,926
After 1 year(1):
1 to 2 years........ 1,045 1,070 11,353 -- 56 8,335 21,859
2 to 3 years........ 2,364 432 11,905 518 234 11,288 26,741
3 to 5 years........ 19,063 16,850 35,367 -- 1,026 7,501 79,807
5 to 10 years....... 66,750 30,114 291,633 -- 6,873 51,560 446,930
10 to 15 years...... 60,327 299,724 70,944 -- 14,101 18,239 463,335
Over 15 years....... 819,045 11,132 17,995 -- 90,935 38,072 977,179
------------ ----------- ----------- ---------- ---------- ----------- ------------
Total after 1 year 968,594 359,322 439,197 518 113,225 134,995 2,015,851
------------ ----------- ----------- ---------- ---------- ----------- ------------
Total amounts due $ 970,617 $ 365,324 $ 450,596 $ 5,468 $ 113,628 $ 138,144 2,043,777
============ ============ =========== ========== ========== ===========
Add (subtract):
Unearned purchase
accounting discounts
and premiums, net.... 3
Unearned discounts and
premiums, net........ 2,260
Deferred loan fees.... (6,929)
Allowance for possible
loan losses.......... (18,695)
------------
Loans receivable, net $ 2,020,416
============
</TABLE>
(1) Of the $2,020,405 in loans due after one year, $1,652,804 are
adjustable rate loans and $363,047 are fixed rate loans.
7
<PAGE>
ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE AND COOPERATIVE RESIDENTIAL
-------------------------------------------------------------------
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, 1997, one-to-four family
residential ARM loans outstanding, both originated and purchased by
Home Federal, comprised $793.9 million, or 81.7%, 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, 1997, the Bank offered one, three and five year ARM loans
for a maximum term of 40 years with initial interest rates of 5.375%,
7.00% and 7.50%, respectively. The Bank, at September 30, 1997,
similarly offered a fixed rate one-to-four family loan at 7.25% which
amortizes in approximately 23 years based upon a biweekly payment
structure. At September 30, 1997, the Bank offered conventional 10, 15
and 30 year fixed rate mortgages with interest rates of 6.75%, 6.75%
and 7.25%, 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,
1997, the Bank offered convertible mortgage loans with an initial
interest rate of 5.625%. 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.
At September 30, 1997, the Bank had $113.6 million of loans secured by
assignment of leases and shares on cooperative residential apartments,
of which $88.4 million, or 77.8%, have adjustable rates. In recent
years, the Bank has curtailed its cooperative lending as a result of
the 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 ended September 30, 1997, the Bank originated $108.5 million of
residential ARM loans, or 70.5%, of the total residential mortgage loan
originations, which includes $8.8 million of cooperative residential
adjustable rate loans during that period. During the same period, the
Bank originated $45.5 million of fixed rate residential mortgage loans,
or 29.5%, 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.
8
<PAGE>
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, 1997, the Bank's reverse annuity mortgage portfolio
consisted of 26 loans with a total potential indebtedness of $5.7
million, of which $3.5 million is yet to be disbursed over the
remaining term of these loans.
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 1997,
originations of multifamily loans amounted to $213.3 million, as
compared to $80.0 million and $6.1 million in fiscal years 1996 and
1995, respectively. At September 30, 1997, the Bank had approximately
$365.3 million, or 17.87% of the total loan portfolio invested in
multifamily loans.
9
<PAGE>
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 market areas where it has
knowledge and experience.
Multifamily loans require a debt service coverage ratio of at least
120% 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. Multifamily loans in excess of $1.5
million are approved by the Bank's Executive Committee of the Board of
Directors.
COMMERCIAL REAL ESTATE LOANS. Commercial real estate originations
----------------------------
amounted to $128.0 million during fiscal year 1997, as compared to
$75.5 million and $57.4 million for fiscal years 1996 and 1995,
respectively. At September 30, 1997, the Bank had approximately $450.6
million, or 22.05% 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.
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 have net income to debt service coverage
ratios of 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.
10
<PAGE>
CONSTRUCTION LOANS. At September 30, 1997 the Bank's construction loan
------------------
portfolio consisted of 18 loans amounting to $17.5 million of which
$12.0 million remains as undisbursed.
Construction loans to individuals generally are made with floating
interest rates with maturities not in excess of two years. Construction
loans for developments and other projects generally are made with
floating interest rates with maturities not to exceed 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, 1997, the Bank's other loan
portfolio, exclusive of cooperative residential loans discussed above,
totaled $138.1 million and was comprised of $19.3 million of both
secured and unsecured personal loans, $17.2 million in purchased
automobile leases, $45.7 million in guaranteed student loans, $11.1
million in commercial business loans, $42.7 million in home equity
loans and $2.2 million in home improvement and second mortgage loans.
Such other loans, including cooperative residential loans, comprised
12.32% 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, 1997 ranged
from 9.25% 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, and are then amortized over a twenty-year
schedule.
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.
11
<PAGE>
LOAN PURCHASES. The Bank purchased $14.7 million of adjustable rate
--------------
first mortgage loans during the year ended September 30, 1997. The Bank
also purchased $7.2 million of auto lease/loans during fiscal 1997.
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, 1997 and 1996, the Company
was servicing first mortgage loans of approximately $579.8 million and
$597.0 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, 1997 and 1996.
The Bank's risk at September 30, 1997 with respect to servicing loans
for others is minimized due to the fact that loans serviced for others
are 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.
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, 1997, the Bank's ratio of nonaccrual loans
to total loans was .86%. 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.
12
<PAGE>
Additionally, at September 30, 1997, 1996, 1995, 1994 and 1993 the Bank
had $4.7 million, $4.4 million, $5.0 million, $4.0 million and $3.3
million, respectively, of consumer and other loans which are past due
90 days and still accruing interest at the dates indicated. Of the $4.7
million at September 30, 1997, $3.6 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 1997
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 nonaccrual loans.)
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............. $ 17,539 $ 25,552 $ 30,372 $ 36,533 $ 38,808
========== ========= ========= ========= ========
Real estate owned, net........ $ 1,363 $ 3,197 $ 1,967 $ 5,919 $ 6,609
========== ========= ========= ========= ========
Restructured loans............ $ 5,015 $ 5,818 $ 9,104 $ 9,481 $ 6,237
========== ========= ========= ========= ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
- -------------------------------
As of and
For the Year Ended September 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan
losses, beginning of year............. $ 19,386 $ 21,272 $ 25,705 $ 26,828 $ 19,455
Charge-offs:
Commercial real estate............... (698) (974) (2,889) (879) (682)
Multifamily residential.............. -- -- (546) (853) --
Residential real estate.............. (1,114) (730) (1,422) (1,572) (1,586)
Other loans.......................... (1,148) (1,441) (1,442) (901) (1,731)
--------- --------- --------- --------- --------
Total charge-offs.................. (2,960) (3,145) (6,299) (4,205) (3,999)
--------- --------- --------- --------- --------
Less: Recoveries
Commercial real estate............. 71 -- -- 349 220
Residential real estate............ 27 -- 4 47 41
Other loans........................ 71 59 75 36 122
--------- --------- --------- --------- --------
Total recoveries................. 169 59 79 432 383
--------- --------- --------- --------- --------
Net charge-offs........................ (2,791) (3,086) (6,220) (3,773) (3,616)
Addition to allowance in connection
with the acquisition of Union Savings. -- -- -- -- 6,289
Hamilton's net activity for the quarter
ended December 31, 1994............... -- -- 87 -- --
Addition to allowance charged to
expense............................... 2,100 1,200 1,700 2,650 4,700
--------- --------- --------- --------- --------
Allowance at end of year............... $ 18,695 $ 19,386 $ 21,272 $ 25,705 $ 26,828
========= ========= ========= ========= ========
Asset Quality Ratios
- --------------------
Net charge-offs to average loans
outstanding during the period......... .14% .18% .40% .27% .25%
Allowance for possible loan
losses to total loans................. .92% 1.03% 1.26% 1.76% 1.89%
Allowance for possible loan
losses to nonaccrual loans............ 106.59% 75.87% 70.04% 70.36% 69.13%
Nonaccrual loans to total loans........ .86% 1.36% 1.80% 2.50% 2.73%
Total loans............................ $ 2,043,777 $ 1,875,478 $ 1,690,870 $ 1,463,452 $ 1,422,579
Average loans(1)....................... $ 1,959,717 $ 1,752,878 $ 1,560,706 $ 1,411,067 $ 1,425,134
Total assets........................... $ 3,244,200 $ 2,940,907 $ 2,731,592 $ 2,583,982 $ 2,250,605
</TABLE>
(1) Nonaccruing loans have been included in the average loan amounts.
14
<PAGE>
The allowance for possible loan losses is established and maintained
through provisions for possible loan losses charged to expense. During
the year ended September 30, 1993, the Bank also had additions to its
allowance for possible loan losses resulting from its acquisition of
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 losses at September 30, 1997 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 1997 Annual
Report to Shareholders, portions of which are attached as Exhibit 13.)
At September 30, 1997, 1996, 1995, 1994 and 1993 the allowance for
possible loan losses was allocated as follows:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------- --------------------- -------------------- -------------------- ------------------
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>
Construction
loans. $ 30 .27% $ 20 .23% $ 39 .52% $ 25 .34% $ -- . --%
Commercial
loans. 113 .54 122 .66 92 .66 71 1.05 61 .50
Multifamily
residential
loans. 2,008 17.87 1,008 9.12 505 5.98 1,051 6.90 1,328 6.68
Commercial
real estate
loans. 7,653 22.05 7,192 20.43 8,057 21.02 10,627 23.06 12,035 20.86
Residential
and other
loans. 2,698 59.27 4,426 69.56 4,037 71.82 6,270 68.65 6,513 71.96
Unallocated 6,193 . -- 6,618 . -- 8,542 . -- 7,661 . -- 6,891 . --
------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Total $18,695 100.00% $19,386 100.00% $21,272 100.00% $25,705 100.00% $26,828 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
15
<PAGE>
INVESTMENT ACTIVITIES
- ---------------------
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.
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, 1997, the Bank's portfolios of
mortgage-backed securities totaled $978.9 million, or 30.2% of total
assets. Approximately 6.1% of this portfolio includes mortgage-backed
securities with underlying loans which are guaranteed by either the
FHLMC, Government National Mortgage Association ("GNMA") or 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.
Included in the Bank's mortgage-backed securities portfolio at
September 30, 1997 are REMIC and CMO securities with a principal
balance of $892.7 million. This portfolio has an average estimated life
of 4.3 years at September 30, 1997. 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, 1997, it is estimated that the average life of this portfolio would
be extended to 5.9 years. Credit enhancement for the Bank's REMIC, CMO
and private-issue pass-through securities are provided in several
structures available for these types of securities which provide for
payment to "classes" within the security on a preferential basis. The
Bank purchases securities with ownership interests in the higher, or
preferred, classes. At September 30, 1997 the Bank's REMIC and CMO
portfolio consisted of 32.6% in Sequential Payment Securities, 26.7% in
Targeted Amortization Securities, 16.9% in Scheduled Payment
Securities, and 23.8% in other Securities. Sequential Payment
Securities are securities in which principal payments are remitted to a
class until that class is paid to zero. Targeted Amortization and
Scheduled Payment Securities are securities in which principal is
repaid on a predetermined schedule using a stated prepayment
assumption, with preference given to higher classes. (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 1997 Annual Report to
Shareholders, portions of which are attached as Exhibit 13.)
16
<PAGE>
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,
-----------------------------------------------
1997 1996 1995
------------ ------------- --------
(In Thousands)
<S> <C> <C> <C>
CARRYING VALUES:
FHLMC(1)........................................ $ 3,257 $ 14,595 $ 21,461
FNMA(2)......................................... 5,127 6,075 34,148
GNMA............................................ 1,141 1,423 --
Private-issue pass-through...................... 48 1,258 --
REMIC and CMO(3)................................ 633,979 525,823 604,722
------------ ------------- -------------
Total mortgage-backed securities
held to maturity(4).......................... 643,552 549,174 660,331
Add: Unamortized premiums...................... 1,836 2,733 6,519
Less: Unearned discounts....................... (1,141) (1,090) (2,124)
------------ ------------- -------------
Total carrying value.......................... $ 644,247 $ 550,817 $ 664,726
============ ============= =============
ESTIMATED MARKET VALUE............................ $ 636,142 $ 534,602 $ 637,503
============ ============= =============
</TABLE>
(1) Includes $3,257,000, $3,816,000 and $4,736,000 of adjustable
rate securities at September 30, 1997, 1996 and 1995, respectively.
(2) Includes $5,127,000, $6,075,000 and $8,370,000 of adjustable
rate securities at September 30, 1997, 1996 and 1995, respectively.
(3) Includes $4,111,000 of adjustable rate securities at September
30, 1995.
(4) 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 (none at September 30, 1997).
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,
-----------------------------------------------
1997 1996 1995
------------ ------------- --------
(In Thousands)
<S> <C> <C> <C>
CARRYING VALUES:
FHLMC........................................... $ 28,950 $ 61,125 $ 74,344
FNMA............................................ 13,645 48,583 36,831
GNMA............................................ 6,481 7,596 10,854
REMIC and CMO .................................. 258,751 139,146 56,199
Private-issue pass-through...................... 23,555 25,833 30,295
------------ ------------- -------------
Total mortgage-backed securities
available for sale........................... 331,382(1) 282,283 208,523
Add: Unamortized premiums...................... 1,839 1,836 1,091
Less: Unearned discounts........................ (1,386) (4,167) (3,818)
Add: Unrealized appreciation
on securities available for sale...... 2,806 477 998
------------ ------------- -------------
Total carrying and
estimated market value....................... $ 334,641 $ 280,429 $ 206,794
============ ============= =============
</TABLE>
(1) Of the $331,382,000 in mortgage-backed securities available for
sale at September 30,1997, $8,415,000 represents pools with
underlying loans having five and seven year balloon maturities.
17
<PAGE>
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, 1997 exceeded
10% of stockholders' equity.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Federal National Mortgage Association................................ $ 200,085 $ 199,270
GE Capital Mortgage Services, Inc.................................... 127,458 126,742
Prudential Home Mortgage Securities Company, Inc..................... 80,647 79,291
Residential Funding Mortgage Securities I, Inc., .................... 80,136 79,912
Chase Mortgage Finance Corporation................................... 78,187 76,703
Countrywide Funding Corporation...................................... 54,569 55,247
PNC Mortgage Securities Corporation.................................. 47,402 47,430
Federal Home Loan Mortgage Corporation............................... 46,963 46,852
Housing Securities, Inc.............................................. 41,629 41,112
Securitiezed Asset Sales, Inc........................................ 40,321 40,393
Bear Stearns Mortgage Securities, Inc................................ 39,900 38,345
Citicorp Mortgage Securities, Inc.................................... 18,757 18,557
Saxon Mortgage Securities Corporation................................ 17,126 17,428
</TABLE>
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, 1997, the Company had $107.1 million in debt and
equity securities available for sale and $.6 million in debt securities
held to maturity, representing 3.3% of total assets, in the aggregate.
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, 1997, 100% of such issues owned by the
Company were considered to be investment grade by the rating agencies.
(See notes 4, and 5 of Notes to Consolidated Financial Statements in
the 1997 Annual Report to Shareholders, portions of which are attached
as Exhibit 13.)
18
<PAGE>
The following table sets forth certain information regarding the
Company's investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------
1997 1996 1995
------------ ------------ --------
(Dollars In Thousands)
<S> <C> <C> <C>
DEBT SECURITIES HELD TO MATURITY:
Agency obligations................................. $ -- $ -- $ 20,000
Corporate notes ................................... 593 643 1,179
------------ ------------ ------------
Total debt securities held to
maturity......................................... 593 643 21,179
------------ ------------ ------------
DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE:
U. S. Government and agency obligations............. 106,244 131,245 41,740
Common stocks ...................................... -- 5,326 4,082
Stock in FNMA....................................... 2 2 2
Other............................................... 1,143 1,028 --
------------ ------------ ------------
Total debt and equity securities
available for sale............................... 107,389 137,601 45,824
Unrealized appreciation (depreciation)
on securities available for sale................... (239) (1,468) 449
------------ ------------ ------------
Net debt and equity securities
available for sale............................... 107,150 136,133 46,273
------------ ------------ ------------
FEDERAL HOME LOAN BANK STOCK.......................... 54,119 27,938 20,288
------------ ------------ ------------
MONEY MARKET INVESTMENTS:
Securities purchased under resale
agreements......................................... -- 10,700 8,400
FHLB overnight deposits............................. -- -- 4,997
Federal funds sold.................................. -- -- 500
Other............................................... -- -- 18
------------ ------------ ------------
Total money market investments.................... -- 10,700 13,915
------------ ------------ ------------
TOTAL INVESTMENT PORTFOLIO............................ $ 161,862 $ 175,414 $ 101,655
============ ============ ============
AVERAGE LIFE, IN YEARS, OF TOTAL INVESTMENT
PORTFOLIO, EXCLUDING EQUITY SECURITIES............... 2.5 6.6 3.6
=== === ===
</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, 1997
-------------------------------------------------------------------------------------------------------------------
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>
Agency
obligations
and other $40,570 5.84 % $ 66,524 6.34% $ -- . -- % $-- .--% 2.5 $107,094 $107,094 6.13%
======= ====== ========= ===== ======== ======= ======= ===== ==== ========= ========= =====
Corporate
notes... $ -- .-- % $ -- .--% $ -- . -- % $593 5.97% 8.2 $ 593 $ 609 5.97%
======= ====== ========= ===== ======== ======= ======= ===== ==== ======== ========= =====
</TABLE>
19
<PAGE>
SUBSIDIARIES OF THE BANK
- ------------------------
The Bank has one wholly owned subsidiary, Home Fed Realty Corporation, which is
included in the consolidated financial statements. This subsidiary operates as a
real estate investment trust. The Bank additionally has seven wholly owned
unconsolidated subsidiaries, three of which are inactive. At September 30, 1997,
the Bank's aggregate investment in these subsidiaries amounted to $368,000. 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. Two of the subsidiaries, Home Fed
Services, Inc. and HF Investors, Inc., were primarily established to offer
annuities through the Bank's branch system. Another subsidiary, Home Fed Funding
Corp., operates as a mortgage broker for the purpose of obtaining, for the Bank,
loan applications outside of New York State.
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 or the FHLB-NY,
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, included in deposits at
September 30, 1997 is $2.3 million of MarketSmart CD deposit
liabilities, 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 Bank
utilizes stock indexed call options to hedge the risks associated with
this product. The Bank ceased offering the MarketSmart CDs during
fiscal year 1995 due to its inability to purchase such small quantities
of stock indexed call options.
20
<PAGE>
Savings accounts (passbook or statement), which accounted for
approximately 40.65% of the Bank's total deposits at September 30,
1997, earned interest as of that date at an annual rate of 2.42% 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, 1997,
approximately 39.05% 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,
1997, approximately 8.86% of all deposits were in MMDAs which bear a
fluctuating rate of interest that is reviewed regularly by the Bank.
Additionally, NOW accounts represented 8.90% of the Bank's total
deposits at September 30, 1997. Interest on NOW accounts is compounded
daily and credited monthly. Non-interest bearing demand accounts
represented 2.54% of the Bank's total deposits at September 30, 1997.
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, 1997 1996 1995
---------------------- ---------------------- ------------------
1997
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....... . --% $ 42,808 2.54% $ 37,013 2.16% $ 32,821 1.88%
NOW accounts........... 1.00 150,010 8.90 130,831 7.63 116,726 6.67
Variable rate money
market deposit
accounts.............. 3.13 149,200 8.86 133,528 7.78 102,937 5.89
Passbook savings and
club accounts......... 2.42 684,667 40.65 716,827 41.77 751,374 42.96
---- ------------- ------- ------------ ------ ------------ -------
2.21 1,026,685 60.95 1,018,199 59.34 1,003,858 57.40
---- ------------- ------- ------------ ------ ------------ -------
Certificate accounts:
With original
maturities of:
3 months.......... 3.99 15,626 .93 19,382 1.13 15,516 .89
6 months.......... 4.06 58,863 3.50 83,943 4.89 98,674 5.64
7 months.......... 4.67 19,576 1.16 17,967 1.05 37,848 2.16
12 months.......... 4.47 88,773 5.27 140,815 8.21 191,469 10.95
13 months.......... 4.91 55,604 3.30 93,965 5.47 84,778 4.85
18 months.......... 5.30 61,347 3.64 30,461 1.78 8,387 .48
30 months.......... 5.60 39,797 2.36 34,784 2.03 46,807 2.68
36 months.......... 6.09 23,003 1.37 25,049 1.46 26,762 1.53
48 months.......... 5.71 7,242 .43 6,396 .37 6,404 .37
60 months.......... 6.34 148,925 8.84 161,180 9.39 173,716 9.93
Other.............. 5.12 138,978 8.25 83,818 4.88 54,655 3.12
----- ------------- ------- ------------ ------ ------------ -------
5.24 657,734 39.05 697,760 40.66 745,016 42.60
----- ------------- ------- ------------ ------ ------------ -------
Total deposits....... 3.40% $ 1,684,419 100.00% $ 1,715,959 100.00% $ 1,748,874 100.00%
===== ============= ====== ============ ======= ============ =======
</TABLE>
21
<PAGE>
The following table presents the deposit activity of the Bank for the
years indicated:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
Deposits........................................... $ 3,350,432 $ 2,847,234 $ 2,909,582
Withdrawals........................................ (3,440,705) (2,943,187) (3,011,924)
--------------- --------------- --------------
Withdrawals in excess of deposits.................. (90,273) (95,953) (102,342)
Interest credited.................................. 58,733 63,038 67,670
Hamilton's net activity for the
quarter ended December 31, 1994................... -- -- (7,968)
--------------- --------------- --------------
Net increase (decrease) in deposits................ $ (31,540) $ (32,915) $ (42,640)
=============== =============== ==============
</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, 1997 by periods of maturity.
<TABLE>
<CAPTION>
Weighted
Percent of Average Remaining maturity
-------------------------------------------------------------
Total Nominal 6 months 6 months 1 year 3 years 5 years
Quarter Ended Amount Certificates 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, 1997 $150,044 22.81% 4.68% $150,044
March 31, 1998. 126,412 19.22 4.98 126,412
June 30, 1998.. 116,916 17.78 5.09 $ 116,916
September 30, 1998 80,592 12.25 5.27 80,592
December 31, 1998 28,829 4.38 5.24 $ 28,829
March 31, 1999. 14,379 2.19 5.34 14,379
June 30, 1999.. 27,183 4.13 5.95 27,183
September 30, 1999 21,915 3.33 5.69 21,915
December 31, 1999 15,544 2.36 6.19 15,544
March 31, 2000. 22,031 3.35 6.87 22,031
June 30, 2000.. 18,448 2.80 6.81 18,448
September 30, 2000 5,231 .80 5.74 5,231
December 31, 2000 3,528 .54 5.71 $3,528
March 31,2001.. 2,201 .33 5.20 2,201
June 30, 2001.. 4,373 .67 5.85 4,373
September 30, 2001 2,781 .42 5.64 2,781
December 31, 2001 2,357 .36 5.55 2,357
March 31, 2002. 2,388 .36 6.22 2,388
June 30, 2002.. 6,919 1.05 6.22 6,919
September 30, 2002 4,514 .69 6.07 4,514
December 31, 2002 956 .15 5.90 $ 956
June 30, 2003. 193 .03 6.77 193
---------- ------- ------ ---------- ---------- --------- ---------- ----------
$ 657,734 100.00% 5.24% $ 276,456 $ 197,508 $ 153,560 $ 29,061 $ 1,149
========== ======= ====== ========== ========== ========= ========== ==========
</TABLE>
22
<PAGE>
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.
At September 30, 1997, the Bank had outstanding certificate accounts in
amounts of $100,000 or more maturing as follows:
Quarter Ended Amount
------------- ------
(In Thousands)
December 31, 1997....................... $ 20,563
March 31, 1998.......................... 21,436
June 30, 1998........................... 20,828
September 30, 1998...................... 12,038
December 31, 1998....................... 4,797
March 31, 1999.......................... 4,649
June 30, 1999........................... 10,680
September 30, 1999...................... 8,435
December 31, 1999....................... 7,007
March 31, 2000.......................... 10,692
June 30, 1999........................... 10,613
September 30, 2000...................... 2,043
December 31, 2000....................... 1,414
March 31, 2001.......................... 1,310
June 30, 2001........................... 2,608
September 30, 2001...................... 1,070
December 31, 2001....................... 654
March 3l, 2002.......................... 600
June 30, 2002........................... 2,188
September 30, 2002...................... 1,735
December 3l, 2002....................... 507
June 30, 2003........................... 113
------------
$ 145,980
============
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. The Bank will enter into longer term borrowings when
they can be matched with assets with similar duration.
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 or the FHLB-NY.
23
<PAGE>
At September 30, 1997, the Bank had outstanding $740.3 million of fixed
rate reverse repurchase agreements with a weighted average interest
rate of 5.73% and a weighted average remaining maturity of seventeen
months. The Bank may substitute collateral in the form of U. S.
Treasury, mortgage-backed certificates, or agency obligations. At
September 30, 1997, the borrowings were collateralized by FNMA, FHLMC,
REMIC, non-agency pass-through certificates and agency obligations
having a carrying value of approximately $773.7 million and a market
value of approximately $766.6 million.
At September 30, 1997, the Bank had outstanding a $100.0 million
variable rate reverse repurchase agreement with an interest rate of
5.59% and remaining maturity of four months. 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, 1997, the borrowings were collateralized by REMIC and
non-agency pass-through certificates having a carrying value of
approximately $105.7 million and a market value of approximately $105.0
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, 1997, the Bank had $7.6
million of the Notes outstanding, which are fully subordinated to
savings deposit accounts and other general liabilities of the Bank.
Further, at September 30, 1997, $.5 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, 1997.
24
<PAGE>
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
At September 30,
----------------------------------------
1997 1996 1995
------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Notes payable--fixed rate advances from the FHLB-NY:
4.13% to 8.45%, due in 1996................................ $ -- $ -- $ 22,375
8.10%, due in 1997......................................... -- 375 375
5.68% to 5.71%, due in 1998................................ 155,000 -- --
------------- ------------- -------------
155,000 375 22,750
------------- ------------- -------------
Notes payable--variable rate advances from the FHLB-NY:
5.88% to 6.63%, due in 1996................................ -- -- 363,000
5.37% to 5.99%, due in 1997................................ -- 542,000 20,000
5.63% to 6.63%, due in 1998................................ 249,500 -- --
------------- ------------- -------------
249,500 542,000 383,000
------------- ------------- -------------
Securities sold under agreements to repurchase:
Fixed rate agreements:
5.79% to 6.00%, due in 1996............................... -- -- 190,160
5.37% to 6.15%, due in 1997............................... -- 353,698 --
5.61% to 5.73%, due in 1998............................... 367,001 -- --
5.70% to 5.73%, due in 1999............................... 117,330 -- --
5.57% to 6.55%, due in 2000............................... 137,000 -- --
5.68% to 5.98%, due in 2002............................... 119,000 -- --
------------- ------------- -------------
740,331 353,698 190,160
------------- ------------- -------------
Variable rate agreements:
5.79% to 6.03%, due in 1996............................... -- -- 150,000
5.59% in 1997 and 5.09% in 1996, due in 1998.............. 100,000 100,000 --
------------- ------------- -------------
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 3,800
Due in 1999................................................ 3,800 3,800 3,800
------------- ------------- -------------
7,600 11,400 15,200
------------- ------------- -------------
Treasury, tax and loan notes-callable, 5.56%, 5.84%
and 5.75% at September 30, 1997, 1996 and 1995,
respectively.............................................. 1,500 1,313 1,328
------------- ------------- -------------
Total borrowed funds...................................... $ 1,253,931 $ 1,008,786 $ 767,138
============= ============= =============
</TABLE>
25
<PAGE>
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,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB-NY advances--due in one year or less:
Maximum month-end balance............................... $ 552,375 $ 611,875 $ 385,375
Balance at end of year.................................. 404,500 542,375 385,375
Average balance......................................... 429,383 480,574 293,268
Weighted average interest rate:
On balance at end of year............................ 5.92% 5.48% 6.13%
On average balance................................... 5.66% 5.65% 5.75%
Other borrowings--principally reverse repurchase
agreements, due in one
year or less:
Maximum month-end balance............................... $ 650,255 $ 358,811 $ 349,988
Balance at end of year.................................. 472,301 358,811 349,988
Average balance......................................... 517,906 262,251 259,685
Weighted average interest rate:
On balance at end of year............................ 5.87% 5.66% 5.96%
On average balance................................... 5.74% 5.86% 5.72%
Total short-term borrowings:
Maximum month-end balance............................... $ 1,047,898 $ 901,186 $ 735,363
Balance at end of year.................................. 876,801 901,186 735,363
Average balance......................................... 947,289 742,825 548,560
Weighted average interest rate:
On balance at end of year............................ 5.89% 5.55% 6.05%
On average balance................................... 5.71% 5.72% 5.74%
</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.
26
<PAGE>
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.
EMPLOYEES
- ---------
At September 30, 1997, Home Federal had 596 employees, including 170 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. As a publicly owned company, the
Company is required to 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 82% of its deposit
accounts are insured up to applicable limits by the FDIC under the
Savings Association Insurance Fund ("SAIF"). In addition, approximately
18%, 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.
27
<PAGE>
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.
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 of 1956, as amended, 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.
28
<PAGE>
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.
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. This approval to acquire
additional shares expired on August 25, 1997. As of September 30, 1997,
Messrs. Malloy and McManus beneficially owned a total of 15.73% 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. This approval to acquire additional shares
expired on May 12, 1997. As of September 30, 1997, Mr. and Mrs. Austin
beneficially own a total of 11.84% 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.
29
<PAGE>
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 requirement has
effectively been increased to 4.0%. (See Prompt Corrective Action
Regulations.)
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 the general
allowance for loan and lease losses. The general allowance for loan and
lease losses allowable in supplementary capital is limited to a maximum
of 1.25% of risk-adjusted assets.
30
<PAGE>
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, 1997. As of September 30, 1997, the Bank exceeded all of
its regulatory capital requirements. (See note 17 of Notes to
Consolidated Financial Statements contained in the 1997 Annual Report
to Shareholders, portions of which are attached as Exhibit 13.)
31
<PAGE>
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 CAMELS rating). A
savings institution that has a ratio of total capital to risk-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. At
September 30, 1997, the Bank is considered "well capitalized" under the
prompt corrective action regulations.
INSURANCE OF DEPOSIT ACCOUNTS. Approximately 82% 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.
32
<PAGE>
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. The one-time assessment was paid in the first quarter
of fiscal year 1997.
As a result of the Funds Act, and the one-time assessment, the deposit
insurance premium for SAIF members was reduced, effective January 1,
1997, 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 reduced the assessment rate for SAIF members to 18
to 27 basis points for the quarter ending December 31, 1996, the amount
necessary to cover the Financing Corporation ("FICO") obligations.
Effective January 1, 1997, SAIF deposits are also assessed 6.3 basis
points, and BIF deposits are 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 has seen a decrease in 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 proposals to eliminate the
-------------------------------
Federal thrift charter, create a uniform financial institutions charter
and abolish the OTS have been introduced in Congress. The bills would
require Federal savings institutions to convert to a national bank or
some type of state charter by a specified date under some bills, or
they would automatically become national banks. Under some proposals,
converted Federal thrifts would generally be required to conform their
activities to those permitted for the charter selected and divestiture
of nonconforming assets would be required over a two year period,
subject to two possible one year extensions. State chartered thrifts
would become subject to the same Federal regulation as applies to state
commercial banks. A more recent bill passed by the House Banking
Committee would allow savings institutions to continue to exercise
activities being conducted when they convert to a bank regardless of
whether a national bank could engage in the activity. Holding companies
for savings institutions would become subject to the same regulation as
holding companies that control commercial banks, with a limited
grandfather provision for savings and loan holding company activities.
The Bank is unable to predict whether such legislation would be enacted
or the extent to which the legislation would restrict or disrupt its
operations.
33
<PAGE>
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, 1997, the maximum amount which
Home Federal could loan to one borrower (and related entities) under
the limit was approximately $27.6 million. At September 30, 1997, the
Bank's largest aggregate amount of loans to one borrower was $16.9
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, 1997, the Bank met the test with qualified thrift
investments equal to approximately 83.6% 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 1 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 1
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).
34
<PAGE>
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 at September 30, 1997 was 5%. OTS regulations also
require each member institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (1% at September 30,
1997) 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 5.2% and 2.2%, 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. Effective November 1997, the
OTS lowered its liquidity requirement from 5% to 4% and eliminated the
1% short-term liquid asset 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 1997
was approximately $.5 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.
35
<PAGE>
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.
36
<PAGE>
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 $54.1 million at
September 30, 1997. 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, 1997 dividends from the
FHLB-NY to the Bank amounted to $2.6 million, or 3.2%, 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 $49.3 million
or less (subject to annual adjustment by the FRB) and reserves of $1.5 million
plus 10% (subject to adjustment by the FRB between 8% and 14%) against that
portion of net transaction accounts in excess of $49.3 million. The first $4.4
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.
37
<PAGE>
TAXATION
- --------
FEDERAL. New York Bancorp files a calendar year consolidated Federal
-------
income tax return with Home Federal and its subsidiaries, 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 year 1994.
Hamilton used the percentage of taxable income method for 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 is no longer
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.
38
<PAGE>
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 (no surcharge for tax years ending after
June 30, 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 1996,
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 and New York City tax laws have been amended
to generally 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 New York State
and New York City tax liability. The percentage of the taxable income
method is allowed if the Bank maintains at least 60% of its total
assets in qualifying assets, as defined. If the Bank fails to meet the
qualifying assets test, it would be required to recapture the reserves
established after December 31, 1995, the base year, which amounted to
approximately $16 million as of December 31, 1996. The Bank has not
provided any deferred taxes for these tax bad debt reserves as the Bank
has met, and continues to meet, the qualifying asset requirement.
Additionally, all existing tax bad debt reserves for New York State and
New York City, amounting to approximately $85 million as of December
31, 1996, would be subject to recapture under certain conditions,
including the merger of the Bank into a commercial bank, such as North
Fork.
39
<PAGE>
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.
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 49 First Vice President, Treasurer
Robert J. Anrig 49 First Vice President, Commercial Lending
Carmine Bracco 59 First Vice President, EDP and Operations
Joseph P. Bryant 50 First Vice President, Residential Lending
Dennis Hodne 51 First Vice President, Retail Banking
Richard F. Rothschild 50 First Vice President, Marketing
Edward J. Steube 53 First Vice President, Business Development
Terrence S. Walsh 50 First Vice President, Multifamily Lending
</TABLE>
George J. Amentas has been First Vice President, Treasurer of the Company and
the Bank since November 1996. 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, Commercial Lending of the Company
and the Bank since May 1992. Prior 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. Prior to December 1993,
Mr. Bracco served at National Westminster Bank as Senior Vice President,
Financial Services.
Joseph P. Bryant has been First Vice President, Residential Lending of the
Company and the Bank since August 1997. From November 1993 to August 1997, Mr.
Bryant served as Executive Vice President-Chief Mortgage Officer at The Long
Island Savings Bank. Prior to this, Mr. Bryant served as Senior Vice President
at Prudential Residential Services Co.
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. Prior to January 1995, Mr. Hodne served as Senior Vice President, Retail
Banking for Hamilton Federal Savings, F.A.
Richard F. Rothschild has been First Vice President, Marketing of the Company
and the Bank since October 1995. Previously, he served as First Vice President,
Banking Services of the Company and the Bank.
40
<PAGE>
Edward J. Steube has been First Vice President, Business Development of the
Company and the Bank since September 1992.
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.
41
<PAGE>
ITEM 2 - PROPERTIES
The Bank conducts its business through thirty-one 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, 1997. The total net book value of the Bank's premises
and equipment at September 30, 1997 was $12.7 million.
<TABLE>
<CAPTION>
Date Lease Net
Owned Leased Expiration Book Value
or or Including at
Location Leased Acquired Options Sept. 30, 1997
- -------- ------ -------- --------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Branch Offices:
70-01 Forest Avenue, Ridgewood, NY (1)........... Owned 1949 -- $ 1,111
70-24 Myrtle Avenue, Glendale, NY................ Owned 1976 -- 457
83-24 Woodhaven Blvd., Glendale, NY.............. Leased 1991 2011 690
155-14 Cross Bay Blvd., Howard Beach, NY......... Leased 1974 1999 184
248-40 Northern Blvd., Little Neck, NY........... Owned 1963 -- 303
145-15 243rd Street, Rosedale, NY................ Owned 1961 -- 263
7401 13th Avenue, Brooklyn, NY................... Owned 1979 -- 921
413 86th Street., Brooklyn, NY (1)............... Owned 1948 -- 563
9502 3rd Avenue, Brooklyn, NY.................... Leased 1991 2000 71
420 Court Street, Brooklyn, NY................... Owned 1930 -- 609
2123 Avenue U, Brooklyn, NY...................... Leased 1990 1998 60
179 Avenue U, Brooklyn, NY....................... Owned 1973 -- 216
6501 11th Avenue, Brooklyn, NY................... Owned 1976 -- 798
1710 Avenue Y, Brooklyn, NY...................... Leased 1996 2016 230
195 Rockaway Avenue, Valley Stream, NY........... Leased 1974 1999 68
210 Mineola Blvd., Mineola, NY (1)............... Leased 1992 2007 277
41 Forest Avenue, Glen Cove, NY.................. Leased 1992 2007 443
35 Merrick Avenue, Merrick, NY................... Owned 1978 -- 523
77 Lincoln Avenue, Rockville Centre, NY.......... Leased 1992 2007 191
155 East Main Street, Huntington, NY............. Owned 1992 -- 483
143 Alexander Avenue, Lake Grove, NY............. Leased 1992 2015 105
46 E. Hoffman Avenue, Lindenhurst, NY............ Leased 1994 2009 94
800 Montauk Highway, Shirley, NY................. Leased 1992 2000 137
356 Middle Country Road, Coram, NY............... Leased 1992 2003 99
62 South Ocean Avenue, Patchogue, NY (1)......... Owned 1992 -- 994
366 Route 25A, Rocky Point, NY................... Leased 1992 2003 37
43 Main Street, Westhampton Beach, NY............ Owned 1992 -- 389
1730 Veterans Memorial Highway, Islandia, NY..... Leased 1995 2000 198
985 Richmond Avenue, Staten Island, NY........... Leased 1995 2000 153
Nichols Road, Stony Brook, NY.................... Leased 1997 2002 194
158 Route 25A, Setauket, NY...................... Leased 1997 2002 285
Loan Production Offices:
241-02 Northern Blvd., Douglaston, NY............ Leased 1989 1999 168
One Depot Plaza, Mamaroneck, NY.................. Leased 1986 1997 15
100 Jericho Quadrangle, Jericho, NY.............. Leased 1996 2002 252
Executive Office:
241-02 Northern Blvd., Douglaston, NY............ Leased 1989 1999 659
Operations Center:
100 Jericho Quadrangle, Jericho, NY (1).......... Leased 1993 2002 471
---------
$ 12,711
=========
</TABLE>
(1) Loan Centers are also located at these locations.
42
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
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 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.
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 1997 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information contained on page 9 of the 1997 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 1997 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.
43
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Independent Auditors' Report appearing on pages
21 through 48 of the 1997 Annual Report to Shareholders are incorporated herein
by reference and is contained herein as Exhibit 13.
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 following table sets forth, as of December 1, 1997, the names of and certain
other information concerning the directors and certain executive officers,
including the amount and percent of Common Stock beneficially owned by each
individual and all directors and executive officers as a group. Ownership
information is based upon information furnished by the individuals listed in the
table.
<TABLE>
<CAPTION>
Ownership
Expiration Amount and Nature as a
of Term of Beneficial Percent
Name, Age and Business Experience Director as Ownership of of
For Past Five Years Since Director Common Stock (1) Class
- --------------------------------- -------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Josiah T. Austin; Age 50 1996 1999 2,530,733 (2) (3) 11.83%
Director of the Bank since 1995.
Rancher and Investor. Owner and operator of
the El Coronado Ranch and Cattle Co.
Stan I. Cohen; Age 42 1995 1998 257,810 (4) 1.20%
Director of the Bank since 1995. Senior Vice
President, Controller and Secretary of the
Company and Bank since 1991 and Senior Vice
President, Chief Financial Officer and Secretary
of the Bank since 1993. Mr. Cohen is a
certified public accountant.
Geraldine A. Ferraro; Age 62 1993 2000 49,500 (5) .23%
Director of the Bank since 1993. TV Co-Host
"Crossfire" for CNN. Partner in the
CEO Perspective Group, a
consulting firm, since August 1996. Attorney,
author and lecturer. Candidate for U. S.
Senate in 1992 and U. S. Vice Presidential
Candidate in 1984.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Ownership
Expiration Amount and Nature as a
of Term of Beneficial Percent
Name, Age and Business Experience Director as Ownership of of
For Past Five Years Since Director Common Stock (1) Class
- --------------------------------- -------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Peter D. Goodson; Age 55 1991 2000 -- --
Director of the Bank since 1991. President
of the Goodson Family Foundation,
serving youth at risk, since July 1992.
Formerly, a Principal of Clayton,
Dubilier & Rice, Inc., an industrial
investment firm engaged in purchasing and
managing businesses. Prior thereto, Mr.
Goodson was a member of the Management
Committee and a Managing Director of Kidder,
Peabody & Co., Incorporated.
John E. D. Grunow, Jr.; Age 51 1992 1998 109,500 (6) .51%
Director of the Bank since 1992. President and
Chairman of the Board of The Grunow Group
Capital Management, Inc., a firm providing
investment banking services. Previously, Mr.
Grunow was Chief Executive Officer and
Chairman of the Board of International Marine
Holdings, Inc., a marine equipment and
accessories firm. Mr. Grunow is a certified
public accountant.
Patrick E. Malloy, III; Age 55 1990 1999 2,803,664 (2) (7) 12.90%
Chairman of the Board of the Company since
October 1991. Director of the Bank since 1991.
Chairman of the Bank since
January 1992. President of Malloy Enterprises,
Inc., a real estate and
investment firm.
Michael A. McManus, Jr.; Age 54 1990 1999 586,107 (2) (8) 2.70%
Director of the Bank since 1991 and Vice
Chairman of the Bank since October 1991.
President and Chief Executive Officer
of the Company since October 1991 and
President and Chief Executive Officer of
the Bank since March 1995. Director of
Arrhythmia Research & Technology Inc.,
Document Imaging Systems Corp., National
Wireless Holdings, Inc., and the United
States Olympic Committee.
Walter R. Ruddy; Age 74 1987 1999 47,374 (9) .22%
Director of the Bank since 1967 and Vice
Chairman of the Bank since October 1991.
Retired former Administrative Engineering
Manager of Facilities at the Swiss Bank Corp.,
New York Branch.
Gene A. Washington; Age 50 1996 1998 49,500 (6) .23%
Director of the Bank since 1996. Director of
Football Development for the National Football
League since 1993. Prior to joining the National
Football League was Assistant Athletic Director
at Stanford University.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Ownership
Expiration Amount and Nature as a
of Term of Beneficial Percent
Name, Age and Business Experience Director as Ownership of of
For Past Five Years Since Director Common Stock (1) Class
- --------------------------------- -------- ---------- ----------------- ----------
NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<S> <C> <C> <C> <C>
Robert J. Anrig; Age 49 -- -- 13,491 (10) .06%
First Vice President, Commercial Lending of the
Company and the Bank.
Edward Steube; Age 53 -- -- 33,115 (11) .16%
First Vice President, Business Development of
the Company and the Bank.
All nominees, directors and executive officers as -- -- 6,600,386 (12) 29.39%
a group (seventeen persons)
</TABLE>
(1) Unless otherwise indicated, each person effectively exercises sole (or
shares with spouse) voting and dispositive power as to shares reported.
(2) See Item 12 Security Ownership of Certain Beneficial Owners.
(3) Includes 49,500 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans for
Outside Directors. Does not include 27,949 shares of Common Stock that are
beneficially owned by the Clark Family Foundation, Inc. and 7,800 shares of
Common Stock that are beneficially owned by three separate trusts for which
Valer and Josiah T. Austin each serves as a trustee and for which they
disclaim beneficial ownership.
(4) Includes 138,858 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans.
(5) Includes 36,167 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans for
Outside Directors .
(6) Includes 49,500 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans for
Outside Directors.
(7) Does not include 117,442 shares held by two separate trusts established for
the benefit of Mr. Malloy's children, as to which Mr. Malloy disclaims
beneficial ownership. Includes 389,866 shares which may be acquired
pursuant to presently exercisable stock options under the Company's stock
option plans.
(8) Includes 164 shares held in his name as custodian for his son. Includes
340,326 shares which may be acquired pursuant to presently exercisable
stock options under the Company's stock option plans.
(9) Does not include 18,546 shares owned by Mr. Ruddy's wife and 7,380 shares
owned by Mr. Ruddy's children and grandchildren, as to all of which Mr.
Ruddy disclaims beneficial ownership.
(10) Includes 7,333 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans.
(11) Includes 8,667 shares which may be acquired pursuant to presently
exercisable stock options under the Company's stock option plans.
(12) Includes 5,490,320 shares owned by the directors and executive officers and
1,130,066 shares which may be acquired by the directors and executive
officers pursuant to presently exercisable stock options under the
Company's stock option plans.
46
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
- -----------------------
Directors' Fees
- ---------------
Directors who are officers of the Company or the Bank are not paid an additional
fee for their services as directors or attendance at meetings of the Board of
the Company or the Bank or committees thereof. During the fiscal year ended
September 30, 1997, Directors of the Company and Bank received an annual fee of
$18,000 and $500 for each Board and Committee meeting attended.
Directors' Stock Option Plans
- -----------------------------
The Board of Directors of the Company has adopted the New York Bancorp Inc. 1993
Stock Option Plan for Outside Directors (the "Directors' Option Plan"), which
provides for the automatic one-time grant of non-statutory stock options to
purchase 49,500 shares of Common Stock at the fair market value on the date of
grant to each outside director who did not serve as a member of the Board prior
to December 31, 1992. The exercise price per share of each option is the fair
market value of the shares of Common Stock on the date the option is granted
(which is the date an eligible director is first elected to the Board). Options
become exercisable one year from the date of grant and expire upon the earlier
of five years following the date of grant or one month following the date the
optionee ceases to serve as a director for any reason other than removal for
cause.
47
<PAGE>
Executive Compensation
- ----------------------
Summary Compensation Table
The following table sets forth the compensation paid by the Company and
its wholly-owned subsidiary for services rendered during the fiscal years ended
September 30, 1997,1996, and 1995, to the Chief Executive Officer and the four
highest paid executive officers who received salary and bonus in excess of
$100,000 in fiscal year 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long- Term
Annual Compensation Compensation
----------------------------------------- ----------------------------------------
Other Securities
Annual Restricted Underlying All Other
Name and Salary Bonus Compen- Stock Options/ Compen-
Principal Position Year $(1) $(2) sation $(3) Awards ($) SARs#(4) sation $(5)
- ----------------------- ----- ---------------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. McManus, Jr. 1997 $ 320,650 $ 515,000 -- -- --- $ 36,161
President, Chief 1996 291,500 425,000 -- -- 68,000 35,825
Executive 1995 265,000 369,000 -- -- 112,000 31,722
Officer
Patrick E. Malloy, III 1997 225,000 515,000 -- -- -- 29,615
Chairman of the Board 1996 150,000 425,000 -- -- 68,000 28,749
1995 125,000 369,000 -- -- 112,000 24,719
Stan I. Cohen 1997 199,650 355,000 -- -- -- 24,284
Senior Vice President, 1996 181,500 300,000 -- -- 40,000 24,075
Controller, Secretary 1995 165,000 213,000 -- -- 70,000 18,916
Edward J. Steube 1997 139,926 110,000 -- -- 9,333 12,840
First Vice President 1996 135,850 120,000 -- -- 10,000 12,792
Business Development 1995 130,000 95,000 -- -- 16,000 11,260
Robert J. Anrig 1997 146,687 35,000 -- -- 8,667 5,216
First Vice President, 1996 142,415 25,000 -- -- 10,000 3,687
Commercial Lending 1995 136,282 25,000 -- -- 12,000 3,879
</TABLE>
(1) Includes amounts deferred by the individual pursuant to the Bank's 401(k)
Plan and Deferred Compensation Plan.
(2) Includes bonuses awarded pursuant to the Bank's incentive bonus plan.
(3) For fiscal year 1997, there were no (a) perquisites amounting to the lesser
of $50,000 or 10% of the individual's total salary and bonus for the year;
(b) payments of above market or preferential earning on deferred
compensation; (c) payments of earnings with respect to long term incentive
plans prior to settlement or maturity; (d) tax payment reimbursements; or
(e) preferential discounts on stock.
(4) The Company maintains various stock option and long-term incentive plans
which provide for the award of stock options and stock appreciation rights.
See "Stock Option Plans."
(5) Includes amounts contributed by the Bank on behalf of the named individuals
pursuant to the Bank's 401(k) Plan and Executives Supplemental Benefits
Plan. Such amounts were $4,750 and $31,411 for Mr. McManus; $4,750 and
$24,865 for Mr. Malloy; $4,750 and $19,534 for Mr. Cohen; $4,750 and $8,090
for Mr. Steube; and $4,750 and $466 for Mr. Anrig.
48
<PAGE>
Stock Option Plans
The Company maintains several stock option plans which provide for
discretionary option awards to officers and key employees of the Company and
Bank as determined by the Compensation Committee. The following table lists all
grants of options under such plans to the Named Executive Officers for fiscal
year 1997 and contains certain information regarding potential value of those
options based upon certain assumptions as to the appreciation of the Company's
stock over the term of the option.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (3)
- ----------------------------------------------------------------------------------------- ----------------------------
Percentage of
Number of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted #(1) Fiscal Year $/share (2) Date 5%$ 10%$
- ----------------- ------------------- --------------- --------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. McManus, Jr. -- -- -- -- -- --
Patrick E. Malloy, III -- -- -- -- -- --
Stan I. Cohen -- -- -- -- -- --
Edward J. Steube 9,333 7.91% $23.44 02/27/07 $137,566 $348,619
Robert J. Anrig 8,667 7.34 23.44 02/27/07 127,749 323,741
</TABLE>
(1) Options granted to Named Executive Officers vest 33 1/3 per cent per annum
commencing February 27, 1998, and are for a term of ten years. All options
become 100% exercisable upon death, disability, retirement or a change in
control of the Company or Bank, as defined under the plans. In addition, the
vesting of non-statutory stock options may be accelerated by the
Compensation Committee.
(2) The purchase price may be made in whole or in part through the
surrender of previously held shares of Common Stock.
(3) The amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall market
conditions. There can be no assurance that the amounts reflected in this
table will be realized.
49
<PAGE>
The following table shows options and SARs exercised by the Named Executive
Officers during fiscal year 1997, including the aggregate value of gains
realized on the date of exercise. Also reported are the number of shares of
Common Stock represented by outstanding stock options held by the Named
Executive Officers as of September 30, 1997, and values for "in-the-money"
options and SARs, which represent the positive spread between the year-end
market value of the Common Stock and the exercise price of any existing stock
options.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/
SAR Values:
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year-End # at Fiscal Year End $ (2)
-------------------- ------------------------
Number
of Shares/SARs
Acquired
on Value Exercisable/ Exercisable/
Name Exercise Realized $(1) Unexercisable Unexercisable
---- ------------------ ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. McManus, Jr. 11,137 / $ 109,886 / 302,328 / 82,669 $ 6,554,346 / 1,604,462
98,800 1,926,278 20,000 / -- 465,410 / --
Patrick E. Malloy, III 22,667 / 296,088 / 351,866 / 82,667 7,887,059 / 1,604,424
118,800 2,192,810
Stan I. Cohen 11,140 / 110,960 / 114,853 / 50,005 2,341,418 / 972,183
39,600 719,799
Edward J. Steube 8,250 / 87,825 / 16,199 / 21,334 327,468 / 295,434
-- --
Robert J. Anrig 14,658 / 195,291 / -- / 19,334 -- / 263,758
-- --
</TABLE>
(1) Represents the difference between the fair market value on the date of
exercise and the exercise price.
(2) Represents the difference between the market value of the underlying
Common Stock of $29.9375 per share at September 30, 1997 and a weighted
average exercise/base price of $8.26 per share for exercisable options,
$10.53 per share for unexercisable options, and $6.67 for SARs for Mr.
McManus; $7.52 per share for exercisable options, and $10.53 per share for
unexercisable options for Mr. Malloy; $9.55 per share for exercisable
options, and $10.50 per share for unexercisable options for Mr. Cohen; $0
per share for exercisable options and $16.30 per share for unexercisable
options for Mr. Anrig; and $9.72 per share for exercisable options and
$16.09 per share for unexercisable options for Mr. Steube.
50
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of December 1, 1997, as
to those persons or groups who are beneficial owners of more than 5% of the
Company's Common Stock. The information below is based on the most recent filing
with the Securities and Exchange Commission (the "SEC") by such persons or
groups and upon information otherwise made known to the Company. Other than
those persons listed below, the Company is not aware of any person or group that
owns more than 5% of the Common Stock as of December 1, 1997.
<TABLE>
<CAPTION>
Name and Address Amount and Percent
of Beneficial Owner Nature of Ownership (1) of Class
------------------- ----------------------- --------
<S> <C> <C>
Patrick E. Malloy, III 3,389,771 (2) (3) 15.35%
Michael A. McManus, Jr.
c/o Malloy Enterprises, Inc.
Bay Street at Waterfront
Sag Harbor, New York 11963
Valer and Josiah T. Austin 2,530,733 (4) 11.83%
El Coronado Ranch
Star Route Box 395
Pearce, Arizona 85625
</TABLE>
(1) Unless otherwise indicated, each person effectively exercises sole voting
and dispositive power as to shares reported.
(2) Mr. Malloy beneficially owns and has sole power to vote and dispose of
2,803,664 shares. Does not include 117,442 shares held by two separate
trusts established for the benefit of Mr. Malloy's children, as to which
Mr. Malloy disclaims beneficial ownership. Mr. McManus beneficially owns
and has sole power to vote and dispose of 585,943 shares as well as 164
shares held in his name as custodian for his son. Messrs. Malloy and
McManus each disclaims beneficial ownership of the shares of Common Stock
beneficially owned by the other.
(3) Includes 389,866 shares which may be acquired by Mr. Malloy pursuant to the
Company's stock option plans. Also included are 340,326 shares which may be
acquired by Mr. McManus pursuant to the Company's stock option plans.
(4) Mr. And Mrs. Austin beneficially own and have shared power to vote and
dispose of 2,481,233 shares. Includes 49,500 shares which may be acquired
by Mr. Austin pursuant to the Company's stock option plans for Outside
Directors. Does not include 27,949 shares of Common Stock that are
beneficially owned by the Clark Family Foundation, Inc. and 7,800 shares of
Common Stock that are beneficially owned by three separate trusts for which
Valer and Josiah T. Austin each serves as a trustee and for which they
disclaim beneficial ownership.
51
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has made loans to its directors, officers and parties related to them.
All loans to directors and officers were made in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
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, 1997, portions of which are
attached as an exhibit to this report:
- Consolidated Statements of Financial Condition at September 30,
1997 and 1996
- Consolidated Statements of Income for each of the years in the
three-year period ended September 30, 1997
- Consolidated Statements of Changes in Shareholders' Equity for
each of the years in the three-year period ended September 30,
1997
- Consolidated Statements of Cash Flows for each of the years in
the three-year period ended September 30, 1997
- 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.
52
<PAGE>
(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(9)
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, 1997 incorporated herein by reference
21 Subsidiaries of New York Bancorp Inc.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(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
(9) Incorporated be reference to Exhibits filed with New York Bancorp Inc.'s
1996 Form 10-K
(b) REPORTS ON FORM 8-K
-------------------
A Form 8-K was filed with the Securities and Exchange Commission on
October 15, 1997 concerning the Company entering into a definitive merger
agreement with North Fork whereby the Company will be merged with and into
North Fork. A copy of the merger agreement was included as Exhibit 2.1 to
the Form 8-K.
A Form 8-K was filed with the Securities and Exchange Commission on
October 29, 1997 concerning issuance of a press release announcing
earnings for the fourth quarter and year ended September 30, 1997. A copy
of the press release was included as Exhibit 99 to the Form 8-K.
53
<PAGE>
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 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on December 22, 1997 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/ Gene A. Washington
-------------------------------- ---------------------------
Geraldine A. Ferraro Gene A. Washington
Director Director
/s/ Peter D. Goodson
--------------------------------
Peter D. Goodson
Director
54
NEW YORK BANCORP INC.
241-02 Northern Boulevard
Douglaston, New York 11362
Form 10-K
September 30, 1997
<TABLE>
<CAPTION>
Exhibit 11. Statement re: Computation of Per Share Earnings (1)(2)
For the Year Ended
September 30,
-----------------------------------
1997 1996 1995
----- ------ ----
(In Thousands, except
per share amounts)
<S> <C> <C> <C>
Net income....................................................... $ 51,211 $ 32,006 $ 11,562
=========== ========== ==========
Weighted average common shares outstanding....................... 21,887 23,298 25,982
Common stock equivalents due to dilutive
effect of stock options......................................... 920 590 674
----------- ---------- ----------
Total weighted average common shares and
equivalents outstanding......................................... 22,807 23,888 26,656
=========== ========== ==========
Primary earnings per share....................................... $ 2.25 $ 1.34 $ .43
=========== ========== ==========
</TABLE>
(1) Earnings per common share have been calculated to fully reflect the 4-for-3
stock split effective July 24, 1997 and the 3-for-2 stock split effective
January 23, 1997.
(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.
SELECTED
CONSOLIDATED
FINANCIAL &
OTHER DATA
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income........................... $ 238,849 $ 207,491 $ 196,972 $ 175,530 $ 160,752
Interest expense.......................... 120,633 106,746 101,730 79,948 71,385
------------ ------------ ------------ ------------ ------------
Net interest income..................... 118,216 100,745 95,242 95,582 89,367
Provision for possible loan losses........ (2,100) (1,200) (1,700) (2,650) (4,700)
------------ ------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses............... 116,116 99,545 93,542 92,932 84,667
------------ ------------ ------------ ------------ ------------
Non-interest income:
Loan fees and service charges........... 2,941 2,770 2,566 3,292 3,341
Banking service fees.................... 6,564 5,323 3,944 3,108 3,753
Fees from sale of investment products... 1,814 1,376 617 615 536
Net gain (loss) on the sales of mortgage
loans and securities available for sale 2,681 4,750 (1,088) 214 3,857
Net loss on financial futures
transactions........................... -- -- -- -- (495)
Other................................... 4,753 448 573 771 192
------------ ------------ ------------ ------------ ------------
Total non-interest income ............ 18,753 14,667 6,612 8,000 11,184
------------ ------------ ------------ ------------ ------------
General and administrative expenses....... 50,049 47,535 48,968 50,845 48,455
------------ ------------ ------------ ------------ ------------
Merger and restructuring expense.......... -- -- 19,024 -- --
------------ ------------ ------------ ------------ ------------
Real estate operations, net............... 924 463 883 880 1,296
------------ ------------ ------------ ------------ ------------
SAIF recapitalization expense............. -- 9,432 -- -- --
------------ ------------ ------------ ------------ ------------
Income before income tax expense
and cumulative effect of
change in accounting principle........... 83,896 56,782 31,279 49,207 46,100
Income tax expense ....................... (32,685) (24,776) (19,717) (21,740) (20,912)
Cumulative effect of change in
accounting for income taxes.............. -- -- -- 5,685 --
------------ ------------ ------------ ------------ ------------
Net income ............................... $ 51,211 $ 32,006 $ 11,562 $ 33,152 $ 25,188
============ ============ ============ ============ ============
Earnings per common share(2):
Income before cumulative effect
of change in accounting principle...... $ 2.25 $ 1.34 $ .43 $ 1.01 $ N/M (4)
Net income.............................. $ 2.25 $ 1.34 .43 $ 1.22 $ N/M (4)
Book value per share(2)................... $ 7.93 $ 6.84 $ 6.44 $ 6.48 $ 5.87
Dividends per share(2), (3)............... $ .53 $ .40 $ .40 $ .39 $ .32
Dividend payout ratio(2), (3)............. 23.33% 29.85% 76.92% 24.84% 29.36%
</TABLE>
9-a
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
& OTHER DATA
(CONT'D)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.............................. $ 3,244,200 $ 2,940,907 $ 2,731,592 $ 2,583,982 $ 2,250,605
First mortgage loans, net................. 1,770,995 1,586,046 1,370,175 1,134,882 1,078,960
Other loans, net.......................... 249,421 267,116 294,768 297,472 309,457
Loans receivable, net................... 2,020,416 1,853,162 1,664,943 1,432,354 1,388,417
Mortgage-backed securities held
to maturity............................. 644,247 550,817 664,726 785,593 439,605
Mortgage-backed securities available
for sale................................. 334,641 280,429 206,794 171,983 234,236
Debt securities held to maturity.......... 593 643 21,179 52,984 4,662
Debt and equity securities
available for sale....................... 107,150 136,133 46,273 180 --
Federal Home Loan Bank stock.............. 54,119 27,938 20,288 17,409 21,734
Money market investments.................. -- 10,700 13,915 21,844 77,261
Trading account securities................ -- -- 2,003 12,939 12,487
Deposits.................................. 1,684,419 1,715,959 1,748,874 1,791,514 1,758,102
Borrowed funds............................ 1,253,931 1,008,786 767,138 578,897 293,693
Shareholders' equity...................... 169,063 151,903 156,386 171,291 153,769
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
SELECTED FINANCIAL RATIOS & OTHER DATA:
Return on average assets.................. 1.64% 1.16% .44% 1.35% 1.16%
Return on average shareholders' equity.... 31.48 20.26 6.81 20.13 18.74
Shareholders' equity to assets............ 5.21 5.17 5.73 6.63 6.83
Net interest rate spread.................. 3.62 3.47 3.43 3.73 3.99
Net interest margin....................... 3.85 3.71 3.68 3.95 4.23
Efficiency ratio.......................... 38.57 42.96 47.57 49.19 49.86
Nonaccrual loans and real estate owned,
net, as a percentage of total assets..... .58 .98 1.18 1.64 2.02
Allowance for possible loan losses as
a percentage of nonaccrual loans......... 106.59 75.87 70.04 70.23 69.02
Average interest-earning assets to
average interest-bearing liabilities..... 105.83 105.86 106.47 106.82 107.04
CUSTOMER SERVICE FACILITIES:
Full service.............................. 31 29 27 26 26
Loan production offices................... 7 7 6 6 6
Executive office.......................... 1 1 1 1 1
</TABLE>
(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 4-for-3 stock
split effective July 24, 1997, the 3-for-2 stock split effective January
23, 1997 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.
9-b
<PAGE>
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 October 7,1997, New York Bancorp signed a definitive merger agreement with
North Fork Bancorporation, Inc. ("North Fork") whereby the Company will be
merged with and into North Fork. Under the terms of the agreement, each share of
the Company outstanding at the time of the merger will be converted into 1.19
shares of North Fork common stock. The transaction, which is expected to be
completed during the first quarter of calendar year 1998, is subject to approval
by the shareholders of both the Company and North Fork, the approval of the
appropriate regulatory authorities, as well as the satisfaction of certain other
conditions. The merger is expected to be accounted for as a pooling of
interests.
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 1997 New York Bancorp continued its stock repurchase
program by repurchasing 1,169,284 shares of its common stock, bringing the total
number of Treasury shares to 8,174,522 and the total number of outstanding
common shares to 21,318,644 at September 30, 1997. The Company's stock
repurchase program has been terminated in connection with the execution of the
Company's merger agreement with North Fork.
EARNINGS SUMMARY
New York Bancorp earned net income of $51.2 million, or $2.25 per share, for the
year ended September 30, 1997, representing a 31.48% return on average
stockholders' equity. Net income for the year ended September 30, 1996 amounted
to $32.0 million, or $1.34 per share, which included 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 $1.57 per share, representing a 23.69% return on average
stockholders' equity.
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,
10-a
<PAGE>
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 2.85% at September 30, 1996 to a negative 8.20% at September 30,
1997, reflecting the Company's recent strategy to fund loan originations with
short-term low cost wholesale liabilities.
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 generally would 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, 1997, 57.4% of
such interest-earning assets were adjustable rate assets, and the average lives
of the fixed rate REMIC securities was approximately 4.2 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.
At September 30, 1997, the mortgage-backed securities portfolios had an
estimated average life of approximately 4.3 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 5.9 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, 1997, the
Bank's portfolios of mortgage-backed securities represented 30.2% 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.
10-b
<PAGE>
At September 30, 1997, 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 7.50%,
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, 1997, three month LIBOR was 5.77%.
During the years ended September 30, 1997 and 1996, the Bank was a party to $600
million of interest rate swap arrangements to extend the maturity of its
liabilities in order to create a more consistent and predictable interest rate
spread. These arrangements provided for the Bank to pay a fixed rate of interest
while receiving a floating rate. These arrangements matured during the third
quarter of fiscal year 1997.
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, 1997, the amount of the unamortized gain was $1.2
million.
At September 30, 1997, 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 such small quantities of 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, 1997 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-a
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1997
------------------------------------------------------------------------------------------------
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). $ 433,837 $ 339,536 $ 498,221 $ 388,862 $ 65,110 $ 62,465 $ 1,788,031 8.32%
Other loans(1).......... 81,252 84,396 35,849 25,259 2,907 21,417 251,080 8.65
Mortgage-backed
securities(2) ......... 143,876 108,570 308,872 201,576 215,519 475 978,888 6.95
Debt and equity securities 65,586 42 167 41,756 192 -- 107,743 6.15
Federal Home Loan Bank
stock.................. 54,119 -- -- -- -- -- 54,119 6.75
----------- ----------- ----------- ---------- ---------- --------- -------------
Total interest-earning
assets............. 778,670 532,544 843,109 657,453 283,728 84,357 3,179,861 7.82
----------- ----------- ----------- ---------- ---------- --------- -------------
INTEREST-BEARING LIABILITIES:
Demand and NOW
accounts(3)............ 4,819 4,819 17,861 16,108 149,211 -- 192,818 .77
Money market deposit
accounts(3)............ 22,386 22,386 53,265 26,092 25,071 -- 149,200 2.82
Passbook savings and
club accounts(3)....... 68,465 68,465 197,173 126,201 224,363 -- 684,667 2.33
Certificate accounts.... 276,456 197,508 153,560 29,061 1,149 -- 657,734 4.98
Borrowed funds(4)....... 906,623 -- 368,081 39,992 -- -- 1,314,696 5.86
----------- ----------- ----------- ---------- ---------- --------- -------------
Total interest-bearing
liabilities........ 1,278,749 293,178 789,940 237,454 399,794 -- 2,999,115 4.38
----------- ----------- ----------- ---------- ---------- --------- -------------
Interest sensitivity gap
per period............... (500,079) 239,366 53,169 419,999 (116,066) 84,357
----------- ----------- ----------- ---------- ---------- ---------
Cumulative interest
sensitivity gap.......... $ (500,079) $ (260,713) $ (207,544) $ 212,455 $ 96,389 $ 180,746
=========== =========== =========== ========== ========== =========
Cumulative gap as a
percent of total interest-
earning assets........... (15.73)% (8.20)% (6.53)% 6.68% 3.03% 5.68%
======= ======= ======= ======= ======= ========
Cumulative net interest-
sensitive assets as a
percent of interest-
sensitive liabilities.... (16.67)% (8.69)% (6.92)% 7.08% 3.21% 6.03%
======= ======= ======= ======= ======= ========
</TABLE>
(1) Assumes prepayment rates ranging from 3% to 12% depending on the loan type
and interest rate. 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) Includes the amount shown in the balance sheet caption "Due to brokers".
11-b
<PAGE>
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in net
portfolio value ("NPV") over a range of interest rate change scenarios. NPV is
the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS also produces a similar analysis using its own model,
based upon data submitted on the Bank's quarterly Thrift Financial Reports, the
results of which may vary from the Company's internal model primarily due to
differences in assumptions utilized between the Company's internal model and the
OTS model, including estimated loan prepayment rates, reinvestment rates and
deposit decay rates. For purposes of the NPV table, prepayment speeds similar to
those used in the Gap table were used. The following table sets forth the
Company's NPV as of September 30, 1997.
<TABLE>
<CAPTION>
Net Portfolio Value
Changes in Net Portfolio Value as a % of Assets
Rates ---------------------------------------------- ---------------------------
in Basis Dollar Percentage Change in
Points Amount Change Change % Percentage(1)
------ ------ ------ ------ - -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
200............... $250,467 $(65,122) (20.6)% 7.8% (17.9)%
100............... 283,998 (31,591) (10.0) 8.7 (8.4)
Base case......... 315,589 -- -- 9.5 --
(100)............. 345,300 29,711 9.4 10.2 7.4
(200)............. 361,047 45,458 14.4 10.5 10.5
</TABLE>
(1) Based on the portfolio value of the Company's assets in the base case
scenario.
As in the case with the Gap table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV requires the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes that the
12-a
<PAGE>
composition of the Company's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV measurements
provide an indication of the Company's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Company's net portfolio value and will differ from actual results.
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-b
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------ ------------------------------
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..... $1,699,622 $140,248 8.25% $1,471,464 $118,792 8.07% $1,257,057 $104,042 8.28%
Other loans.............. 260,095 22,355 8.59 281,414 24,735 8.79 303,649 25,916 8.53
Mortgage-backed securities 928,569 63,790 6.87 854,660 56,921 6.66 921,198 60,331 6.55
Debt and equity
securities - taxable.... 180,190 12,435 6.90 105,190 6,774 6.44 71,158 4,877 6.85
Money market investments 386 21 5.41 4,776 256 5.36 18,845 1,080 5.73
Trading account securities -- -- .-- 220 13 5.70 12,883 726 5.63
--------------------- ------------------------ -----------------------
Total interest-earning
assets ........... 3,068,862 238,849 7.78 2,717,724 207,491 7.63 2,584,790 196,972 7.62
-------- -------- ---------
Non-interest-earning assets 61,167 47,678 43,442
----------- ----------- ----------
Total assets........... $3,130,029 $2,765,402 $2,628,232
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Deposits:
Certificate accounts... $ 672,651 33,007 4.91 $ 736,896 37,679 5.11 $ 676,290 35,703 5.28
Passbook savings and
club accounts......... 697,460 16,280 2.33 730,165 17,509 2.40 801,630 19,964 2.49
Money market
deposit accounts...... 144,331 4,310 2.99 117,363 3,357 2.86 132,187 4,054 3.07
Demand and
NOW accounts......... 183,288 1,925 1.05 159,793 1,925 1.20 148,594 2,673 1.80
--------------------- ------------------------ -----------------------
Total deposits..... 1,697,730 55,522 3.27 1,744,217 60,470 3.47 1,758,701 62,394 3.55
Borrowed funds............ 1,202,036 65,111 5.42 822,987 46,276 5.62 669,090 39,336 5.88
--------------------- ------------------------ ------------------------
Total interest-bearing
liabilities..... 2,899,766 120,633 4.16 2,567,204 106,746 4.16 2,427,791 101,730 4.19
------- ------- --------
Other liabilities......... 67,611 40,222 30,720
--------- ---------- ---------
Total liabilities.. 2,967,377 2,607,426 2,458,511
Shareholders' equity...... 162,652 157,976 169,721
--------- ---------- ---------
Total liabilities and
shareholders'
equity.......... $ 3,130,029 $ 2,765,402 $2,628,232
=========== ============ ==========
NET INTEREST INCOME/INTEREST
RATE SPREAD............... $ 118,216 3.62% $ 100,745 3.47% $ 95,242 3.43%
================ ================= =================
NET EARNING ASSETS/NET
INTEREST MARGIN........... $ 169,096 3.85% $ 150,520 3.71% $ 156,999 3.68%
=========== ===== ============ ===== ========== =====
PERCENTAGE OF INTEREST-
EARNING ASSETS TO
INTEREST-BEARING LIABILITIES 105.83% 105.86% 106.47%
======= ======= =======
</TABLE>
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.
13
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30, 1997 Year Ended September 30, 1996
Compared to Year Ended Compared to Year Ended
September 30, 1996 September 30, 1995
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.................... $ 18,776 $ 2,680 $21,456 $ 17,235 $ (2,485) $ 14,750
Other loans............................. (1,842) (538) (2,380) (1,993) 812 (1,181)
Mortgage-backed securities.............. 5,036 1,833 6,869 (4,454) 1,044 (3,410)
Debt and equity securities - taxable.... 5,144 517 5,661 2,171 (274) 1,897
Money market investments................ (237) 2 (235) (758) (66) (824)
Trading account securities.............. (13) -- (13) (722) 9 (713)
-------- --------- --------- --------- --------- ---------
Total income on interest-
earning assets........................... 26,864 4,494 31,358 11,479 (960) 10,519
-------- --------- --------- --------- --------- ---------
INTEREST EXPENSE ON INTEREST-
BEARING LIABILITIES:
Deposits:
Certificate accounts.................. (3,194) (1,478) (4,672) 3,045 (1,069) 1,976
Passbook savings and club accounts.... (771) (458) (1,229) (1,733) (722) (2,455)
Money market deposit accounts......... 800 153 953 (436) (261) (697)
Demand and NOW accounts............... 247 (247) -- 221 (969) (748)
-------- --------- --------- --------- ---------- ----------
Total deposits..................... (2,918) (2,030) (4,948) 1,097 (3,021) (1,924)
Borrowed funds.......................... 20,464 (1,629) 18,835 8,561 (1,621) 6,940
-------- --------- ---------- --------- ----------- ----------
Total expenses on interest-
bearing liabilities...................... 17,546 (3,659) 13,887 9,658 (4,642) 5,016
-------- --------- ---------- ------ -------- ---------
Net interest income........................ $ 9,318 $ 8,153 $ 17,471 $ 1,821 $ 3,682 $ 5,503
======== ========= ========= ========= ========= =========
</TABLE>
Note: Nonaccrual loans are included in the volume variances.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
GENERAL
The Company's net income for the year ended September 30, 1997 was $51.2
million, or $2.25 per share, as compared to $32.0 million, or $1.34 per share,
for the year ended September 30, 1996. 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, 1997
increased by $31.4 million, or 15.1%, to $238.8 million as compared with $207.5
million for the year ended September 30, 1996. The increase in interest income
was primarily attributable to a $351.1 million increase in average
interest-earning assets, coupled with a 15 basis point increase in yields.
Interest and fees on loans for the year ended September 30, 1997 increased by
$19.1 million, or 13.3%, to $162.6 million as compared to fiscal year 1996. The
increase in loan income reflects a $228.2 million increase in the average
balance and an 18 basis point increase in the yield on first mortgage loans
which, however, were partially offset by a $21.3 million decrease in the average
balance and a 20 basis point decrease in the yield on other loans. The increase
in the overall average balance reflects the record level of $544.4 million of
loan originations. Interest on mortgage-backed securities held to maturity and
mortgage-backed securities available for sale for the year ended September 30,
1997 increased by $6.9 million to $63.8 million as compared to fiscal year 1996.
The increase in mortgage-backed securities income reflects a $73.9 million
14-a
<PAGE>
increase in the average balance of the portfolio to $928.6 million, coupled with
a 21 basis point increase in yield to 6.87%. Interest and dividends on debt and
equity securities increased by $5.7 million for the year ended September 30,
1997 to $12.4 million as compared to fiscal year 1996. The increase in interest
and dividends on debt and equity securities reflects a $75.0 million increase in
the average balance of the portfolio to $180.2 million, coupled with a 46 basis
point increase in the yield to 6.90%. Money market investment income declined by
$.2 million, reflecting a $4.4 million decrease in the average balance of the
portfolio. The decrease in the average balance of money market investments 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, 1997, mortgage-backed securities held to maturity had
unrealized depreciation of $8.1 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, 1997 increased by $13.9 million, or 13.0%, to $120.6 million as compared
with $106.7 million for the year ended September 30, 1996. The increase in
interest expense reflects a $332.6 million increase in the average balance of
total interest-bearing liabilities to $2,899.8 million. This increase reflects
the Bank's use of higher costing borrowings to fund balance sheet growth.
However, the cost of funds for fiscal year 1997
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<PAGE>
amounted to 4.16%, the same amount as fiscal year 1996, primarily due to the
offsetting impact of the Bank's use of interest rate swaps and other off-balance
sheet instruments which decreased interest expense by $6.3 million and $3.5
million for the years ended September 30, 1997 and 1996, respectively.
Interest expense on deposits decreased $4.9 million, or 8.2%, to $55.5 million
for the year ended September 30, 1997 as compared with the year ended September
30, 1996. This decrease reflects a 20 basis point decrease in the average cost
of deposits from 3.47% in fiscal year 1996 to 3.27 % in fiscal year 1997,
coupled with a $46.5 million decrease in the average balance of deposits to
$1,697.7 million. The Bank's use of interest rate swaps and other off-balance
sheet instruments decreased the cost of deposits by 16 basis points each year.
Interest expense on borrowed funds increased $18.8 million, or 40.7%, to $65.1
million for the year ended September 30, 1997 as compared to the year ended
September 30, 1996. This increase reflects a $379.0 million increase in the
average balance of borrowed funds to $1,202.0 million which, however, was
partially offset by a 20 basis point decrease in the average cost of borrowed
funds from 5.62% in fiscal year 1996 to 5.42% in fiscal year 1997. The Bank's
use of interest rate swaps and other off-balance sheet instruments decreased the
cost of borrowed funds by 22 basis points and 14 basis points in fiscal years
1997 and 1996, respectively.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $2.1 million and $1.2 million for possible loan losses
during the years ended September 30, 1997 and 1996, respectively. The increase
in the provision for possible loan losses primarily reflects management's
assessment of events related to one nonaccrual loan (subsequently resolved) and
the increase and change in the composition of the loan portfolio. The Bank's
ratio of its allowance for possible loan losses to total nonaccrual loans
amounted to 106.6% and 75.9% at September 30, 1997 and 1996, respectively.
The Company's recorded investment in impaired loans was $4.9 million and $11.9
million at September 30, 1997 and 1996, respectively, all of which were on
nonaccrual status. Due to charge offs, or the crediting of interest payments to
principal, the loans did not have an impairment reserve at September 30, 1997
and 1996. Interest income recognized on impaired loans during each of the years
ended September 30, 1997 and 1996 amounted to approximately $.4 million, which
approximated the actual interest payments received. The average recorded
investment in impaired loans was $13.2 million and $14.5 million during the
years ended September 30, 1997 and 1996, respectively. 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
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<PAGE>
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, 1997 is sufficient to cover anticipated
losses inherent in the loan portfolios.
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
As of and For the
Year Ended September 30,
----------------------------------------
1997 1996 1995
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Allowance for possible loan losses,
beginning of year.............................................. $ 19,386 $ 21,272 $ 25,705
Charge-offs:
Commercial real estate........................................ (698) (974) (2,889)
Residential real estate....................................... (1,114) (730) (1,422)
Multifamily residential....................................... -- -- (546)
Other loans................................................... (1,148) (1,441) (1,442)
--------- ----------- ----------
Total charge-offs........................................... (2,960) (3,145) (6,299)
--------- ----------- ----------
Less recoveries:
Commercial real estate.................................... 71 -- --
Residential real estate................................... 27 -- 4
Other loans............................................... 71 59 75
--------- ----------- ----------
Total recoveries........................................ 169 59 79
--------- ----------- ----------
Net charge-offs....................................... (2,791) (3,086) (6,220)
Hamilton's net activity for the quarter
ended December 31, 1994......................................... -- -- 87
Addition to allowance, charged to expense........................ 2,100 1,200 1,700
--------- ----------- ----------
Allowance at end of year......................................... $ 18,695 $ 19,386 $ 21,272
========= =========== ==========
</TABLE>
The Bank's allowance for possible loan losses at September 30, 1997 was $18.7
million which represented 106.6% of nonaccrual loans, or .9% of total loans,
compared to $19.4 million at September 30, 1996 which represented 75.9% of
nonaccrual loans, or 1.0% of total loans.
The following table sets forth information regarding nonaccrual loans, real
estate owned, net, and restructured loans at the dates indicated:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Nonaccrual loans:
First mortgage loans:
One-to-four family conventional residential.................. $ 11,399 $ 12,092 $ 13,391
Multifamily residential...................................... 752 155 131
Commercial real estate....................................... 4,165 11,758 14,316
---------- ----------- -----------
16,316 24,005 27,838
Other loans - cooperative residential loans.................... 1,223 1,547 2,534
---------- ----------- -----------
Total nonaccrual loans..................................... $ 17,539 $ 25,552 $ 30,372
========== =========== ===========
Real estate owned, net........................................... $ 1,363 $ 3,197 $ 1,967
========== =========== ===========
Restructured loans............................................... $ 5,015 $ 5,818 $ 9,104
========== =========== ===========
</TABLE>
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<PAGE>
At September 30, 1997, 1996 and 1995, total nonaccrual loans as a percentage of
total assets amounted to .54%, .87% and 1.11%, respectively. The decrease in
nonaccrual loans at September 30, 1997 reflects the Bank's increased collection
activity, the acceleration of write-offs of delinquent loans, and the sale 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 $2,106,000, $3,252,000 and $4,049,000 for the years ended
September 30, 1997, 1996 and 1995, respectively. The amount of interest income
that was recorded on these loans was $1,011,000, $1,397,000 and $1,808,000 for
the years ended September 30, 1997, 1996 and 1995, 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, 1997 amounted to $116.1 million, representing an increase of $16.6
million, or 16.6%, from the year ended September 30, 1996. Net interest income
for the current year increased approximately $9.3 million due to a $351.1
million increase in average interest-earning assets and approximately $8.2
million due to a 14 basis point increase in the net interest margin. Offsetting
these increases, the provision for possible loan losses increased $.9 million.
NON-INTEREST INCOME
Non-interest income amounted to $18.8 million for the year ended September 30,
1997 as compared with $14.7 million for the year ended September 30, 1996. The
$4.1 million improvement in non-interest income is primarily attributable to
$4.5 million of interest received on a tax settlement with the Internal Revenue
Service, a $1.2 million, or 23.3%, increase in banking service fees, and a $.4
million, or 31.8%, increase in fees from the sale of investment products.
Partially offsetting these increases was a $2.1 million decline in the net gain
on the sales of mortgage loans and securities available for sale, primarily due
to the prior year including a gain of $2.9 million on the sale of the Company's
investment in the common stock of a local savings bank.
NON-INTEREST EXPENSE
Non-interest expense amounted to $51.0 million during the year ended September
30, 1997 as compared with $57.4 million during the year ended September 30,
1996. The prior year included the one-time recapitalization assessment by the
SAIF of the FDIC of $9.4 million. Excluding the one-time charge, non-interest
expense would have amounted to $48.0 million in fiscal year 1996. The general
and administrative expense component of non-interest expense totaled $50.0
million, or 1.60% of average assets, for the year ended September 30, 1997,
compared to $47.5 million, or 1.72% of average assets, for the year ended
16-a
<PAGE>
September 30, 1996. The $2.5 million increase in general and administrative
expense reflects a $2.9 million increase in compensation and benefits and a $1.1
million increase in other expense which, however, were partially offset by a
$1.5 million decrease in federal deposit insurance premiums. The increase in
compensation and benefits is primarily attributable to the cost associated with
stock appreciation rights as a result of the 89% increase in the market value of
the Company's stock during fiscal year 1997, coupled with the full year cost of
the multifamily lending department formed during the prior fiscal year and the
Bank's continued expansion into supermarket banking. The increase in other
expense was primarily attributable to professional fees related to special
projects. The decrease in federal deposit insurance premiums reflects the
recapitalization of the SAIF during the prior fiscal year, which had the effect
of reducing deposit insurance premiums during fiscal year 1997.
INCOME TAX EXPENSE
Income tax expense totaled $32.7 million for an effective tax rate of 39.0%
during fiscal year 1997 compared to $24.8 million for an effective tax rate of
43.6% during fiscal year 1996. The reduction in the effective tax rate is
primarily attributable to a $.7 million refund received on the tax settlement
with the Internal Revenue Service, coupled with the benefit derived from certain
tax planning strategies implemented during fiscal year 1997.
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 $1.34 per share, as compared to $11.6 million, or $.43 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, how-
ever, were partially offset by a 21 basis point decrease in the yield on first
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<PAGE>
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 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.
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
17-a
<PAGE>
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.
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 year ended September 30, 1996 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 sales of mortgage loans and
securities available for sale, coupled with a $1.4 million, or 35.0%, increase
in banking service fees and a $.8 million, or 123.0%, increase in fees from sale
of investment products. Included in fiscal year 1996's $4.8 million net gain on
the sales 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 common stock of
a 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 year ended September 30, 1996 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
17-b
<PAGE>
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 multifamily
lending department, formed during fiscal year 1996, and the Bank's continued
efforts to expand into supermarket banking.
INCOME TAX EXPENSE
Income tax expense 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
fiscal year 1995 resulted from the non-deductibility of certain merger and
restructuring charges.
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 $303.3 million to $3.2 billion at
September 30, 1997. The increase in total assets primarily reflects a $167.3
million increase in loans receivable and a $147.6 million increase in
mortgage-backed securities.
The growth in assets was primarily funded by a $245.1 million increase in
borrowed funds, as deposits decreased $31.5 million. At September 30, 1997 the
Bank also had $60.8 million in due to brokers which in October 1997 was
converted into additional borrowed funds. 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.
Loans serviced for others at September 30, 1997 amounted to $579.8 million as
compared to $597.0 million at September 30, 1996.
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 the Bank's subordinated
capital note agreements. During fiscal years 1997, 1996 and 1995, the Bank made
dividend payments to the Company amounting to $27.8 million, $37.4 million and
$26.2 million, respectively.
The Company's liquidity is also available for, among other things, payments of
dividends or repurchases of outstanding shares of the Company's common stock. In
this regard, during fiscal years 1997, 1996 and 1995 the Company declared cash
dividends of $11.4 million, $9.2 million and $9.1 million, respectively, and
made treasury stock repurchases of $27.7 million, $29.0 million and $28.8
million, respectively.
18-a
<PAGE>
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
Company's consolidated business activities and obligations is an integral
element in the successful management of the Company's assets. At September 30,
1997, federal regulations required 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 1997, the Bank's liquidity
ratio was 5.15% compared to 5.26% for the month of September 1996. 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 1997, the Company's operating activities provided $69.8 million.
These funds, along with $179.6 million provided by financing activities and
funds available at the beginning of the fiscal year, were utilized to fund net
investing activities of $246.8 million. Financing activities primarily provided
borrowings with original maturities greater than three months.
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 1997, the Bank originated $544.4 million
of loans and purchased $22.4 million of loans. Further, during fiscal year 1997,
the Bank purchased $261.1 million of mortgage-backed securities and $84.1
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, from the sales of loans and securities available for
sale, and from deposits, borrowings from the Federal Home Loan Bank of New York
("FHLB-NY") and reverse repurchase agreements.
At September 30, 1997, the Bank is considered a "well-capitalized" institution
under the prompt corrective action regulations and continued to exceed all
regulatory capital requirements. Regulatory capital, which is comprised of
"tangible capital," "core capital" and "risk-based capital," amounted to
approximately $165.9 million, $165.9 million and $184.1 million, respectively,
which exceeded the respective regulatory requirements by $117.2 million, $68.5
million and $59.6 million. (See note 17 to Consolidated Financial Statements.)
18-b
<PAGE>
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.
COMPUTER ISSUES FOR THE YEAR 2000
As a financial services company, the Bank is aware of the potential problems the
year 2000 could have on its computer systems and programs. During fiscal year
1997, the Bank initiated a review of its computer systems and programs to
determine which, if any, systems and programs are not capable of recognizing the
year 2000. Communications were initiated with all of the Bank's vendors that
supply the Bank with these systems and programs. The Bank's efforts to determine
what, if any, problems exist has been substantially completed. Where the
potential computer problems for the year 2000 have been identified, vendors have
committed to resolving such problems by no later than September 30, 1998. As a
result of the pending merger with North Fork, it is anticipated that the
Company's computer systems will be converted to those of North Fork. (See note 2
to Consolidated Financial Statements.)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (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.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("SFAS No. 127"). The Statement delays for one year the implementation
of SFAS No. 125, as it relates to (1) secured borrowings and collateral, and (2)
transfers of financial assets that are part of repurchase agreement,
dollar-roll, securities lending and similar transactions.
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<PAGE>
The Company has adopted portions of SFAS No. 125 (those not deferred by SFAS No.
127) effective January 1, 1997. Adoption of these portions did not have a
significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS No. 125, management does not believe
adoption of the portions of SFAS No. 125 which have been deferred by SFAS No.
127 will have a material effect on the Company.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). The Statement is effective for
periods ending after December 15, 1997, and will require restatement of all
prior-period earnings per share ("EPS") data presented. The Statement
establishes standards for computing and presenting EPS. It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the income statement. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Based on its review
of the Statement, management believes the adoption of SFAS No. 128 will result
in basic earnings per share being modestly higher than the current primary
earnings per share, and at the same time will have no material effect on diluted
earnings per share of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). The Statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
also requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of prior periods will be required. Management has not
completed its review of SFAS No. 130, and has not determined the impact, if any,
that adoption of SFAS No. 130 will have on the Company.
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<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The Statement establishes standards for the way an enterprise
reports information about operating segments in annual financial statements and
requires that enterprises report selected information about operating segments
in interim financial reports issued to shareholders. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Statement
requires a reconciliation of total segment revenue and expense items and segment
assets to the amounts in the enterprise's financial statements. The Statement
also requires a descriptive report on how the operating segments were
determined, the products and services provided by the operating segments, and
any measurement differences used for segment reporting and financial statement
reporting. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. Management has not completed its review of SFAS
No. 131, but does not anticipate that the adoption of SFAS No. 131 will have a
significant effect on the Company.
LEGISLATIVE MATTERS
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, were 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 were insured by the SAIF
(the remainder were 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.
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<PAGE>
As a result, the disparity of insurance premiums between SAIF and BIF members
was eliminated. Beginning January 1, 1997 deposit insurance premiums for SAIF
members were 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, SAIF deposits are assessed approximately 6.3 basis points, and BIF
deposits assessed approximately 1.3 basis points, to cover the cost of Financing
Corporation ("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 has seen a significant decrease in deposit insurance premiums. However,
management cannot predict the level of FDIC insurance assessments on an on-going
basis.
Legislation has been introduced in Congress that would eliminate the federal
savings association charter. The legislation would require all federal savings
associations convert to national banks or state-chartered institutions two years
after enactment. Federal associations that fail to convert would automatically
become national banks. Additionally, the OTS would be eliminated. The
legislation provides for the merger of the BIF and the SAIF as of January 1,
2000, or a date two years after enactment. A federal thrift could continue to
engage in any activity in which it was lawfully engaged prior to converting to a
national bank charter. A savings and loan holding company in existence on the
date of enactment would become a bank holding company. Activities permitted for
a savings and loan holding company would be grandfathered, but would be lost if
a bank subsidiary is acquired or there is a change in control. No assurance can
be given as to whether this legislation will be enacted or, if enacted, what the
terms of such legislation would be.
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<PAGE>
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................... $ 26,305 $ 13,045
Money market investments (note 3).......................................... -- 10,700
Investment in debt and equity securities, net:
Held to maturity (estimated market value of
$609 and $641 at September 30, 1997
and 1996, respectively) - (note 4)...................................... 593 643
Available for sale (notes 5 and 14)...................................... 107,150 136,133
Mortgage-backed securities, net:
Held to maturity (estimated market value of
$636,142 and $534,602 at September 30, 1997
and 1996, respectively) - (notes 6 and 14).............................. 644,247 550,817
Available for sale (notes 7, 14 and 21).................................. 334,641 280,429
Federal Home Loan Bank stock (note 14)..................................... 54,119 27,938
Loans receivable, net (notes 8, 9 and 14):
First mortgage loans..................................................... 1,788,031 1,603,769
Other loans.............................................................. 251,080 268,779
-------------- --------------
2,039,111 1,872,548
Less allowance for possible loan losses.................................. (18,695) (19,386)
-------------- --------------
Total loans receivable, net............................................ 2,020,416 1,853,162
Accrued interest receivable (note 10)...................................... 21,590 21,862
Premises and equipment, net (note 11)...................................... 12,711 12,927
Other assets (notes 12 and 16)............................................. 22,428 33,251
-------------- --------------
Total assets........................................................... $ 3,244,200 $ 2,940,907
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (note 13)....................................................... $ 1,684,419 $ 1,715,959
Borrowed funds, including securities sold under
agreements to repurchase of $840,331 and $453,698
at September 30, 1997 and 1996, respectively (note 14).................. 1,253,931 1,008,786
Mortgagors' escrow payments.............................................. 17,247 14,987
Due to brokers (note 6).................................................. 60,765 --
Accrued expenses and other liabilities (notes 15 and 18)................. 58,775 49,272
------------- -----------
Total liabilities...................................................... 3,075,137 2,789,004
-------------- --------------
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; 29,493,166 and 29,493,700 shares issued at September 30, 1997
and 1996, respectively; 21,318,644 and 22,197,600 shares outstanding
at September 30, 1997 and 1996, respectively......................... 295 295
Additional paid-in capital............................................... 66,495 65,355
Retained earnings, substantially restricted.............................. 181,851 145,686
Treasury stock, at cost, 8,174,522 and 7,296,100
shares at September 30, 1997 and 1996, respectively..................... (81,092) (58,871)
Unrealized appreciation (depreciation) on securities
available for sale, net of tax effect................................... 1,514 (562)
-------------- --------------
Total shareholders' equity............................................. 169,063 151,903
-------------- --------------
Total liabilities and shareholders' equity............................. $ 3,244,200 $ 2,940,907
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
First mortgage loans..................................... $ 140,248 $ 118,792 $ 104,042
Other loans.............................................. 22,355 24,735 25,916
------------ ----------- -----------
Total interest and fees on loans....................... 162,603 143,527 129,958
Mortgage-backed securities................................. 63,790 56,921 60,331
Debt and equity securities - taxable....................... 12,435 6,774 4,877
Money market investments................................... 21 256 1,080
Trading account securities................................. -- 13 726
------------ ----------- -----------
Total interest income.................................. 238,849 207,491 196,972
------------ ----------- -----------
INTEREST EXPENSE:
Deposits (notes 13 and 21)................................. 55,522 60,470 62,394
Borrowed funds (notes 14 and 21)........................... 65,111 46,276 39,336
------------ ----------- -----------
Total interest expense................................. 120,633 106,746 101,730
------------ ----------- -----------
Net interest income.................................... 118,216 100,745 95,242
Provision for possible loan losses (note 9)................ (2,100) (1,200) (1,700)
------------ ----------- -----------
Net interest income after provision for
possible loan losses................................ 116,116 99,545 93,542
------------ ----------- -----------
NON-INTEREST INCOME:
Loan fees and service charges.............................. 2,941 2,770 2,566
Banking service fees....................................... 6,564 5,323 3,944
Fees from sale of investment products...................... 1,814 1,376 617
Net gain (loss) on the sales of mortgage loans and
securities available for sale (notes 5, 7 and 8)......... 2,681 4,750 (1,088)
Other ..................................................... 4,753 448 573
------------ ----------- -----------
Total non-interest income.............................. 18,753 14,667 6,612
------------ ----------- -----------
NON-INTEREST EXPENSE:
General and administrative:
Compensation and benefits (notes 18 and 19).............. 25,603 22,741 21,809
Occupancy, net (notes 11 and 20)......................... 8,842 8,397 8,751
Advertising and promotion................................ 2,261 2,565 2,565
Federal deposit insurance premiums....................... 2,212 3,759 4,464
Other.................................................... 11,131 10,073 11,379
------------ ----------- -----------
Total general and administrative....................... 50,049 47,535 48,968
Merger and restructuring (note 2).......................... -- -- 19,024
Real estate operations, net (note 12)...................... 924 463 883
SAIF recapitalization (note 13)............................ -- 9,432 --
------------ ----------- -----------
Total non-interest expense............................. 50,973 57,430 68,875
------------ ----------- -----------
Income before income tax expense....................... 83,896 56,782 31,279
------------ ----------- -----------
INCOME TAX EXPENSE (NOTE 16):
Federal expense............................................ 25,900 16,676 13,460
State and local expense.................................... 6,785 8,100 6,257
------------ ----------- -----------
Total income tax expense............................... 32,685 24,776 19,717
------------ ----------- -----------
Net income............................................. $ 51,211 $ 32,006 $ 11,562
============ =========== ===========
EARNINGS PER COMMON SHARE (NOTE 17).......................... $ 2.25 $ 1.34(1) $ .43(1)
</TABLE>
(1) Per share amounts have been restated to fully reflect the 3-for-2 stock
split effective January 23, 1997 and the 4-for-3 stock split effective July
24, 1997.
See accompanying notes to consolidated financial statements.
22
<PAGE>
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, 1994.. $ 295 $ 62,664 $ 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 770,928 shares of
stock options................. 3 -- (603) 1,544 -- -- -- 944
Purchase of 2,906,032 shares of
treasury stock................ -- -- -- (28,784) -- -- -- (28,784)
Purchase and retire 393,286 shares (2) (3,710) -- -- -- -- -- (3,712)
Net proceeds from sale of 596,750
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.. 295 63,427 125,593 (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 348,076 shares of
stock options................. -- 1,928 (2,695) 3,897 -- -- -- 3,130
Purchase of 2,428,424 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 -- -- -- -- -- -- (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.. 295 65,355 145,686 (58,871) -- -- (562) 151,903
Net income for the year
ended September 30, 1997...... -- -- 51,211 -- -- -- -- 51,211
Dividends declared on common stock -- -- (11,391) -- -- -- -- (11,391)
Exercise of 290,861 shares of
stock options................. -- 1,153 (3,655) 5,512 -- -- -- 3,010
Purchase of 1,169,284 shares of
treasury stock................ -- -- -- (27,733) -- -- -- (27,733)
Cash paid in lieu of 534 fractional
shares in the aggregate, resulting
from the 3-for-2 and 4-for-3
stock splits................. -- (13) -- -- -- -- -- (13)
Change in unrealized appreciation
(depreciation) on securities
available for sale, net
of taxes of $1,481 -- -- -- -- -- -- 2,076 2,076
----- ---------- --------- -------- -------- -------- --------- ---------
Balance at September 30, 1997.. $ 295 $ 66,495 $ 181,851 $ (81,092) $ -- $ -- $ 1,514 $ 169,063
===== ========= ========== ========= ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 51,211 $ 32,006 $ 11,562
--------------- --------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................... 2,332 2,153 2,064
Amortization and accretion of deferred fees,
discounts and premiums................................. (186) 1,823 1,538
Provision for possible loan losses...................... 2,100 1,200 1,700
Provision for losses on foreclosed real estate.......... 304 346 361
Net loss on sale of foreclosed real estate.............. 177 147 82
Net (gain) loss on sale of mortgage loans and
securities available for sale.......................... (2,681) (4,750) 1,088
SAIF recapitalization................................... (9,432) 9,432 --
Deferred income taxes................................... 5,599 (3,520) (1,965)
Amortization of ESOP and RRP compensation
expense................................................ -- -- 464
Termination of ESOP and RRP............................. -- -- 4,992
Net decrease in trading account......................... -- 2,003 10,936
(Increase) decrease in accrued interest receivable...... 272 (139) (2,579)
Increase in accrued interest payable.................... 173 1,476 838
Increase (decrease) in accrued expenses and
other liabilities...................................... 18,406 (6,290) 3,779
Decrease in other assets............................... 1,515 1,806 2,812
--------------- --------------- -------------
Total adjustments....................................... 18,579 5,687 26,110
--------------- --------------- -------------
Net cash provided by operating activities................. 69,790 37,693 37,672
--------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on loans............................... 347,635 296,727 201,852
Principal payments on mortgage-backed securities.......... 141,348 102,091 80,169
Principal payments, maturities and calls
on debt and equity securities............................ 94,050 56,938 30,987
Proceeds on sales of loans................................ 45,879 76,349 38,799
Proceeds on sales of mortgage-backed securities
available for sale....................................... 35,734 83,766 77,279
Proceeds on sales of debt and equity securities
available for sale....................................... 20,815 17,083 7,737
Investment in first mortgage loans........................ (503,521) (571,989) (432,050)
Investment in other loans................................. (59,815) (59,045) (71,057)
Investment in mortgage-backed securities
available for sale....................................... (171,110) (82,445) (45,789)
Investment in mortgage-backed securities
held to maturity......................................... (89,973) -- --
Investment in debt and equity securities
available for sale....................................... (84,135) (142,048) (52,221)
Investment in interest rate collar and floor agreements... -- (915) (2,265)
Proceeds on sales of foreclosed real estate............... 4,595 2,856 8,035
Proceeds from sale of interest rate floor and interest
rate swap agreements..................................... -- 1,512 10,835
Purchases of Federal Home Loan Bank stock, net............ (26,181) (7,650) (2,879)
Net purchases of premises and equipment................... (2,116) (2,229) (1,374)
--------------- --------------- -------------
Net cash used in investing activities..................... (246,795) (228,999) (151,942)
--------------- --------------- -------------
</TABLE>
(Continued)
24
<PAGE>
CONSOLIDATED
STATEMENTS OF CASH
FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
demand, savings, money market,
and NOW accounts......................................... $ 8,486 $ 14,341 $ (187,214)
Net increase (decrease) in time deposits.................. (40,026) (47,256) 152,542
Net increase (decrease) in borrowings with original
maturities of three months or less....................... 192,188 (93,936) 248,715
Proceeds from long-term borrowings........................ 652,076 691,459 10,000
Repayment of long-term borrowings......................... (599,119) (355,875) (66,517)
Purchase of common stock for treasury
or retirement............................................ (27,733) (29,028) (32,496)
Payment of common stock dividends......................... (10,411) (9,427) (8,156)
Exercise of stock options................................. 1,857 1,202 872
Proceeds from sale of treasury stock...................... -- -- 4,530
Cash paid in lieu of fractional shares
resulting from stock splits.............................. (13) -- --
Increase (decrease) in mortgagors' escrow accounts........ 2,260 (1,533) 1,004
--------------- --------------- -------------
Net cash provided by financing activities................. 179,565 169,947 123,280
--------------- --------------- -------------
Net increase (decrease) in cash and cash equivalents...... 2,560 (21,359) 9,010
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............ 23,745 45,104 41,865
--------------- --------------- -------------
Cash and cash equivalents at end of year.................. $ 26,305 $ 23,745 $ 45,104
=============== =============== =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................. $ 130,123 $ 108,096 $ 99,797
=============== =============== =============
Income taxes paid......................................... $ 18,612 $ 26,328 $ 20,599
=============== =============== =============
Noncash Investing and Financing Activities:
Transfer of loans to real estate owned.................. $ 3,041 $ 4,462 $ 4,455
=============== =============== =============
Securities purchased not yet settled.................... $ 60,765 $ -- $ --
=============== =============== =============
Transfer of mortgage-backed securities available
for sale to mortgage-backed securities
held to maturity....................................... $ -- $ 15,421 $ --
=============== =============== =============
Transfer of mortgage-backed securities held
to maturity to mortgage-backed securities
available for sale..................................... $ -- $ 84,109 $ 69,817
=============== =============== =============
Securitization and transfer of loans to
mortgage-backed securities available for sale.......... $ -- $ 65,364 $ 11,418
=============== =============== =============
Transfer of debt securities held
to maturity to debt and equity securities
available for sale..................................... $ -- $ 15,000 $ 7,465
=============== =============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
(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. The
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.
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 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. Prior year consolidated
financial statements 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.
26-a
<PAGE>
(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. However,
management may elect to continue to accrue interest on loans over ninety days
delinquent if, in the opinion of management, collection is expected, primarily
through a third party guarantee. 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. Loans for which
no third party guarantee exists that are not secured by a lien on real property
are charged to the allowance for loan losses when they become more than 120 days
delinquent.
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
loans and consumer and commercial loans whose principal balance is less than
26-b
<PAGE>
$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, 1997
and 1996, the measurement values of the Company's impaired loans were 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.
27-a
<PAGE>
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122").
SFAS No. 122 was superseded by SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective for
transactions occurring after December 31, 1996. The Statements establish
accounting standards for mortgage servicing rights, which are the contractual
right to service loans owned by others, typically for a fee. Prior to these
Statements, only purchased mortgage servicing rights were capitalized as an
asset. SFAS Nos. 122 and 125 require 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 Statements also
require 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 Nos. 122 and 125 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.
(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.
27-b
<PAGE>
(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) STOCK-BASED COMPENSATION PLANS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS No.
123 applies to all transactions in which an entity acquires goods or services by
issuing equity instruments or by incurring liabilities where the payment amounts
are based on the entity's common stock price, except for employee stock
ownership plans.
SFAS No. 123 establishes a new method of accounting for stock-based compensation
arrangements with employees. The new method is a fair value based method rather
than the intrinsic value based method that is contained in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
SFAS No. 123 does not require an entity to adopt the new fair value method for
purposes of preparing its basic financial statements. Entities are permitted to
either adopt the fair value based method or to continue the use of APB 25. For
entities not adopting the SFAS No. 123 fair value based method, SFAS No. 123
requires the entity to display in the notes to the financial statements pro
forma net income and earnings per share information as if the fair value based
method had been adopted.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. However, pro
forma disclosures required for entities that elect to continue to measure
compensation cost using the APB 25 method must include the effect of all awards
granted in fiscal years that began after December 15, 1994. The Company will
continue to apply the APB 25 method in preparing its consolidated financial
statements and will provide the pro forma disclosures required by SFAS No. 123
in the notes to the consolidated financial statements.
(L) 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 the Employee Retirement Income Security
Act of 1974, as amended, ("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.
28-a
<PAGE>
(M) 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.
(N) 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, 1997, 1996 and 1995 was 22,806,867, 23,888,786 and
26,655,830, respectively.
(2) BUSINESS COMBINATION
(A) MERGER AGREEMENT WITH NORTH FORK BANCORPORATION, INC.
On October 7, 1997, New York Bancorp signed a definitive merger agreement with
North Fork Bancorporation, Inc. ("North Fork") whereby the Company will be
merged with and into North Fork (the "Merger Agreement"). Under the terms of the
Merger Agreement, each share of the Company outstanding at the effective time of
the merger will be exchangeable for 1.19 shares (the "Exchange Ratio") of North
Fork common stock. The transaction, which is expected to be completed during the
first quarter of calendar year 1998, is subject to approval by the shareholders
of both the Company and North Fork, the approval of the appropriate regulatory
authorities, as well as the satisfaction of certain other conditions. The merger
is expected to be accounted for as a pooling of interests.
If the market value of the North Fork common stock (as determined in accordance
with the procedures set forth in the Merger Agreement) falls below $25.50,
either party may terminate the Merger Agreement unless, in the case of
termination by New York Bancorp, North Fork increases the Exchange Ratio so that
the shares of North Fork common stock issued in exchange for each share of New
York Bancorp common stock have a value of not less than $30.35.
In connection with the Merger Agreement, North Fork and the Company also entered
into a Stock Option Agreement dated October 7, 1997, pursuant to which the
Company granted North Fork an option to purchase 4,261,000 shares of New York
Bancorp common stock, upon the terms and conditions stated therein. The maximum
profit North Fork can receive under the Stock Option Agreement is $40.0 million.
28-b
<PAGE>
(B) MERGER WITH HAMILTON BANCORP, INC.
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 3.41 shares of common stock for
each outstanding share of Hamilton common stock and reserved for issuance
365,648 shares of common stock for Hamilton's stock options outstanding as of
the merger consummation date. In addition, 612,784 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, 12,449,842 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. The consolidated financial statements for 1995 reflect Hamilton's
year-end conformed with that of the Company, while prior year consolidated
financial statements include the operations of Hamilton for its year ended
December 31. 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 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):
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
===========
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 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 Recognition and Retention Plan ("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.
29-a
<PAGE>
The following table summarizes the activity with respect to the merger-related
and restructuring expenses, on a pre-tax basis:
Merger-Related
and
Restructuring
Accrual
--------------
(In Thousands)
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............................. $ --
===========
(3) MONEY MARKET INVESTMENTS
Money market investments consisted of $10.7 million of securities purchased
under agreements to resell at September 30, 1996, which agreements matured on
October 1, 1996.
During the years ended September 30, 1996 and 1995, the Company entered into
purchases of securities under agreements to resell (none during the year ended
September 30, 1997). 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. Securities purchased
under agreements to resell averaged $.3 million and $1.2 million for the years
ended September 30, 1996 and 1995, respectively. The maximum amount of such
agreements outstanding at any month-end during the years ended September 30,
1996 and 1995 was $11.4 million and $8.4 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, 1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
BONDS AND NOTES - corporate notes........................ $ 593 $ 16 $ -- $ 609
========== ========== ========== ==========
September 30, 1996
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------
(In Thousands)
BONDS AND NOTES - corporate notes........................ $ 643 $ -- $ (2) $ 641
========== ========== ========== ==========
</TABLE>
The debt securities held as of September 30, 1997 and 1996 mature on January 1,
2006. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations without call or
prepayment penalties.
29-b
<PAGE>
There were no sales of debt securities held to maturity during the years ended
September 30, 1997, 1996 and 1995. (See note 2 regarding the transfer of
securities in connection with the Hamilton merger.)
(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, 1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
EQUITY SECURITIES:
Stock in FNMA........................................... $ 2 $ 54 $ -- $ 56
---------- ----------- ----------- ----------
BONDS AND NOTES:
Agency obligations................................... 106,244 9 (318) 105,935
Other................................................ 1,143 16 -- 1,159
----------- ------------ ------------ -----------
107,387 25 (318) 107,094
----------- ------------ ------------ -----------
$ 107,389 $ 79 $ (318) $ 107,150
=========== ============ ============ ===========
</TABLE>
<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:
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>
The amortized cost and estimated market values of debt securities available for
sale are distributed to a maturity category based on the contractual maturity of
the security in the table below. Expected maturities may differ from contractual
maturities because borrowers have the right to call or prepay obligations
without call or prepayment penalties.
30-a
<PAGE>
September 30, 1997
-----------------------------
Estimated
Amortized Market
Cost Value
-----------------------------
(In Thousands)
Due in one year or less.......................... $ 40,558 $ 40,570
Due after one year through five years............ 66,829 66,524
------------ ------------
$ 107,387 $ 107,094
============ ============
Gains and losses were realized on sales of debt and equity securities available
for sale as follows:
Year ended September 30,
------------------------
1997 1996 1995
---------------------------------------
(In Thousands)
Gross gains.................... $ 431 $ 3,143 $ 304
Gross losses................... (80) (2) (168)
----------- ------------ ------------
Net gains...................... $ 351 $ 3,141 $ 136
=========== ============ ============
(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, 1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC................................................... $ 3,346 $ 4 $ (27) $ 3,323
FNMA.................................................... 5,369 23 (130) 5,262
GNMA.................................................... 1,128 53 -- 1,181
Private-issue pass-through.............................. 48 -- -- 48
REMIC & CMO............................................. 634,356 1,654 (9,682) 626,328
----------- ------------ ------------ -----------
Total................................................... $ 644,247 $ 1,734 $ (9,839) $ 636,142
=========== ============ ============ ===========
</TABLE>
<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>
Included in the amounts as of September 30, 1997 is a $60.8 million REMIC issue
which, in accordance with generally accepted accounting principles, has been
recorded on a trade date basis. As of September 30, 1997, the security had not
been delivered to the Company, nor had the Company paid for the security. The
corresponding liability is shown in the Consolidated Statement of Financial
Condition as Due to Brokers. The Company has entered into commitments for
reverse repurchase agreements which will provide the funds to pay for the REMIC
security on settlement date.
30-b
<PAGE>
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.
September 30, 1997
------------------
Estimated
Amortized Market
Cost Value
-----------------------------
(In Thousands)
Due in one year or less....................... $ 19,739 $ 19,657
Due after one year through five years......... 347,119 345,344
Due after five years through ten years........ 208,243 204,541
Due after ten years........................... 69,146 66,600
------------ ------------
$ 644,247 $ 636,142
============ ============
There were no sales of mortgage-backed securities held to maturity during the
years ended September 30, 1997, 1996 and 1995. (See note 2 regarding the
transfer of securities in connection with the Hamilton merger.)
At September 30, 1997 and 1996, $8,715,000 and $10,241,000, 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 $8,585,000 and $10,077,000, respectively.
The privately-issued REMICs and CMOs and privately-issued pass-through
mortgage-backed securities contained in the Company'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.
31-a
<PAGE>
(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, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC................................................... $ 28,710 $ 815 $ (144) $ 29,381
FNMA.................................................... 13,851 184 (108) 13,927
GNMA.................................................... 6,230 379 (8) 6,601
REMIC and CMO........................................... 259,457 1,385 (119) 260,723
Private-issue pass-through.............................. 23,587 422 -- 24,009
----------- ------------ ------------ -----------
Total................................................... $ 331,835 $ 3,185 $ (379) $ 334,641
=========== ============ ============ ===========
</TABLE>
<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>
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, 1997
---------------------------
Estimated
Amortized Market
Cost Value
---------------------------
(In Thousands)
<S> <C> <C>
Due in one year or less........................................................ $ 74,246 $ 74,419
Due after one year through five years.......................................... 212,731 214,309
Due after five years through ten years......................................... 44,858 45,913
------------ ------------
$ 331,835 $ 334,641
============ ============
</TABLE>
Gains and losses were realized on sales of mortgage-backed securities available
for sale as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross gains................................................... $ 1,917 $ 1,205 $ 60
Gross losses.................................................. (88) -- (1,044)
------------ ----------- ------------
Net gains (losses)............................................ $ 1,829 $ 1,205 $ (984)
============ =========== ============
</TABLE>
31-b
<PAGE>
(8) LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
FIRST MORTGAGE LOANS:
One-to-four family conventional residential, including loans
with adjustable rates of $793,931 and $843,860
in 1997 and 1996, respectively............................................ $ 956,844 $ 1,029,636
Multifamily residential.................................................... 365,324 171,099
Commercial real estate..................................................... 450,596 383,181
Partially guaranteed by Veterans Administration or insured by
the Federal Housing Administration........................................ 11,610 14,836
Participation in loans fully guaranteed by the Agency for
International Development................................................ -- 26
Construction loans, net of undisbursed portion of
approximately $12,002 and $5,470 in 1997 and
1996, respectively........................................................ 5,468 4,369
Reverse annuity loans, net of undisbursed portion of
approximately $3,489 and $4,416 in 1997
and 1996, respectively.................................................... 2,163 2,265
-------------- --------------
1,792,005 1,605,412
Unamortized purchase accounting premiums................................... 1,137 1,645
Unearned purchase accounting discounts..................................... (1,138) (1,993)
Unamortized premiums....................................................... 2,808 3,677
Unearned discounts......................................................... (12) (27)
Deferred loan fees......................................................... (6,769) (4,945)
-------------- --------------
1,788,031 1,603,769
-------------- --------------
OTHER LOANS:
Consumer loans............................................................. 12,302 9,227
Cooperative residential loans.............................................. 113,628 123,034
Home improvement loans..................................................... 645 1,035
Guaranteed student loans .................................................. 45,674 51,151
Commercial business loans.................................................. 11,092 12,351
Loans secured by deposit accounts.......................................... 7,056 8,078
Second mortgage loans...................................................... 1,540 2,211
Home equity loans, net of unused lines of credit of
approximately $12,332 and $9,462 in
1997 and 1996, respectively............................................... 42,657 44,277
Purchased auto leasing..................................................... 17,178 18,702
-------------- --------------
251,772 270,066
Unamortized purchase accounting premiums................................... 40 52
Unearned purchase accounting discounts..................................... (36) (52)
Unamortized premiums....................................................... 222 319
Unearned discounts......................................................... (758) (1,391)
Deferred loan fees......................................................... (160) (215)
-------------- --------------
251,080 268,779
-------------- --------------
Less allowance for possible loan losses....................................... (18,695) (19,386)
-------------- --------------
$ 2,020,416 $ 1,853,162
============== ==============
</TABLE>
The yield on the average investment in first mortgage loans was 8.25%, 8.07% and
8.28% for the years ended September 30, 1997, 1996 and 1995, respectively.
32-a
<PAGE>
At September 30, 1997 and 1996, the Bank had commitments of $79,489,000 and
$80,950,000, 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 $79,489,000 commitments outstanding at
September 30, 1997, $13,142,000 represent fixed rate loans with interest rates
ranging from 6.75% to 10.25% and $66,347,000 represent adjustable rate loans.
At September 30, 1997 and 1996, the Bank had commitments of $7,098,000 and
$6,016,000, 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, 1997, 1996 and 1995, the Company recognized
net gains (losses) of $.5 million, $.4 million and $(.2) 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 Bank utilizes conservative
underwriting standards as well as diversifying the types and locations of real
estate projects underwritten in the area.
(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,
-----------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Allowance for possible loan losses,
beginning of year............................................. $ 19,386 $ 21,272 $ 25,705
Charge-offs:
Commercial real estate...................................... (698) (974) (2,889)
Residential real estate..................................... (1,114) (730) (1,422)
Multifamily residential..................................... -- -- (546)
Other loans................................................. (1,148) (1,441) (1,442)
------------ ----------- ------------
Total charge-offs........................................ (2,960) (3,145) (6,299)
------------ ----------- ------------
Less recoveries:
Commercial real estate................................... 71 -- --
Residential real estate.................................. 27 -- 4
Other loans.............................................. 71 59 75
------------ ----------- ------------
Total recoveries....................................... 169 59 79
------------ ----------- ------------
Net charge-offs..................................... (2,791) (3,086) (6,220)
Hamilton's net activity for the quarter
ended December 31, 1994........................................ -- -- 87
Addition to allowance, charged to expense....................... 2,100 1,200 1,700
------------ ----------- ------------
Allowance at end of year........................................ $ 18,695 $ 19,386 $ 21,272
============ =========== ============
</TABLE>
32-b
<PAGE>
The following table sets forth the Bank's nonaccrual loans at the dates
indicated:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1997 1996 1995
------------ ----------- --------
(In Thousands)
<S> <C> <C> <C>
First mortgage loans:
One-to-four family conventional residential.................. $ 11,399 $ 12,092 $ 13,391
Multifamily residential...................................... 752 155 131
Commercial real estate....................................... 4,165 11,758 14,316
------------ ----------- ------------
16,316 24,005 27,838
Other loans - cooperative residential loans..................... 1,223 1,547 2,534
------------ ----------- ------------
Total nonaccrual loans.......................................... $ 17,539 $ 25,552 $ 30,372
============ =========== ============
</TABLE>
Additionally, at September 30, 1997, 1996 and 1995, the Bank had $4.7 million,
$4.4 million and $5.0 million, respectively, of consumer and other loans which
are past due 90 days and still accruing interest at the dates indicated. Of the
$4.7 million at September 30, 1997, $3.6 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
$1,576,000, $2,654,000 and $3,097,000 for the years ended September 30, 1997,
1996 and 1995, respectively. The amount of interest income that was recorded on
these loans was $596,000, $924,000 and $1,083,000 for the years ended September
30, 1997, 1996 and 1995, respectively.
At September 30, 1997, 1996 and 1995, the Bank had $5.0 million, $5.8 million
and $9.1 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, 1997, 1996 and 1995 had these loans
remained current in accordance with their original terms was $530,000, $598,000
and $952,000, respectively. The amount of interest income that was recorded on
these loans was $415,000, $473,000 and $725,000 for the years ended September
30, 1997, 1996 and 1995, respectively.
The Bank's recorded investment in impaired loans was $4.9 million and $11.9
million at September 30, 1997 and 1996, respectively. Due to charge-offs, or the
crediting of interest payments to principal, the loans did not have an
impairment reserve at September 30, 1997 or 1996. Interest income recognized on
impaired loans, which was not materially different from cash-basis interest
income, amounted to approximately $.4 million for each of the years ended
September 30, 1997 and 1996. The average recorded investment in impaired loans
was approximately $13.2 million and $14.5 million during the years ended
September 30, 1997 and 1996, respectively. The allowance for possible loan
losses contains additional amounts for impaired loans, as deemed necessary, to
maintain reserves at levels considered adequate by management.
33-a
<PAGE>
(10) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------
1997 1996
---------------------------------
(In Thousands)
<S> <C> <C>
Debt and equity securities.................................................... $ 1,227 $ 1,806
Mortgage-backed securities.................................................... 5,627 5,324
Loans receivable.............................................................. 14,736 13,554
Interest rate swap arrangements............................................... -- 1,178
-------------- --------------
$ 21,590 $ 21,862
============== ==============
</TABLE>
(11) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1997 1996
-----------------------
(In Thousands)
<S> <C> <C>
AT COST:
Land........................................................................ $ 651 $ 651
Office buildings and improvements........................................... 10,687 10,395
Leasehold improvements...................................................... 6,594 5,898
Furniture, fixtures and equipment........................................... 12,086 10,970
-------------- --------------
30,018 27,914
Accumulated depreciation and amortization..................................... (17,307) (14,987)
-------------- --------------
$ 12,711 $ 12,927
============== ==============
</TABLE>
Depreciation and amortization of premises and equipment, included in occupancy
expense, was approximately $2,332,000, $2,153,000 and $2,064,000 for the years
ended September 30, 1997, 1996 and 1995, respectively.
(12) OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1997 1996
-----------------------
(In Thousands)
<S> <C> <C>
Net deferred tax asset........................................................ $ 12,312 $ 19,393
Mortgage servicing rights..................................................... 1,097 1,088
Real estate owned, net of allowance for losses of
$152,000 in 1997 and $266,000 in 1996........................................ 1,363 3,197
Prepaid expenses.............................................................. 1,568 1,270
Other......................................................................... 6,088 8,303
-------------- --------------
$ 22,428 $ 33,251
============== ==============
</TABLE>
At September 30, 1997, 1996 and 1995, the Bank was servicing first mortgage
loans of approximately $579,812,000, $597,017,000 and $523,664,000,
respectively, which are either partially or wholly owned by others.
The Bank's risk at September 30, 1997 with respect to servicing loans for others
is minimized due to the fact that loans serviced for others are without recourse
to the originator/servicer. To date, the Bank has not suffered significant
losses from its mortgage servicing activities.
33-b
<PAGE>
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,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year.................................... $ 1,088 $ 137 $ 248
Additions ..................................................... 328 1,217 --
Amortization.................................................... (319) (266) (111)
------------ ----------- ------------
Balance at end of year.......................................... $ 1,097 $ 1,088 $ 137
============ =========== ============
</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,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year.................................... $ 266 $ 220 $ 390
Provision charged to operations................................. 304 346 361
Charge-offs..................................................... (418) (300) (531)
------------ ----------- ------------
Balance at end of year.......................................... $ 152 $ 266 $ 220
============ =========== ============
</TABLE>
The Bank has seven wholly owned unconsolidated subsidiaries, three of which are
inactive. The Bank's aggregate investment in these subsidiaries amounted to
$368,000 and $679,000 at September 30, 1997 and 1996, respectively, and is
included in "Other Assets - Other." The combined financial condition and results
of operations of the Bank's unconsolidated subsidiaries are not significant to
the accompanying consolidated financial statements.
(13) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Amount Percent Amount Percent
------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits............. $ 42,808 2.54% $ 37,013 2.16%
NOW accounts..................................... 150,010 8.90 130,831 7.63
Passbook accounts................................ 684,667 40.65 716,827 41.77
Variable rate money market
deposit accounts................................ 149,200 8.86 133,528 7.78
--------------- -------- --------------- ---------
1,026,685 60.95 1,018,199 59.34
Certificate accounts................................ 657,734 39.05 697,760 40.66
--------------- -------- --------------- ---------
$ 1,684,419 100.00% $ 1,715,959 100.00%
=============== ======== =============== =========
</TABLE>
Included in deposits are accounts with denominations of $100,000 or more
totaling approximately $190,367,000 and $164,720,000 at September 30, 1997 and
1996, respectively. The Bank does not use brokered certificates of deposit as a
funding source.
34-a
<PAGE>
Scheduled remaining maturities of certificate accounts are summarized as
follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------
1997 1996
----------------------------- -------------------
Amount Percent Amount Percent
----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Within 12 months................................. $ 473,964 72.06% $ 458,856 65.76%
12 to 24 months.................................. 92,306 14.03 134,031 19.21
24 to 36 months.................................. 61,254 9.31 51,192 7.34
36 to 48 months.................................. 12,883 1.96 43,271 6.20
48 to 60 months.................................. 16,178 2.46 9,552 1.37
Over 60 months................................... 1,149 .18 858 .12
--------------- -------- --------------- ---------
$ 657,734 100.00% $ 697,760 100.00%
=============== ======== =============== =========
</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,
----------------------
1997 1996
----------------------
<S> <C> <C>
NOW accounts...................................................... 1.00% 1.33%
------- -------
Passbook accounts................................................. 2.33% 2.36%
------- -------
Variable rate money market deposit accounts....................... 2.82% 2.98%
------- -------
Certificate accounts.............................................. 4.98% 4.86%
------- -------
Total deposits.................................................... 3.23% 3.30%
======= =======
</TABLE>
Weighted average stated interest rates on interest-bearing deposits, excluding
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,
----------------------
1997 1996
----------------------
<S> <C> <C>
NOW accounts...................................................... 1.00% 1.33%
------- -------
Passbook accounts................................................. 2.42% 2.43%
------- -------
Variable rate money market deposit accounts....................... 3.13% 3.29%
------- -------
Certificate accounts.............................................. 5.24% 5.13%
------- -------
Total deposits.................................................... 3.40% 3.46%
======= =======
</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 3.27%, 3.47% and 3.55% for the years ended September 30,
1997, 1996 and 1995, 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,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
NOW accounts.................................................... $ 1,925 $ 1,925 $ 2,673
Passbook accounts............................................... 16,280 17,509 19,964
Variable rate money market deposit accounts..................... 4,310 3,357 4,054
Certificate accounts............................................ 33,007 37,679 35,703
------------ ----------- ------------
$ 55,522 $ 60,470 $ 62,394
============ =========== ============
</TABLE>
34-b
<PAGE>
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,
were 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 at September 30, 1996 were insured by the SAIF (the remainder
were 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;
the one-time assessment was paid in the first quarter of fiscal year 1997.
(14) BORROWED FUNDS
<TABLE>
<CAPTION>
Borrowed funds are summarized as follows:
September 30,
-------------------------
1997 1996
-------------------------
(In Thousands)
<S> <C> <C>
NOTES PAYABLE - FIXED-RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
8.10%, due in 1997............................................................. $ -- $ 375
5.68% to 5.71%, due in 1998.................................................... 155,000 --
--------------- --------------
155,000 375
--------------- --------------
NOTES PAYABLE - VARIABLE RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
5.37% to 5.99%, due in 1997.................................................... -- 542,000
5.63% to 6.63%, due in 1998.................................................... 249,500 --
--------------- --------------
249,500 542,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
FIXED RATE AGREEMENTS:
5.37% to 6.15%, due in 1997................................................... -- 353,698
5.61% to 5.73%, due in 1998................................................... 367,001 --
5.70% to 5.73%, due in 1999................................................... 117,330 --
5.57% to 6.55%, due in 2000................................................... 137,000 --
5.68% to 5.98%, due in 2002................................................... 119,000 --
--------------- --------------
740,331 353,698
VARIABLE RATE AGREEMENTS:
5.59% in 1997 and 5.09% in 1996, due in 1998.................................. 100,000 100,000
--------------- --------------
SUBORDINATED CAPITAL NOTES, FIXED RATE - 10.84%:
Due in 1997...................................................................... -- 3,800
Due in 1998...................................................................... 3,800 3,800
Due in 1999...................................................................... 3,800 3,800
--------------- --------------
7,600 11,400
--------------- --------------
TREASURY, TAX AND LOAN NOTES, CALLABLE -
5.56% IN 1997 AND 5.84% IN 1996.................................................. 1,500 1,313
--------------- --------------
$ 1,253,931 $ 1,008,786
=============== ==============
</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.
35-a
<PAGE>
At September 30, 1997, all securities sold under agreements to repurchase were
delivered to the primary dealers or the FHLB-NY 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 $764,439,000, $328,405,000 and $307,657,000 during the years ended
September 30, 1997, 1996 and 1995, respectively. The maximum amounts outstanding
at any month-end were $927,291,000, $453,698,000 and $351,855,000 during the
years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997, the Bank had outstanding $740.3 million of fixed rate
reverse repurchase agreements with a weighted average interest rate of 5.73% and
a weighted average remaining maturity of seventeen months. The Bank may
substitute collateral in the form of U.S. Treasury or mortgage-backed
certificates. At September 30, 1997, the borrowings were collateralized by FNMA,
FHLMC, REMIC, non-agency pass-through certificates and agency obligations having
a carrying value of approximately $773.7 million and a market value of
approximately $766.6 million.
At September 30, 1997, the Bank had outstanding a $100.0 million variable rate
reverse repurchase agreement with an interest rate of 5.59% and a remaining
maturity of 4 months. The rate on this reverse repurchase agreement is subject
to repricing on a monthly basis. 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, 1997, the borrowings were
collateralized by REMIC and non-agency pass-through certificates having a
carrying value of approximately $105.7 million and a market value of
approximately $105.0 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
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, 1997 and 1996.
Weighted average interest rates on borrowed funds at September 30, 1997 and
1996, including the effect of related interest rate collars, interest rate caps,
and interest rate swaps, amounted to 5.87% and 5.25%, respectively. Excluding
the effects of off-balance sheet financial instruments, the average interest
rates on borrowed funds at September 30, 1997 and 1996 amounted to 5.84% and
5.55%, respectively.
35-b
<PAGE>
The average cost of borrowed funds for the years ended September 30, 1997, 1996
and 1995, including the effect of related interest rate collars, interest rate
caps, and interest rate swaps, was 5.42%, 5.62% and 5.88%, 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,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Notes payable................................................... $ 21,657 $ 26,764 $ 19,920
Securities sold under agreements to repurchase.................. 42,525 18,175 17,619
Subordinated capital notes...................................... 892 1,304 1,716
Other........................................................... 37 33 81
----------- ----------- -----------
$ 65,111 $ 46,276 $ 39,336
=========== =========== ===========
</TABLE>
(15) ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
Accrued expenses and other liabilities are summarized as follows:
September 30,
-------------------------
1997 1996
-------------------------
(In Thousands)
<S> <C> <C>
Federal, state and local income taxes payable .................................... $ 8,712 $ 411
Accrued interest payable.......................................................... 6,806 6,633
Official checks outstanding....................................................... 22,857 8,238
Negative goodwill................................................................. 874 1,068
Deferred gain on interest rate floor and swap agreements.......................... 1,218 5,819
Accrued SAIF recapitalization assessment.......................................... -- 9,432
Accrued expenses and other........................................................ 18,308 17,671
----------- -----------
$ 58,775 $ 49,272
=========== ===========
</TABLE>
(16) INCOME TAXES
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 1995 and the percentage of taxable income method in 1994. The
statutory percentage of the special bad debt deduction was 8%.
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 did not
exceed those of the base year. Therefore, the Bank will not be required to
recapture any of its 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
36-a
<PAGE>
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.
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 1996, 1995 and 1994 and for the nine months ended
September 30, 1997. 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 and New York City tax laws have been amended to generally
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 and New York City tax liability.
The percentage of the taxable income method is allowed if the Bank maintains at
least 60% of its total assets in qualifying assets, as defined. If the Bank
fails to meet the qualifying assets test, it would be required to recapture the
reserves established after December 31, 1995, the base year, which amounted to
approximately $16 million as of December 31, 1996. The Bank has not provided any
deferred taxes for these tax bad debt reserves as the Bank has met, and
continues to meet, the qualifying asset requirement. Additionally, all existing
tax bad debt reserves for New York State and New York City, amounting to
approximately $85 million as of December 31, 1996, would be subject to recapture
under certain conditions, including the merger of the Bank into a commercial
bank, such as North Fork.
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,
--------------------------
1997 1996
--------------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses.............................................. $ 7,644 $ 7,976
SAIF recapitalization........................................................... -- 4,020
Nonaccrual interest............................................................. 617 2,477
Excess tax over book basis of loans............................................. 1,830 1,009
Deferred loan fees.............................................................. 715 977
Real estate owned............................................................... 62 109
Premises and equipment.......................................................... 1,031 720
Unrealized loss on available for sale securities................................ -- 428
Other........................................................................... 2,325 2,645
----------- -----------
Total gross deferred tax assets............................................... 14,224 20,361
----------- -----------
Deferred tax liabilities:
Unrealized gain on available for sale securities................................ 1,053 --
Other........................................................................... 859 968
----------- -----------
Total gross deferred tax liabilities.......................................... 1,912 968
----------- -----------
Net deferred tax asset........................................................ $ 12,312 $ 19,393
=========== ===========
</TABLE>
36-b
<PAGE>
The Company has a net deferred tax asset of $12.3 million at September 30, 1997.
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, 1997.
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------
1997 1996 1995
------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income from operations.......................................... $ 32,685 $ 24,776 $ 19,717
Shareholders' equity - compensation expense for tax
purposes in excess of amounts recognized for
financial reporting purposes................................... (1,153) (1,928) (1,488)
Shareholders' equity - unrealized appreciation
(depreciation) on securities available for sale................ 1,481 (1,067) 3,690
----------- ----------- -----------
Total........................................................... $ 33,013 $ 21,781 $ 21,919
=========== =========== ===========
</TABLE>
The components of income tax expense on operations are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal....................................................... $ 21,860 $ 19,599 $ 13,917
State and local............................................... 5,226 8,697 7,765
------------ ----------- -----------
27,086 28,296 21,682
------------ ----------- -----------
Deferred:
Federal....................................................... 4,040 (2,923) (457)
State and local............................................... 1,559 (597) (1,508)
------------ ----------- -----------
5,599 (3,520) (1,965)
------------ ----------- -----------
Total....................................................... $ 32,685 $ 24,776 $ 19,717
============ =========== ===========
</TABLE>
The effective income tax rates for the years ended September 30, 1997, 1996 and
1995 were 39.0%, 43.6% and 63.0%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1997 1996 1995
-------------------------------------
<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........................................ 5.3 9.3 13.0
Nondeductible costs associated with Hamilton merger................ .-- .-- 15.0
Other, net......................................................... (1.3) (.7) .--
-------- ------- --------
Tax at effective rate.................................................. 39.0% 43.6% 63.0%
======== ======= =======
</TABLE>
37-a
<PAGE>
(17) SHAREHOLDERS' EQUITY
DIVIDEND RESTRICTIONS
In connection with the Bank's conversion to stock form in February 1988, and
Hamilton Savings' conversion to stock form in April 1993, special liquidation
accounts were established at the time of conversions, pursuant to regulations of
the Office of Thrift Supervision ("OTS") or its predecessor, 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
$13.6 million at September 30, 1997.
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.
STOCK SPLITS
The Company declared a 3-for-2 common stock split which was distributed on
January 23, 1997 in the form of a stock dividend. Additionally, the Company
declared a 4-for-3 common stock split which was distributed on July 24, 1997 in
the form of a stock dividend. Accordingly, information with respect to shares of
common stock fully reflect the stock splits.
TREASURY STOCK TRANSACTIONS
During the year ended September 30, 1997, New York Bancorp repurchased 1,169,284
shares of its outstanding common stock. At September 30, 1997, the Company has
8,174,522 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. In connection with the Merger
Agreement providing for the merger of the Company with North Fork, which is
intended to be accounted for as a pooling of interests, on October 7, 1997, the
Company's Board of Directors terminated its stock repurchase plan.
37-b
<PAGE>
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.
As of September 30, 1997, the Bank has been categorized as "well capitalized" by
the OTS under the prompt corrective action regulations and continues to exceed
all regulatory capital requirements. The Bank's actual capital amounts and
ratios are presented in the following tables (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>
As of September 30, 1997:
Total Bank equity................... $ 167,359 5.16% $ 167,359 5.16% $ 167,359 10.75%
Add (subtract):
o Allowable portion of
subordinated capital notes.. -- . -- -- . -- 532 .03
o Other........................ (1,505) (.05) (1,505) (.05) 16,257 1.05
---------- ------ ---------- ------ ---------- -------
Capital for regulatory purposes..... 165,854 5.11 165,854 5.11 184,148 11.83
Minimum regulatory requirement...... 48,664 1.50 97,328 3.00 124,545 8.00
---------- ------ ---------- ------ ---------- -------
Excess.............................. $ 117,190 3.61% $ 68,526 2.11% $ 59,603 3.83%
========== ====== ========== ====== ========== =======
As of September 30, 1996:
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%
========== ====== ========== ====== ========== =======
</TABLE>
(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.
38-a
<PAGE>
(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 plan and amounts
recognized in the Company's consolidated financial statements at September 30
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $10,719 in 1997 and $10,423 in 1996.............................. $ 11,233 $ 10,929
========== ==========
Projected benefit obligations for service rendered to date.................... $ 11,439 $ 10,978
Plan assets at fair value..................................................... 9,948 10,166
---------- ----------
Projected benefit obligation in excess of plan assets......................... (1,491) (812)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........................... 2,572 1,972
Unrecognized prior service cost............................................... (869) (971)
Unrecognized net obligation at transition being
recognized over fifteen years................................................ 230 261
Additional liability.......................................................... (1,727) (1,213)
---------- ----------
Accrued pension cost included in other liabilities............................ $ (1,285) $ (763)
========== ==========
</TABLE>
38-b
<PAGE>
Net pension cost for the years ended September 30, 1997, 1996 and 1995 included
the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ----- -----
<S> <C> <C> <C>
Service cost - benefits earned during the period................. $ 96 $ 46 $ 131
Interest cost on projected benefit obligation.................... 840 838 844
Actual return on plan assets..................................... (547) (593) (583)
Net amortization and deferral.................................... (381) (371) (439)
Additional liability............................................. 514 879 --
-------- --------- --------
Net pension cost (benefit) included in non-interest
expenses -- compensation and benefits........................... $ 522 $ 799 $ (47)
======== ========= ========
</TABLE>
Assumptions used in 1997, 1996 and 1995 to develop the net periodic pension cost
were:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -----
<S> <C> <C> <C>
Weighted average discount rate................................... 7.50% 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...................... 9.50% 9.50% 9.50%
</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.
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>
1997 1996
---------- ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $967 in 1997 and $485 in 1996.................................... $ 976 $ 824
=========== ===========
Projected benefit obligations for service rendered to date.................... $ 1,157 $ 950
Plan assets at fair value..................................................... -- --
----------- -----------
Projected benefit obligation in excess of plan assets......................... (1,157) (950)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........................... 140 50
Unrecognized prior service cost being
recognized over fifteen years................................................ 295 322
Additional liability.......................................................... (254) (247)
----------- -----------
Accrued SERP Plan cost included in other liabilities.......................... $ (976) $ (825)
=========== ===========
</TABLE>
39-a
<PAGE>
Net SERP Plan cost for the years ended September 30, 1997, 1996 and 1995
included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
Service cost - benefits earned during the period................. $ 39 $ 35 $ 52
Interest cost on projected benefit obligation.................... 78 118 90
Actual return on plan assets..................................... -- -- --
Net amortization and deferral.................................... 27 27 (7)
Additional liability............................................. 7 -- --
Settlement loss.................................................. -- 49 --
-------- -------- --------
Net pension cost included in non-interest
expenses -- compensation and benefits........................... $ 151 $ 229 $ 135
======== ======== ========
</TABLE>
Assumptions used in 1997, 1996 and 1995 to develop the net periodic SERP Plan
cost were:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate................................... 7.00% to 7.50% 7.50% to 8.00% 7.50% to 8.00%
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. 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.
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.
39-b
<PAGE>
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>
1997 1996
----------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees including covered dependents and beneficiaries........................ $ 2,458 $ 1,693
Eligible active participants................................................... 82 100
Other active participants...................................................... 710 753
----------- -----------
Total accumulated postretirement benefit obligation........................... 3,250 2,546
Plan assets........................................................................ -- --
----------- -----------
Accumulated benefit obligation in excess of plan assets............................ (3,250) (2,546)
Unrecognized transition obligation................................................. 2,140 2,274
Unrecognized prior service cost.................................................... (452) (503)
Unrecognized gain.................................................................. (1,428) (2,062)
----------- -----------
Accrued benefit obligation......................................................... $ (2,990) $ (2,837)
=========== ===========
</TABLE>
Net periodic postretirement benefit cost included the following components for
the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Service cost........................................................ $ 74 $ 59 $ 51
Interest cost....................................................... 224 190 267
Amortization of transition obligation
of $3.2 million over 20 years...................................... 134 134 146
Amortization of prior service cost.................................. (52) (52) (39)
Amortization of gain................................................ (89) (131) (87)
---------- ---------- ----------
Total postretirement benefit expense.............................. $ 291 $ 200 $ 338
========== ========== ==========
</TABLE>
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 1997 is 5.5%. The
discount rate used in determining the accumulated postretirement benefit
obligation is 7.50%. The effect of raising the health care trend by 1% will
increase the service and interest cost and the accumulated benefit obligation by
approximately $54,000 and $406,000, 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>
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Pension plan........................................................ $ 522 $ 799 $ (47)
Supplemental executives retirement plan............................. 151 229 135
401(k) plan......................................................... 454 549 408
Retirees' benefit plan.............................................. 291 200 338
---------- ---------- ----------
$ 1,418 $ 1,777 $ 834
========== ========== ==========
</TABLE>
40-a
<PAGE>
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 for the year ended September 30, 1995. 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 Company and its subsidiaries. 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 provided for the grant of 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, 1997, 1996 and 1995 was approximately $2,770,000,
$1,775,000 and $171,000, respectively.
40-b
<PAGE>
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 4-for-3 common stock split.
<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, 1994....... 336,600 322,004 656,520 198,000 $ 6.52
Hamilton options
outstanding at
January 27, 1995......... -- -- 612,784 365,648 $ 1.19
Forfeited................. (19,800) (68,356) (96,066) -- $ 8.26
Granted................... -- 162,062 297,938 -- $ 9.67
Exercised................. (39,600) (120,940) (649,988) -- $ 1.04
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1995....... 277,200 294,770 821,188 563,648 $ 6.70
Forfeited................. -- (5,782) -- (49,500) $ 2.94
Granted................... -- 148,476 158,024 49,500 $ 11.12
Exercised................. -- (62,636) -- (285,440) $ 3.66
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1996....... 277,200 374,828 979,212 278,208 $ 8.18
Forfeited................. -- (7,494) -- -- $ 11.71
Granted................... -- 118,000 -- 49,500 $ 21.52
Exercised................. (257,200) (125,153) (26,000) (139,708) $ 6.52
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1997....... 20,000 360,181 953,212 188,000 $ 10.23
========== =========== =========== ============
</TABLE>
The following table summarizes information about SARs and stock options
outstanding at September 30, 1997.
<TABLE>
<CAPTION>
Options and SARs Outstanding Options and SARs Exercisable
-------------------------------------------------- ---------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contractural Number Exercise
Exercise Price Outstanding Price Life (In Years) Outstanding Price
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.79 - 3.94 90,882 $ 3.91 4.7 90,882 $ 3.91
6.67 - 8.98 547,141 7.77 5.3 547,141 7.77
9.05 - 11.13 716,537 10.29 7.2 381,891 10.07
16.94 - 23.44 166,833 21.51 7.8 -- --
------------ -------------
3.79 - 23.44 1,521,393 10.23 6.5 1,019,914 8.29
============ =============
</TABLE>
41-a
<PAGE>
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123 for awards after October 1, 1995, the
Company's net income and net income per share would have been reduced to the pro
forma amounts presented below for the years ended September 30 (dollars in
thousands, except per share amounts):
1997 1996
---------- ----------
Net income:
As reported............................... $51,211 $32,006
Pro forma................................. 50,204 31,542
Earnings per share:
As reported............................... $2.25 $1.34
Pro forma................................. 2.20 1.32
In preparing the pro forma information, the fair value of each grant of stock
options by the Company in the years ended September 30, 1997 and 1996 was
estimated on the date of grant using the Black-Scholes multiple option-pricing
model, with the following weighted-average assumptions: expected lives of
options of 4 years, volatility of 40%, and dividend yields of 2% for both years;
risk free interest rates of 6.29% and 5.28% were used for the years ended
September 30, 1997 and 1996, respectively.
RECOGNITION AND RETENTION PLAN
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 for the year ended
September 30, 1995. 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 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.
41-b
<PAGE>
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, 1997, 1996 and 1995 approximated
$2,406,000, $2,096,000 and $2,040,000, respectively.
The projected minimum rentals under existing operating leases are as follows:
Year ending September 30, Amount
---------------
(In Thousands)
1998.................................................. $ 2,307
1999.................................................. 2,214
2000.................................................. 1,548
2001.................................................. 1,058
2002.................................................. 790
Later years........................................... 2,561
-----------
$ 10,478
(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.
At September 30, 1996 the Company had outstanding notional amounts of interest
rate swap arrangements of $600.0 million maturing through June 1997 with an
unrealized gain amounting to $2.9 million (none outstanding at September 30,
1997). Further, at September 30, 1996 there was $1.5 million of net deferred
gains relating to terminated interest rate swap contracts (none at September 30,
1997).
42-a
<PAGE>
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, 1997 and 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 accounts. 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, 1997 and 1996, the three month LIBOR was 5.77% and
5.625%, respectively. At September 30, 1997 mortgage-backed securities with a
market value of $13.6 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, 1997, the
unamortized premium on the Bank's interest rate collars amounted to $.4 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, 1997, the amount of the unamortized gain was $1.2
million.
42-b
<PAGE>
STOCK INDEXED CALL OPTIONS
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 ("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, 1997, 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, 1997, 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 such small
quantities of stock indexed call options.
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,
1997 and 1996, the Company has no outstanding financial future transactions.
During the years ended September 30, 1997, 1996 and 1995, the Bank's net
interest income increased by $6.3 million, $3.5 million and $1.2 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
43-a
<PAGE>
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,
-------------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents.............. $ 26,305 $ 26,305 $ 23,745 $ 23,745
Debt and equity securities............. 107,743 107,759 136,776 136,774
Federal Home Loan Bank stock........... 54,119 54,119 27,938 27,938
Mortgage-backed securities............. 978,888 970,783 831,246 815,031
Loans receivable, net.................. 2,020,416 2,052,611 1,853,162 1,872,423
FINANCIAL LIABILITIES:
Deposits............................... 1,684,419 1,687,876 1,715,959 1,721,433
Borrowed funds......................... 1,253,931 1,253,614 1,008,786 1,008,136
</TABLE>
The following methods and assumptions were utilized in estimating the fair
values of its on-balance sheet financial instruments at September 30, 1997 and
1996:
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.
43-b
<PAGE>
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 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 estimated fair value of deposit liabilities with no stated maturity (NOW,
money market, savings accounts and non-interest bearing accounts, which
represent 61.0% of all deposit liabilities) are equal to the carrying amounts
payable on demand. The estimated 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.
44-a
<PAGE>
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 estimated 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 $(.4) million and $2.9
million at September 30, 1997 and 1996, 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, estimated fair value
also considers the difference between current levels of interest rates and the
committed interest rates. The estimated 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, 1997 and 1996.
(23) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (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.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("SFAS No. 127"). The Statement delays for one year the implementation
of SFAS No. 125, as it relates to (1) secured borrowings and collateral, and (2)
transfers of financial assets that are part of repurchase agreement,
dollar-roll, securities lending and similar transactions.
44-b
<PAGE>
The Company has adopted portions of SFAS No. 125 (those not deferred by SFAS No.
127) effective January 1, 1997. Adoption of these portions did not have a
significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS No. 125, management does not believe
adoption of the portions of SFAS No. 125 which have been deferred by SFAS No.
127 will have a material effect on the Company.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). The Statement is effective for
periods ending after December 15, 1997, and will require restatement of all
prior-period earnings per share ("EPS") data presented. The Statement
establishes standards for computing and presenting EPS. It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the income statement. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Based on its review
of the Statement, management believes the adoption of SFAS No. 128 will result
in basic earnings per share being modestly higher than the current primary
earnings per share, and at the same time will have no material effect on diluted
earnings per share of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). The Statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
also requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of prior periods will be required. Management has not
completed its review of SFAS No. 130, and has not determined the impact, if any,
that adoption of SFAS No. 130 will have on the Company.
45-a
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The Statement establishes standards for the way an enterprise
reports information about operating segments in annual financial statements and
requires that enterprises report selected information about operating segments
in interim financial reports issued to shareholders. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Statement
requires a reconciliation of total segment revenue and expense items and segment
assets to the amounts in the enterprise's financial statements. The Statement
also requires a descriptive report on how the operating segments were
determined, the products and services provided by the operating segments, and
any measurement differences used for segment reporting and financial statement
reporting. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. Management has not completed its review of SFAS
No. 131, but does not anticipate that the adoption of SFAS No. 131 will have a
significant 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, 1997 and 1996 and for the years ended September 30, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30,
----------------------------
1997 1996
----------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks........................................................... $ 60 $ 236
Money market investments.......................................................... 4,900 10,700
Debt and equity securities available for sale..................................... 31 4,841
Investment in Bank, at equity..................................................... 167,359 138,195
Other............................................................................. 68 195
----------- ------------
$ 172,418 $ 154,167
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities............................................ $ 3,355 $ 2,264
Shareholders' equity.............................................................. 169,063 151,903
----------- ------------
$ 172,418 $ 154,167
=========== ============
</TABLE>
45-b
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Year ended September 30,
---------------------------------------------
1997 1996 1995
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Dividends from Bank............................................. $ 27,800 $ 37,352 $ 26,200
Interest income................................................. 374 509 720
Interest expense................................................ -- -- (48)
Non-interest income............................................. 125 3,141 353
Non-interest expense............................................ (469) (410) (649)
------------ ----------- ------------
Income before income taxes and equity in
undistributed earnings of Bank................................. 27,830 40,592 26,576
Income tax expense.............................................. -- (1,471) (154)
------------ ----------- ------------
Income before equity in undistributed
earnings of Bank............................................... 27,830 39,121 26,422
Excess of dividends over current year earnings.................. -- (7,115) (14,860)
Equity in undistributed earnings of Bank........................ 23,381 -- --
------------ ----------- ------------
Net income...................................................... $ 51,211 $ 32,006 $ 11,562
============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Year ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 51,211 $ 32,006 $ 11,562
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the Bank............................ (23,381) 7,115 14,860
Gain on sale of debt and equity securities
available for sale........................................... (125) (3,141) (295)
Amortization of premiums...................................... -- -- 48
Amortization of ESOP and RRP.................................. -- -- 464
Termination of ESOP and RRP................................... -- -- 4,992
(Increase) decrease in other assets........................... (96) 281 392
Increase (decrease) in other liabilities...................... 1,264 1,519 (241)
------------ ----------- ------------
Total adjustments............................................. (22,338) 5,774 20,220
------------ ----------- ------------
Net cash provided by operating activities....................... 28,873 37,780 31,782
------------ ----------- ------------
</TABLE>
(continued)
46-a
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1997 1996 1995
-----------------------------------------
(In Thousands)
<S> <C> <C> <C>
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............................................... 5,589 16,336 1,159
Investment in Bank................................................ (4,000) -- (105)
Investment in debt and equity securities available for sale....... (138) (14,457) (4,812)
Principal payments on mortgage-backed securities
available for sale............................................... -- -- 2,273
------------ ----------- ------------
Net cash provided by investing activities....................... 1,451 1,879 5,472
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for
treasury or retirement........................................... (27,733) (29,028) (32,496)
Proceeds from sale of treasury stock.............................. -- -- 4,530
Repayment of long term debt....................................... -- -- (217)
Payment of common stock dividends................................. (10,411) (9,427) (8,156)
Cash paid in lieu of fractional shares
resulting from stock splits...................................... (13) -- --
Exercise of stock options......................................... 1,857 1,202 872
------------ ----------- ------------
Net cash used by financing activities........................... (36,300) (37,253) (35,467)
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents................ (5,976) 2,406 1,787
Cash and cash equivalents at beginning of year...................... 10,936 8,530 8,187
Hamilton's net cash flows for the three months
ended December 31, 1994............................................ -- -- (1,444)
------------ ----------- ------------
Cash and cash equivalents at end of year............................ $ 4,960 $ 10,936 $ 8,530
============ =========== ============
</TABLE>
46-b
<PAGE>
(25) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years ended September 30, 1997 and
1996 is presented below:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
------------------------------------------------- ----------------------------------------------------------
Quarter Ended
-------------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31,
1997 1997 1997 1996 1996 1996 1996 1995
==============================================================================================================
(In Thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY OPERATING DATA:
Interest income....... $ 62,447 $ 61,919 $ 59,066 $ 55,417 $ 54,349 $ 52,392 $ 50,091 $ 50,659
Interest expense...... 33,276 31,030 28,789 27,538 27,528 26,486 25,741 26,991
---------- --------- --------- --------- ---------- --------- ---------- ---------
Net interest income... 29,171 30,889 30,277 27,879 26,821 25,906 24,350 23,668
Provision for possible loan
losses (300) (300) (1,200) (300) (300) (300) (300) (300)
Net interest income after
provision for possible
loan losses 28,871 30,589 29,077 27,579 26,521 25,606 24,050 23,368
----------- ---------- --------- --------- ------------ ---------- --------- ---------
Non-interest income:
Loan fees and service
charges 687 738 699 817 676 673 790 631
Banking service fees 1,838 1,677 1,558 1,491 1,461 1,444 1,175 1,243
Fees from sale of
investment products 392 488 573 361 307 432 444 193
Net gain on sales
of mortgage loans
and securities
available for sale 1,934 117 513 117 1,972 742 1,529 507
Other 64 53 4,574 62 80 132 108 128
Total non-interest income 4,915 3,073 7,917 2,848 4,496 3,423 4,046 2,702
--------- -------- ------- --------- --------- ------- ---------
Non-interest expense:
General and administrative 12,809 11,663 13,418 12,159 12,280 11,714 11,631 11,910
Real estate operations, net 25 164 466 269 123 253 (46) 133
SAIF recapitalization -- -- -- -- 9,432 -- -- --
------ ------ ------- -------- ------- ------ ------- ------
Total non-interest
expense 12,834 11,827 13,884 12,428 21,835 11,967 11,585 12,043
Income before
income tax expense... 20,952 21,835 23,110 17,999 9,182 17,062 16,511 14,027
Income tax expense.... 7,082 8,671 9,197 7,735 3,810 7,432 7,335 6,199
---------- --------- --------- --------- ---------- --------- ---------- ---------
Net income............ $ 13,870 $ 13,164 $ 13,913 $ 10,264 $ 5,372 $ 9,630 $ 9,176 $ 7,828
========== ========= ========= ========= ========== ========= ========== =========
Earnings per
common share......... $ .62 $ .58 $ .61 $ .45 $ .23 $ .41 $ .38 $ .32
</TABLE>
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.
47
<PAGE>
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, 1997 and 1996 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, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
October 27, 1997
Jericho, New York
48
<PAGE>
At September 30, 1997 there were 2,632 holders of record of common stock.
The following table shows high and low closing sales prices as reported by the
New York Stock Exchange. Such prices do not necessarily reflect retail markups,
markdowns or commissions.
Fiscal year ended September 30, 1997
- -----------------------------------------------------
Cash
Dividends
High Low Per Share
4th Quarter $32.000 $26.344 $.15
3rd Quarter $26.156 $20.813 $.15
2nd Quarter $25.125 $18.656 $.1125
1st Quarter $19.375 $16.063 $.075
Fiscal year ended September 30, 1996
- -----------------------------------------------------
Cash
Dividends
High Low Per Share
4th Quarter $16.063 $12.875 $ .10
3rd Quarter $13.063 $11.875 $ .10
2nd Quarter $11.625 $10.750 $ .10
1st Quarter $11.250 $ 9.875 $ .10
50
NEW YORK BANCORP INC.
241-02 Northern Boulevard
Douglaston, New York 11362
Form 10-K
September 30, 1997
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
Home Fed Realty Corporation
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: Delaware
Home Fed Funding Corp.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
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 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 27, 1997, relating to the
consolidated statements of financial condition of New York Bancorp Inc. and
Subsidiary as of September 30, 1997 and 1996, 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, 1997, which report is
incorporated by reference in the September 30, 1997 Form 10-K of New York
Bancorp Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
December 22, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE 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
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 26,305
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 495,910
<INVESTMENTS-CARRYING> 644,840
<INVESTMENTS-MARKET> 636,751
<LOANS> 2,039,111
<ALLOWANCE> 18,695
<TOTAL-ASSETS> 3,244,200
<DEPOSITS> 1,684,419
<SHORT-TERM> 1,253,931
<LIABILITIES-OTHER> 136,787
<LONG-TERM> 0
0
0
<COMMON> 295
<OTHER-SE> 168,768
<TOTAL-LIABILITIES-AND-EQUITY> 3,244,200
<INTEREST-LOAN> 162,603
<INTEREST-INVEST> 76,225
<INTEREST-OTHER> 21
<INTEREST-TOTAL> 238,849
<INTEREST-DEPOSIT> 55,522
<INTEREST-EXPENSE> 120,633
<INTEREST-INCOME-NET> 118,216
<LOAN-LOSSES> 2,100
<SECURITIES-GAINS> 2,681
<EXPENSE-OTHER> 50,973
<INCOME-PRETAX> 83,896
<INCOME-PRE-EXTRAORDINARY> 51,211
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,211
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 3.85
<LOANS-NON> 17,539
<LOANS-PAST> 4,701
<LOANS-TROUBLED> 5,015
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,386
<CHARGE-OFFS> 2,960
<RECOVERIES> 169
<ALLOWANCE-CLOSE> 18,695
<ALLOWANCE-DOMESTIC> 18,695
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,193
</TABLE>
