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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [_]
CHECK THE APPROPRIATE BOX:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
BFS BANKORP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $.01 PER SHARE
2) Aggregate number of securities to which transaction applies:
1,660,237(1); 134,471(2)
3) Per unit price or other identifying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$52.00(1); $41.24(2)
4) Proposed maximum aggregate value of transaction:
$91,878,717
5) Total fee paid: $18,376
[x]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offset fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------
2) Form, Schedule or Registration Number:
-------------
3) Filing Party:
--------------------------------------
4) Date Filed:
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BFS BANKORP, INC.
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THE HOLDING COMPANY FOR BANKERS FEDERAL SAVINGS FSB
February 7, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of BFS
Bankorp, Inc. (the "Company") to be held on March 11, 1997, at 5:00 p.m., local
time, at the Continental Club, 180 Maiden Lane, New York, New York 10038. At
the Annual Meeting you will be asked to consider a special proposal in addition
to routine annual meeting proposals. The proposals are explained in detail in
the accompanying Proxy Statement.
At the Annual Meeting, you will be asked to consider and vote upon a proposal
to approve the Agreement and Plan of Merger, dated as of December 3, 1996 (the
"Merger Agreement"), by and among Dime Bancorp, Inc. ("Dime"), Fifth Avenue
Property Corp. ("Merger Sub") and the Company, providing for the acquisition of
the Company by Dime. The acquisition of the Company will be accomplished by
means of a merger (the "Merger") of the Company with Merger Sub, a subsidiary
of Dime. As a result of the Merger, each outstanding share of the Company's
common stock will be converted into the right to receive $52.00 in cash,
subject to upward adjustment in the circumstances described in the enclosed
Proxy Statement.
Your Board of Directors believes the proposed merger is in the best interests
of the Company and its stockholders and recommends that you vote for approval
of the Merger Agreement. Keefe, Bruyette & Woods, Inc., the Company's financial
advisor, has rendered an opinion to the effect that, as of the date of such
opinion and based upon the considerations described therein, the consideration
to be received by the Company's stockholders in the Merger is fair to them from
a financial point of view.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock is required to approve and adopt the Merger
Agreement. As discussed in the Proxy Statement, the holders of approximately
58.4% of the Company's outstanding shares of common stock (including myself)
have already agreed with Dime to vote their shares in favor of approval of the
Merger Agreement. The Merger is also subject to certain other conditions,
including the approval of various regulatory agencies.
Stockholders are urged to read carefully the accompanying Proxy Statement,
which contains a detailed description of the Merger, the Merger Agreement and
related matters.
In addition, at the Annual Meeting you will be asked to vote on routine
annual meeting matters, including the election of two directors to serve for
three-year terms (or until consummation of the Merger) and the ratification of
the appointment of independent auditors for the fiscal year ending September
30, 1997, as well as any other matters that may properly come before the
meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Whether or not you plan to attend the Annual Meeting personally, please
complete, sign and date the enclosed proxy card and return it as soon as
possible in the postage-paid envelope provided. You may revoke your proxy at
any time prior to its exercise, and you may attend the Annual Meeting and vote
in person, even if
<PAGE>
you have previously returned your proxy card. However, if you are a
stockholder whose shares are not registered in your own name, you will need
additional documentation from your record holder to vote personally at the
Annual Meeting. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. If
the Merger is consummated, you will be sent instructions regarding the
surrender of your existing stock certificates.
We thank you for your prompt attention to this matter and appreciate your
support.
Sincerely,
/s/ James A. Randall
James A. Randall
President and Chief Executive
Officer
2
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BFS BANKORP, INC.
110 WILLIAM STREET
NEW YORK, NEW YORK 10038-3901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 11, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of BFS Bankorp, Inc. (the "Company") will be held at the Continental
Club, 180 Maiden Lane, New York, New York, on Tuesday, March 11, 1997 at 5:00
p.m., New York Time.
A Proxy Statement and Proxy Card for the Annual Meeting are enclosed
herewith. The Annual Meeting is for the purpose of considering and voting upon
the following matters:
1. A proposal to approve and adopt the Agreement and Plan of Merger
("Merger Agreement"), dated as of December 3, 1996, by and among the
Company, Dime Bancorp, Inc., a Delaware corporation ("Dime"), and Fifth
Avenue Property Corp., a Delaware corporation and a wholly-owned subsidiary
of Dime ("Merger Sub"), pursuant to which, among other things, Merger Sub
will merge (the "Merger") with and into the Company, which will survive the
Merger, and each share of the Company's common stock, par value $0.01 per
share (the "Common Stock"), other than shares of Common Stock as to which
dissenter's rights of appraisal have been duly asserted and perfected in
accordance with Delaware law, shares of Common Stock owned by Dime or its
subsidiaries (except for shares held in a fiduciary capacity or in respect
of a debt previously contracted) and shares of Common Stock held by the
Company or its subsidiaries in treasury, will be converted into the right
to receive $52.00 in cash, subject to upward adjustment, all as more fully
described in the accompanying Proxy Statement;
2. The election of two directors of the Company to serve for terms of
three years (or until the Merger is consummated); and
3. The ratification of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending September 30, 1997.
A copy of the Merger Agreement is set forth in ANNEX A to the accompanying
Proxy Statement. Upon consummation of the Merger, the terms of the directors
will terminate as provided in the Merger Agreement and the term of the
auditors will terminate as the Company will cease to exist as an independent
entity.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
January 27, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and at any
adjournments thereof. Only holders of the Common Stock of the Company as of
the close of business on that date will be entitled to notice of and to vote
at the Annual Meeting or any adjournments thereof. A list of stockholders
entitled to vote at the Annual Meeting will be available at 110 William
Street, 29th Floor, New York, New York, for a period of ten days prior to the
Annual Meeting and will also be available for inspection at the meeting
itself.
Stockholders of record of the Company who comply with the requirements of
Section 262 of the Delaware General Corporation Law will be entitled, if the
Merger is consummated, to seek an appraisal of their shares of Common Stock.
The right of any such record stockholder to receive such appraisal rights is
contingent upon strict compliance with the provisions of the Delaware General
Corporation Law. See "PROPOSAL 1--THE MERGER--Rights of Dissenting
Stockholders" in the attached Proxy Statement, as well as Annex E thereto.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN
THE ENCLOSED ENVELOPE, REGARDLESS OF THE NUMBER OF SHARES OWNED. ANY
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STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL MEETING. HOWEVER, IF YOU
ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL
NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE PERSONALLY AT
THE ANNUAL MEETING.
By Order of the Board of Directors,
/s/ Gerard A. Perri
Gerard A. Perri
Secretary
New York, New York
February 7, 1997
THE BOARD OF DIRECTORS OF BFS BANKORP UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT, FOR THE ELECTION
OF EACH OF THE NOMINEES FOR DIRECTOR LISTED IN THE ACCOMPANYING PROXY
STATEMENT AND FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT
AUDITORS.
2
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BFS BANKORP, INC.
110 WILLIAM STREET
NEW YORK, NEW YORK 10038-3901
(212) 227-4040
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MARCH 11, 1997
INTRODUCTION
This Proxy Statement is being furnished to the holders of the common stock,
par value $0.01 per share (the "Common Stock" or "BFS Common Stock"), of BFS
Bankorp, Inc., a Delaware corporation ("BFS Bankorp" or the "Company") in
connection with the solicitation of proxies on behalf of the Board of
Directors of BFS Bankorp for use at the annual meeting (the "Annual Meeting")
of stockholders of BFS Bankorp to be held for the purposes described herein,
and at any adjournment or postponements thereof. Only stockholders of record
at the close of business on January 27, 1997 (the "Record Date") will be
entitled to vote at the Annual Meeting or at any adjournments thereof, either
in person or by proxy. At the close of business on the Record Date, there were
1,660,237 shares of BFS Common Stock outstanding, each of which is entitled to
one vote on each matter properly coming before the Annual Meeting. This Proxy
Statement and the accompanying form of proxy are first being mailed to
stockholders on or about February 10, 1997.
At the Annual Meeting, stockholders will be asked to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger ("Merger
Agreement"), dated as of December 3, 1996, by and among the Company, Dime
Bancorp, Inc., a Delaware corporation ("Dime"), and Fifth Avenue Property
Corp., a Delaware corporation and a wholly-owned subsidiary of Dime ("Merger
Sub"), pursuant to which, among other things, Merger Sub will merge (the
"Merger") with and into the Company, which will survive the Merger as a direct
or indirect wholly-owned subsidiary of Dime (the Company, as the surviving
corporation in the Merger, is sometimes referred to in this Proxy Statement as
the "Surviving Corporation"). The Merger Agreement also contemplates that
Bankers Federal Savings FSB ("Bankers Federal" or the "Bank"), a wholly-owned
subsidiary of the Company, will merge (the "Bank Merger") with and into The
Dime Savings Bank of New York, FSB ("Dime Savings"), a wholly-owned subsidiary
of Dime, pursuant to an agreement to be entered into between Bankers Federal
and Dime Savings. At the effective time of the Merger (the "Effective Time"),
each share of BFS Common Stock outstanding (except for shares as to which
dissenters' rights of appraisal have been duly asserted and perfected in
accordance with Delaware law and certain shares owned by the Company, Dime or
their respective subsidiaries) will by virtue of the Merger be canceled and
automatically converted into the right to receive $52.00 in cash (the "Merger
Consideration"), unless the Effective Time occurs after June 1, 1997. If the
Effective Time occurs subsequent to June 1, 1997, the Merger Consideration
will be increased by $.01 for each day which shall have elapsed during the
period beginning on but excluding June 1, 1997 through and including the date
on which the Effective Time occurs (references to the Merger Consideration
include any increases thereto by reason of the foregoing). See "PROPOSAL 1--
THE MERGER--Form of the Merger and the Bank Merger; Purchase Price." In the
Merger Agreement, the Company agrees to take actions necessary so that,
immediately prior to the Effective Time, each outstanding option to purchase
BFS Common Stock issued pursuant to the stock option plans of the Company will
be canceled, and each holder of any such option will be entitled to receive,
immediately prior to the Effective Time, an amount in cash determined by
multiplying (i) the excess of the Merger Consideration (as adjusted, if
applicable) over the applicable exercise price per share of such option, by
(ii) the number of shares of BFS Common Stock subject to such option.
Consummation of the Merger is conditioned upon, among other things, approval
and adoption of the Merger Agreement by the affirmative vote of the holders of
a majority of the shares of Common Stock outstanding and
i
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the receipt of all necessary governmental approvals and consents. There can be
no assurance that all conditions to the Merger will be satisfied or, where
permissible, waived, or that the Merger will be consummated. See "PROPOSAL 1--
THE MERGER--Conditions to the Merger."
Gould Investors, L.P. and Fredric H. Gould (collectively referred to as
"Gould"), which own 891,664 shares of Common Stock, representing 53.7% of the
shares of Common Stock outstanding, are parties to an agreement with the
Company, pursuant to which Gould has agreed with Dime that Gould is obligated
to vote its shares in favor of the Merger Agreement (subject to certain
exceptions). Accordingly, a vote by Gould in favor of the approval and
adoption of the Merger Agreement at the Annual Meeting will assure the
approval and adoption of the Merger Agreement at the Annual Meeting without
the vote of any other holder of the shares of BFS Common Stock. See "PROPOSAL
1--THE MERGER--Voting Agreements." James A. Randall, President and Chief
Executive Officer of the Company, who owns 77,857 shares of Common Stock,
representing 4.69% of the shares of Common Stock outstanding, also entered
into a letter agreement with Dime pursuant to which he has agreed to vote his
shares in favor of the Merger Agreement.
ALTHOUGH THE FOREGOING AGREEMENTS ASSURE THAT THE MERGER AGREEMENT WILL BE
APPROVED, AND THE COMPANY IS NOT OBLIGATED TO SOLICIT PROXIES FROM ALL
STOCKHOLDERS, THE COMPANY HAD NEVERTHELESS INTENDED TO SOLICIT PROXIES IN
CONNECTION WITH ITS ANNUAL MEETING OF STOCKHOLDERS, AND THE BOARD OF DIRECTORS
DETERMINED THAT IT WOULD BE APPROPRIATE TO PROVIDE ALL STOCKHOLDERS THE
OPPORTUNITY TO VOTE ON THE PROPOSED TRANSACTION AT SUCH TIME. A STOCKHOLDER
WHO VOTES IN FAVOR OF THE MERGER AGREEMENT MAY BE PRECLUDED FROM BRINGING, OR
PARTICIPATING IN, ANY LEGAL ACTION CHALLENGING THE MERGER.
At the Annual Meeting, stockholders of the Company will also have the
opportunity to vote for the election of two directors to serve for terms of
three years (or until the Merger is consummated) and for the ratification of
the Company's independent auditors.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROXY STATEMENT DOES NOT
CONSTITUTE A SOLICITATION OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO
WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH SOLICITATION IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE OF THIS PROXY STATEMENT OR THAT THE INFORMATION IS CORRECT AS OF ANY
TIME SUBSEQUENT TO SUCH DATE. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT RELATING TO THE COMPANY AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY
THE COMPANY AND ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO
DIME AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY DIME AND ITS SUBSIDIARIES.
THE DATE OF THIS PROXY STATEMENT IS FEBRUARY 7, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information can be inspected and copied at the public reference
facilities of the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the SEC's Regional Offices located at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. The Company files its reports, proxy statements and other
information (including this proxy statement) with the SEC electronically
through the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR")
system, which filings are publicly available through the SEC's Web site at
http://www.sec.gov. In addition, such reports, proxy statements and other
information can be inspected at the offices of the National Association of
Securities Dealers, Inc., at 1735 K Street, N.W., Washington, D.C. 20006.
ii
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TABLE OF CONTENTS
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INTRODUCTION.............................................................. i
AVAILABLE INFORMATION..................................................... ii
SUMMARY................................................................... 1
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY............. 6
THE ANNUAL MEETING........................................................ 7
General................................................................. 7
Matters to be Considered at the Meeting................................. 7
Voting at the Meeting; Record Date...................................... 7
Proxies................................................................. 8
PROPOSAL 1--THE MERGER.................................................... 9
Form of the Merger and the Bank Merger; Purchase Price.................. 9
Effective Time of the Merger............................................ 10
Conversion of Shares; Procedures for Exchange of Certificates........... 10
Background of and Reasons for the Merger................................ 10
Recommendation of the Board of Directors of BFS Bankorp................. 12
Opinion of Keefe, Bruyette & Woods, Inc................................. 12
Representations and Warranties.......................................... 16
Conditions to the Merger................................................ 17
Voting Agreements....................................................... 17
Regulatory Approvals.................................................... 18
Conduct of Business Pending the Merger.................................. 19
Certain Covenants....................................................... 20
No Solicitation of Alternative Transactions............................. 20
Effect on Employees and Benefit Plans; Interests of Certain Persons in
the Merger............................................................. 20
Termination; Termination Fee............................................ 23
Rights of Dissenting Stockholders....................................... 23
Certain Federal Income Tax Consequences................................. 26
Accounting Treatment.................................................... 27
Expenses................................................................ 27
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK............................. 28
PROPOSAL 2--ELECTION OF DIRECTORS......................................... 28
Security Ownership of Certain Beneficial Owners......................... 30
Certain Agreements...................................................... 30
Meetings of the Board of Directors and Committees of the Board.......... 31
Directors' Compensation................................................. 32
Executive Compensation.................................................. 32
Employment Agreements................................................... 35
Special Termination Agreement........................................... 36
Severance Compensation Plan............................................. 37
Incentive Stock Option Plans............................................ 37
Retirement Plan......................................................... 38
Supplemental Executive Retirement Plan.................................. 38
Transactions With Certain Related Persons............................... 39
PROPOSAL 3--RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS....... 39
</TABLE>
iii
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STOCKHOLDER PROPOSALS...................................................... 39
OTHER MATTERS.............................................................. 40
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING............ 40
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 40
ANNEXES
A.Agreement and Plan of Merger............................................. A-1
B.Gould Agreement.......................................................... B-1
C.Randall Agreement........................................................ C-1
D.Opinion of Keefe, Bruyette & Woods, Inc.................................. D-1
E.Section 262 of the Delaware General Corporation Law...................... E-1
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iv
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SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement and has been prepared to assist stockholders in their review of this
Proxy Statement. This summary is not intended to be a complete statement of all
material facts and is qualified in its entirety by the more detailed informa
tion contained in this Proxy Statement and the Annexes hereto, all of which
stockholders are urged to read carefully.
THE COMPANIES
BFS BANKORP, INC.
The Company, a Delaware corporation, is a holding company whose principal
subsidiary is Bankers Federal Savings FSB, a federally-chartered savings bank,
headquartered in New York City, New York ("Bankers Federal" or the "Bank"). The
Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF"). The Company
was organized at the direction of the Bank in connection with the Bank's
conversion from the mutual to stock form of organization. The conversion was
completed on May 11, 1988. The primary activity of the Company is its ownership
of all the outstanding capital stock of the Bank. The Bank is a capital stock
savings bank originally organized in 1890 and headquartered in New York City,
New York. The Bank conducts its business through five full-service banking
offices in Manhattan, Queens and Brooklyn. At September 30, 1996, the Company
had consolidated total assets of $643.2 million, deposits of $410.3 million and
stockholders' equity of $50.2 million.
The Bank is principally engaged in the business of attracting retail deposits
from the general public and investing those funds in multi-family residential
mortgage loans. The Bank's operating strategy is designed to enhance the
profitability of its operations by emphasizing rate sensitive mortgage loans
secured by multi-family residences and to better match the interest rate
sensitivities of its assets and liabilities, thereby reducing its exposure to
interest rate risk.
The principal executive offices of the Company are located at 110 William
Street, New York, New York 10038, and its telephone number is (212) 227-4040.
DIME BANCORP, INC.
Dime is a Delaware corporation and the holding company for The Dime Savings
Bank of New York, FSB, a federally-chartered savings bank ("Dime Savings"). As
of September 30, 1996, Dime had total consolidated assets of $19.7 billion,
deposits of $12.7 billion and stockholders' equity of $1.0 billion. Dime's only
current business is the operation of Dime Savings as a subsidiary.
The principal executive offices of Dime are located at 589 Fifth Avenue, New
York, New York 10017, and its telephone number is (212) 326-6170.
MERGER SUB
Merger Sub is a Delaware corporation and a wholly-owned subsidiary of the
Dime, which was formed for purposes of entering into the Merger Agreement and
consummating the Merger. It is anticipated that, prior to the consummation of
the Merger, Merger Sub will become a wholly-owned subsidiary of Dime Savings.
1
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THE ANNUAL MEETING
DATE, TIME, PLACE AND PURPOSE OF ANNUAL MEETING
The Annual Meeting will be held on Tuesday, March 11, 1997, at 5:00 p.m.,
local time, at the Continental Club, 180 Maiden Lane, New York, New York. At
the Annual Meeting, stockholders will be asked to consider and act on: (i) the
approval and adoption of the Merger Agreement; (ii) the election of two
directors to serve for terms of three years (or until the Merger is
consummated); and (iii) the ratification of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year ending September 30,
1997.
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of Common Stock at the close of business on January 27,
1997 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting and any adjournments or postponements thereof. On that date there were
1,660,237 shares of Common Stock outstanding, each of which will be entitled to
one vote on each matter to be acted upon or which may properly come before the
Annual Meeting and any adjournments or postponements thereof. See "THE ANNUAL
MEETING--Voting at the Meeting; Record Date."
REQUIRED STOCKHOLDER APPROVAL; VOTING AGREEMENTS
Approval of the Merger Agreement requires the affirmative vote of the holders
of a majority of the shares of Common Stock outstanding and entitled to vote.
Approval of the Merger Agreement by the requisite vote of the Company's
stockholders is a condition to the consummation of the Merger. See "THE ANNUAL
MEETING--Voting at the Meeting; Record Date." Approval of the election of
directors and the ratification of auditors and of all other matters which may
come before the Annual Meeting require the affirmative vote of a majority of
votes cast, in person or by proxy, by persons entitled to vote at the Annual
Meeting.
As of the Record Date, directors and executive officers of the Company, and
their affiliates, may be deemed to be the beneficial owners of 1,034,009
shares, or 62.28% of the outstanding shares of Common Stock (excluding shares
of Common Stock which are issuable upon exercise of stock options and which are
not outstanding and entitled to vote as of the Record Date). Gould, which owns
891,664 shares of Common Stock, representing 53.7% of the shares of Common
Stock outstanding as of the Record Date, entered into an agreement with the
Company in April 1993 (the "1993 Agreement") regarding the voting of its shares
of Common Stock with respect to any merger agreement approved by the Company's
Board of Directors and recommended by the Board to the stockholders. In
connection with the execution of the Merger Agreement, Gould entered into a
letter agreement with Dime (the "Gould Agreement") pursuant to which Gould has
agreed that it is obligated to vote its shares in favor of the Merger Agreement
in accordance with the terms of the 1993 Agreement. Accordingly, a vote by
Gould in favor of the approval and adoption of the Merger at the Annual Meeting
will assure the approval and adoption of the Merger Agreement without the vote
of any other holder of the shares of BFS Common Stock. James A. Randall,
President and Chief Executive Officer of the Company, who owns 77,857 shares of
Common Stock, representing 4.69% of the shares of Common Stock outstanding as
of the Record Date, also entered into a letter agreement with Dime (the
"Randall Agreement") pursuant to which he has agreed to vote his shares in
favor of the Merger Agreement. See "PROPOSAL 1--THE MERGER--Voting Agreements."
The remaining directors and executive officers have also indicated to the
Company that they intend to vote all of their shares (64,488 shares in the
aggregate) in favor of the approval and adoption of the Merger Agreement. As of
the Record Date, neither Dime nor its subsidiaries owned, directly or
indirectly, any shares of Common Stock. See "PROPOSAL 2--ELECTION OF
DIRECTORS--Security Ownership of Certain Beneficial Owners" and "--Certain
Agreements."
2
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THE MERGER
FORM OF THE MERGER AND THE BANK MERGER; PURCHASE PRICE
Under the terms of the Merger Agreement, at the Effective Time, Merger Sub
will merge with and into the Company with the Company surviving the Merger as a
(direct or indirect) wholly-owned subsidiary of Dime (the Surviving Corporation
is expected to become a subsidiary of Dime Savings). Immediately following
consummation of the Merger of the Merger Sub with and into the Company, it is
intended that the Surviving Corporation will be liquidated and the Bank will
thereafter merge with and into Dime Savings, with Dime Savings as the surviving
federal savings bank (the "Bank Merger").
At the Effective Time of the Merger, each outstanding share of BFS Common
Stock (except for shares as to which dissenters' rights of appraisal have been
duly asserted and perfected in accordance with the DGCL and certain shares
owned by the Company, Dime or their respective subsidiaries) will be canceled
and automatically converted into the right to receive $52.00 in cash, except
that in the event the Effective Time occurs after June 1, 1997, the Merger
Consideration payable per share will be increased by $.01 for each day which
shall have elapsed during the period beginning on but excluding June 1, 1997
through and including the date of the Effective Time.
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Effective
Time of the Merger will occur on the date and time on which a Certificate of
Merger is filed with the Secretary of State of the State of Delaware or such
later time as is specified in such certificate. Pursuant to the Merger
Agreement, the Effective Time will occur no later than the first business day
of the month following the month in which the later occurs of (1) the approval
of the Merger Agreement by the stockholders of the Company and (2) the receipt
of all necessary governmental approvals for the Merger and the Bank Merger and
the expiration of any requisite waiting periods (provided that if such day is
to occur fewer than 10 days after the date of satisfaction or waiver of these
conditions, the Effective Time shall be not later than the opening of business
on the first business day of the next succeeding month) unless another date is
agreed to in writing by the Company and Dime. See "PROPOSAL 1--THE MERGER--
Conditions to the Merger." It is expected that a period of time will elapse
between the Annual Meeting and the Effective Time while the parties seek to
obtain the regulatory approvals required in order to consummate the Merger. See
"PROPOSAL 1--THE MERGER--Regulatory Approvals." The Merger Agreement may be
terminated by either party if, among other reasons, the Merger has not been
consummated on or before July 31, 1997. See "PROPOSAL 1--THE MERGER--
Termination; Termination Fee."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BFS BANKORP BOARD OF DIRECTORS
The Board of Directors of BFS Bankorp believes that the Merger is in the best
interests of the stockholders of BFS Bankorp and has unanimously approved the
Merger Agreement. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF BFS BANKORP VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. In making this determination, the Board of Directors considered a
number of factors. See "PROPOSAL 1--THE MERGER--Background of and Reasons for
the Merger" and "--Recommendation of the Board of Directors of BFS Bankorp."
OPINION OF KEEFE, BRUYETTE & WOODS, INC.
Keefe, Bruyette & Woods, Inc. ("KBW"), as financial advisor to the Company,
has rendered its opinion (the "Fairness Opinion") to the Board of Directors of
BFS Bankorp to the effect that, as of December 3, 1996 and as of the date of
this Proxy Statement, the Merger Consideration is fair, from a financial point
of view, to the stockholders of the Company. A copy of the Fairness Opinion
dated as of the date of this Proxy Statement is
3
<PAGE>
attached hereto as Annex D and is incorporated by reference herein. The
attached opinion sets forth the assumptions made, matters considered, the scope
and limitations of the review undertaken and the procedures followed by KBW,
and should be read in its entirety. See "PROPOSAL 1--THE MERGER--Opinion of
Keefe, Bruyette & Woods, Inc."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Company's management and of the Company's Board of
Directors have interests in the Merger that are in addition to their interests
as stockholders of the Company generally. These interests include, among other
things, provisions in the Merger Agreement relating to indemnification, the
appointment of the Company's outside directors as advisory directors to Dime
Savings, the continuation of directors' and officers' liability insurance, cash
payments for unexercised stock options, severance and certain other employee
benefits. The aggregate value of all cash payments to be made to the executive
officers and directors of the Company in connection with stock options,
employee severance and advisory director fees is estimated to be $9.6 million.
The amounts to be received by the various executive officers and directors of
the Company pursuant to the foregoing arrangements are described in this Proxy
Statement. See "PROPOSAL 1--THE MERGER--Effect on Employees and Benefit Plans;
Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER
The Merger Agreement sets forth a number of conditions which must be
satisfied or, where permissible, waived before the Merger may be consummated,
including (1) the approval of the Merger Agreement by the requisite vote of the
stockholders of BFS Bankorp, and (2) the receipt of all necessary governmental
approvals for the Merger and the Bank Merger and the absence in any such
approvals of a condition that would result in a material adverse effect (as
defined in the Merger Agreement). See "PROPOSAL 1--THE MERGER--Conditions to
the Merger" and "--Regulatory Approvals."
REGULATORY APPROVALS
The Merger and Bank Merger are subject to prior approval by the Office of
Thrift Supervision ("OTS"). There can be no assurances that such approvals will
be obtained, or if obtained, as to the date of such approvals. There can also
be no assurance that any such approval will not contain a condition or
requirement which causes such approval to fail to satisfy the conditions to the
consummation of the Merger. See "PROPOSAL 1--THE MERGER--Conditions to the
Merger" and "--Regulatory Approvals."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
If the Merger is consummated, BFS Bankorp stockholders will be notified
promptly of the consummation of the Merger and will be advised of the procedure
for surrender of their stock certificates in exchange for the Merger
Consideration. STOCKHOLDERS SHOULD NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
See "PROPOSAL 1--THE MERGER--Conversion of Shares; Procedures for Exchange of
Certificates."
FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash by a BFS Bankorp stockholder in exchange for his or her
shares of BFS Common Stock pursuant to the Merger will be a taxable transaction
to such stockholder for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign and other tax laws. In
general, a stockholder will recognize gain or loss equal to the difference, if
any, between the amount of cash received in exchange for his or her shares of
BFS Common Stock and the stockholder's tax basis in such shares.
All stockholders should read carefully the discussion in the "PROPOSAL 1--THE
MERGER--Certain Federal Income Tax Consequences" section of this Proxy
Statement. They are urged to consult their own tax advisors as to the specific
consequences to them of the Merger under federal, state, local, foreign and any
other applicable tax laws.
4
<PAGE>
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that BFS Bankorp will not initiate, solicit or
encourage any inquiries, proposals or offers with respect to a merger,
consolidation or certain similar transactions involving BFS Bankorp or any of
its subsidiaries, provided, however, that BFS Bankorp may engage in
negotiations and discussions and provide information to a person relating to
such a transaction if BFS Bankorp's Board of Directors, after consultation with
its outside counsel, determines that the failure to do so would constitute a
breach of their fiduciary duties. See "PROPOSAL 1--THE MERGER--No Solicitation
of Alternative Transactions."
TERMINATION OF THE MERGER AGREEMENT; PAYMENT OF FEES TO DIME
The Merger Agreement may be terminated either by Dime or BFS Bankorp, acting
alone under specified circumstances, or by mutual consent. BFS Bankorp has
agreed to pay Dime a termination fee of $3.0 million in the event the Merger is
not consummated under certain specified circumstances relating to efforts by a
third party to acquire BFS Bankorp. See "PROPOSAL 1--THE MERGER--Termination;
Termination Fee."
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the Delaware General Corporation Law ("DGCL"),
Company stockholders will be entitled to dissenters' rights of appraisal with
respect to the Merger. The provisions of Section 262 of the DGCL are technical
in nature and complex. Company stockholders desiring to exercise appraisal
rights and to obtain payment of the "fair value" of their shares of BFS Common
Stock should be aware that the failure to comply strictly with the provisions
of Section 262 of the DGCL may result in a waiver or forfeiture of their
appraisal rights. See "PROPOSAL 1--THE MERGER--Rights of Dissenting
Stockholders" and Annex E to this Proxy Statement.
MARKET PRICES OF BFS COMMON STOCK
BFS Common Stock is traded in the over-the-counter market and is quoted on
the National Association of Securities Dealers Automated Quotations ("Nasdaq")
National Market System under the symbol "BFSI".
The last reported sales price of BFS Common Stock on December 2, 1996, the
last trading day immediately prior to public announcement of the execution of
the Merger Agreement, was $50.00 per share. On February 5, 1997 (the last
practicable date prior to the mailing of this Proxy Statement), the last
reported sales price of BFS Common Stock was $50.50 per share. Stockholders are
advised to obtain current market quotations for their shares. BFS Bankorp has
paid no dividends on its Common Stock. See "MARKET PRICE OF AND DIVIDENDS ON
COMMON STOCK."
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
The following table sets forth certain selected historical consolidated
financial data for the Company. The selected financial and other data
presented below are derived in part from, and should be read in conjunction
with, among other things, the consolidated financial statements of BFS
Bankorp, including the related notes thereto, incorporated by reference
herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets..................... $643,180 $555,151 $482,947 $466,913 $482,275
Federal funds.................... 5,000 14,000 5,000 5,000 2,000
Investment securities held to
maturity, net................... 21,960 16,135 12,321 13,430 27,417
Investment securities available
for sale, net................... 1,364 -- -- -- --
Mortgage-backed securities....... 14,203 17,194 123,259 145,337 86,053
Loans, net....................... 578,827 490,887 316,905 254,941 331,777
Deposits......................... 410,324 388,562 362,872 350,286 355,468
Borrowed funds................... 146,253 94,600 52,665 54,215 69,579
Collateralized mortgage
obligations..................... 12,594 15,183 17,541 22,392 25,999
Stockholders' equity
(substantially restricted)...... $ 50,214 $ 40,812 $ 32,606 $ 26,612 $ 19,553
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income....................... $54,933 $47,285 $37,845 $36,739 $40,186
Interest expense...................... 25,738 21,636 16,651 19,581 26,504
------- ------- ------- ------- -------
Net interest income............... 29,195 25,649 21,194 17,158 13,682
Provision for loan losses............. -- 1,041 1,071 1,206 2,167
------- ------- ------- ------- -------
Net interest income after
provision for loan losses........ 29,195 24,608 20,123 15,952 11,515
------- ------- ------- ------- -------
Other income:
Gain on sale of assets, net......... 1,384 557 549 1,359 471
Other............................... 2,605 1,991 2,194 2,095 2,044
------- ------- ------- ------- -------
Total other income................ 3,989 2,548 2,743 3,454 2,515
------- ------- ------- ------- -------
Total other expenses.................. 16,163 12,780 13,077 13,405 17,375
------- ------- ------- ------- -------
Income (loss) before provision for
income tax (benefit) and cumulative
effect of change in accounting
principle............................ 17,021 14,376 9,789 6,001 (3,345)
Income tax expense (benefit).......... 7,785 6,355 4,043 2,540 (30)
Cumulative effect of change in
accounting principle................. -- -- -- 1,615 --
------- ------- ------- ------- -------
Net income (loss)..................... $ 9,236 $ 8,021 $ 5,746 $ 5,076 $(3,315)
======= ======= ======= ======= =======
</TABLE>
6
<PAGE>
THE ANNUAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Common Stock of the
Company in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Stockholders to be held at 5:00
p.m., local time, on Tuesday, March 11, 1997 at the Continental Club, 180
Maiden Lane, New York, New York, and at any adjournments or postponements
thereof. The 1996 Annual Report to Stockholders, including the consolidated
financial statements of the Company for the fiscal year ended September 30,
1996, accompany this Proxy Statement.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, the stockholders of the Company will be asked: (i) to
consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby; (ii) to elect two directors to
serve for terms of three years (or until the Merger is consummated); and (iii)
to ratify the appointment of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending September 30, 1997. In the event the
Merger is consummated, the directors nominated (and the other directors of the
Company) will not continue to serve as directors of the Company or of Dime,
although the outside directors of the Company will serve as advisory directors
to Dime Savings for a one-year term. The term of KPMG Peat Marwick LLP as
independent auditors of the Company will terminate if the Merger is
consummated, as of the Effective Time.
The Board of Directors knows of no additional matters that will be presented
for consideration at the Annual Meeting. Execution of a proxy, however,
confers on the designated proxyholders discretionary authority to vote the
shares of BFS Common Stock covered thereby in accordance with their best
judgment on such other business, if any, that may properly come before the
Annual Meeting or any adjournments or postponements thereof.
THE COMPANY'S BOARD OF DIRECTORS HAS APPROVED ALL OF THE PROPOSALS TO BE
PRESENTED AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE BOARD
OF DIRECTORS ALSO RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF EACH
OF THE NOMINEES FOR DIRECTOR SET FORTH HEREIN AND FOR THE RATIFICATION OF THE
COMPANY'S AUDITORS.
VOTING AT THE MEETING; RECORD DATE
The Board of Directors has fixed the close of business on January 27, 1997
as the record date (the "Record Date") for the determination of stockholders
of the Company entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof. Only holders of record on such date
will be entitled to notice of and to vote at the Annual Meeting. On the Record
Date, there were 1,660,237 shares of BFS Common Stock outstanding and entitled
to vote which were held by approximately 307 holders of record. Each holder of
record of Common Stock on the Record Date is entitled to cast one vote per
share, exercisable in person or by a properly executed proxy, on all matters
to be presented at the Annual Meeting and any adjournments or postponements
thereof. The presence, in person or by properly executed proxy, of the holders
of a majority of the shares of Common Stock outstanding and entitled to vote
at the Annual Meeting is necessary to constitute a quorum at the Annual
Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the shares of BFS Common Stock outstanding and
entitled to vote thereon. The obtaining of such vote is a condition to
consummation of the Merger. In determining whether the proposal to approve and
adopt the Merger Agreement has received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as votes
against the Merger Agreement. As to the election of Directors, under Delaware
law and the Company's Certificate of Incorporation and Bylaws, directors are
elected by a plurality of votes cast, without regard to either
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<PAGE>
broker non-votes or proxies as to which authority to vote for the nominee
being proposed is withheld. As to the ratification of KPMG Peat Marwick LLP as
independent auditors of the Company, under the Company's Certificate of
Incorporation and Bylaws, the ratification of this matter shall be determined
by a majority of the votes cast, without regard to abstentions and broker non-
votes.
Proxies solicited hereby will be returned to the Company, and will be
tabulated by inspectors of election designated by the Board, who will not be
employed by, or a director of, the Company or any of its affiliates.
As of the Record Date, directors and executive officers of the Company, and
their affiliates, may be deemed to be the beneficial owners of 1,034,009
shares, or 62.28% of the outstanding shares of Common Stock (excluding shares
of Common Stock which are issuable upon exercise of stock options and which
are not outstanding and entitled to vote as of the Record Date). Gould
Investors, L.P. and Fredric H. Gould (collectively referred to as "Gould"),
which own 891,664 shares of Common Stock, representing 53.7% of the shares of
Common Stock outstanding as of the record date, entered into an agreement with
the Company in April 1993 (the "1993 Agreement") regarding the voting of its
shares of Common Stock with respect to any merger agreement approved by the
Company's Board of Directors and recommended by the Board to the stockholders.
In connection with the execution of the Merger Agreement, Gould entered into a
letter agreement with Dime (the "Gould Agreement") pursuant to which Gould has
agreed that it is obligated to vote its shares in favor of the Merger
Agreement in accordance with the terms of the 1993 Agreement. Accordingly, a
vote by Gould in favor of the approval and adoption of the Merger Agreement at
the Annual Meeting will assure the approval and adoption of the Merger
Agreement without the vote of any other holder of shares of BFS Common Stock.
James A. Randall, President and Chief Executive Officer of the Company, who
owns 77,857 shares of Common Stock, representing 4.69% of the shares of Common
Stock outstanding as of the record date, also entered into a letter agreement
with Dime (the "Randall Agreement") pursuant to which he has agreed to vote
his shares in favor of the Merger Agreement. See "PROPOSAL 1--THE MERGER--
Voting Agreements." The remaining directors and executive officers have also
indicated to the Company that they intend to vote all of their shares (64,488
shares in the aggregate) in favor of the approval and adoption of the Merger
Agreement. As of the Record Date, neither Dime nor its subsidiaries owned,
directly or indirectly, any shares of Common Stock. See "PROPOSAL 2--ELECTION
OF DIRECTORS--Security Ownership of Certain Beneficial Owners" and "--Certain
Agreements."
PROXIES
This Proxy Statement is being furnished to stockholders of the Company in
connection with the solicitation of proxies by the Board of Directors for use
at the Annual Meeting. All shares of Common Stock which are entitled to vote
and are represented at the Annual Meeting by properly executed proxies
received prior to or at the Annual Meeting, and not duly revoked, will be
voted at the Annual Meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly executed proxy,
such proxy will be voted FOR the approval and adoption of the Merger
Agreement, FOR the election of the nominees for director named in this Proxy
Statement, and FOR the ratification of KPMG Peat Marwick as independent
auditors of the Company for the fiscal year ending September 30, 1997.
If any other matters are properly presented for consideration at the Annual
Meeting, including, among other things, consideration of a motion to adjourn
or postpone the Annual Meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. The
Company has no knowledge of any matters to be presented at the Annual Meeting
other than those matters described herein.
BFS BANKORP STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by: (i)
filing with the Secretary of the Company, at or before the taking of the
8
<PAGE>
vote at the Annual Meeting, a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of the Company at or before the
taking of the vote at the Annual Meeting; or (iii) attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not in and
of itself constitute a revocation of a proxy. In addition, stockholders whose
shares of Common Stock are not registered in their own name will need
additional documentation from the record holder of such shares to vote
personally at the Annual Meeting. Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to BFS Bankorp, Inc.,
110 William Street, New York, New York, 10038, Attention: Gerard A. Perri,
Secretary, or hand-delivered to the Secretary of the Company, at or before the
taking of the vote at the Annual Meeting.
The Merger Agreement provides that all expenses of this solicitation,
including the cost of preparing, printing and mailing this Proxy Statement,
will be borne equally by the Company and Dime. In addition to solicitation by
use of the mails, proxies may be solicited by directors, officers and
employees of the Company or its subsidiaries in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
the forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such custodians, nominees and fiduciaries, and the Company
will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
PROPOSAL 1--THE MERGER
This section of the Proxy Statement describes aspects of the proposed
Merger. The following description does not purport to be complete and, to the
extent it relates to matters contained in the Merger Agreement, the Gould
Agreement and the Randall Agreement, is qualified in its entirety by reference
to each of those agreements which are attached as Annexes A, B and C,
respectively, to this Proxy Statement and are incorporated herein by
reference. All stockholders are urged to read the Merger Agreement in its
entirety.
FORM OF THE MERGER AND THE BANK MERGER; PURCHASE PRICE
Under the terms of the Merger Agreement, Merger Sub will be merged with and
into the Company, with the result that the Company will become a (direct or
indirect) wholly-owned subsidiary of Dime (the Surviving Corporation is
expected to become a subsidiary of Dime Savings). Immediately following
consummation of the merger of the Merger Sub with and into the Company, it is
intended that the Surviving Corporation will be liquidated and the Bank will
thereafter merge with and into Dime Savings. At the Effective Time of the
Merger, each share of BFS Common Stock then outstanding (except for (i) shares
of BFS Common Stock which are owned by Dime or any of its subsidiaries (other
than shares held in a fiduciary capacity or in respect of debt previously
contracted), (ii) shares of BFS Common Stock held by the Company or any of its
subsidiaries in treasury, and (iii) shares of BFS Common Stock with respect to
which appraisal rights have been perfected in accordance with Section 262 of
the DGCL ("Dissenting Shares")) (see "--Rights of Dissenting Stockholders")
will be canceled and automatically converted into the right to receive $52.00
in cash, subject to possible upward adjustment as described below (as it may
be adjusted, hereinafter sometimes referred to as the "Merger Consideration").
The Merger Agreement provides that, in the event the Effective Time of the
Merger occurs subsequent to June 1, 1997, the Merger Consideration payable per
share will be increased by $.01 for each day which shall have elapsed during
the period beginning on but excluding June 1, 1997 through and including the
date of the Effective Time. Immediately prior to the Effective Time, each
outstanding option to purchase BFS Common Stock issued pursuant to the
Company's stock plans will be canceled, and each holder of any such option,
whether or not then exercisable, will be entitled to receive immediately prior
to the Effective Time for each option an amount in cash determined by
multiplying (i) the excess of the Merger Consideration over the applicable
exercise price per share of such option, by (ii) the number of shares of BFS
Common Stock subject to such option. See "--Effect on Employees and Benefit
Plans; Interests of Certain Persons in the Merger."
9
<PAGE>
The Agreement is subject to certain conditions and contains other material
terms more fully set forth in this Proxy Statement and in the Merger
Agreement, a copy of which is attached hereto as Annex A.
Based upon the number of shares of BFS Common Stock outstanding at the
Record Date and the number of shares subject to options for which payment will
be made pursuant to the Merger Agreement, the amount of funds necessary to pay
the merger consideration would be $91.9 million.
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Effective
Time of the Merger will occur on the date and time on which a Certificate of
Merger is filed with the Secretary of State of the State of Delaware, or such
later time as is specified in such certificate. Pursuant to the Merger
Agreement, the Effective Time will occur no later than the first business day
of the month following the month in which the later occurs of (1) the approval
of the Merger Agreement by the stockholders of the Company and (2) the receipt
of all necessary governmental approvals for the Merger and the Bank Merger and
the expiration of any requisite waiting periods (provided that if such day is
to occur fewer than 10 days after the date of satisfaction or waiver of these
conditions, the Effective Time shall be not later than the opening of business
on the first business day of the next succeeding month) unless another date is
agreed to in writing by the Company and Dime. See "--Conditions to the Merger"
below. It is expected that a period of time will elapse between the Annual
Meeting and the Effective Time while the parties seek to obtain the regulatory
approvals required in order to consummate the Merger. See "--Regulatory
Approvals" below. The Merger Agreement may be terminated by either party if,
among other reasons, the Merger has not been consummated on or before July 31,
1997. See "--Termination; Termination Fee" below.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, a paying agent (the "Paying Agent")
selected by Dime will send to each holder of record of BFS Common Stock
immediately prior to the Effective Time entitled to receive the Merger
Consideration a letter of transmittal and instructions for use in surrendering
such holder's certificates formerly representing shares of BFS Common Stock
(the "Certificates") in exchange for the cash into which such shares have been
converted. When the Certificates are surrendered for exchange after the
consummation of the Merger, holders of such Certificates will be promptly paid
the cash amount, without interest, into which such shares of Common Stock have
been converted.
STOCKHOLDERS SHOULD NOT FORWARD BFS BANKORP STOCK CERTIFICATES TO THE PAYING
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. In spring of 1996, a financial institution holding
company based in the New York metropolitan area approached the Company
regarding its interest in being acquired. Discussions between management of
the Company and this potential acquiror took place over the next several
months, including discussions regarding possible pricing ranges. The Board was
apprised of these developments. The Company and the other institution entered
into a confidentiality agreement pursuant to which certain information
regarding the Company could be reviewed. In light of foregoing, the
significant merger and acquisition activity taking place in the New York
metropolitan area, the Company's realization of improved operating results,
and the Board's ongoing commitment to providing value to stockholders, the
Board determined to retain a financial advisor to assist it in exploring the
sale of the Company as a means of delivering value to stockholders. After
interviewing candidates, the Company determined to engage the services of KBW
pursuant to an agreement dated May 25, 1996. Following meetings and
discussions with management, KBW and management met with representatives of
the interested financial institution, and on July 17 KBW met with the Board of
Directors to review the
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<PAGE>
expression of interest and the price ranges being discussed compared to KBW's
view of appropriate pricing. At this meeting the Board authorized KBW to
contact three other potential acquirors regarding their possible interest in
acquiring the Company. KBW again met with the Board of Directors on August 9
to review the results of their efforts to date in connection with a possible
sale of the Company. KBW reported that they had contacted three additional
financial institution holding companies in the New York metropolitan area, but
for various reasons only one institution had determined to proceed with a due
diligence investigation of the Company. At this meeting, counsel to the
Company advised the Board as to its fiduciary duties in general and in
particular with respect to mergers and acquisitions, and the Board further
discussed various factors bearing on whether it would be an appropriate time
to engage in a sale of control transaction. In this regard, the Board
considered the record level of earnings that had been achieved, the increasing
competition in the multifamily origination market, the Bank's increasing
reliance on advances from the FHLB of New York as a source of funding, and the
regulatory limitations imposed on lending activities based on the Company's
assets and equity. The Board determined to authorize KBW to identify and
approach potential acquiors other than the three already contacted by KBW and
to inform the financial institution holding company that had originally
expressed an interest that it would have to increase the price range it was
considering.
Following the August Board of Directors meeting, KBW contacted additional
financial institutions regarding their possible interest in acquiring the
Company. In response to apparent rumors in the market place regarding the
Company's pursuit of a sale of control transaction, and a significant increase
in the trading price of the Common Stock, on September 5, 1996 the Company
issued a press release stating that it had retained KBW to explore a possible
sale of the Company and that the Company had had preliminary discussions with
other financial institutions in this regard. At a September 25 Board of
Directors meeting, the Board was informed that three additional institutions
had expressed an interest in conducting a due diligence investigation of the
Company in connection with a possible acquisition of the Company. Two of these
institutions entered into confidentiality agreements with the Company and
reviewed additional information regarding the Company. At a late October Board
of Directors meeting, Dime's expression of interest in acquiring the Company
at a cash purchase price per share of $52 was discussed with KBW and counsel,
and management was authorized to negotiate, in consultation with counsel and
KBW, a definitive agreement with Dime for presentation to the Board, provided
that Dime agreed to increase the merger consideration if the transaction is
not completed after a period of time following execution of the definitive
agreement. The $52.00 per share proposal from Dime was the highest offer
received by the Company.
Further negotiations took place with respect to terms and the definitive
agreement, and during this time Dime conducted further due diligence
investigations of the Company. On November 26 the Board of Directors reviewed
with counsel and KBW a form of definitive merger agreement with Dime. Counsel
reviewed the significant terms of the Merger Agreement, and responded to
questions from the Board. The Board unanimously voted to approve the Merger
Agreement, and authorized management, in consultation with counsel and KBW, to
enter into a definitive merger agreement with Dime, which was executed on
December 3, 1996.
The Company's Reasons for the Merger. The Board of Directors of the Company
believes that the Merger is fair to, and in the best interests of, the Company
and its stockholders. Accordingly, the Board has unanimously approved and
adopted the Merger Agreement. The Board of Directors of the Company therefore
unanimously recommends that stockholders vote FOR the approval and adoption of
the Merger Agreement.
In reaching its determination that the Merger is fair to, and in the best
interests of, the Company and its stockholders, the Board considered a number
of factors, including, without limitation, the following:
(i) the Board's familiarity with and review of the Company's business,
operations, financial condition, earnings and prospects.
(ii) the current and prospective economic environment and competitive and
regulatory constraints facing financial institutions and particularly the
Bank.
(iii) the presentations to the Board of Directors by KBW and the opinion
of KBW that, as of the date thereof, the Merger Consideration of $52.00 in
cash per share was fair, from a financial point of view, to the holders of
Common Stock. See "--Opinion of Keefe, Bruyette & Woods, Inc."
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(iv) the Board's review of the strategic alternatives available to the
Company, including the alternative of remaining independent.
(v) the financial resources of Dime and the likelihood of receiving the
requisite regulatory approvals in a timely manner.
The foregoing discussion of the factors considered by the Board of Directors
is not intended to be exhaustive but summarizes all material factors
considered. The Board of Directors did not assign any relative or specific
weights to the foregoing factors nor did it specifically characterize any
factor as positive or negative (except as described above), and individual
directors may have given differing weights to differing factors and may have
viewed certain factors more positively or negatively than others. Throughout
its deliberations, the Board of Directors received the advice of its financial
and legal advisors.
Dime's Reasons for the Merger. The Board of Directors of Dime has approved
the Merger Agreement and determined that the Merger is in the best interests
of Dime and its stockholders. In approving the Merger Agreement, the Dime
Board of Directors considered a number of factors, including:
(i) The Board's review, based in part on a presentation by Dime
management and by Dime's financial advisor, of the business, operations,
earnings and financial condition, including asset quality, of BFS Bankorp
on a historical, prospective and pro forma basis and in comparison to other
comparable financial institutions.
(ii) The Board's review of the due diligence investigations conducted by
the management of Dime, with the assistance of outside advisors, including
assessments of credit policies, asset quality, litigation, adequacy of loan
loss reserves and interest rate risk.
(iii) The terms of the Merger Agreement, the Gould Agreement and the
Randall Agreement, including the financial advice rendered by Dime's
financial advisor regarding the terms of the proposed Merger Agreement.
The Board of Directors of Dime did not assign any specific or relative
weight to the foregoing factors in its consideration.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BFS BANKORP
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF THE STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
For information regarding the interests of the Directors and executive
officers of the Company in the Merger, see "--Effect on Employees and Benefit
Plans; Interests of Certain Persons in the Merger" and "PROPOSAL 2--ELECTION
OF DIRECTORS" and "--Security Ownership of Certain Beneficial Owners And
Management."
OPINION OF KEEFE, BRUYETTE & WOODS, INC.
The Company. The Company retained Keefe, Bruyette & Woods, Inc. ("KBW") to
render an opinion with respect to the fairness from a financial point of view
of the consideration to be received by the shareholders of the Company in the
Merger. KBW was selected to act as the Company's financial advisor based upon
its qualifications, expertise and reputation. KBW specializes in the
securities of banking enterprises and regularly engages in the valuation of
banking businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
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In the ordinary course of its business as a broker-dealer, KBW may, from
time to time, purchase securities from, and sell securities to, the Company
and Dime, and as a market maker in securities, KBW may from time to time have
a long or short position in, and buy or sell, equity securities of the Company
and Dime for its own account and for the accounts of its customers. To the
extent that KBW had any such position as of the date of the fairness opinion
attached as Annex D hereto, it has been disclosed to the Company.
On November 26, 1996, at the meeting at which the Company's Board approved
and adopted the Agreement and the transactions contemplated thereby, KBW
rendered its oral opinion to the Company's Board that, as of such date, the
Merger Consideration was fair to the stockholders of the Company from a
financial point of view. That opinion was updated as of the date of this Proxy
Statement. In connection with its opinion dated the date of this Proxy
Statement, KBW also confirmed the appropriateness of its reliance on the
analyses used to render its November 26, 1996 opinion by performing procedures
to update certain of such analyses and by reviewing the assumptions on which
such analyses were based and the factors considered in connection therewith.
No limitations were imposed by the Company's Board upon KBW with respect to
the investigations made or procedures followed by KBW in rendering its
opinions. In considering KBW's fairness opinion, the BFS Board of Directors
was aware of and considered the fact that in connection with the Merger, KBW
would be entitled to receive a transaction fee which, as described more fully
below, is in part contingent upon consummation of the Merger.
KBW's opinion is addressed to the Board of Directors of the Company and does
not constitute a recommendation to any of the stockholders of the Company as
to how such stockholders should vote with respect to the Merger.
THE FULL TEXT OF THE OPINION OF KBW, WHICH SETS FORTH A DESCRIPTION OF THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX D AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF THE OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In rendering its opinion, KBW reviewed, analyzed and relied upon the
following material relating to the Merger and the financial condition and
results of operations of the Company: (i) the Merger Agreement; (ii) the
Company's Annual Reports to stockholders for the three years ended September
30, 1995; (iii) certain interim reports to stockholders of the Company and
Quarterly Reports on Form 10-Q of the Company and certain other communications
from the Company to its stockholders; (iv) other financial information
concerning the businesses and operations of the Company furnished to KBW by
the Company for the purpose of KBW's analysis, including certain internal
financial analyses and forecasts for the Company prepared by senior management
of the Company; (v) certain publicly available information concerning the
trading of, and the trading market for, the Common Stock of the Company; and
(vi) certain publicly available information with respect to banking companies
and the nature and terms of certain other transactions that KBW considered
relevant to its inquiry. Additionally, in connection with its written opinion
attached as Annex D to this Proxy Statement, KBW reviewed a draft of this
Proxy Statement substantially in the form hereof. KBW also held discussions
with senior management of the Company concerning its past and current
operations, financial condition and prospects, as well as the results of
regulatory examinations. KBW also considered such financial and other factors
as it deemed appropriate under the circumstances and took into account its
assessment of general economic, market and financial conditions and its
experience in similar transactions, as well as its experience in securities
valuation and its knowledge of banks, bank holding companies and thrift
institutions generally. KBW's opinion was necessarily based upon conditions as
they existed and could be evaluated on the date thereof and the information
made available to KBW through the date thereof.
In conducting its review and arriving at its opinion, KBW relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and KBW did not attempt to
verify such information independently. KBW relied upon the management of the
Company as to the
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reasonableness and achievability of the financial and operating forecasts (and
the assumptions and bases therefor) provided to KBW and assumed that such
forecasts reflected the best available estimates and judgments of management
and that such forecasts will be realized in the amounts and in the time
periods estimated by management. KBW also assumed, without independent
verification, that the aggregate allowances for loan losses for the Company
are adequate to cover such losses. KBW did not make or obtain any evaluations
or appraisals of the property or assets of the Company, nor did KBW examine
any individual loan credit files.
The following is a summary of the material financial analyses employed by
KBW in connection with providing its oral opinion of November 26, 1996 and
does not purport to be a complete description of all analyses employed by KBW.
Analysis of the Dime Offer. KBW reviewed certain historical financial
information for the Company and calculated the imputed value of the Dime offer
to holders of the Company Common Stock. KBW calculated the multiple which the
Merger Consideration represents, based on an assumed per share purchase price
of $52.00, when compared to September 30, 1996 stated book value per share of
$30.70, its stated tangible book value at such date of $30.70 per share, its
trailing twelve months earnings per share of $5.27, its trailing twelve months
earnings per share, excluding the one-time SAIF charge, of $6.04, its market
price as of November 25, 1996 of $49.50, and its six months average market
price of $45.00. Based on the foregoing, the price to stated book value
multiple was 1.69 times, the price to stated tangible book value was 1.69
times, the price to trailing twelve month earnings per share was 9.87 times,
the price to trailing twelve month earnings per share excluding the one-time
SAIF charge was 8.61 times, the price to current market price was an increase
of 5.05%, and the price to the six month average market price was an increase
of 15.56%. KBW also calculated a deposit premium of 9.56% by dividing the
premium paid over tangible equity by the total deposits of the Company as of
September 30, 1996.
Analysis of Selected Merger Transactions. KBW reviewed certain financial
data related to three sets of recent comparable thrift acquisitions. The first
set was comprised of thrift acquisitions announced from January 1, 1993 where
(i) the acquiree's assets were over $500 million; (ii) the acquiree's return
on assets was above 1.00%; (iii) the acquiree's return on equity was above
14.00%; and (iv) the acquiree's tangible capital was under 10.00%. The second
set was comprised of selected transactions announced in 1996 of all nationwide
thrifts. The third set was comprised of selected transactions in which the
seller was a thrift located in the metropolitan New York City area.
KBW's analyses of these acquisitions indicated that (a) among the
acquisition of thrifts in the first set, the consideration paid to the
acquired institution's stockholders averaged 189% of book value, 196% of
tangible book value, 12.54x trailing 12 months earnings per share and a 9.97%
deposit premium; (b) among the acquisition of thrifts in the second set, the
consideration paid to the acquired institution's stockholders averaged 145% of
book value, 149% of tangible book value, 17.2x trailing 12 months earnings per
share and a 6.42% deposit premium; and (c) among the acquisition of thrifts in
the third set, the consideration paid to the acquired institution's
stockholders averaged 146% of book value, 151% of tangible book value, 14.78x
trailing 12 months earnings per share and a 6.77% deposit premium. Assuming
the Merger Consideration is $52.00, the consideration to be received by the
Company stockholders in the Merger would represent 169% of book value, 169% of
tangible book value, 9.87x trailing 12 months earnings per share (8.61x
excluding the SAIF charge) and a 9.56% deposit premium.
Discounted Free Cash Flow Analysis. KBW compared the net present value of
future free cash flows that would accrue to a holder of a share of Common
Stock assuming the Company were to remain independent. This analysis assumed
(i) projected net income provided by management of the Company for the fiscal
years 1997, 1998 and 1999 with an assumed 9% annual net income growth for the
fiscal years 2000 and 2001; (ii) projected average assets provided by
management of the Company for the fiscal years 1997, 1998 and 1999 with an
assumed 10% growth for the fiscal years 2000 and 2001; (iii) the Company would
maintain a 7% leverage ratio; (iv) terminal multiples of 12, 13 and 14 times
earnings for the fiscal year 2001; and (v) discount rates of 13%, 14% and 15%.
The analysis assumed that any capital above the required amount to maintain
the 7% leverage ratio is free cash and the resulting free cash flow for the
fiscal years was present valued at different terminal
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multiples and discount rates. Based on such assumptions, KBW's analysis
indicated that the present value of a share of Common Stock on a standalone
basis would range between $46.66 per share to $58.38 per share. KBW stated
that the discounted free cash flow analysis is a widely-used valuation
methodology but noted that it relies on numerous assumptions, including asset
and earnings growth rates, dividend payout rates, terminal values and discount
rates. The analysis did not purport to be indicative of the actual values or
expected values of the Company Common Stock.
Selected Peer Group Analysis. KBW compared the financial and market
performance of Dime and the Company based on various financial measures
including earnings performance, operating efficiency, capital adequacy and
asset quality and various measures of market performance, including
market/book values, price to earnings and dividend yields to three sets of
comparable companies. For purposes of such analysis, the financial information
used by KBW for Dime and the Company and the comparable companies was as of
and for the quarter ended September 30, 1996 and the market price information
was as of November 26, 1996.
The first set of companies was a peer group comprised of New York thrifts
with an average return on assets on an annualized basis of 1.09%, return on
average equity on an annualized basis of 11.98%, net interest margin on an
annualized basis of 3.47%, efficiency ratio on an annualized basis of 50.18%,
tangible equity to tangible assets of 9.02%, loan loss reserve to non-
performing loans of 64% and non- performing assets to assets of 1.79%. The
second set of companies was a peer group comprised of New York regional
commercial banks with an average return on assets on an annualized basis of
1.16%, return on average equity on an annualized basis of 15.12%, net interest
margin on an annualized basis of 4.63%, efficiency ratio on an annualized
basis of 54.66%, tangible equity to tangible assets of 6.65%, loan loss
reserve to non-performing loans of 231% and non-performing assets to assets of
0.64%. The third set of companies was a peer group comprised of national
thrifts with an average return on assets on an annualized basis of 0.80%,
return on average equity on an annualized basis of 11.42%, net interest margin
on an annualized basis of 3.07%, efficiency ratio on an annualized basis of
56.16%, tangible equity to tangible assets of 6.23%, loan loss reserve to non-
performing loans of 150% and non-performing assets to assets of 1.04%.
KBW's analysis showed for the Company an average return on assets on an
annualized basis of 1.79%, return on average equity on an annualized basis of
22.68%, net interest margin on an annualized basis of 4.92%, efficiency ratio
on an annualized basis of 43.13%, tangible equity to tangible assets of 7.81%,
loan loss reserve to non-performing loans of 94% and non-performing assets to
assets of 1.04%. The analysis also showed for Dime an average return on assets
on an annualized basis of 0.59%, return on average equity on an annualized
basis of 11.78%, net interest margin on an annualized basis of 2.38%,
efficiency ratio on an annualized basis of 54.88%, tangible equity to tangible
assets of 4.56%, loan loss reserve to non-performing loans of 51% and non-
performing assets to assets of 1.42%.
KBW's analysis further showed, among other things, the following concerning
the market performance of the New York thrift peer group: that the price to
earnings multiple based on 1996 and 1997 estimated earnings was 15.3 times and
12.9 times, respectively; that the price to book value multiple was 1.5 times;
and that the dividend yield was 2.12%. The New York regional commercial bank
peer group had the following market performance averages: price to earnings
multiple based on 1996 and 1997 estimated earnings was 13.1 times and 11.8
times, respectively; price to book value multiple was 2.3 times; and that the
dividend yield was 2.76%. The national thrift peer group had the following
market performance averages: price to earnings multiple based on 1996 and 1997
estimated earnings was 14.2 times and 11.2 times, respectively; price to book
value multiple was 1.5 times; and that the dividend yield was 1.6%.
KBW's analysis showed for the Company, among other things, the price to
earnings multiple based on 1996 and 1997 estimated earnings was 8.1 times and
8.7 times, respectively; and, the price to book value multiple was 1.6 times.
The analysis also showed Dime's price to earnings multiple based on 1996 and
1997 estimated earnings was 14.8 times and 12.8 times, respectively; and,
Dime's price to book value multiple was 1.7 times. Neither the Company nor
Dime currently pay a dividend to its stockholders. KBW's analysis also showed
the fiscal year end price to earnings multiples for 1993, 1994, 1995 and 1996
of the Company were 8.37 times, 7.60 times, 7.11 times and 8.61 times,
respectively.
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The summary contained herein provides a description of the material analyses
prepared by KBW in connection with the rendering of its opinion. The summary
set forth above does not purport to be a complete description of the analyses
performed by KBW in connection with the rendering of its opinion. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. KBW believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses without considering all analyses, or selecting part
of the above summary, without considering all factors and analyses, would
create an incomplete view of the processes underlying the analyses set forth
in KBW's presentations and opinion. The ranges of valuations resulting from
any particular analysis described above should not be taken to be KBW's view
of the actual value of the Company and Dime. The fact that any specific
analysis has been referred to in the summary above is not meant to indicate
that such analysis was given greater weight than any other material analyses.
In performing its analyses, KBW made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company and Dime. The
analyses performed by KBW are not necessarily indicative of actual values or
actual future results which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
KBW's analysis of the fairness, from a financial point of view, of the Merger
Consideration and were provided to the Company's Board in connection with the
delivery of KBW's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company actually might be sold or the prices at
which any securities may trade at the present time or at any time in the
future. In addition, as described above, KBW's opinion, along with its
presentation to the Company's Board, was just one of many factors taken into
consideration by the Board in unanimously approving the Merger Agreement.
Pursuant to the Engagement Letter dated May 25, 1996, the Company agreed to
pay KBW a cash fee of $25,000, plus $15,000 on October 1, 1996. In the event
the Company enters into a merger agreement, the Company agreed to pay KBW a
cash fee equal to 0.50% of the market value of all consideration paid to
stockholders and optionholders of the Company to be paid at the time the
transaction closes, less any amount previously paid by the Company to KBW.
Based on the $52.00 cash purchase price per share, the aggregate fee payable
to KBW is estimated to be $459,394. The Company has also agreed to reimburse
KBW for its reasonable out-of-pocket expenses, including the fees and expenses
of legal counsel and any other advisor retained by KBW. The Company has also
agreed to indemnify KBW, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the Federal
securities laws.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of each
of the Company and Dime (in each case including its savings institution
subsidiary and other subsidiaries). These include, among other things,
representations and warranties of the Company as to (i) its organization and
good standing, (ii) the identity and ownership of its subsidiaries, (iii) its
capital stock, (iv) the authorization of the Merger Agreement, (v) the absence
of knowledge by the Company of any reason why any required governmental
consents or approvals could not be obtained, (vi) compliance with laws, (vii)
the conformity to applicable accounting standards of the Company's financial
statements and the accuracy of the Company's filings with the SEC and the
Federal Deposit Insurance Corporation, (viii) pending or threatened material
litigation or other actions, (ix) taxes, (x) employee benefit plans, (xi)
insurance, (xii) certain environmental matters and (xiii) certain material
contracts of the Company.
Dime's representations and warranties include, among other things, those as
to (i) its organization and good standing, (ii) the authorization of the
Merger Agreement, (iii) the absence of the need (except as specified) for
governmental consents to the Merger, (iv) the absence of knowledge by Dime of
any reason why it would be unable to obtain any required governmental consents
or approvals, and the belief that no such consent or approval will contain a
condition which would have a material adverse effect (as defined in the Merger
Agreement), and (v) the availability to Dime of sufficient funds to fulfill
its obligations under the Merger Agreement.
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CONDITIONS TO THE MERGER
The respective obligations of each party to consummate the Merger is subject
to the fulfillment or written waiver of each of the following conditions prior
to the Effective Time: (i) the Merger Agreement will have been duly adopted by
the requisite vote of the holders of the outstanding shares of BFS Common
Stock; (ii) all requisite governmental approvals for the Merger and the Bank
Merger will have been obtained and will be in full force and effect and all
related waiting periods will have expired and no such approval will be
conditioned or restricted in a manner that, individually or in the aggregate,
would result in a material adverse effect (as defined in the Merger Agreement)
on BFS, as the surviving corporation in the Merger, or Dime Savings, as the
surviving bank in the Bank Merger; (iii) all consents or approvals of all
persons (other than governmental entities) required for or in connection with
the execution, delivery and performance of the Merger Agreement and the
consummation of the Merger will have been obtained and will be in full force
and effect, unless the failure to obtain any such consent or approval,
individually or in the aggregate, would not result in a material adverse
effect on BFS or Dime Savings; and (iv) no jurisdiction or governmental entity
will have enacted or issued any statute, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent) which
prohibits consummation of the transactions contemplated by the Merger
Agreement.
The obligation of Dime to consummate the Merger is also subject to the
fulfillment or written waiver by Dime, of each of the following conditions
prior to the Effective Time: (i) the representations and warranties of the
Company set forth in the Merger Agreement will be true and correct as of the
date of the Merger Agreement and as of the Closing Date as though made on and
as of the Closing Date, except that representations and warranties that by
their terms speak as of the date of the Merger Agreement or some other date
certain will be true and correct as of such date, and Dime will have received
a certificate, dated the Closing Date, signed on behalf of the Company by its
Chief Executive Officer and Chief Financial Officer to such effect; and (ii)
the Company will have performed in all material respects all covenants
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Dime will have received a certificate, dated the Closing
Date, signed on behalf of the Company by its Chief Executive Officer and Chief
Financial Officer to such effect.
The obligation of the Company to consummate the Merger is also subject to
the fulfillment, or written waiver by the Company, of each of the following
conditions prior to the Effective Time: (i) the representations and warranties
of Dime set forth in the Merger Agreement will be true and correct as of the
date of the Merger Agreement and as of Closing Date as though made on and as
of the Closing Date, except that representations and warranties that by their
terms speak as of the date of the Merger Agreement or some other date certain
shall be true and correct as of such date, and the Company will have received
a certificate, dated the Closing Date, signed on behalf of Dime by a senior
officer of Dime to such effect; and (ii) Dime will have performed in all
material respects all covenants required to be performed by it under the
Merger Agreement at or prior to the Closing Date, and the Company will have
received a certificate, dated the Closing Date, signed on behalf of Dime by a
senior officer of Dime to such effect.
VOTING AGREEMENTS
Pursuant to the 1993 Agreement, entered into as of April 3, 1993, Gould
agreed to vote all shares of Common Stock beneficially owned by Gould in favor
of any merger agreement approved by a majority of the Board of Directors of
the Company if the agreement is recommended to stockholders by a majority of
the Board of Directors and if certain other conditions are satisfied. See
"PROPOSAL 2--ELECTION OF DIRECTORS--Certain Agreements." In connection with
the execution of the Merger Agreement, Gould and Dime entered into the Gould
Agreement, pursuant to which, subject to certain conditions, Gould agreed that
it is obligated to vote its shares in favor of the Merger Agreement in
accordance with the terms of the 1993 Agreement. As of the Record Date, Gould
owned 891,664 shares of BFS Common Stock, representing 53.7% of the shares
outstanding. Pursuant to the Gould Agreement, Gould waived certain of the
conditions set forth in the 1993 Agreement, and agreed that the Merger
Agreement is the type of agreement contemplated by the 1993 Agreement. In
summary, Gould agreed that it is obligated to vote its shares in favor of the
Merger Agreement provided that a majority of the Board of Directors recommends
the Merger Agreement to the Company's stockholders. In the Merger
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Agreement, the Company has agreed that the Board of Directors will recommend
that the stockholders of the Company approve the Merger Agreement unless the
Board of Directors, after having consulted with and received the written
advice of outside counsel, concludes that the failure of the Board of
Directors to withdraw or change its recommendation would constitute a breach
of the fiduciary duties of such directors under Delaware law.
The Gould Agreement also provides, among other things, that Gould will not
(i) take any action to terminate or modify the 1993 Agreement, (ii) sell or
otherwise dispose of any of the shares of BFS Common Stock beneficially owned
by Gould, and (iii) initiate, solicit or encourage any inquiries with respect
to a merger, consolidation or certain similar transactions involving BFS
Bankorp or any of its subsidiaries, subject to certain exceptions. The Gould
Agreement further provides that, if the Merger Agreement is terminated for
certain specified reasons relating to efforts by a third party to acquire BFS
Bankorp and if prior to or within 18 months following such a termination, (i)
BFS Bankorp consummates an Acquisition Transaction (as defined in the Merger
Agreement) or Gould sells or otherwise transfers shares of BFS Common Stock to
any person or group other than Dime that has, or as a result of such transfer
will have, a reporting obligation under Section 13(d) of the Exchange Act with
respect to the BFS Common Stock, and (ii) as a result of a transaction of the
type described in the preceding clause (i), Gould receives, in exchange for
shares of BFS Common Stock, cash or other property with a fair market value
per share in excess of the Merger Consideration, then at the time of
consummation of such transaction Gould will pay to Dime an amount equal to the
excess of the fair market value per share of such cash or other property over
the Merger Consideration. The amount so paid by Gould will be either in cash
or, at Dime's election, in the form of any other property received in such
transaction.
In addition, James A. Randall, President and Chief Executive Officer of the
Company, who owns 77,857 shares of BFS Common Stock, representing 4.69% of the
shares of common stock outstanding as of the Record Date, also entered into a
letter agreement with Dime pursuant to which he has agreed to vote his shares
in favor of the Merger Agreement. As a result of the Gould and Randall
Agreements, more than a majority of the outstanding shares of BFS Common Stock
are expected to be voted in favor of the Merger Agreement, which is in excess
of the minimum vote required for shareholder approval of the Merger Agreement.
REGULATORY APPROVALS
Consummation of the Merger is subject to, among other things, the receipt
and effectiveness of all necessary governmental approvals required to
consummate the Merger and the Bank Merger. The Merger Agreement may be
terminated and the Merger abandoned, among other things, if any such
governmental approval is denied or is subject to conditions or restrictions
that would have a material adverse affect on BFS (as the surviving corporation
in the Merger) or Dime Savings (as the surviving corporation in the Bank
Merger). There can be no assurance that all requisite approvals will be
obtained, that such approvals will be received on a timely basis or that such
approvals will not be subject to conditions that would cause the Company or
Dime to terminate the Merger Agreement.
The Merger and the Bank Merger require the approval of the OTS under the
Home Owners' Loan Act, the Federal Deposit Insurance Act and related OTS
Regulations. The Company has been informed by Dime that it filed applications
for such approval with the OTS on January 17, 1997.
The foregoing approval requires consideration by the OTS of various factors.
These include assessments of the competitive effect of the contemplated
transaction, the managerial and financial resources and future prospects of
the resulting institution and the effect of the contemplated transaction on
the convenience and needs of the communities to be served. These regulatory
considerations also include, among other things, an assessment of compliance
with the Community Reinvestment Act of 1977. The regulations of the OTS
require publication of notice of, and an opportunity for public comment with
respect to, the applications filed in connection with the Merger and the Bank
Merger.
Because the Bank Merger will involve the merger of a BIF-insured institution
and a SAIF-insured institution, the OTS may not approve the Bank Merger unless
it determines that Dime Savings (upon
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consummation of the Bank Merger) will meet all applicable capital requirements
upon the consummation of the transaction. Dime Savings is expected to satisfy
all applicable capital requirements at the Effective Time.
In addition, the Bank Merger may not be consummated for a period of 15 to 30
days following the OTS's approval (the precise length of the period to be
determined by the OTS with the concurrence of the Attorney General of the
United States), during which time the United States Department of Justice may
challenge the Bank Merger on antitrust grounds. The commencement of an
antitrust action would stay the effectiveness of any approval granted by the
OTS unless a court specifically orders otherwise.
THERE CAN BE NO ASSURANCE THAT THE OTS WILL APPROVE THE MERGER OR THE BANK
MERGER, AND IF SUCH TRANSACTION IS APPROVED, THERE CAN BE NO ASSURANCE AS TO
THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT SUCH APPROVAL
WILL NOT CONTAIN A MATERIALLY BURDENSOME CONDITION OR REQUIREMENT WHICH CAUSES
SUCH APPROVAL TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF THE MERGER
OR THE BANK MERGER SET FORTH IN THE MERGER AGREEMENT.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed that it and its
subsidiaries will conduct their respective businesses only in the ordinary and
usual course, and will use all reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business
associates. In addition, the Company has agreed that, without the prior
consent of Dime, neither it nor any of its subsidiaries will (i) declare or
pay any dividend on its capital stock, other than dividends by direct or
indirect wholly-owned subsidiaries of the Company; (ii) repurchase, redeem or
otherwise acquire, any shares of its capital stock; (iii) issue any shares of
its capital stock (other than issuance of Common Stock pursuant to the BFS
Stock Plans), securities convertible into shares of capital stock, or options
or rights of any kind to acquire any of such shares; (iv) effect any
recapitalization, reclassification or stock split; (v) enter into, or take any
action to cause any stockholders of the Company to enter into, any agreement
relating to the right of stockholders of the Company to vote any shares of its
capital stock, except as provided in the Merger Agreement; (vi) amend its
certificate of incorporation and bylaws; (vii) merge or consolidate with
another company, or, except as provided in the Merger Agreement, make any
material acquisition of or investment in the assets or securities of any other
company; (viii) change the accounting principles or methods currently
employed, except as required by generally accepted accounting principles or
applicable regulatory requirements; (ix) sell or otherwise dispose of any
material amount of its properties or assets, subject to certain exceptions;
(x) enter into, accelerate or cancel any individual or group of related
contracts of an amount in excess of $50,000, subject to certain exceptions;
(xi) amend, modify, waive or fail to enforce any provision of, or its rights
under, the 1993 Agreement; (xii) incur any material amount of indebtedness,
other than deposits and other indebtedness incurred in the ordinary course of
business consistent with past practice; (xiii) other than in the ordinary
course of business consistent with past practice, assume or guarantee the
obligations of any other person or cancel or modify any material amount of
indebtedness of any other person; (xiv) make any loan or advance in excess of
$250,000 or other than in the ordinary course of business consistent with past
practice; (xv) authorize or make any capital expenditures, other than in the
ordinary course of business consistent with past practice and other than
capital expenditures for replacements and repairs in amounts less than $50,000
in the aggregate; (xvi) enter into or amend any employment or similar
agreements, or increase any compensation, subject to certain exceptions;
(xvii) terminate the employment of any employee, except in the ordinary course
of business and consistent with past practice; (xviii) amend or create any
employee benefit plans or compensation arrangements, subject to certain
exceptions; (xix) knowingly take any action that would materially and
adversely affect the ability of any party to the Merger Agreement to obtain,
on or before July 31, 1997, any necessary regulatory approvals for the Merger;
and (xx) authorize or enter into an agreement to take any of the foregoing
actions. In addition, the Company has agreed not to enter into, without prior
consultation with Dime, any settlement or similar agreement with respect to
certain actions, suits or proceedings, other than actions, suits or
proceedings relating solely to the collection of any loan or other extension
of credit in default or to the realization on any related collateral.
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CERTAIN COVENANTS
Pursuant to the Merger Agreement, each of the Company and Dime has made
various covenants customary to transactions of this type, including, among
others, that each party will use all reasonable efforts to take or cause to be
taken all actions necessary, proper or advisable to consummate the Merger on a
prompt basis and that the Company will provide Dime with access to certain
books and records of, and other information regarding the Company.
The Company further agreed, prior to the Effective Time, consistent with
generally accepted accounting principles and regulatory accounting principles,
to use its best efforts to establish and take such reserves and accruals as
Dime shall reasonably request to conform, on a mutually satisfactory basis,
the Company's loan, litigation and other reserve and real estate valuation
policies to Dime's policies. However, the Company will not be obligated to
take any such action unless and until the Company is satisfied that the
conditions to the obligation of the parties to consummate the Merger will be
satisfied or waived on or before the Effective Time, and in no event until the
day prior to the Effective Time. The representations, warranties and covenants
of the Company contained in the Merger Agreement will not be deemed to be
untrue or breached in any respect for any purpose as a consequence of any
action undertaken by the Company pursuant to this provision and any such
actions taken by the Company will not constitute grounds for termination of
the Merger Agreement by Dime.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
In addition, the Company has agreed that neither it (including its officers,
directors, employees and agents) nor any of its subsidiaries will, directly or
indirectly, initiate, solicit or encourage inquiries or proposals, furnish any
information relating to, or participate in any discussions with any entity
other than Dime, with respect to a merger, business combination or similar
transaction, or any purchase of all or any substantial part of the assets of
any equity securities of the Company or its subsidiaries, except where the
failure to furnish such information or participate in such discussions would
constitute a breach of the fiduciary obligations of the Company's Board of
Directors, based on the written advice of outside counsel. The Company has
also agreed to notify Dime if it receives any inquiries or proposals with
respect to the foregoing.
EFFECT ON EMPLOYEES AND BENEFIT PLANS; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that Dime will indemnify and hold harmless the past and present
directors and officers of the Company and its subsidiaries against certain
liabilities for six years following the Effective Time to the fullest extent
to which directors and officers of the Company would have been entitled under
Delaware or other applicable law on the date of the Merger Agreement (and Dime
will pay expenses in advance of the final disposition of any action or
proceeding to the extent permissible under Delaware law; provided, that the
person to whom expenses are advanced provides an undertaking to repay such
expenses if it is ultimately determined that such person is not entitled to
indemnification). In addition, Dime will use reasonable efforts to maintain
for a period of three years following the Effective Time the Company
directors' and officers' liability insurance policy to cover those persons
serving as officers and directors of the Company immediately prior to the
Effective time, provided that Dime will not be required to expend more than
200% of the current amount expended by the Company for such coverage. If Dime
is unable to maintain or obtain such coverage, Dime will use reasonable
efforts to obtain comparable coverage for no more than the amount set forth
above. Dime has agreed that any successor will be required to assume its
obligations to provide the indemnifications set forth herein.
Advisory Board. Promptly following the Effective Time, Dime has agreed to
appoint members of the Board of Directors of the Company, who are not also
officers or employees of the Company, to a newly formed advisory board to Dime
Savings. The persons who will be appointed must be nominated by the Company
and willing to serve on such board for one year. The functions of the members
of the advisory board will be determined by the board of directors of Dime
Savings. The members of the advisory board will receive $25,000 for one year
of service from the Effective Time. The advisory board will terminate on the
first anniversary of the Effective Time. Dime Savings reserves the right to
request and receive the resignation of a member of the
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advisory board if it is determined that such member has a conflict of interest
or other circumstances exist which compromise the member's ability to
effectively serve on the board.
Employees--General. The Merger Agreement provides that, as of the Effective
Time, the employees of the Company and its subsidiaries will be employed by
Dime upon terms and conditions no less favorable than those generally afforded
to other employees of Dime and its subsidiaries. Employees of the Company or
Bankers Federal who are employed by Dime will be entitled to credit for
service with the Company or Bankers Federal prior to the Effective Time for
purposes of determining any length-of- service requirements, waiting periods,
eligibility periods, vesting periods or differential benefits based upon any
length-of-service requirements under any employee benefit plan but not for
pension benefit accrual purposes. The Company is permitted, as an exception to
its covenants, to enact a severance policy for employees who are not covered
by any other employment or severance agreement or plan. Nothing in the Merger
Agreement requires Dime to employ any officer or employee of the Company or
its subsidiaries on or after the Effective Time, or prevents Dime from
amending or terminating any Company employee benefit or compensation plan
after the Effective Time.
Employment Agreements with Executive Officers. The Company and Bankers
Federal have each entered into a restated employment agreement with Mr. James
Randall, each dated August 1, 1996, and Bankers Federal has entered into
employment agreements with each of Messrs. Gerard Perri and Israel Rosenzweig
(each, an "Executive Officer"), also dated as of August 1, 1996 (collectively,
the "Employment Agreements"). See "PROPOSAL 2--ELECTION OF DIRECTORS--
Employment Agreements" herein, for further information on the Employment
Agreements.
Pursuant to the Merger Agreement, Dime agrees to honor in accordance with
their terms all Employment Agreements, provided that Dime will be free to
amend or terminate any or all such Employment Agreements, in accordance with
their terms. In the event of the termination of the Employment Agreements, or
in the event of certain voluntary terminations or an involuntary termination
of employment of one of the Executive Officers covered by an employment
agreement in connection with or following a change in control, Bankers
Federal, or in the case of Mr. Randall, either Bankers Federal or the Company,
shall pay a severance benefit to the Executive Officer pursuant to the terms
of the employment agreement. The Employment Agreements also provide that in
the event of termination of employment in connection with or following a
change in control, each Executive Officer shall be entitled to continued
health, life and disability insurance coverage for certain specified periods.
If their employment is terminated as a result of the Merger, Messrs.
Randall, Perri, and Rosenzweig would be entitled to a cash payment equal to
$1,521,000, $411,350, and $582,500, respectively. The Company has made a
payment to Mr. Randall of $500,000, representing a partial pre-payment of the
severance which would become payable to him under his employment agreement
upon a termination of his employment following a change in control of the
Company. It is intended that such pre-payment will be repaid to the Company in
the case of Mr. Randall's death, or termination of employment under
circumstances not amounting to an Event of Termination (as defined in the
employment agreement), prior to consummation of the Merger.
Special Termination Agreement. In addition, the Company had entered into an
eighteen month special termination agreement with Mr. Edward Powers. The
special termination agreement provided for payment of a severance benefit to
Mr. Powers in the event of his involuntary termination of employment other
than for "cause" or certain voluntary terminations of employment following a
"change in control." See "PROPOSAL 2--ELECTION OF DIRECTORS--Special
Termination Agreement", for further information on the Special Termination
Agreement. However, pursuant to an agreement with the Bank, Mr. Powers will
take an early retirement from the Bank, effective March 1, 1997, and in
connection therewith, the Bank will supplement his retirement benefit through
payments with an aggregate present value of $150,000. This supplement is in
lieu of any severance payment to which he would be entitled under the Special
Termination Agreement upon termination following a change in control.
Severance Compensation Plan. Bankers Federal has established a Severance
Compensation Plan ("Severance Plan"), pursuant to which certain officers and
employees who are not parties to a written
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employment or severance agreement with the Bank will be entitled to a
severance payment in the event of certain voluntary terminations of employment
(as set forth in the Severance Plan) or an involuntary termination of
employment other than for "cause" at or after a change in control of the
Company or Bankers Federal. See "PROPOSAL 2--ELECTION OF DIRECTORS--Severance
Compensation Plan" below, for further information on the Severance Plan. Dime
has agreed to honor the Severance Plan in accordance with its terms, provided
that Dime will be free to amend or terminate such plan, in accordance with its
terms, at or following the Effective Time. The aggregate payment to all
participants in the Severance Plan assuming no such participant is employed by
Dime upon consummation of the Merger would be approximately $1,278,350.
Employee Stock Ownership Plan. The Merger Agreement provides that the BFS
Bankorp Employee Stock Ownership Plan ("ESOP") shall be terminated by the
Company as of the Effective Time. Prior to termination, the ESOP will be
amended to provide that, in the event of the termination of the ESOP,
participants in the ESOP will be entitled to rollover the amounts then
credited to their respective accounts under the ESOP to the 401(k) Savings
Plan maintained by Dime. In connection with the termination of the ESOP, all
participant account balances under the ESOP shall become fully vested. As of
January 27, 1997, the ESOP held 44,878 shares of Common Stock, all of which
shares had been allocated to the account of employees.
Stock Options and Restricted Stock. The Executive Officers and certain
employees of the Company and Bankers Federal have been granted stock options
to purchase an aggregate of 134,471 shares of Common Stock under the 1988,
1989, and 1994 Incentive Stock Option Plans of the Company (collectively, the
"Incentive Stock Option Plans"). The Merger Agreement provides that all
options to purchase shares of Common Stock that are outstanding immediately
prior to the Effective Time, whether or not exercisable, shall be canceled by
the Company and shall thereafter represent the right to receive (immediately
prior to the Effective Time) consideration in an amount computed by
multiplying (a) the excess, if any, of the Merger Consideration over the per
share exercise price of the option by (b) the number of shares subject to such
option. The Merger Agreement further provides that the Company will terminate,
at its sole cost and expense, the Company's stock plans, including the
Incentive Stock Option Plans. See "PROPOSAL 2--ELECTION OF DIRECTORS--
Incentive Stock Option Plans" regarding the ownership of stock options by
certain officers of the Company.
Under the 1994 Directors Stock Plan, each outside Director of the Bank and
each outside Director of the Company is granted an award of restricted Common
Stock, as of the date of each Annual Meeting of Stockholders of the Company.
See "PROPOSAL 2--ELECTION OF DIRECTORS--Directors' Compensation--Directors
Stock Plan", for details of the plan. The consummation of the Merger will
terminate restrictions on shares of restricted stock granted pursuant to the
1994 Directors Stock Plan. Consistent with past practice and the terms of the
1994 Directors Stock Plan, the outside directors of each of the Company and
Bankers Federal will become entitled to receive restricted shares of Common
Stock at the time of the Annual Meeting. In lieu of receiving such shares of
Common Stock, Dime and the Company have agreed that outside directors who
serve on the boards of both the Company and Bankers Federal will receive a
cash payment of $7,500 each, and outside directors who serve on the board of
Bankers Federal only will receive a cash payment of $4,500 each. The 1994
Directors Stock Plan will be amended in order to make such cash payment in
lieu of restricted stock awards.
Supplemental Executive Retirement Plan. The Company has adopted a
Supplemental Executive Retirement Plan ("SERP") for certain senior executives
of the Company. Presently, Mr. Randall is the only participant in the SERP.
The SERP supplements the benefits payable under the Retirement Plan and ESOP.
See "PROPOSAL 2--ELECTION OF DIRECTORS--Supplemental Executive Retirement
Plan" for a description of the basic features of the SERP. In the event of the
participant's termination of employment in connection with a change of control
(as defined in the SERP), the participant's SERP benefit shall become
immediately due and payable in a lump sum amount equal to the sum of (i) the
present actuarial value of the supplemental Retirement Plan benefit and (ii)
the present value of the supplemental ESOP benefit. At September 30, 1996, the
present value of Mr. Randall's supplemental Retirement Plan benefit was
$22,755 and the present value of his supplemental ESOP benefit was
approximately $15,830.
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TERMINATION; TERMINATION FEE
The Merger Agreement provides that, either before or after the approval of
the Merger by the stockholders of the Company, the Merger Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time,
under certain circumstances, including the following: (i) by mutual consent of
the Company and Dime; (ii) by either the Company or Dime (a) upon certain
uncured breaches of the representations, warranties or covenants of the other
party; (b) if the Merger is not consummated on or prior to July 31, 1997
(unless the failure to consummate the Merger is due to the action or failure
to act of the party seeking to terminate); (c) if any required governmental
approval has been denied or required to be withdrawn, or the applicable
governmental authority has indicated an intention to deny or impose a
condition which would result in a material adverse effect on the Company or
Dime Savings (unless the failure of such occurrence is due to the failure of
the party seeking to terminate to perform its obligations under the Merger
Agreement); or (d) if the Merger Agreement is not approved by the requisite
vote of the stockholders of the Company; (iii) by Dime, (x) if the Board of
Directors of the Company fails to recommend the Merger to the Company's
stockholders or withdraws, modifies or qualifies its recommendation in a
manner adverse to Dime, or (y) the Board of Directors of the Company
participates in (or authorizes participation in) negotiations regarding the
substantive terms of a formal Acquisition Proposal (as defined in the Merger
Agreement); or (iv) by the Company, if without breaching certain provisions of
the Merger Agreement, the Company enters into a definitive agreement with a
third party providing for an Acquisition Transaction (as defined in the Merger
Agreement) on terms determined by the Board of Directors of the Company, in
its sole discretion, after consultation with and considering the advice of its
legal and financial advisors, to be more favorable to the stockholders of the
Company than the Merger.
Pursuant to the Merger Agreement, the Company has agreed to pay Dime a
termination fee of $3.0 million in the event the Merger Agreement is
terminated by Dime pursuant to clauses (iii)(x) above or by the Company
pursuant to clause (iv) above, and prior thereto or within 18 months after
such termination a "Trigger Event" occurs. A "Trigger Event" is defined in the
Merger Agreement to mean (i) the Company entering into an agreement to engage
in an "Acquisition Transaction" or an Acquisition Transaction shall have
occurred; or (ii) the Board of Directors of the Company authorizes or approves
an Acquisition Transaction or publicly announces an intention to authorize or
approve an Acquisition Transaction or recommends that the stockholders of the
Company approve or accept an Acquisition Transaction. The term "Acquisition
Transaction" is defined in the Merger Agreement to mean: (i) a merger or
consolidation, or any similar transaction, involving the Company or any of its
significant subsidiaries; (ii) a purchase, lease or other acquisition of all
or substantially all of the assets or deposits of the Company or any of its
significant subsidiaries; or (iii) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of securities
representing 25% or more of the voting power of the Company or any of its
significant subsidiaries, in each case other than with or by Dime or a
subsidiary of Dime.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the DGCL, any holder of Common Stock who does not
wish to accept the consideration to be paid pursuant to the Merger Agreement
may dissent from the Merger and elect to have the fair value of his shares of
Common Stock (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) judicially determined and paid to
him in cash, provided that he complies with the provisions of Section 262.
The following is a brief summary of the statutory procedures to be followed
by a holder of Common Stock in order to dissent from the Merger and perfect
appraisal rights under the DGCL. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE TEXT OF
WHICH IS ATTACHED AS ANNEX E TO THIS PROXY STATEMENT.
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If any holder of Common Stock elects to exercise his right to dissent from
the Merger and demand appraisal, such stockholder must satisfy each of the
following conditions:
(i) such stockholder must deliver a written demand for appraisal of his
shares to the Company before the taking of the vote with respect to the
Merger Agreement (this written demand for appraisal must be in addition to
and separate from any proxy or vote against the Merger Agreement; neither
voting against, abstaining from voting nor failing to vote on the Merger
Agreement will constitute a demand for appraisal within the meaning of
Section 262);
(ii) such stockholder must not vote in favor of the Merger Agreement (a
failure to vote will satisfy this requirement, but a vote in favor of the
Merger Agreement, by proxy or in person, or the return of a signed proxy
which does not specify a vote against approval and adoption of the Merger
Agreement or a direction to abstain, will constitute a waiver of such
stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal); and
(iii) such stockholder must continuously hold such shares from the date
of the making of the demand through the Effective Time.
If any stockholder fails to comply with any of these conditions and the
Merger becomes effective, he will be entitled to receive the consideration
provided for in the Merger Agreement, but will have no appraisal rights with
respect to his shares of Common Stock.
All written demands for appraisal should be delivered to: Gerard A. Perri,
Secretary, BFS Bankorp, Inc., 110 William Street, New York, New York 10038,
before the taking of the vote concerning the Merger Agreement at the Annual
Meeting, and should be executed by, or on behalf of, the holder of record.
Such demand must reasonably inform the Company of the identity of the
stockholder and that such stockholder is thereby demanding appraisal of his
shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL MUST BE EXECUTED BY OR FOR THE
STOCKHOLDER OF RECORD WHO HELD SUCH SHARES ON THE DATE OF MAKING SUCH DEMAND,
AND WHO CONTINUOUSLY HOLDS SUCH SHARES THROUGH THE EFFECTIVE TIME, FULLY AND
CORRECTLY, AS SUCH STOCKHOLDER'S NAME APPEARS ON HIS STOCK CERTIFICATE(S) AND
CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE DOES NOT ALSO HOLD THE SHARES OF
RECORD. THE BENEFICIAL HOLDER MUST, IN SUCH CASE, HAVE THE REGISTERED OWNER
SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH SHARES.
If Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity. If Common Stock is owned of record by more than one
person, as in a joint tenancy in common, such demand must be executed by or
for all joint owners. An authorized agent, including one of two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, he is acting as agent for the
record owner. A record owner, such as a broker, who holds Common Stock as a
nominee for others may exercise his right of appraisal with respect to the
shares held for one or more beneficial owners, while not exercising such right
for other beneficial owners. In such case, the written demand should set forth
the number of shares as to which the record owner dissents. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
of Common Stock in the name of such record owner.
Within ten days after the Effective Time, the Company (as the surviving
corporation in the Merger) must give written notice that the Merger has become
effective to each stockholder who so filed a written demand for appraisal and
who did not vote in favor of the Merger Agreement. Within 120 days after the
Effective Time, but not thereafter, either the Company, or any holder of
shares of Common Stock who has complied with the requirements of Section 262,
may file a petition in the Delaware Court of Chancery (the "Court of
Chancery") demanding a determination of the value of the shares of Common
Stock held by all stockholders entitled to appraisal. The Company does not
presently intend to file such a petition. Inasmuch as the Company has no
obligation to file such a petition, the failure of a stockholder to do so
within the period specified could nullify such stockholder's previous written
demand for appraisal. In any event, at any time within 60 days after the
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Effective Time (or at any time thereafter with the written consent of the
Company, and the approval of the Court of Chancery), any stockholder who has
demanded appraisal has the right to withdraw the demand and to accept payment
of the consideration provided in the Merger Agreement.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the surviving corporation, upon written request, a statement
setting forth the aggregate number of shares not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. The Company must mail such
statement to the stockholder within 10 days of receipt of such request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to the Company, the Company will then be obligated within
20 days to provide the Court of Chancery with a duly verified list containing
the names and addresses of all stockholders who have demanded an appraisal of
their shares and with whom agreement as to the value of such shares has not
been reached. After notice to such stockholders, the Court of Chancery is
empowered to conduct a hearing upon a petition to determine those stockholders
who have complied with Section 262 and who have become entitled to appraisal
rights under that Section. The Court of Chancery may require the stockholders
who demanded payment for their shares to submit their stock certificates to
the Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Court of Chancery may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
of Chancery will appraise the shares of Common Stock, determining their fair
value exclusive of any element of value arising from the accomplishment and
expectation of the Merger. When the value is so determined, the Court will
direct the payment by the Company of such value, with interest thereon, simple
or compound, if the Court so determines, to the stockholders entitled to
receive the same, upon surrender to the Company by such stockholders of the
certificates representing such Common Stock.
In determining fair value, the Court of Chancery will take into account all
relevant factors. In Weinberger v. UOP, Inc., decided February 1, 1983, the
Delaware Supreme Court expanded the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that, in making this determination of fair value, the Court of Chancery
must consider market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which could be ascertained as of
the date of the merger that throw any light on future prospects of the merged
corporation.
Section 262 provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger." In
Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Stockholders considering seeking appraisal
should bear in mind that the fair value of their shares of Common Stock
determined under Section 262 could be more than, the same as or less than the
consideration they are to receive pursuant to the Merger Agreement if they do
not seek appraisal of their shares of Common Stock, and that an opinion of an
investment banking firm as to fairness is not an opinion as to fair value
under Section 262.
Costs of the appraisal proceeding may be assessed against the parties
thereto by the court as the court deems equitable in the circumstances. Upon
the application of any stockholder, the court may determine the amount of
interest, if any, to be paid upon the value of the stock of stockholders
entitled thereto. Upon application of a stockholder, the court may order all
or a portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, to be charged pro rata against the
value of all shares entitled to appraisal. Any stockholder who has
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demanded appraisal rights will not, after the Effective Time, be entitled to
vote the stock subject to such demand or to receive the payment of the
consideration provided for in the Merger Agreement. However, if no petition
for an appraisal is filed within 120 days after the Effective Time or if such
stockholder delivers to the surviving corporation a written withdrawal of his
demand for an appraisal and an acceptance of the Merger, either within 60 days
after the Effective Time or thereafter with the written approval of the
surviving corporation, then the right of such stockholder to an appraisal will
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery will be dismissed as to any stockholder without the approval of the
court, and such approval may be conditioned upon such terms as the court deems
just.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SUMMARIZED ABOVE AND SET
FORTH IN ANNEX E WILL CAUSE THE STOCKHOLDER TO LOSE HIS RIGHTS OF APPRAISAL.
CONSEQUENTLY, ANY STOCKHOLDER WHO DESIRES TO EXERCISE HIS DISSENTER'S RIGHTS
IS URGED TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
NO FURTHER NOTICE OF THE EVENTS GIVING RIGHTS TO APPRAISAL RIGHTS OR ANY STEPS
ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF COMMON STOCK, EXCEPT AS
INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of material federal income tax consequences of the
Merger under present law is for general information only and does not purport
to be a complete analysis of all tax consequences that may be relevant to any
particular stockholder. Certain holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, employee stockholders, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. The discussion assumes that each stockholder holds shares
of Common Stock as a capital asset. However, certain stockholders who are
employees or directors of BFS Bankorp will not be entitled to treat certain of
the shares which they may have acquired from BFS Bankorp (e.g., through
Company stock benefit plans) as capital assets or a portion of the gain on the
sale of such shares as capital gain because they will be required to report
any gain on the sale of the shares as taxable compensation from the Company.
The receipt of cash in exchange for shares of Common Stock pursuant to the
Merger will be treated as a sale or exchange of the shares of Common Stock for
federal income tax purposes, and may also be a taxable transaction for state,
local and other tax purposes. Each stockholder will recognize gain or loss for
federal income tax purposes generally in an amount equal to the difference
between the amount of cash received and the cost or other tax basis of his,
her or its shares of Common Stock surrendered. Except for gain attributable to
certain shares owned by employees or directors of BFS Bankorp as described
above, gain or loss on the sale of shares will be long-term capital gain or
loss if the shares of Common Stock have been held by the stockholder for more
than one year. Otherwise, gain or loss will be short-term capital gain or
loss. The holding period with respect to the shares of Common Stock must be
calculated separately with respect to each block of shares of Common Stock
held by a stockholder.
Net capital gains of corporate taxpayers (i.e., the excess of net long-term
capital gain over net short-term capital loss) and ordinary income are taxed
at the same rate, to a maximum of 35% except as to certain taxpayers which
have taxable income in excess of $15 million in which case the tax can
increase to the lesser of 3% of such excess income over $15 million or
$100,000. For non-corporate taxpayers, the maximum tax rate on long-term
capital gains is generally 28%. However, the maximum tax rate on ordinary
income and short-term capital gains is 36%, and, in general, for taxpayers who
have taxable income in excess of $250,000, the effective tax rate on the
excess net income is 39.6%. However, for certain categories of taxpayers such
as for trusts and estates and married taxpayers who elect to file separate
returns, the 39.6% tax bracket rate is applicable to net income below
$250,000. The distinction between capital gains and ordinary income is
relevant in that taxpayers may be limited in their ability to deduct net
capital losses (which may be deducted in full against capital gains) against
ordinary income. The receipt of cash for shares of Common Stock may be subject
to backup withholding at the rate of 31% unless the holder (i) is a
corporation or comes within certain other exempt categories, or (ii) provides
a certified taxpayer identification number and otherwise complies with the
back-up withholding rules. Back-up withholding is not an additional tax; any
amounts so withheld may be credited against the federal income tax
26
<PAGE>
liability of the person subject to the withholding. The back-up withholding
rate should be checked to make sure it has not been changed. There is no
assurance that applicable tax laws will not change prior to the Effective
Time.
The receipt by the Trustee of the Company's Employee Stock Ownership Plan
(the "ESOP") of cash for shares of Common Stock pursuant to the Merger will
not have any income tax consequences for any ESOP participant. The Merger
Agreement requires the termination of the ESOP prior to the Effective Time, as
a result of which there will be an eventual distribution of the ESOP account
balances to the respective ESOP participants, subject to limitations under
ERISA and the Code.
For Federal income tax purposes, any amount distributed to an ESOP
participant will generally be taxable to the participant as ordinary income in
the year of receipt, except to the extent that such amount is reinvested in a
qualified individual retirement account or annuity or another tax-qualified
retirement plan within sixty (60) days of its receipt by the participant.
Pursuant to Section 401(a)(31) of the Code, an ESOP participant may require
the ESOP Trustee to transfer the distribution amount directly to the trustee
of a tax-qualified defined-contribution retirement plan which permits such
transfers. Unless the ESOP distribution is made in such a direct trustee-to-
trustee transfer, Federal income tax must be withheld by the ESOP Trustee at a
rate of twenty percent (20%). An amount equal to the entire distribution can
still be rolled over tax-free by the ESOP participant (in the manner described
in the first sentence of this paragraph); the ESOP participant can then apply
for a refund of the withheld tax at the end of the tax year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS AND ESOP
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCE OF THE MERGER TO THEM, INCLUDING THE APPLICATION AND
EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction. Under the
purchase method of accounting, the assets and liabilities of the Company will
be recorded on the consolidated financial statements of Dime at their
respective fair value at the Effective Time. Any excess of the value of the
consideration paid by Dime over the fair value of the Company's identifiable
net assets acquired, less liabilities assumed, will be recorded as intangible
assets.
EXPENSES
Each of Dime and the Company will bear and pay all costs and expenses
incurred by it or on its behalf in connection with the Merger and the Bank
Merger, including fees and expenses of its own financial or other consultants,
investment bankers, accountants and counsel. All costs and expenses of
preparing, printing and mailing of this Proxy Statement and all other fees
paid to the SEC in connection with the Merger shall be borne equally by Dime
and the Company.
27
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
The Common Stock is traded on the over-the-counter market and is reported
for quotation on the Nasdaq National Market System under the symbol "BFSI." On
September 30, 1996, there were 1,635,488 shares of Common Stock issued and
outstanding, which were held by approximately 307 stockholders of record. No
cash dividends have been paid on the Common Stock.
The following table sets forth the quarterly high and low per share closing
sales prices of the Common Stock for each of the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Quarter Ended:
December 31, 1994.............................................. $27.75 $22.25
March 31, 1995................................................. 25.75 23.00
June 30, 1995.................................................. 26.75 23.00
September 30, 1995............................................. 33.50 22.25
December 31, 1995.............................................. 36.25 32.00
March 31, 1996................................................. 37.50 35.25
June 30, 1996.................................................. 39.75 36.00
September 30, 1996............................................. 55.00 37.75
December 31, 1996.............................................. 53.50 47.50
March 31, 1997 (through February 5, 1997)...................... 51.00 49.25
</TABLE>
On December 2, 1996, the last trading day prior to public announcement of
the Merger Agreement, the last sales price of Common Stock on the NASDAQ
National Market System was $50.00 per share. On February 5, 1997, the most
recent practicable date prior to the printing of this Proxy Statement, the
last reported sales price of Common Stock was $50.50 per share. STOCKHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
PROPOSAL 2--ELECTION OF DIRECTORS
In accordance with the Bylaws of the Company, the number of directors is
currently set at four. Each of the members of the Board of Directors of the
Company also serves on the Board of Directors of the Bank. Directors are
elected for staggered terms of three years each, with the term of office of
only one class of directors expiring in each year. Directors serve until their
successors are elected and qualified.
The nominees proposed by the Board for election at this Annual Meeting are
Fredric H. Gould and Todd M. Poland, each of whom is presently a Director of
the Company. In the event the Merger is consummated, the directors nominated
will not continue to serve as directors of the Company or of Dime, although
they will serve as advisory directors to Dime Savings for a one year term. Set
forth below is certain information concerning the nominees and the other
members of the Board as of January 27, 1997. The Board believes that such
nominees will stand for election and will serve if elected as Directors.
However, if the nominees proposed by the Board of Directors fail to stand for
election or are unable to accept election, the proxies will be voted for the
election of such other person as the Board of Directors may recommend. Set
forth below is certain information concerning the nominees, other members of
the Board and certain executive officers as of the Record Date.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES WHOSE NAMES APPEAR BELOW.
28
<PAGE>
NOMINEES
<TABLE>
<CAPTION>
TERM TO EXPIRE AMOUNT AND NATURE OF
NAME, PRINCIPAL OCCUPATION AND FOLLOWING FISCAL YEAR BENEFICIAL OWNERSHIP PERCENT
BUSINESS EXPERIENCE FOR PAST 5 YEARS ENDING SEPTEMBER 30, OF STOCK(1) OF CLASS
- - ------------------------------------ --------------------- -------------------- --------
<S> <C> <C> <C>
Fredric H. Gould, Age 61.... 1999 891,664(2) 53.71%
Mr. Gould was appointed a
Director of the Company and
the Bank in April 1990. He
is Chairman of the Board of
BRT Realty Trust, a real
estate investment trust,
Vice Chairman of Georgetown
Partners, Inc., and
Chairman of the Board of
One Liberty Properties,
Inc., a publicly-traded
real estate company. Prior
to May, 1996, Mr. Gould was
President of Georgetown
Partners, Inc., which is
the managing general
partner of Gould Investors
L.P., a publicly-traded
real estate partnership.
Mr. Gould also is a
director of Sunstone Hotel
Investors, Inc., a real
estate investment trust.
Todd M. Poland, Age 49...... 1999 6,567 0.40%
Mr. Poland has been a
Director of the Bank since
September 1989 and of the
Company since February
1990. He is a Partner in
McCarter & English, Newark,
New Jersey, a law firm.
CONTINUING DIRECTORS
James A. Randall, Age 41.... 1997 160,060(3) 9.19%
Mr. Randall has been
President and Chief
Executive Officer of the
Company and the Bank since
August 1989. He has been a
Director of the Bank since
1986 and of the Company
since March 1988.
Eldon C. Hanes, Age 72...... 1998 7,314 0.44%
Mr. Hanes has been Chairman
of the Board of Directors
of the Company since August
1987 and of the Bank since
January 1987. He has been a
Director of the Bank since
1970. He retired as a Vice
President of AT&T
Information Systems in 1985
and he has been employed by
Syska & Hennessy Inc., an
engineering firm, as a
consultant and assistant to
the Chairman since then.
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME, PRINCIPAL OCCUPATION AND BENEFICIAL OWNERSHIP PERCENT
BUSINESS EXPERIENCE FOR PAST 5 YEARS OF STOCK(1) OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Israel Rosenzweig, Age 49...................... 247 0.01%
Executive Vice President and Chief Lending
Officer since 1994; Bank Director since
November 1993; President and Chief Executive
Officer of BRT Realty Trust from 1984 to 1994.
He is a director of Nautica Enterprises, Inc.,
a men's clothier company.
Gerard A. Perri, Age 41........................ 15,328(4) 0.92%
Senior Vice President and Chief Financial
Officer.
Edward Powers, Age 59.......................... 21,269(5) 1.27%
Senior Vice President and Chief Retail Banking
Officer.
All directors and executive officers as a group
(nine persons)................................ 1,135,480(6)(7) 64.45%
</TABLE>
- - --------
(1) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares
reported.
(2) Includes 891,664 shares owned by Gould BFS, Inc. As discussed under
"PROPOSAL 1--THE MERGER--Voting Agreements," Gould has agreed with Dime,
among other things and subject to certain exceptions, to vote shares of
Common Stock beneficially owned by Gould in favor of approval of the
Merger Agreement. Mr. Gould's appointment to the Board of Directors is in
accordance with an agreement between the Company, Mr. Gould and certain
parties related to Mr. Gould. See "Certain Agreements."
(3) Includes 82,203 shares that may be acquired pursuant to presently
exercisable stock options. As discussed under "PROPOSAL 1--THE MERGER--
Voting Agreements," Mr. Randall has agreed with Dime, among other things
and subject to certain exceptions, to vote shares of Common Stock
beneficially owned by him in favor of approval of the Merger Agreement.
(4) Includes 9,000 shares that may be acquired pursuant to presently
exercisable stock options.
29
<PAGE>
(5) Includes 10,268 shares that may be acquired pursuant to presently
exercisable stock options.
(6) Includes 33,031 shares owned by two persons who are Directors of the Bank,
but not Directors of the Company. Also includes 101,471 shares that may be
acquired pursuant to presently exercisable stock options.
(7) Includes 10,398 shares of Common Stock owned by the Company's ESOP and
allocated to the accounts of executive officers, and 1,670 shares held by
the ESOP and allocated to the account of a director of the Bank who is
also a former executive officer of the Bank and the Company, as to which
shares the individuals may direct the voting. Excludes the remaining
34,480 shares owned by the ESOP, for the benefit of the employees of the
Company and the Bank. The ESOP Administrative Committee administers the
ESOP. Under the terms of the ESOP, shares of Common Stock allocated to the
account of employees are voted in accordance with the instructions of the
respective employees. Unallocated shares are voted by the ESOP Trustee as
directed by the Administrative Committee. The Administrative Committee
shall vote the unallocated shares in a manner that reflects the directions
received from employees as to allocated shares, unless their fiduciary
duties require otherwise.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Persons and groups owning in excess of 5% of the Company's Common Stock are
required to file certain reports regarding such ownership with the Company and
with the SEC, in accordance with the Exchange Act. The following table sets
forth information regarding persons known to be beneficial owners of more than
5% of the Company's Common Stock outstanding as of January 27, 1997. As
discussed under "PROPOSAL 1 -- THE MERGER--Voting Agreements," both the
following have agreed with Dime, among other things and subject to certain
exceptions, to vote shares of Common Stock beneficially owned by them in favor
of approval of the Merger Agreement.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
---------------- ----------------- --------
<S> <C> <C>
Gould BFS, Inc. ..................................... 891,664(1) 53.71%
60 Cutter Mill Road
Great Neck, New York 11021
James A. Randall..................................... 160,060(2) 9.19%
110 William Street
New York, New York 10038
</TABLE>
- - --------
(1) Gould Investors, L.P. is the sole stockholder of Gould BFS, Inc. Fredric
H. Gould, a director of the Company, is the sole director and President of
Gould BFS, Inc. The shares reported include shares owned by Mr. Gould.
(2) Includes 82,203 shares of Common Stock that may be acquired pursuant to
presently exercisable stock options.
CERTAIN AGREEMENTS
On May 6, 1993, the Company, and Gould Investors L.P. and Fredric H. Gould
(collectively referred to as "Gould"), entered into an agreement dated as of
April 3, 1993 (the "1993 Agreement"), which replaced a previous agreement
between the parties that had expired. The 1993 Agreement was amended in May
1995. Also in 1995, Gould Investors L.P. transferred the shares of Common
Stock owned by it to Gould BFS, Inc. (references to "Gould" shall include
Gould BFS, Inc.). As discussed under "PROPOSAL 1--THE MERGER--Voting
Agreements," Gould has agreed with Dime, among other things and subject to
certain exceptions, to vote shares of Common Stock beneficially owned by Gould
in favor of approval of the Merger Agreement. The following is a summary of
the terms of the 1993 Agreement, as amended:
1. Gould agreed to purchase, for a consideration of $1,650,000, an
adjustable rate non-convertible debenture due April 3, 1996 in the original
principal amount of $1,650,000. The purchase of the debenture was
consummated on May 7, 1993. The debenture was paid in full upon maturity.
30
<PAGE>
2. The Company agreed to convene a special meeting of its stockholders to
vote upon an amendment to its Certificate of Incorporation to eliminate the
10% voting limitation (the "Amendment"). The voting limitation provided
that shares of voting stock held by a stockholder in excess of 10% of the
outstanding voting securities of the Company did not have voting rights.
The Special Meeting was held on August 18, 1993, and the Amendment was
approved.
3. Upon receipt of all requisite regulatory approvals from the OTS, Gould
agreed to purchase, and the Company agreed to sell to Gould, for a
consideration of $1,650,000, 150,000 shares of the Common Stock. This
transaction was consummated on August 2, 1993.
4. For a period of two years ended April 3, 1995, Gould agreed that it
would not acquire in excess of 50% of the voting securities of the Company
or solicit proxies as to such voting securities. In computing the 50%
amount, the shares of Common Stock of the Company which Gould purchased as
referred to in paragraph 3 above, and all outstanding options and warrants,
were not to be deemed outstanding.
5. Gould has the right to propose a person for election and appointment
to the Board of Directors of the Bank, the Company's wholly-owned
subsidiary. During the period from April 3, 1993 to October 3, 1995, the
Board of Directors of the Company will not appoint an additional director
to the Board without the prior approval of Gould, except that the Company
may appoint one additional director to the Board who is at the time of
appointment an executive officer of the Bank. After April 3, 1993 and until
termination of the 1993 Agreement, the Board of Directors of the Company
may add a person to the Board, subject to the approval of Gould, which will
not be unreasonably withheld; provided, however, that for each additional
person appointed or elected by the Board, Gould can designate a person
selected by it to serve on the Board, subject to the approval of the Board,
which shall not be unreasonably withheld.
6. Until April 3, 1998, Gould agreed to vote all shares of Common Stock
in favor of any merger agreement approved by a majority of the Board, and
recommended to the stockholders for their approval by the Board, provided
that if Gould beneficially owns 75% or more of the Common Stock the merger
agreement must offer stockholders a per share consideration in excess of
the per share consideration that Gould has offered (at the time of approval
by the Board of a proposal as to a merger agreement) and Gould shall have
been given substantially the same opportunity to submit an offer as any
other party has been given; if Gould owns less than 75% of the Common
Stock, then Gould does not have to vote in favor of a merger unless the per
share consideration being offered by any third party is in excess of the
per share consideration that Gould is willing to offer as determined in an
open bidding process. Any purchaser of shares from Gould will also be
required to vote such shares as provided in the foregoing.
7. The 1993 Agreement terminates on April 3, 1998, provided that it shall
terminate earlier if any party, including Gould, acquires beneficial
ownership of more than 90% of the Common Stock then outstanding.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the fiscal year ended September 30, 1996, the Board of Directors of
the Company held 8 meetings, and the Board of Directors of the Bank held 11
meetings. Each Director of the Company is a Director of the Bank. No Director
of the Company attended fewer than 75% of the total meetings of the Board of
Directors and committees on which such Board member served during this period,
with respect to each of the Company and the Bank.
The Board of Directors of the Company has a nominating committee, consisting
of Directors Gould and Hanes. While the nominating committee will consider
nominees recommended by the stockholders, it has not actively solicited
recommendations from stockholders. Nominations by stockholders must comply
with certain procedural and informational requirements set forth in the
Company's Bylaws. See "ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL
MEETING." Additional appointments to the Board are subject to an agreement
between the Company and Fredric H. Gould and Gould Investors L.P. The
Nominating Committee met once during fiscal 1996.
31
<PAGE>
The Bank's audit committee, consisting of Directors Poland (Chairman) and
Hanes, and Bank Directors Raymond A. Lein and Jane Maas, is responsible for
reviewing audit performance and evaluating policies and procedures relating to
auditing functions and controls. The Bank's audit committee met 9 times during
fiscal 1996.
The Board of Directors of the Bank has an executive committee, consisting of
Directors Hanes (Chairman), Poland, Randall and Gould, which exercises the
authority of the Board when the Board is not in session, subject to applicable
law. The executive committee met 20 times during fiscal 1996. Neither the
Company nor the Bank has a standing compensation committee.
DIRECTORS' COMPENSATION
FEES. Directors of the Bank are paid an annual retainer of $10,000 ($13,000
for the Chairman of the Board). The Chairman of the Audit Committee and the
Savings Committee are also paid an annual retainer of $2,000. In addition, the
Directors are paid a fee of $500 for each Board meeting attended. Directors
are paid a fee of $250 for attendance at Committee meetings, a fee of $200 for
telephone participation at Board meetings, and a fee of $100 for telephone
participation at Committee meetings. Directors of the Company currently do not
receive cash fees for service on the Company's Board.
DIRECTORS STOCK PLAN. Under the 1994 Incentive Stock Plan for Outside
Directors (the "Directors Stock Plan"), each outside director of the Bank is
granted an award of Common Stock, as of the date of each Annual Meeting of
Stockholders of the Company, in an amount equal to $4,500 divided by the
market value of the Common Stock on the grant date. An Award of Common Stock
will be granted to each outside director of the Company, as of the date of
each Annual Meeting of Stockholders of the Company, in an amount equal to
$3,000 divided by the market value of the Common Stock on the grant date. In
connection with the execution of the Merger Agreement, the Company has agreed
that the outside directors will receive cash payments in lieu of restricted
stock awards. Such payments will be made on or about the date of the Annual
Meeting. See "--Effect on Employees and Benefit Plans; Interest of Certain
Persons in the Merger." All Awards under the Directors Stock Plan are subject
to the restriction that if the Common Stock subject to such Award is sold
within five years of the date of grant, 50% of the proceeds of sale would be
required to be returned to the Company. The shares of Common Stock issued
pursuant to any Award will bear a legend reflecting such restriction. The
forfeiture provision would not apply to any sales of Common Stock following
retirement from the Board at the normal director retirement age (73 years of
age) or following the death or disability of an outside director, or to any
sales following a change in control of the Company representing the
acquisition by any person of 75% or more of the Common Stock of the Company.
An aggregate of 10,000 shares are reserved for issuance pursuant to Awards to
be granted under the Directors Stock Plan. As of January 27, 1996, 4,082
shares of Common Stock had been issued under the Directors Stock Plan.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT. Under rules established by the SEC, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chief Executive Officer
and other executive officers of the Company. The disclosure requirements for
the Chief Executive Officer and other executive officers include the use of
tables and a report explaining the rationale and considerations that led to
fundamental executive compensation decisions affecting those individuals. In
fulfillment of this requirement, the following report has been prepared for
inclusion in this proxy statement.
All cash compensation paid to executive officers is paid by the Bank. The
Company does not currently pay cash compensation to executive officers. The
Executive Committee of the Board of Directors of the Bank (the "Committee")
functions as the compensation committee of the Board, making recommendations
to the full Board of Directors as to base salaries and incentive bonus awards.
The members of the Bank's Executive Committee are the four members of the
Board of Directors of the Company, including James A. Randall, President and
Chief Executive Officer of the Company and the Bank. Mr. Randall offers input
and advice as to executive compensation decisions affecting the members of
senior management other than himself. Compensation decisions and
recommendations as to Mr. Randall are made without the participation of
32
<PAGE>
Mr. Randall. The non-employee members of the Committee also administer the
stock compensation plans previously adopted by the Company and/or the Bank.
The primary components of executive compensation in 1996 were base salary
and incentive bonus awards. No stock option grants were made in fiscal 1996.
BASE SALARIES. Base salaries for senior management are reviewed annually on
a cycle that coincides with the Company's September 30 fiscal year end. In
general, the purpose of the annual salary review is to ensure that the Bank's
base salary levels are competitive with financial institutions similar in
size, geographic market and business profile in order for the Bank to attract
and retain persons of high quality. In fiscal 1996, the Bank retained the
services of the Buck Consulting Group to provide an independent outside survey
and analysis of the appropriateness of senior management compensation. Buck
Consulting Group salary data was based upon financial institutions engaged in
comparable activities. The survey provided information as to the median salary
by position for the institutions sampled. The Committee relied upon the median
market salaries as indicated by the survey as a basis for establishing 1996
salary ranges for senior management positions, and it made adjustments to
those ranges on the basis of Bank-specific criteria.
INCENTIVE BONUS AWARDS. The Bank's Bonus Plan is designed to encourage
individual excellence within a framework of company-wide success. In
combination with competitive salaries and benefits, individual employees are
given the opportunity to earn significant compensation, relative to one's
responsibility, when the Bank's performance and an individual's performance
are both at high levels. Upon the adoption of an incentive bonus plan several
years ago, the Bank discontinued the practice of paying a separate Christmas
bonus.
A bonus paid under the Bonus Plan is comprised of two separately calculated
components--company performance and individual performance. An employee's
total target bonus, as a percentage of his/her base salary, will be the sum of
the target bonus based on company performance and the target bonus based on
individual performance. The company performance component is based on net
income and specifically-identified key performance criteria. The criteria for
1996, established at the beginning of the fiscal year, related to the
regulatory capital of the Bank, the regulatory rating of the Bank, the level
of non-performing assets, the level of multi-family originations, net interest
income and net interest margin, and operating expenses. The individual
performance component was based solely on an individual's and/or work team's
performance against established objectives. The bonus for any individual
employee can vary from zero to double their individual target bonus, based on
their performance against these objectives.
Following the completion of fiscal 1996, the Chief Executive Officer
submitted to the Committee his analysis under the bonus plan and his
recommendations as to overall levels of bonus awards. Based on this report,
the Committee approved, and recommended to the Board, a total bonus pool of
$1,010,000 for all employees, including senior management. The Chief Executive
Officer subsequently provided the Committee with his recommendations as to
individual bonus awards for senior management, excluding himself, on the basis
of the criteria set forth in the bonus plan and established at the beginning
of the year. On the basis of this report, and after deliberations as to the
appropriate level of bonus award for the Chief Executive Officer, the
Committee made its recommendations to the Board of Directors as to individual
bonus awards.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The Board of Directors approved a
base salary for the Chief Executive Officer for fiscal 1996 of $260,000, which
represented a 9.9% increase from the base salary provided in fiscal 1995. The
1996 salary level was based upon the compensation survey provided to the
Committee. Following the end of the 1996 fiscal year, the Board of Directors
also approved an award to the Chief Executive Officer of a $234,000 bonus for
1996. Each of these decisions was in accordance with the recommendations of
the Committee. The bonus primarily reflected the Company's net income for
fiscal 1996 of $9.2 million ($10.6 million prior to the special SAIF
assessment), which significantly exceeded the target level of $6.9 million
established at the beginning of the year for the bonus pool. Certain
adjustments to financial statement net income were taken into account.
EXECUTIVE COMMITTEE
ELDON C. HANES, TODD M. POLAND, FREDRIC H. GOULD AND JAMES A. RANDALL
33
<PAGE>
STOCK PERFORMANCE GRAPH. The following table shows a five year comparison of
cumulative total stockholder return on the Company's Common Stock, based on the
market price of the Common Stock, with the cumulative total return of companies
in the Nasdaq National Market and the S&P Savings and Loan Companies Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BFS BANKORP INC. THE NASDAQ STOCKMARKET-US INDEX
AND THE S & P SAVINGS & LOANS COMPANIES INDEX
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
9/91 9/92 9/93 9/94 9/95 9/96
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BFS Bankorp 100 112 365 612 753 1,224
NASDAQ 100 100 147 148 204 242
S+P 100 87 117 118 151 175
- - --------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
SUMMARY COMPENSATION TABLE. The following table sets forth the cash
compensation paid by the Bank, for services rendered during the fiscal years
ended September 30, 1996, 1995 and 1994, to the Chief Executive Officer and
other executive officers of the Bank, who received an amount in salary and
bonus in excess of $100,000 in the fiscal year ended September 30, 1996
("Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ ---------------------------
FISCAL AWARDS PAYOUTS
YEAR OTHER ------------------- -------
ENDED ANNUAL RESTRICTED ALL OTHER
NAME AND SEPTEMBER COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION 30, SALARY BONUS (1) AWARDS SARS (#) PAYOUTS (3)
------------------ --------- -------- -------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James A. Randall........ 1996 $257,831 $234,000 $ $ -- $ $ --
President and Chief 1995 235,616 174,160 -- -- -- -- --
Executive Officer 1994 225,654 137,500 -- -- -- -- 9,358
Israel Rosenzweig(2).... 1996 $163,615 $118,000 $ $ -- $ $ --
Executive Vice 1995 134,423 84,000 -- -- -- -- --
President
and Chief Lending 1994 -- -- -- -- -- -- --
Officer
Gerard A. Perri......... 1996 $122,466 $ 76,000 $ $ -- $ $ --
Senior Vice President 1995 111,875 54,000 -- -- -- -- --
and
Chief Financial Officer 1994 102,762 45,500 -- -- -- -- 2,755
Edward Powers........... 1996 $ 89,618 $ 35,000 $ $ -- $ $ --
Senior Vice President 1995 85,508 30,000 -- -- -- -- --
and
Chief Retail Banking 1994 79,770 24,000 -- -- -- -- 3,753
Officer
</TABLE>
- - --------
(1) Perquisites for the fiscal years ended September 30, 1996, 1995 and 1994
did not exceed the lesser of $50,000 or 10% of the total of the salary and
bonus as reported for the Named Executive Officers.
(2) Mr. Rosenzweig first became an employee of the Bank in fiscal 1995.
(3) Represents the market value of shares allocated to the account of the
employee under the ESOP during the fiscal year, which market value is as
of December 31 of the respective year.
EMPLOYMENT AGREEMENTS
On August 1, 1996, the Bank and the Company each entered into a revised
employment agreement with Mr. Randall providing for a 36-month term at a
minimum aggregate annual base salary of $273,000. Pursuant to the revised
agreements, Mr. Randall is to serve as President and Chief Executive Officer
of the Company and the Bank, and is to be nominated to the Board of Directors.
Commencing each August 1st thereafter unless notice to the contrary is given
by the Board of Directors, the agreements are renewed for an additional year
such that the remaining term of the employment agreements will be 36 months.
If not renewed, the agreements expire 36 calendar months following August 1 of
the year in which notice is given. In addition to the base salary, the
agreements provide, among other things, for participation in stock option
plans, stock bonus plans and other fringe benefits applicable to executive
personnel. Each agreement provides for termination of employment by the Bank
or the Company for "cause," as defined therein, at any time. If termination of
employment, purported to be for cause, is disputed, the parties shall proceed
to arbitration. If it is subsequently determined that grounds for termination
for cause did not exist, Mr. Randall is entitled to payments required under
the employment agreements in the event of a termination other than for cause
(as discussed below) or termination following a change in control, as
appropriate. In the event the Bank and the Company choose to terminate Mr.
Randall's employment for reasons other than for cause; or in the event of his
resignation from the Bank and the Company upon failure to reappoint or reelect
him to each of his current offices or because of a material lessening of his
functions, duties or responsibilities without his consent, or in the event of
a liquidation, dissolution, consolidation or merger of the Bank or the Company
in which the Bank or the Company is not the surviving entity and to which Mr.
Randall does not consent (such terminations shall be deemed to have occurred
pursuant to an "event of termination"); he or, in the event of his death, his
beneficiary would be entitled to a severance payment equal to three times the
sum of (i) the highest rate of base salary paid to him at any time under the
agreements, and (ii) the greater of (x) the average annual cash bonus paid to
him for the three completed fiscal years prior to the event of termination or
(y) the cash bonus paid with respect to the fiscal year ended prior to the
event of
35
<PAGE>
termination. If termination of Mr. Randall's employment by the Bank or Company
follows a change in control of the Bank and the Company, as defined in the
agreements, Mr. Randall would be entitled to a severance payment calculated in
the same manner as set forth above for terminations upon the occurrence of an
event of termination. If Mr. Randall voluntarily resigns following a change in
control, he would instead be entitled to receive an amount equal to three
times the highest annual rate of base salary paid to Mr. Randall at any time
under the employment agreement. If his employment is terminated by the Company
or the Bank other than for cause, or if Mr. Randall were to resign for the
reasons referred to above, the Bank and the Company must also continue his
life, health and disability insurance coverage until the earlier of 36 months
following termination of employment or until he is employed by another
employer. In the event of Mr. Randall's termination of employment due to
disability, then during the first 12 months after such termination, Mr.
Randall will be entitled to disability pay equal to his monthly rate of base
salary, and thereafter his disability pay will equal 3/4 of his monthly rate
of base salary until the earlier of his re-employment, normal retirement or
death. In addition, the Bank or Company shall continue to provide Mr. Randall
with life, health and disability coverage during this period.
In August 1996, Bankers Federal also entered into employment agreements with
Messrs. Perri and Rosenzweig, each providing for a 24-month term, with a
minimum annual base salary of $129,675 and $173,250, respectively. Under the
employment agreements, Mr. Perri is to serve as Senior Vice President and
Chief Financial Officer and Mr. Rosenzweig is to serve as Executive Vice
President and Chief Lending Officer for the Bank. On December 1 of each year,
each employment agreement will be extended, unless notice of non-extension is
given to the executive, so that the remaining term will be 24 months. If not
renewed, the employment agreement will expire within 24 months following
December 1 of the year in which notice is given. In addition to base salary,
the agreements provide, among other things, for participation in stock option
plans, stock bonus plans and other fringe benefits applicable to executive
personnel. Similar to the employment agreement for Mr. Randall, the employment
agreements provide for the termination of the executive's employment by the
Bank for "cause," as defined therein, at any time, subject to the requirement
of arbitration in the event of dispute, and the requirement of payments to the
executive in accordance with the employment agreement in the event that
"cause" is found not to have existed. Also, if the Bank chooses to terminate
Messrs. Perri or Rosenzweig's employment for reasons other than "cause" or the
executive resigns his employment due to the occurrence of the same events of
termination as set forth in Mr. Randall's employment agreement, the executive
will be entitled to a severance payment equal to two times the highest annual
rate of base salary plus average annual cash bonus (calculated in the same
manner as under Mr. Randall's employment agreement). If termination of the
executive's employment by the Bank follows a change in control, the executive
will be entitled to a severance payment calculated in the same manner as
calculated upon termination following an event of termination. If the
executive resigns following a change in control, the executive will be
entitled to receive an amount equal to the one times the highest annual rate
of base salary paid to the executive at any time under the agreement. An
executive entitled to severance payments under the employment agreement will
also be entitled to continued life, health and disability coverage until the
earlier of 24 months following termination of employment or until he is
employed by another employer. In the event the executive is unable to perform
his duties under the employment agreement for a period of 6 months due to
disability, the Bank may terminate the employment agreement provided that it
continues the executive's base salary and any other cash compensation paid to
the executive for a period of one year.
SPECIAL TERMINATION AGREEMENT
In addition, the Company had entered into an eighteen month special
termination agreement with Mr. Edward Powers. The special termination
agreement provided for payment of a severance benefit to Mr. Powers in the
event of his involuntary termination of employment other than for "cause" or
certain voluntary terminations of employment following a "change in control."
However, pursuant to an agreement with the Bank, Mr. Powers will take an early
retirement from the Bank, effective March 1, 1997, and in connection
therewith, the Bank will supplement his retirement benefit through payments
with an aggregate present value of $150,000.
36
<PAGE>
This supplement is in lieu of any severance payment to which he would be
entitled under the Special Termination Agreement upon termination following a
change in control.
SEVERANCE COMPENSATION PLAN
In August 1996, the Company and Bankers Federal have adopted an Employee
Severance Compensation Plan ("Severance Plan") to provide certain officers and
employees who are not parties to a written employment or special termination
agreement with certain benefits in the event of certain terminations of
employment at or following a change in control (as defined in the Severance
Plan) of the Company or Bankers Federal. Under the Severance Plan, a covered
employee whose employment is terminated at or following a change in control
other than for "cause," or who resigns following a change in control due to a
reduction in salary or bonus, the assignment of duties, responsibilities, or
status inconsistent with that prior to the change in control, a change in job
location by more than 30 miles, or the employer's failure to continue any
vacation benefits, pension plan, certain insurance benefits or its obligations
under the Severance Plan following the change in control, is entitled to
receive a severance payment from Bankers Federal, or its successor. The
severance payment will be a lump sum cash payment equal to the sum of (i) the
highest rate of annualized salary (total annual salary divided by 12) and (ii)
the highest bonus paid with respect to any one year; in either case as to
either (x) the three years preceding the termination of employment, or (y) the
three years preceding the Change in Control, whichever is greater. In
addition, a terminated participant will be entitled to continued life, medical
and dental coverage for a period of 12 months following termination of
employment. Any payment under the Severance Plan is subject to reduction in
order to avoid an "excess parachute payment" as defined under Section 280G of
the Internal Revenue Code.
INCENTIVE STOCK OPTION PLANS
The Board of Directors of the Company has established the Incentive Stock
Option Plans which provide discretionary awards to its officers and key
employees. The grant of awards under the Incentive Stock Option Plans is
determined by a committee of the Board of Directors consisting of outside
directors (the "Option Plan Committee"), none of whom is eligible to receive
options under the Plans. No options under the Stock Option Plans were granted
to, or exercised by, the Named Executive Officers during the fiscal year ended
September 30, 1996.
Set forth below is certain information concerning options outstanding with
respect to such Named Executive Officers at September 30, 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME UPON EXERCISE REALIZED (#) ($)
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James A. Randall........ -- -- 104,952/-- $4,609,895/--
Gerard A. Perri......... -- -- 9,000/-- $ 389,000/--
Edward Powers........... -- -- 10,268/-- $ 462,060/--
</TABLE>
- - --------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on
September 30, 1996, at which date the last sale price of the Common Stock
as quoted on the Nasdaq National Market was $52.00.
37
<PAGE>
RETIREMENT PLAN
The Bank maintains and funds a tax-qualified defined benefit pension plan
for its employees. All full-time employees age twenty-one and one-half years
or older who have completed at least six months of service participate in the
plan. The plan provides for a monthly benefit at age 65 equal to 1% of the
"Average Monthly Compensation" (the average of the highest five years base
salary) multiplied by the total number of years of employment, up to a maximum
of forty years, plus one-half of one percent of the Average Monthly
Compensation in excess of $400 multiplied by the total number of years of
employment, computed to the nearest dollar. The maximum monthly benefit under
the retirement plan is $10,000.
The following table sets forth the estimated annual benefits payable upon
retirement at age 65 in calendar year 1996, expressed in the form of a single
life annuity, for the final average salary and benefit service classifications
specified.
<TABLE>
<CAPTION>
FIVE YEAR AMOUNT OF ANNUAL RETIREMENT BENEFIT WITH CREDITED SERVICE OF
AVERAGE ------------------------------------------------------------------
ANNUAL SALARY 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- - ------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 20,000... $ 4,140 $ 5,520 $ 6,900 $ 8,280
$ 40,000... 8,640 11,520 14,400 17,280
$ 60,000... 13,140 17,520 21,900 26,280
$ 80,000... 17,640 23,520 29,400 35,280
$125,000... 27,765 37,020 46,275 55,530
$150,000... 33,390 44,520 55,650 66,780
</TABLE>
Compensation covered by the retirement plan is total compensation received
from the Bank, excluding bonuses, overtime, commissions, director's fees or
other forms of special compensation, before reducing such compensation
pursuant to a deferral election of the employee under any plan of the Bank
established in accordance with the provisions of Section 401(k) or Section 125
of the Internal Revenue Code of 1986, as amended. At September 30, 1996,
Messrs. Randall, Rosenzweig, Perri and Powers had 8, 1, 6 and 32 years of
credited service, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has adopted a Supplemental Executive Retirement Plan ("SERP")
for certain senior executives of the Company. Presently, Mr. Randall is the
only participant in the SERP. The SERP supplements the benefits payable under
the Retirement Plan and ESOP. The SERP provides a benefit, with respect to the
Retirement Plan, equal to the amount to which a participant would have been
entitled under the Retirement Plan but for maximum limitations under the
Internal Revenue Code on annual benefits and the amount of compensation that
may be taken into consideration in determining such benefit, reduced by the
benefit actually paid from the Retirement Plan. The SERP also provides a
benefit, with respect to the ESOP, equal to dollar amount which represents the
difference (in fair market value of shares allocated to a participants
account, plus earnings) between the ESOP benefit that a participant would have
been entitled to but for the limitations on the maximum compensation that can
be taken into account and the maximum contribution that can be made to a
participants account; and the benefit that is actually paid from the ESOP. The
SERP supplemental Retirement Plan benefit shall be paid in the same form and
at the same time as the participant's benefit under the Retirement Plan. The
SERP supplemental ESOP benefit shall be paid in cash, or in the event a trust
has been established under the SERP to hold Common Stock and if elected by the
participant, in stock of the Company. In the event of the participant's
termination of employment in connection with a change of control (as defined
in the SERP), the participant's SERP benefit shall become immediately due and
payable in a lump sum amount equal to the sum of (i) the present actuarial
value of the supplemental Retirement Plan benefit and (ii) the present value
of the supplemental ESOP benefit. At September 30, 1996, the present value of
Mr. Randall's supplemental Retirement Plan benefit was $22,755 and the present
value of his supplemental ESOP benefit was $15,830.
38
<PAGE>
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Prior to August 1989, the Bank had a policy of making loans, in the ordinary
course of business, to its Directors, officers and employees. Such loans did
not involve more than the normal risk of collectibility and were on
substantially the same terms as were available to the general public, except
that the interest rate applicable to such loans was set at 1% above the Bank's
average cost of funds and origination fees were waived. The current policy of
the Bank is to extend loans to officers and Directors on substantially the
same terms as those granted to others, including the interest rate, collateral
and origination fees. Such loans do not involve more than the normal risk of
collectibility.
Set forth below is certain information as of September 30, 1996, relating to
loans, that in the aggregate exceeded $60,000 during fiscal 1996, outstanding
to executive officers and Directors of the Bank or the Company who had any
loans from the Bank under the policy in effect prior to August 1989:
<TABLE>
<CAPTION>
UNPAID
HIGHEST BALANCE
BALANCE AT
DATE OF TYPE OF IN FISCAL SEPTEMBER 30,
NAME LOAN LOAN(1) 1996 1996 RATE
- - ---- -------- -------- --------- ------------- ----
<S> <C> <C> <C> <C> <C>
Edward Powers................... 12/31/86 Mortgage $156,537 $146,173 7.5%
Senior Vice President and Chief
Retail Banking Officer
</TABLE>
- - --------
(1) Represents a first mortgage loan secured by the individual's primary
residence.
PROPOSAL 3--RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended September 30,
1996 were KPMG Peat Marwick LLP. The Company's Board of Directors has
reappointed KPMG Peat Marwick LLP to continue as independent auditors for the
Company for the fiscal year ending September 30, 1997, subject to ratification
of such appointment by the stockholders. Representatives of KPMG Peat Marwick
LLP are expected to attend the Annual Meeting. They will be given the
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions from stockholders present at the Annual
Meeting.
The consolidated financial statements of the Company and its subsidiaries as
of September 30, 1996 and 1995 and for each of the years in the three-year
period ended September 30, 1996 that are incorporated by reference in this
Proxy Statement have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1997.
STOCKHOLDER PROPOSALS
In the event the Merger is not consummated, to be considered for inclusion
in the Company's proxy statement in connection with the annual meeting of
stockholders to be held following the fiscal year ending September 30, 1997, a
stockholder proposal must be received by the Secretary of the Company, at the
address set forth on the first page of this Proxy Statement, no later than
October 10, 1997. Any stockholder proposal submitted to the Company will be
subject to SEC Rule 14a-8 under the Securities Exchange Act of 1934.
39
<PAGE>
OTHER MATTERS
The Board of Directors knows of no additional matters that will be presented
for consideration at the Annual Meeting. Execution of a proxy, however,
confers on the designated proxyholders discretionary authority to vote the
shares in accordance with their best judgment on such other business, if any,
that may properly come before the Annual Meeting or any adjournments thereof.
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED
AT AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for certain
business, or nominations to the Board of Directors, to be brought before an
annual meeting. In order for a stockholder to properly bring business before
an annual meeting, or to propose a nominee to the Board, the stockholder must
give written notice to the Secretary of the Company not less than ninety (90)
days before the date fixed for such meeting; provided, however, that in the
event that less than one hundred (100) days notice or prior public disclosure
of the date of the meeting is given or made, notice by the stockholder to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. The notice must include the
stockholder's name, record address, and number of shares owned by the
stockholder, and describe briefly the proposed business, the reasons for
bringing the business before the annual meeting, and any material interest of
the stockholder in the proposed business. In the case of nominations to the
Board, certain information regarding the nominee must be provided. Nothing in
this paragraph shall be deemed to require the Company to include in its proxy
statement and proxy relating to an annual meeting any stockholder proposal
which does not meet all of the requirements for inclusion established by the
SEC in effect at the time such proposal is received.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the
Exchange Act, are incorporated by reference into this Proxy Statement.
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, as amended by Amendment No. 1 to Form 10-K/A, filed
on January 28, 1997, and any amendments or updates filed thereto;
2. The Company's Current Report on Form 8-K, dated December 11, 1996; and
3. The following portions of the Company's Annual Report to Stockholders
for the fiscal year ended September 30, 1996: Selected Financial Data
(page 26); Management's Discussion and Analysis of Financial Condition
and Results of Operations (pages 27 to 37); Corporate Information (back
cover page); and Selected Quarterly Financial Data (page 60).
All documents or reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Annual Meeting shall be deemed to be incorporated
by reference into this Proxy Statement and to be a part of this Proxy
Statement from the date of filing of such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed
to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Proxy
Statement.
The Company's Annual Report to Stockholders for the year ended September 30,
1996 is being delivered to the Company's Stockholders with this Proxy
Statement.
40
<PAGE>
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY REFERENCE (OTHER THAN
EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO THE TEXTS OF SUCH
DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO GERARD A. PERRI,
SECRETARY, BFS BANKORP, INC., 110 WILLIAM STREET, NEW YORK, NEW YORK 10038
(TELEPHONE (212) 227-4040, EXT. 230). IN ORDER TO INSURE TIMELY DELIVERY OF
THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY MARCH 4, 1997.
By Order of the Board of Directors
/s/ Gerard A. Perri
Gerard A. Perri
Secretary
New York, New York
February 7, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
41
<PAGE>
ANNEX A
Conformed Copy
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
---------------------------------------------
AGREEMENT AND PLAN OF MERGER
---------------------------------------------
dated as of the 3rd day of December, 1996
by and among
DIME BANCORP, INC.
FIFTH AVENUE PROPERTY CORP.
and
BFS BANKORP, INC.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
RECITALS
<C> <S> <C>
A. Dime................................................................ A-1
B. Merger Sub.......................................................... A-1
C. BFS................................................................. A-1
D. The Merger.......................................................... A-1
E. The Bank Merger..................................................... A-1
F. Certain Arrangements................................................ A-1
G. Approvals........................................................... A-1
ARTICLE I
The Merger; Effective Time; Closing
1.1 The Merger.......................................................... A-2
1.2 Effective Time...................................................... A-2
1.3 Closing............................................................. A-2
ARTICLE II
Governing Documents; Directors; Officers
2.1 Certificate of Incorporation........................................ A-2
2.2 By-laws............................................................. A-2
2.3 Directors........................................................... A-2
2.4 Officers............................................................ A-3
ARTICLE III
Effect of Merger on Shares; Merger Consideration; Payment for Shares
3.1 Effect of the Merger on Shares of BFS Common Stock.................. A-3
3.2 Payment for Shares.................................................. A-3
3.3 Dissenters' Shares.................................................. A-4
ARTICLE IV
Representations and Warranties
4.1 Representations and Warranties of BFS............................... A-4
4.2 Representations and Warranties of Dime.............................. A-14
ARTICLE V
Covenants
5.1 Conduct of Business Pending the Effective Time...................... A-15
5.2 Acquisition Proposals............................................... A-16
5.3 Certain Policies of BFS............................................. A-17
5.4 Employees; Employee Benefit Plans................................... A-17
5.5 Access and Information.............................................. A-18
5.6 Options............................................................. A-19
5.7 Stockholder Approval................................................ A-19
5.8 Efforts to Consummate; Proxy Statement; Other Filings............... A-19
5.9 Information Supplied................................................ A-19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.10 Publicity........................................................... A-20
5.11 Notification of Certain Matters..................................... A-20
5.12 Indemnification; Directors' and Officers' Insurance................. A-20
5.13 Bank Merger......................................................... A-21
5.14 Forbearance by Dime................................................. A-21
5.15 Advisory Board...................................................... A-21
ARTICLE VI
Conditions
6.1 Conditions to Each Party's Obligation to Effect the Merger.......... A-21
6.2 Conditions to Obligation of Dime.................................... A-22
6.3 Conditions to Obligation of BFS..................................... A-22
ARTICLE VII
Termination, Amendment and Waiver
7.1 Termination......................................................... A-23
7.2 Effect of Termination............................................... A-23
7.3 Termination Fee..................................................... A-23
ARTICLE VIII
General Provisions
8.1 Survival............................................................ A-24
8.2 Expenses............................................................ A-24
8.3 Modification or Amendment........................................... A-24
8.4 Waiver of Conditions................................................ A-24
8.5 Notices............................................................. A-24
8.6 Certain Definitions; Interpretation................................. A-25
8.7 Entire Agreement.................................................... A-26
8.8 Assignment.......................................................... A-26
8.9 No Third-Party Beneficiaries........................................ A-26
8.10 Governing Law....................................................... A-27
8.11 Counterparts........................................................ A-27
</TABLE>
ANNEXES
<TABLE>
<C> <S>
Annex 1 -- Form of Bank Merger Agreement
Annex 2 -- Form of Gould Agreement
Annex 3 -- Form of President Agreement
</TABLE>
ii
<PAGE>
SCHEDULES
<TABLE>
<C> <S>
Schedule 4.1(c) -- Subsidiaries
Schedule 4.1(d) -- Stock Option Plans
Schedule 4.1(g) -- Certain Agreements
Schedule 4.1(i) -- Certain Loans
Schedule 4.1(j)(1) -- Certain Changes
Schedule 4.1(j)(2) -- Certain Liabilities
Schedule 4.1(k) -- Title to Assets; Encumbrances
Schedule 4.1(l) -- Certain Conflicts
Schedule 4.1(m) -- Certain Litigation
Schedule 4.1(n) -- Certain Tax Matters
Schedule 4.1(o) -- Insurance
Schedule 4.1(q) -- Employee Benefit Plans
Schedule 4.1(r) -- Certain Environmental Matters
Schedule 4.1(s) -- Material Agreements
Schedule 4.1(v) -- Derivative Securities
Schedule 4.1(w) -- Certain Controls
Schedule 5.1 -- Certain Actions
Schedule 5.1(b)(16) -- Certain Bonus Payments; Salary Increases
Schedule 5.3 -- Certain Policies and Reserves
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
TERM DEFINITION
---- -----------
<S> <C>
1993 Agreement...................................................... 4.1(d)(3)
Acquisition Proposal................................................ 5.2
Acquisition Transaction............................................. 7.3(b)
Agreement........................................................... Preamble
Asset Classification................................................ 4.1(i)(2)
Balance Sheet....................................................... 4.1(j)(2)
Banking Regulators.................................................. 4.1(l)(7)
Bank Merger......................................................... Recital E
Bank Merger Approvals............................................... Recital E
BFS................................................................. Preamble
BFS Bank............................................................ Recital E
BFS Common Stock.................................................... Recital C
BFS Employees....................................................... 5.4(a)
BFS ESOP............................................................ 5.4(c)
BFS Meeting......................................................... 5.7
BFS Options......................................................... 5.6
BFS Stock Plans..................................................... 4.1(d)(2)
Certificate......................................................... 3.1(a)
Certificate of Incorporation........................................ 2.1
Certificate of Merger............................................... 1.2(a)
Claim............................................................... 5.12(a)
Closing............................................................. 1.3
Closing Date........................................................ 1.3
Compensation Plans.................................................. 4.1(q)(1)
Contracts........................................................... 4.1(g)(2)
Derivative Securities............................................... 4.1(v)(1)
DGCL................................................................ 1.1
Dime................................................................ Preamble
Dime Savings........................................................ Recital E
Dissenters' Shares.................................................. 3.1
Effective Time...................................................... 1.2(a)
Employees........................................................... 4.1(q)(1)
Encumbrances........................................................ 4.1(c)(3)
Environmental Law................................................... 4.1(r)(1)
ERISA............................................................... 4.1(q)(1)
ERISA Affiliate..................................................... 4.1(q)(3)
Exception Shares.................................................... 3.1
Exchange Act........................................................ 4.1(f)
FDI Act............................................................. Recital E
FDIC................................................................ 4.1(c)(2)
FHLB................................................................ 4.1(h)(1)
Gould Agreement..................................................... Recital F
Governing Documents................................................. 4.1(b)
Governmental Entities............................................... 4.1(f)
Hazardous Substances................................................ 4.1(r)(1)
HOLA................................................................ Recital A
Indemnified Parties................................................. 5.12(a)
individually or in the aggregate.................................... 8.6(a)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
TERM DEFINITION
---- -----------
<S> <C>
Insurance Amount.................................................... 5.12(c)
Internal Revenue Code............................................... 4.1(n)(4)
Lending Laws........................................................ 4.1(l)(1)
Liabilities......................................................... 4.1(j)(2)
Loans............................................................... 4.1(i)(2)
material............................................................ 8.6(a)
Material Adverse Effect............................................. 8.6(a)
Merger.............................................................. Recital D
Merger Consideration................................................ 3.1(a)
Merger Sub.......................................................... Preamble
NASD................................................................ 4.1(f)
OREO................................................................ 4.1(i)(4)
OTS................................................................. Recital E
Paying Agent........................................................ 3.2(a)
PCBs................................................................ 4.1(r)(1)
Pension Plan........................................................ 4.1(q)(2)
Person.............................................................. 8.6(a)
Plans............................................................... 4.1(q)(2)
President Agreement................................................. Recital F
prior consultation.................................................. 8.6(a)
Proxy Statement..................................................... 5.8(b)(1)
Regulatory Approvals................................................ Recital G
Reports............................................................. 4.1(h)(2)
Representatives..................................................... 5.5
SAIF................................................................ 4.1(c)(2)
Shares.............................................................. 3.1(a)
SEC................................................................. 4.1(h)(1)
Securities Act...................................................... 4.1(h)(2)
Securities Laws..................................................... 4.1(h)(2)
significant subsidiary.............................................. 7.3(b)(1)
subsidiary.......................................................... 8.6(a)
Surviving Bank...................................................... Recital E
Surviving Corporation............................................... Recital D
Tax................................................................. 4.1(n)(1)
Trigger Event....................................................... 7.3(a)
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of the 3rd day of December, 1996
(this "Agreement"), by and among Dime Bancorp, Inc. ("Dime"), Fifth Avenue
Property Corp. ("Merger Sub") and BFS Bankorp, Inc. ("BFS").
RECITALS
A. Dime. Dime has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Delaware, with its principal
executive offices located in New York, New York. Dime is a savings and loan
holding company registered under the Home Owners' Loan Act, as amended
("HOLA").
B. Merger Sub. Merger Sub has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with its
principal executive offices located in New York, New York. Merger Sub is a
wholly owned subsidiary of Dime.
C. BFS. BFS has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Delaware, with its principal
executive offices located in New York, New York. As of the date hereof, BFS
has 6,000,000 authorized shares of common stock, par value $.01 per share
("BFS Common Stock"), of which no more than 1,635,480 shares are outstanding
as of the date hereof, and 2,000,000 authorized shares of preferred stock, par
value $.01 per share, of which no shares are issued or outstanding as of the
date hereof (no other class or series of capital stock being authorized). BFS
is a savings and loan holding company registered under HOLA.
D. The Merger. At the Effective Time (as defined in Section 1.2), the
parties to this Agreement intend to effect the merger (the "Merger") of Merger
Sub with and into BFS, with BFS the corporation surviving the Merger. BFS, as
the surviving corporation, is sometimes referred to in this Agreement as the
"Surviving Corporation".
E. The Bank Merger. Immediately following the Effective Time, Dime and BFS
intend that Dime and the Surviving Corporation will effect the merger (the
"Bank Merger") of Bankers Federal Savings FSB, a wholly owned federal savings
bank subsidiary of BFS ("BFS Bank"), with and into The Dime Savings Bank of
New York, FSB, a wholly owned federal savings bank subsidiary of Dime ("Dime
Savings"). The Bank Merger shall be effected pursuant to an agreement and plan
of merger in substantially the form of Annex 1 to this Agreement and is
subject, among other conditions set forth therein, to the prior approval
(including any requisite waiting periods, the "Bank Merger Approvals") of the
Office of Thrift Supervision (the "OTS") under Sections 5(d)(3) and 18(c) of
the Federal Deposit Insurance Act, as amended (the "FDI Act"). Dime Savings,
as the surviving federal savings bank in the Merger, is sometimes referred to
in this Agreement as the "Surviving Bank".
F. Certain Arrangements. As an inducement to and condition of Dime's
willingness to enter into this agreement, (1) Fredric H. Gould and Gould
Investors, L.P. have entered into an agreement with Dime, substantially in the
form of Annex 2 to this Agreement (the "Gould Agreement"), and (2) James A.
Randall, President and Chief Executive Officer of BFS, has entered into an
agreement with Dime, substantially in the form of Annex 3 to this Agreement
(the "President Agreement").
G. Approvals. The Boards of Directors of Dime and BFS (at meetings duly
called and held) have determined that this Agreement, the Merger and the other
transactions contemplated hereby are in the best interests of Dime and BFS,
respectively, and their respective stockholders and have approved this
Agreement. Consummation of the Merger is subject to (1) the prior approval of
the stockholders of BFS, (2) the prior approval of the OTS under Section 10(e)
of HOLA and (3) the Bank Merger Approvals (items (2) and (3), collectively,
the "Regulatory Approvals"), among other conditions specified herein.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Effective Time; Closing
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, Merger Sub shall merge with and into BFS, and the separate
corporate existence of Merger Sub shall thereupon cease. The Merger shall have
the effects specified in the Delaware General Corporation Law (the "DGCL").
1.2 Effective Time. (a) Subject to the terms and conditions of this
Agreement, the parties to this Agreement will cause a certificate of merger to
be executed, acknowledged and filed with the Secretary of the State of
Delaware as provided in Section 251 of the DGCL (the "Certificate of Merger").
The Merger shall become effective at such time as the Certificate of Merger
has been filed with such Secretary of the State, or at such other time as may
be specified in the Certificate of Merger in accordance with applicable law.
The date and time when the Merger shall become effective is herein referred to
as the "Effective Time".
(b) The parties to this agreement will use all reasonable efforts to cause
the Effective Time to occur at a time and date specified by Dime, which time
and date shall be not later than the opening of business on the first business
day of the month next commencing after the date of satisfaction or waiver of
the last of the conditions specified in Sections 6.1(a) and (b) of this
Agreement; provided, that if such day is to occur fewer than 10 days after
such date of satisfaction or waiver, the Effective Time shall be not later
than the opening of business on the first business day of the next succeeding
month. Notwithstanding anything to the contrary in this Section 1.2, the
parties hereto may cause the Effective Time to occur on such earlier or later
day following the satisfaction or waiver of such conditions as they may agree
in writing, consistent with the provisions of the DGCL.
1.3 Closing. The closing of the Merger (the "Closing") shall take place at
such place within The City of New York as the parties hereto shall agree, at
8:00 a.m. on the date when the Effective Time is to occur. The date upon which
the Closing shall occur is herein referred to as the "Closing Date".
ARTICLE II
Governing Documents; Directors; Officers
2.1 Certificate of Incorporation. By virtue of the Merger, the certificate
of incorporation of the Surviving Corporation shall be amended and restated to
read in its entirety as the certificate of incorporation of the Merger Sub, as
in effect immediately prior to the Effective Time, except that Article I
thereof shall be further amended to replace the reference to "Fifth Avenue
Property Corp." therein with "BFS Bankorp, Inc."; such certificate of
incorporation, as so amended and restated, shall be the certificate of
incorporation of the Surviving Corporation (the "Certificate of
Incorporation"), until duly amended in accordance with the terms thereof and
the DGCL.
2.2 By-laws. By virtue of the Merger, the by-laws of the Surviving
Corporation shall be amended and restated to read in their entirety as the by-
laws of the Merger Sub, as in effect immediately prior to the Effective Time,
until duly amended in accordance with the terms thereof, the Certificate of
Incorporation and the DGCL.
2.3 Directors. By virtue of the Merger, the Board of Directors of the
Surviving Corporation shall consist of the directors of the Merger Sub serving
immediately prior to the Effective Time, and such directors, together with any
additional directors as may thereafter be elected, shall hold such office
until their successors are elected and qualified in accordance with the terms
of the DGCL and the Certificate of Incorporation and the by-laws of the
Surviving Corporation.
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<PAGE>
2.4 Officers. By virtue of the Merger, the officers of the Surviving
Corporation shall be the officers of the Merger Sub immediately prior to the
Effective Time, and such officers, together with any additional officers as
may be agreed upon prior thereto by Dime and BFS or as may be appointed
thereafter, shall serve in accordance with the terms of the DGCL and the
Certificate of Incorporation and by-laws of the Surviving Corporation.
ARTICLE III
Effect of Merger on Shares;
Merger Consideration; Payment for Shares
3.1 Effect of the Merger on Shares of BFS Common Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of any
stockholder:
(a) Each share of BFS Common Stock issued and outstanding immediately prior
to the Effective Time (collectively, the "Shares"), other than Exception
Shares (as defined below), shall be converted into the right to receive,
without interest, an amount in cash equal to $52.00 (the "Merger
Consideration"); provided, that if the Effective Time occurs after June 1,
1997, the Merger Consideration payable per Share shall be increased by an
amount equal to the product of $.01 and the number of days elapsed during the
period beginning on but excluding June 1, 1997, through and including the date
on which the Effective Time occurs, and all references herein to the Merger
Consideration shall be deemed to include such increase. All such Shares, other
than Exception Shares, shall cease to be outstanding, shall be cancelled and
retired and shall cease to exist, and each holder of a certificate formerly
representing such Shares (a "Certificate") shall thereafter cease to have any
rights with respect to such Shares, except the right to receive the Merger
Consideration upon exchange of such Certificate in accordance with Section
3.2.
(b) Each Exception Share, other than Dissenters' Shares (as defined below),
shall cease to be outstanding, shall be cancelled and retired and shall cease
to exist, and no consideration shall be payable with respect thereto.
(c) Each share of capital stock of the Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into a share of
capital stock of the Surviving Corporation having the same par value and
denomination, and such shares shall thereafter constitute all of the issued
and outstanding shares of capital stock of the Surviving Corporation.
For purposes of this Agreement, "Exception Shares" means (1) Shares owned,
other than in a bona fide fiduciary capacity or in satisfaction of a debt
previously contracted in good faith, by Dime or a subsidiary (as defined in
Section 8.6) of Dime, (2) Shares that have not been voted in favor of approval
of the Merger and with respect to which appraisal rights have been perfected
in accordance with Section 262 of the DGCL ("Dissenters' Shares") and (3)
shares of BFS Common Stock held by BFS or a subsidiary of BFS in treasury.
3.2 Payment for Shares. (a) Appointment of Paying Agent. For the six-month
period commencing on the Effective Time, Dime shall cause to be made available
to a paying agent (which may be a subsidiary of Dime) appointed by Dime (the
"Paying Agent") funds sufficient in the aggregate to allow the Paying Agent to
make payments of the Merger Consideration to former holders of Shares in
accordance with Section 3.1. At the end of such six-month period, Dime shall
be entitled to cause the Paying Agent to deliver to it any of such funds
(including any interest received in respect thereof) that have not then been
disbursed to former holders of Shares. Any former holders of Shares who have
not theretofore surrendered their Certificates for payment pursuant to this
Article III shall thereafter be entitled to look exclusively to Dime, and only
as general creditors thereof, for any payment due upon surrender of their
Certificates. Notwithstanding the foregoing, neither the Paying Agent nor any
party hereto shall be liable to any former holder of Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(b) Procedures for Surrender. Promptly after the Effective Time, Dime shall
cause the Paying Agent to mail or deliver to each person who was, immediately
prior to the Effective Time, a holder of record of Shares
A-3
<PAGE>
(other than Exception Shares) a form of letter of transmittal containing
instructions for use in effecting the surrender of Certificates in exchange
for payment pursuant to this Article III. Upon surrender to the Paying Agent
of a Certificate for cancellation, together with such letter of transmittal
duly executed and completed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor a
check in the amount to which such holder is entitled pursuant to this Article
III, after giving effect to any required tax withholdings, and the Certificate
so surrendered shall forthwith be cancelled. No interest will accrue or be
paid on any amount payable upon surrender of Certificates. If any payment is
to be made to a person other than the registered holder of the Certificate
surrendered therefor, it shall be a condition of such payment that the
Certificate be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment shall pay any transfer or other taxes
required by reason of the making of such payment to a person other than the
registered holder of the Certificate surrendered (or shall establish to the
satisfaction of Dime that any such taxes have been paid or are not
applicable).
(c) Lost, Stolen or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and,
if required by Dime, the posting by such person of a bond in such amount as
Dime may direct as indemnity against any claim that may be made against it
with respect to such Certificate, Dime shall, in exchange for such lost,
stolen or destroyed Certificate, cause to be paid the amount deliverable in
respect thereof pursuant to this Article III.
(d) Transfers. At and after the Effective Time, there shall be no further
registration or transfers of shares of BFS Common Stock, and the stock ledgers
of BFS shall be closed. After the Effective Time, Certificates presented to
the Surviving Corporation for transfer shall be cancelled and exchanged for
the payment to which the holder thereof is entitled pursuant to this Article
III (any certificates representing Dissenters' Shares so presented for
transfer shall be treated in accordance with the provisions of Section 3.3).
3.3 Dissenters' Shares. The Surviving Corporation shall pay for any
Dissenters' Shares in accordance with Section 262 of the DGCL, and the holders
thereof shall not be entitled to receive any Merger Consideration; provided,
that if appraisal rights under Section 262 of the DGCL with respect to any
Dissenters' Shares shall have been effectively withdrawn or lost, such shares
will thereupon cease to be treated as Exception Shares and shall be converted
into the right to receive the Merger Consideration pursuant to Section 3.1(a).
ARTICLE IV
Representations and Warranties
4.1 Representations and Warranties of BFS. BFS hereby represents and
warrants to Dime that:
(a) Recitals True. The statements of fact set forth in Recitals C and G of
this Agreement with respect to BFS and BFS Bank are true.
(b) Organization and Qualification. Each of BFS and its subsidiaries has the
requisite corporate power and authority to own or lease its material
properties and material assets and to carry on its business in all material
respects as it is now being conducted and is duly qualified to do business and
in good standing in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
for any failure to be so qualified that, individually or in the aggregate,
would not have a Material Adverse Effect (as defined in Section 8.6) on it.
BFS has made available to Dime a complete and correct copy of the Governing
Documents (as defined below) of BFS and each of its subsidiaries, each as
amended to date and currently in full force and effect. "Governing Documents"
means, with respect to any organization, (1) those instruments that constitute
its charter as filed or recorded under the general corporation or other
applicable law of the jurisdiction of its incorporation or organization,
including the articles or certificates of its incorporation or association,
any amendments thereto and any articles or certificates of merger or
consolidation, and (2) its by-laws.
A-4
<PAGE>
(c) Subsidiaries. (1) Schedule 4.1(c) lists all of the subsidiaries of BFS
and its percent ownership thereof. Except as so listed or as otherwise set
forth on Schedule 4.1(c), none of BFS or any of its subsidiaries owns any
stock, partnership, joint venture or limited liability company interest or any
other equity security issued by any Person (as defined in Section 8.6) (or any
security convertible into, or right to acquire, any of the preceding) other
than in a bona fide fiduciary capacity or in satisfaction of a debt previously
contracted in good faith.
(2) BFS Bank is the only subsidiary of BFS that accepts demand deposits. BFS
Bank is a federal savings bank duly organized under the laws of the United
States, an "insured depository institution" as defined in the FDI Act and
applicable regulations thereunder and is a member of the Savings Association
Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). All of its deposits are subject to assessments payable to the SAIF.
(3) All the outstanding shares of capital stock of BFS Bank are owned
directly and of record by BFS, free and clear of all liens, pledges, security
interests, claims, proxies, preemptive or subscriptive rights or other
encumbrances or restrictions of any kind (collectively, "Encumbrances"). All
the shares of capital stock indicated as owned by BFS or a subsidiary of BFS
on Schedule 4.1(c) are owned directly and of record by BFS or a subsidiary of
BFS, free and clear of all Encumbrances.
(d) Capital Stock. (1) All of the issued and outstanding shares of capital
stock of BFS and BFS Bank, and all of the shares of capital stock of BFS's
other subsidiaries that are owned by BFS or a subsidiary of BFS, have been
duly authorized and are validly issued, fully paid and nonassessable.
(2) As of the date of this Agreement, there were outstanding under the stock
option and other plans identified in Schedule 4.1(d) (collectively, the "BFS
Stock Plans"), options or rights to acquire an aggregate of 159,220 shares of
BFS Common Stock, at an average exercise price of $9.65 and on the other terms
set forth in Schedule 4.1(d) (subject to adjustment on the terms set forth in
the BFS Stock Plans). As of the date of this Agreement, BFS has no shares of
BFS Common Stock reserved for issuance, other than 17,474 shares reserved for
issuance under the BFS Stock Plans, and has no shares of preferred stock
reserved for issuance.
(3) Except as set forth in Recital C and except for shares of BFS Common
Stock to be issued after the date hereof pursuant to the options outstanding
as of the date hereof under the BFS Stock Plans, there are no shares of
capital stock of BFS authorized, issued or outstanding. There are no
preemptive rights or any outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of BFS or any of its
subsidiaries of any character relating to the issued or unissued capital stock
or other securities of BFS or any of its subsidiaries (including those
relating to the issuance, sale, purchase, redemption, conversion, exchange,
redemption, voting or transfer thereof), other than (A) the Agreement, dated
as of April 3, 1993, between BFS, Fredric H. Gould, Gould Investors, L.P. and
the other persons and entities identified therein, as amended by Amendment No.
1 thereto (as so amended, the "1993 Agreement"), (B) the Gould Agreement, (C)
the President Agreement or (D) as set forth in Section 4.1(d)(2).
(e) Corporate Authority. (1) BFS has the requisite corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver this Agreement and, subject only to the adoption by the holders of a
majority of the issued and outstanding shares of BFS Common Stock of the
agreement of merger contained in this Agreement insofar as required by Section
251 of the DGCL, to consummate the transactions contemplated hereby. This
Agreement is a valid and legally binding agreement of BFS enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization, fraudulent transfer and other laws
affecting creditors' rights generally and to general equitable principles.
(2) The Board of Directors of BFS (at a meeting duly called and held) has by
requisite vote authorized and approved this Agreement and the transactions,
including the Merger, contemplated hereby and directed that the agreement of
merger (as such term is used in Section 251 of the DGCL) contained in this
Agreement be submitted for consideration to, and adoption by, its stockholders
in accordance with Section 251 of the DGCL.
A-5
<PAGE>
(3) BFS has taken all action required, if any, to exempt irrevocably this
Agreement, the Merger and the other transactions contemplated hereby from the
provisions of Article Eighth of its certificate of incorporation and the
requirements of any "business combination", "moratorium", "control share" or
any other state antitakeover statute or regulation, including Section 203 of
the DGCL.
(f) Governmental Filings. Other than the Regulatory Approvals, as provided
in Section 1.2 and as required under the Securities and Exchange Act of 1934,
as amended (including the rules and regulations thereunder, the "Exchange
Act"), state securities and "Blue Sky" laws or the rules of the National
Association of Securities Dealers, Inc. (the "NASD"), no notices, reports or
other filings are required to be made by BFS with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
BFS from, any domestic or foreign governmental or regulatory authority,
agency, court, commission or other entity (collectively, "Governmental
Entities"), in connection with the execution, delivery or performance of this
Agreement by BFS and the consummation by it of the Merger and the other
transactions contemplated hereby, other than those the failure of which to
obtain or make (1) will not have, individually or in the aggregate, a Material
Adverse Effect on BFS and (2) could not prevent, materially delay or
materially burden, or permit any Person to enjoin the consummation of, the
transactions contemplated by this Agreement.
(g) No Conflicts. The execution, delivery and performance of this Agreement
by BFS does not and will not, and (upon receipt of the Regulatory Approvals,
the expiration of any related waiting period, compliance with the other
requirements identified in Section 4.1(f) and the adoption of shareholders
referred to in Section 4.1(e)(1)) the consummation by it of the Merger and the
other transactions contemplated hereby will not, with or without the giving of
notice, the lapse of time or both:
(1) Conflict with or violate the Governing Documents of BFS or any
subsidiary of BFS;
(2) Except as set forth on Schedule 4.1(g), constitute or result in a
breach of or default under, permit the termination of or permit the
acceleration of the performance required by, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation
(collectively, "Contracts") of BFS or any subsidiary of BFS (or to
which their respective properties are subject);
(3) Result in the creation or imposition, pursuant to any Contract,
of any Encumbrance on any of the properties or assets of BFS or any
subsidiary of BFS; or
(4) Violate or breach any law, rule, ordinance, regulation, judgment,
decree, order, award or governmental or non-governmental permit or
license to which BFS or any subsidiary of BFS (or any of their
respective properties) is subject or permit the termination of any of
the foregoing;
except, in the cases of clauses (2) through (4), for such breaches, defaults,
Encumbrances, violations or terminations that, individually or in the
aggregate, would not have a Material Adverse Effect on BFS.
(h) Reports and Financial Statements. (1) With respect to periods since
September 30, 1994, each of BFS and its subsidiaries has timely filed, and has
paid all fees or assessments due or payable in connection with, all material
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (A) the Securities and
Exchange Commission (the "SEC"), (B) the OTS, (C) the FDIC, (D) the Federal
Home Loan Bank of New York (the "FHLB"), (E) any other applicable federal or
state banking, insurance, securities, or other regulatory authorities or (F)
the NASD. Each such report or statement, including the financial statements
and exhibits thereto, complied (or will comply, in the case of reports or
statements filed after the date of this Agreement) as to form with all
applicable statutes, rules and regulations as of the (in the case of reports
or statements filed prior to the date hereof, without giving effect to any
amendments or modifications filed after the date of this Agreement) date
thereof, except for such failures to comply that, individually or in the
aggregate, would not have a Material Adverse Effect on BFS.
(2) BFS has made available to Dime a true and complete copy of each
registration statement, offering circular, report, definitive proxy statement
or information statement under the Securities Act of 1933, as amended
(including the rules and regulations thereunder, the "Securities Act"), the
Exchange Act, 12 C.F.R. Parts 563d and 563g and state securities and "Blue
Sky" laws (collectively, the "Securities Laws") filed, used or circulated
A-6
<PAGE>
by BFS or any subsidiary of BFS with respect to periods since September 30,
1994 through the date of this Agreement, and will promptly deliver to Dime
each such document or statement filed, used or circulated after the date
hereof (collectively, the "Reports"), each in the form (including exhibits and
any amendments thereto) filed with the SEC or the OTS (or if not so filed, in
the form used or circulated), including BFS's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995 and its Quarterly Reports on Form 10-
Q for the periods ended December 31, 1995, March 31, 1996 and June 30, 1996.
(3) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Agreement), each of
the Reports, including the financial statements, exhibits and schedules
thereto, filed, used or circulated prior to the date hereof complied (and each
of the Reports filed after the date of this Agreement, will comply) in all
material respects with the applicable Securities Laws and did not (or in the
case of Reports filed after the date of this Agreement, will not) contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(4) Each of BFS's consolidated balance sheets included in the Reports fairly
presents (or, in the case of Reports filed after the date of this Agreement,
will fairly present) in all material respects the consolidated financial
position of BFS and its subsidiaries as of the date of such balance sheet and
each of the consolidated income statements and statements of changes in
stockholders' equity included in the Reports fairly presents (or, in the case
of Reports filed after the date of this Agreement, will fairly present) in all
material respects the consolidated results of operations and retained
earnings, as the case may be, of BFS and its subsidiaries for the periods set
forth therein (subject, in the case of interim statements, to normal year-end
adjustments that are not material in amount or effect), in each case in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
(i) Loans; OREO. (1) The allowance for possible loan losses shown on the
Balance Sheet (as defined below) was, and such allowance shown on each of the
consolidated balance sheets of BFS that is as of a date after the date hereof
and contained in any Report will be, adequate in all material respects, as of
the date of such balance sheet, to provide for estimable and probable losses,
net of recoveries relating to loans previously charged off, inherent in its
loan portfolio. The term "Balance Sheet" means the consolidated balance sheet
of BFS at June 30, 1996 included in its Quarterly Report on Form 10-Q for the
period then ended, as filed with the SEC prior to the date hereof.
(2) Schedule 4.1(i) sets forth a list, accurate and complete in all material
respects, of all Loans (as defined below), other than any such loans, leases,
extensions of credit, commitments or other assets the unpaid principal balance
of which does not exceed $100,000, of BFS and its subsidiaries that have been
criticized or classified as of September 30, 1996 by it or any such
subsidiary, separated by category of classification or criticism (the "Asset
Classification"); no amounts of such Loans that have been classified or
criticized as of the date hereof by any representative of any Banking
Regulator (as defined in Section 4.1(l)) as "Other Loans Especially
Mentioned", "Substandard", "Doubtful", "Loss" or words of similar import are
excluded from the amounts disclosed in the Asset Classification, other than
amounts that were charged off by BFS or its subsidiaries prior to the date
hereof; and no such Loans as of September 30, 1996 that have been or, to its
knowledge, should have been classified as "non-accrual", "restructured", "90
days past due", "still accruing and doubtful of collection" or any comparable
classification are excluded from the amounts disclosed in the Asset
Classification. For purposes of this Agreement, the term "Loans" shall mean
loans, leases, extensions of credit, commitments to extend credit and other
assets.
(3) Except as would not, individually or in the aggregate, have a Material
Adverse Effect on BFS, each loan or extension of credit of BFS or any of its
subsidiaries as of the date of this Agreement (A) is evidenced by notes,
agreements or other evidences of indebtedness that are true and genuine, (B)
is secured to the extent contemplated by the terms thereof, (C) is the legal,
valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium,
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reorganization, fraudulent transfer and other laws affecting creditors' rights
generally and to general equity principles, and (D) to BFS's knowledge, is not
subject to any defenses that may be asserted against BFS or any of its
subsidiaries.
(4) The Other Real Estate Owned ("OREO") included in any non-performing
assets of BFS or its subsidiaries is carried net of reserves at the lower of
cost or market value based on current independent appraisals or current
management appraisals.
(j) Absence of Certain Events and Changes. (1) Except as set forth in
Schedule 4.1(j)(1), since June 30, 1996, BFS and its subsidiaries have
conducted their respective businesses only in the ordinary and usual course of
such businesses and there has not been any change, development or combination
of changes or developments that, individually or in the aggregate, constitutes
or has resulted in a Material Adverse Effect on BFS.
(2) BFS and its subsidiaries have no obligations or liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, and regardless of when asserted), including for any Tax (as
defined in Section 4.1(n)) (collectively, "Liabilities"), except: (A) as
reflected on the Balance Sheet, (B) Liabilities that have arisen in the
ordinary and usual course of business after the date of such Balance Sheet,
and which will be included in the next following Report of it provided to
Dime, (C) as set forth in Schedule 4.1(j)(2) or (D) any Liability that, either
alone or when combined with all other such Liabilities, would not have a
Material Adverse Effect on BFS.
(k) Properties. Except as disclosed or reserved against in its Reports filed
with the SEC prior to the date hereof or in the Balance Sheet or as set forth
in Schedule 4.1(k), BFS and its subsidiaries have good and valid title to all
of the properties and assets, tangible and intangible, reflected on the
Balance Sheet or acquired since the date thereof (other than real property
reflected on the Balance Sheet as OREO), free and clear of all Encumbrances,
except for Encumbrances that, individually or in the aggregate, would not have
a Material Adverse Effect on BFS and property disposed of since the date of
the Balance Sheet in the ordinary course of business.
(l) Compliance with Laws. Except as set forth on Schedule 4.1(l), each of
BFS and its subsidiaries:
(1) Except for any failure so to comply that, individually or in the
aggregate, would not have a Material Adverse Effect on BFS, has been
since September 30, 1994 in compliance, in the conduct of its business,
with all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, including (A)
Sections 22(h), 23A and 23B of the Federal Reserve Act and (B) the
Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act and all other
applicable fair lending laws or other laws relating to discrimination
(clause (B), collectively, the "Lending Laws");
(2) Has all permits, licenses, certificates of authority, orders and
approvals of, and has made all filings, applications and registrations
with, Governmental Entities that are required in order to permit it to
carry on its business in all material respects as it is presently
conducted and the absence of which, individually or in the aggregate,
would have a Material Adverse Effect on BFS;
(3) Has received since September 30, 1994 no notification or
communication from any Governmental Entity (including the OTS and any
other bank, insurance or securities regulatory authorities) or the
staff thereof (A) asserting that it or any of its subsidiaries is not
in compliance in any material respect with any of the statutes,
regulations or ordinances that such Governmental Entity enforces; (B)
threatening to revoke any material license, franchise, permit or
governmental authorization; or (C) threatening or contemplating
termination of FDIC deposit insurance (nor, to its knowledge, do any
grounds for any of the foregoing exist);
(4) Is not required to give prior notice to any federal banking
agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive;
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(5) Is not subject to the limitations on acceptance of deposits set
forth in Section 29 of the FDI Act;
(6) With respect to BFS Bank, has been assigned a rating of
"outstanding record of meeting community credit needs" or "satisfactory
record of meeting community credit needs" in its most recent
examination under Section 4 of the Community Reinvestment Act (no other
subsidiary of BFS being an "insured depositary institution" as defined
in the FDI Act); and
(7) Is not a party or subject to (nor is any officer, director,
controlling Person or property of it or any of its subsidiaries a party
or subject to) any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, any Governmental Entity charged with the
supervision or regulation of depository institutions or engaged in the
insurance of deposits, including the OTS and the FDIC (collectively,
the "Banking Regulators"), or the supervision or regulation of BFS or
any subsidiary of BFS, and neither BFS nor any subsidiary of BFS has
been advised by any such Governmental Entity that such Governmental
Entity is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, commitment letter or similar
submission.
(m) Litigation. Except as set forth in Schedule 4.1(m), there are no
criminal or administrative investigations or hearings of, before or by any
Governmental Entity, or civil, criminal or administrative actions, suits,
claims or proceedings of, before or by any Person (including any Governmental
Entity) pending or, to BFS's knowledge, threatened or contemplated against BFS
or any of its subsidiaries (including under or relating to any of the Lending
Laws or Securities Laws or relating to any Plan (as defined in Section 4.1(g))
of BFS or its subsidiaries) that are reasonably likely to result in a
determination that, individually or in the aggregate, would have a Material
Adverse Effect on BFS.
(n) Taxes. (1) For the purposes of this Agreement, the term "Tax" shall mean
any tax or governmental charge, withholding obligation, assessment, impost or
levy (including, without limitation, any income, gross receipts, deposit,
license, payroll, employee withholding, foreign or domestic withholding,
backup withholding, excise, severance, stamp, occupation, premium, windfall
profits, environmental, capital stock, franchise, disability, real or personal
property, sales, use, transfer, ad valorem, alternative or add-on minimum or
other taxes, any customs duty, unemployment insurance, social security and
workers' compensation), together with any related liabilities, penalties,
fines, additions to tax or interest (including any penalties, fines or similar
amounts related to any information return or reporting obligations,
notwithstanding that no Tax is payable if such obligations are properly
discharged), imposed by the United States or any state, county, provincial,
local or foreign government or subdivision or agency thereof.
(2) Each of BFS and its subsidiaries has filed or will file all material Tax
returns or reports (including all Tax-related information returns or reports)
required to be filed (taking into account permissible extensions) by them on
or prior to the Effective Time. All such Tax returns are (or, with respect to
Tax Returns filed after the date of this Agreement, will be) correct and
complete in all material respects. Each of BFS and its subsidiaries has paid
or will pay in a timely manner and as required by law all material Taxes due
and payable by it or which it is obligated to withhold from amounts owing to
any employee or third party (whether or not shown on any Tax return). All
material Taxes which will be due and payable, whether now or hereafter, for
any period ending on, prior to or including the Effective Time shall have been
paid by or on behalf of BFS and its subsidiaries or shall be reflected on the
books of it and its subsidiaries as an accrued Tax liability determined in a
manner which is consistent with past practices and the Balance Sheet.
(3) Except as set forth in Schedule 4.1(n), (A) neither BFS nor any of its
subsidiaries has waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to Taxes or agreed to any
extension of time with respect to an assessment or deficiency for Taxes; (B)
no Tax returns or reports of BFS or its subsidiaries have to its knowledge
been audited by any Governmental Entity; and (C) there are no material
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unresolved questions, material claims or material disputes claimed or raised
by any relevant taxing authority concerning the liability for Taxes of BFS or
any of its subsidiaries.
(4) Neither BFS nor any of its subsidiaries has made an election under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), for any taxable years not yet closed for statute of
limitations purposes. Except as set forth in Schedule 4.1(n), there is no
material dispute or material claim concerning BFS or any of its subsidiaries
claimed or raised by any relevant taxing authority with respect to any Taxes
arising out of membership or participation in any consolidated, affiliated,
combined or unitary group of which it or any of such subsidiaries was at any
time a member.
(o) Insurance. (1) Each of BFS and its subsidiaries has taken all requisite
action (including the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order
to preserve all material rights thereunder with respect to all matters (other
than matters arising in connection with this Agreement and the transactions
contemplated hereby) that are known to it. Schedule 4.1(o) contains a list of
all directors' and officers' liability insurance policies maintained by BFS or
its subsidiaries as of the date of this Agreement.
(2) BFS and its subsidiaries are, and since September 30, 1994 have been,
insured for amounts management of BFS believes to be reasonable, against such
risks as companies engaged in a similar business customarily are insured.
(3) All of the insurance policies and bonds maintained by BFS and its
subsidiaries are in full force and effect, it and its subsidiaries are not in
default thereunder, except for any defaults that could not result in the
cancellation or loss of material benefits thereunder, and all material claims
thereunder have been filed in due and timely fashion.
(p) Labor Matters. Neither BFS nor any of BFS's subsidiaries is a party to,
or is bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. Neither
BFS nor any of BFS's subsidiaries is the subject of any material proceeding
asserting that it has committed an unfair labor practice or seeking to compel
it to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike involving BFS or any of BFS's subsidiaries
pending or, to BFS's knowledge, threatened, nor, to BFS's knowledge, is there
any activity involving employees of BFS or any of its subsidiaries seeking to
certify a collective bargaining unit or engaging in any other organizational
activity, in each case, either as of the date of this Agreement or as would,
individually or in the aggregate, have a Material Adverse Effect on BFS.
(q) Employee Benefits. (1) Schedule 4.1(q) sets forth a list of all bonus,
deferred compensation, pension, retirement, profit-sharing, thrift, savings,
welfare, employee stock ownership, severance, stock bonus, stock purchase,
restricted stock and stock option plans and all employment, severance or
change in control agreements that cover employees or former employees of BFS
and its subsidiaries (the "Compensation Plans"). True and complete copies of
the Compensation Plans and all other benefit plans, contracts or arrangements
covering current or former employees or directors of it or its subsidiaries
(the "Employees"), including, but not limited to, "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and all amendments thereto, have been made
available to Dime.
(2) All of BFS's and its subsidiaries' employee benefit plans, within the
meaning of Section 3(3) of ERISA, other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA, covering Employees (collectively, its
"Plans"), to the extent subject to ERISA, are in all material respects in
compliance with ERISA. Each of the Plans which is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which
is intended to be qualified under Section 401(a) of the Internal Revenue Code,
has received a favorable determination letter from the Internal Revenue
Service, and to BFS's knowledge there are no circumstances likely to result in
revocation of any such favorable determination letter. Neither BFS nor any of
its subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period
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of such transaction expired as of the date hereof, could subject it or any of
its subsidiaries to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in an amount that would be
material to BFS.
(3) No material liability under Subtitle C or D of Title IV of ERISA (other
than payment of applicable premiums) has been or is expected to be incurred by
BFS or any of its subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any of them, or the single-
employer plan of any entity which is considered one employer with it under
Section 4001 of ERISA or Section 414 of the Internal Revenue Code (an "ERISA
Affiliate"). BFS and its subsidiaries have not incurred and do not expect to
incur any material withdrawal liability with respect to a multiemployer plan
under Subtitle E of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate). No notice of a "reportable event",
within the meaning of Section 4043 of ERISA, for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan or by any of BFS's ERISA Affiliates within the 12-month period ending on
the date hereof.
(4) All material contributions required to be made by BFS and its
subsidiaries under the terms of any of its Plans have been timely made or have
been reflected on the Balance Sheet. Neither any of the Pension Plans nor any
single-employer plan of any of BFS's ERISA Affiliates has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section 412
of the Internal Revenue Code or Section 302 of ERISA. Neither BFS nor its
subsidiaries has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Sections
401(a)(29) of the Internal Revenue Code.
(5) Under each of the Pension Plans which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date of this
Agreement, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Pension
Plan's most recent actuarial valuation), did not materially exceed the then
current value of the assets of such Pension Plan, and to BFS's knowledge,
there has been no materially adverse change in the financial condition of such
Pension Plan since the last day of the most recent plan year. To BFS's
knowledge, there would be no material withdrawal liability of BFS and its
subsidiaries under each Compensation Plan which is a multiemployer plan to
which it, its subsidiaries or its ERISA Affiliates has contributed during the
preceding 12 months, if such withdrawal liability were determined as if a
"complete withdrawal", within the meaning of Section 4203 of ERISA, had
occurred as of the date hereof.
(6) Except as disclosed in its Reports or as set forth in Schedule 4.1(q),
neither BFS nor its subsidiaries has any obligations for retiree health and
life benefits under any Compensation Plan. To BFS's knowledge, BFS or its
subsidiaries may amend or terminate any Compensation Plan providing retiree
health and life benefits without incurring any liability thereunder.
(7) Except as provided in this Agreement or as identified in Schedule
4.1(q), the transactions contemplated by this Agreement will not result in the
vesting or acceleration of any amounts under any Compensation Plan, any
material increase in benefits under any Compensation Plan or payment of any
severance or similar compensation under any Compensation Plan.
(r) Environmental Matters. (1) For purposes of this Section 4.1(r), the
following terms shall have the indicated meaning:
"Environmental Law" means any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction, common law or
agreement with any Federal or state governmental authority relating to (A)
the protection, preservation or restoration of the environment (including
air, water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), (B) human health or safety or (C) exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of, hazardous
substances, in each case as amended and now in effect.
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"Hazardous Substances" means substances that are listed, classified or
otherwise regulated pursuant to any Environmental Law, including any
petroleum products or by-products, polychlorinated biphenyls ("PCBs"),
asbestos, lead paint or plumbing or radioactive materials.
(2) To BFS's knowledge, except as identified in Schedule 4.1(r) and except
to the extent that there would not reasonably be expected to result therefrom
a Material Adverse Effect on BFS:
(A) BFS and its subsidiaries are in compliance with all Environmental
Laws;
(B) No real property owned or operated by BFS or any of its subsidiaries
is contaminated with any Hazardous Substances;
(C) No real property formerly owned or operated by BFS or any of its
subsidiaries was contaminated with any Hazardous Substances during the
period of ownership or operation by it or such subsidiaries; and
(D) BFS and its subsidiaries are not subject to liability under any
Environmental Law for any off-site disposal or contamination of Hazardous
Substances.
(3) BFS and its subsidiaries have not received any claims or notices
concerning any, direct or indirect, potential or actual liability or loss of
BFS or any of its subsidiaries under any Environmental Law that, individually
or in the aggregate, would have a Material Adverse Effect on BFS.
(4) To BFS's knowledge, there are no circumstances or conditions involving
BFS or its subsidiaries or their properties (including any participation in
the management of, or the holding of a security interest in, a borrower or any
other third party or property or otherwise in a role as mortgagor, trustee or
fiduciary) that could reasonably be expected to result in any claims,
liabilities, costs or restrictions on the ownership, use or transfer of any
property pursuant to any Environmental Law that, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on
BFS.
(5) BFS and its subsidiaries have delivered or made available to Dime true
and complete copies of all environmental reports, studies, sampling data,
permits, government filings and any other environmental information in its
possession or reasonably available to it relating to BFS or any of its
subsidiaries or any of their current or former properties or operations.
(s) Material Agreements. (1) Except for this Agreement or as set forth in
Schedule 4.1(s) or filed as an exhibit to its Reports filed with the SEC prior
to the date hereof, neither BFS nor any of its subsidiaries (A) is a party to
any written or oral (w) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis, or relating to
severance or change-in-control related benefits for any such person, (x)
agreement or understanding to repurchase assets previously sold (or to
indemnify or otherwise compensate the purchaser in respect of such assets),
except for securities sold under a repurchase agreement that has been entered
into in the ordinary course of business for normal funding purposes and that
provides a repurchase date 30 days or less after the purchase date, (y)
contract or group of related contracts with the same Person for the purchase
or sale of products or services under which the undelivered balance of such
products or services has a purchase price in excess of $50,000 for any
individual contract or $50,000 for any group of related contracts in the
aggregate (including any lease that involves a remaining aggregate balance of
lease payments payable of more than $50,000 or any group of related leases
which involves a remaining aggregate balance of lease payments payable of more
than $50,000) or (z) contract that is material to it and its subsidiaries,
taken as a whole or (B) has any commitments for capital expenditures in excess
of $50,000.
(2) Except to the extent set forth in Schedule 4.1(s) and except to an
extent that would not, individually or in the aggregate, have a Material
Adverse Effect on BFS:
(A) Each of BFS and its subsidiaries has performed all obligations
required to be performed by it prior to the date hereof in connection with
the contracts or commitments set forth in Schedule 4.1(s);
(B) None of BFS or any of its subsidiaries is in receipt of any claim of
default under any such contract or commitment or has any present
expectation or intention of not fully performing any obligation pursuant to
any such contract or commitment; and
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(C) There has been no cancellation, breach or anticipated breach by any
other party to any such contract or commitment.
(3) Neither BFS nor any of its subsidiaries is subject to, or obligated
under, any agreement, arrangement or understanding that materially restricts
the ability of BFS or any of its subsidiaries, or would materially restrict
the ability of any successor of the preceding, to engage in any and all
activities permissible for federal savings banks or savings and loan holding
companies under applicable laws and regulations.
(t) Knowledge as to Conditions. As of the date of this Agreement, to BFS's
knowledge, there is no reason why the Regulatory Approvals and, to the extent
necessary for the consummation of the Merger, any other approvals,
authorizations, filings, registrations and notices cannot be obtained without
the imposition of any condition or restriction described in the proviso to
Section 6.1(b).
(u) Brokers and Finders. None of BFS, its subsidiaries or any of their
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby, except that BFS has
retained Keefe, Bruyette & Woods, Inc. as its financial advisor pursuant to a
letter agreement BFS has made available to Dime, as amended to date and
currently in full force and effect.
(v) Interest Rate Risk Management Instruments; Derivatives; Certain Other
Securities. (1) Schedule 4.1(v) sets forth a true and complete list as of the
date of this Agreement of (A) all interest rate swaps, caps, floors, option
agreements and other interest rate risk management arrangements and other
instruments generally known as "derivatives" to which BFS or any of its
subsidiaries is a party or to which any of their properties or assets may be
subject and (B) all securities owned by BFS or its subsidiaries that are
generally known as "structured notes", "high risk mortgage derivatives",
"capped floating rate notes" or "capped floating rate mortgage derivatives"
(instruments or agreements of the type referred to in clauses (A) and (B),
collectively, "Derivative Securities").
(2) Except as would not, individually or in the aggregate, have a Material
Adverse Effect on BFS:
(A) All Derivative Securities to which BFS or any of its subsidiaries is
a party or to which any of their properties or assets may be subject were
entered into in the ordinary course of business and, to its knowledge, in
accordance with prudent banking practice and applicable rules, regulations
and policies of the Banking Regulators and with counterparties believed to
be financially responsible at the time;
(B) All such Derivative Securities are legal, valid and binding
obligations enforceable in accordance with their terms (except, as to
enforceability, as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally,
and the availability of equitable remedies) and are in full force and
effect; and
(C) BFS and each of its subsidiaries has duly performed in all material
respects all of its obligations thereunder, and, to its knowledge, there
are no breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
(w) Accounting Controls. Each of BFS and its subsidiaries has devised and
maintained systems of internal accounting controls sufficient to provide
reasonable assurances, in the reasonable judgment of the Board of Directors of
BFS, that (1) all material transactions are executed in accordance with
management's general or specific authorization (except as set forth in
Schedule 4.1(w)); (2) all material transactions are recorded as necessary to
permit the preparation of financial statements in conformity with generally
accepted accounting principles consistently applied; (3) access to the
material property and assets of BFS and its subsidiaries is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
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4.2 Representations and Warranties of Dime. Dime hereby represents and
warrants to BFS that:
(a) Recitals True. The statements of fact set forth in Recitals A, B and G
of this Agreement with respect to Dime and Merger Sub are true.
(b) Organization and Qualification. Each of Dime and Merger Sub has the
requisite corporate power and authority to own or lease its material
properties and material assets and to carry on its business in all material
respects as it is now being conducted and is duly qualified to do business and
in good standing in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
for any failure to be so qualified that, individually or in the aggregate,
would not have a Material Adverse Effect on it.
(c) Corporate Authority. Each of Dime and Merger Sub has the requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and legally binding agreement
of each of Dime and Merger Sub enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization, fraudulent transfer and other laws affecting creditors' rights
generally and to general equitable principles.
(d) Governmental Filings. Other than the Regulatory Approvals, as provided
in Section 1.2 and as required under the Exchange Act, the state securities
and "Blue Sky" laws or the rules of the NASD, no notices, reports or other
filings are required to be made by Dime or Merger Sub with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by Dime or Merger Sub from, any Governmental Entity in connection
with the execution, delivery or performance of this Agreement by Dime or the
Merger Sub and the consummation by them of the Merger and the other
transactions contemplated hereby, other than those the failure of which to
obtain or make could not prevent, materially delay, or materially burden, or
permit any Person to enjoin the consummation of, the transactions contemplated
by this Agreement.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by Dime and Merger Sub does not and will not, and (upon receipt of the
Regulatory Approvals, the expiration of any related waiting period and
compliance with the other requirements of Section 4.2(d)) the consummation by
them of the Merger and the other transactions contemplated hereby, will not,
with or without the giving of notice, the lapse of time or both:
(1) Conflict with or violate the Governing Documents of Dime or Merger
Sub or any other subsidiary of Dime;
(2) Constitute or result in a breach of or default under, permit the
termination of or acceleration of the performance required by, any
Contracts of Dime or Merger Sub or any other subsidiary of Dime; or
(3) Violate or breach any law, rule, ordinance, regulation, judgment,
decree, order, award or governmental or non-governmental permit or license
to which Dime or Merger Sub or any other subsidiary of Dime is subject;
except, in the cases of clauses (2) and (3), for such breaches, default or
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on Dime.
(f) Knowledge as to Conditions. As of the date of this Agreement, to Dime's
knowledge, there is no reason why the Regulatory Approvals and, to the extent
necessary for consummation of the Merger, any other approvals, authorizations,
filings, registrations and notices cannot be obtained without the imposition
of any condition or restriction described in the proviso to Section 6.1(b).
(g) Financing. Dime has available, or at the Effective Time will have
available, sufficient funds, available lines of credit or other sources of
immediately available funds sufficient to enable it to consummate the Merger
on the terms and conditions of this Agreement. Dime and Merger Sub's
obligations hereunder are not subject to any conditions regarding Dime's
ability to obtain financing for the consummation of the transactions
contemplated herein.
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ARTICLE V
Covenants
5.1 Conduct of Business Pending the Effective Time. BFS agrees as to itself
and its subsidiaries that, from and after the date hereof until the Effective
Time, except insofar as Dime shall otherwise consent in writing (which consent
shall not be unreasonably withheld) or except as otherwise expressly
contemplated by this Agreement or set forth in Schedule 5.1:
(a) Conduct of Business in the Ordinary and Usual Course. BFS and its
subsidiaries will conduct their respective businesses (including the
underwriting and making of any loan or advance) only in the ordinary and usual
course, and, to the extent consistent therewith, BFS and its subsidiaries will
use all reasonable efforts to preserve intact their business organizations and
assets and maintain their rights, franchises and existing relations with
customers, suppliers, employees and business associates.
(b) Forbearance. BFS will not, and will cause each of its subsidiaries not
to:
(1) Declare, set aside or pay any dividend payable in cash, stock or
other property with respect to any of its capital stock, other than
dividends by direct or indirect wholly owned subsidiaries of BFS;
(2) Repurchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock;
(3) Grant, issue, sell, pledge, dispose of or permit any Encumbrance to
be placed on (A) any shares of its capital stock of any class, other than
issuance of BFS Common Stock pursuant to the BFS Stock Plans, (B)
securities convertible or exchangeable for such shares of capital stock,
(C) stock appreciation rights with respect to such shares or (D) options,
warrants, calls, commitments or rights of any kind to acquire any of such
shares;
(4) Effect any recapitalization, reclassification, stock split or like
exchange in capitalization;
(5) Enter into, or take any action to cause any stockholders of BFS to
enter into, any agreement, understanding or commitment relating to the
right of stockholders of BFS to vote any shares of its capital stock,
except for the 1993 Agreement or as set forth in Recital F, or cooperate in
any formation of any voting trust relating to such shares;
(6) Amend its Governing Documents;
(7) Merge or consolidate with, or, except in satisfaction of a debt
previously contracted in good faith, make any material acquisition of or
investment in the assets, stock or securities (including partnership, joint
venture or limited liability company interests) of, any other Person;
(8) Make any change in accounting principles or methods from those
currently employed, except as required by generally accepted accounting
principles or applicable regulatory requirements, as concurred in by BFS's
independent auditors;
(9) Sell, transfer, lease, securitize, swap, license, pledge or otherwise
dispose or permit any Encumbrance to be placed on any material amount of
its properties or assets (including loans, advances or securities
constituting assets of it), except in the ordinary course of business
consistent with past practice (including FHLB advances in the ordinary
course of business consistent with past practice);
(10) Other than with respect to loan transactions, enter into,
accelerate, terminate or cancel any contract, lease or license relating to
amounts in excess of $50,000 for any individual contract, lease or license
or $50,000 for any group of related contracts, leases or licenses other
than entering into such contracts, leases or licenses that can be
terminated without penalty on notice of 90 days or less;
(11) Amend, modify, waive or fail to enforce any provision of, or its
rights under, the 1993 Agreement;
(12) Incur any material amount of indebtedness, other than deposits taken
and other indebtedness incurred in the ordinary course of business
consistent with past practice (including FHLB advances in the ordinary
course of business consistent with past practice);
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(13) Other than in the ordinary course of business consistent with past
practice, (A) assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other Person or (B) cancel,
release, assign or modify any material amount of indebtedness of any other
Person;
(14) Make any loan or advance (A) in excess of $250,000 or (B) other than
in the ordinary course of business consistent with past practice;
(15) Authorize or make any capital expenditures, other than in the
ordinary course of business consistent with past practice and other than
capital expenditures for replacements and repairs in amounts less than
$50,000 in the aggregate;
(16) Enter into or modify any employment, severance or similar agreements
or arrangements with, or grant any bonuses, wage, salary, fee or
compensation increases, increases in fringe benefits or severance or
termination pay to, or promote, any director, officer, employee, group of
employees or consultant or hire any employee, except that it may (A) hire
"at will" employees with an annual salary of less than $50,000 as
replacements for terminating employees and (B) grant compensation
increases, bonuses or promotions in the ordinary course of business and
consistent with past practice to non-executive employees, provided that
such grants do not result in increases in compensation that exceed 3% per
annum on average, and (C) grant those salary increases, year-end bonuses
and retention bonuses set forth on Schedule 5.1(b)(16);
(17) Release or otherwise terminate the employment of any employee of it,
except in the ordinary course of business and consistent with past
practice;
(18) Establish, adopt or enter into any new, or amend any existing, or
extend coverage of or waive eligibility requirements with respect to any,
Compensation Plans (including profit sharing, bonus, director and officer
incentive compensation, severance, retirement, medical, hospitalization,
life or other insurance plans, agreements and commitments), except in each
case for amendments or modifications necessary to comply with applicable
law (after prior consultation with Dime);
(19) Knowingly take any action that would materially and adversely affect
the ability of any party hereto to obtain, on or before July 31, 1997, any
necessary approvals, consents or waivers of Governmental Entities required
for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the proviso to Section 6.1(b) or
perform its obligations under this Agreement or that is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it;
or
(20) Authorize or enter into an agreement to take any of the foregoing
actions.
(c) Certain Settlements. Without prior consultation with Dime, neither BFS
nor any of its subsidiaries shall enter into any settlement or similar
agreement (other than such a settlement or agreement involving no admission of
wrongdoing and requiring only the payment of immaterial monetary damages) with
respect to, or take any other significant action with respect to the conduct
of, any action, suit, proceeding, order or investigation against or affecting
BFS or any of its subsidiaries that is set forth in Schedule 4.1(m) or to
which BFS or any of such subsidiaries becomes a party after the date of this
Agreement (other than any action, suit, proceeding or order that is related
solely to the collection of any loan or other extension of credit in default
or to the realization on any related collateral).
5.2 Acquisition Proposals. BFS agrees that neither BFS nor any of its
subsidiaries shall, and that BFS and its subsidiaries shall direct and use all
reasonable efforts to cause their respective directors, officers, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any substantial part of the assets or any equity securities
of, BFS or any of its subsidiaries (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
discussions or negotiations with, or provide any confidential information or
data to, any Person relating to an Acquisition Proposal; provided, that, if
BFS is not otherwise in violation of this Section 5.2, the Board of Directors
of BFS may furnish or cause to be furnished information and may participate in
such discussions and negotiations directly or through its representatives if
such Board of
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Directors, after having consulted with and considered the written advice of
outside counsel, has determined that the failure to provide such information
or participate in such negotiations and discussions would constitute a breach
of their fiduciary duties under Delaware law. If any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, BFS
or any of its subsidiaries, BFS will immediately notify Dime. BFS will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal, will enforce any confidentiality agreements and
will take the necessary steps to inform the appropriate individuals or
entities referred to in the first sentence of this Section 5.2 of the
obligations undertaken in this Section 5.2.
5.3 Certain Policies of BFS. Subject to Schedule 5.3 and upon the request of
Dime, BFS shall, consistent with generally accepted accounting principles and
regulatory accounting principles, use its best efforts to record any
accounting adjustments required to conform the loan, litigation and other
reserve and real estate valuation policies and practices (including loan
classifications and levels of reserves) of BFS and its subsidiaries so as to
reflect consistently on a mutually satisfactory basis the policies and
practices of Dime; provided, however, that BFS shall not be obligated to
record any such accounting adjustments pursuant to this Section 5.3 (A) unless
and until BFS shall be satisfied that the conditions to the obligation of the
parties to consummate the Merger will be satisfied or waived on or before the
Effective Time, and (B) in no event until the day prior to the Effective Date.
BFS's representations, warranties (including Section 4.1(i)(1)) and covenants
contained in this Agreement shall not be deemed to be untrue or breached in
any respect for any purpose as a consequence of any modifications or changes
undertaken solely on account of this Section 5.3.
5.4 Employees; Employee Benefit Plans. (a) Dime agrees that, as of the
Effective Time, the employees of BFS and its subsidiaries at such time ("BFS
Employees") shall be employed upon terms and conditions (including retiree and
other benefits) no less favorable than those generally afforded to other
employees of Dime and its subsidiaries holding similar positions; provided,
that service with BFS or its subsidiaries or any predecessor thereto prior to
the Effective Time shall be treated as service with Dime or its subsidiaries
for purposes of any length-of-service requirements, waiting periods,
eligibility periods, vesting periods or differential benefits based upon
length-of-service requirements (but not for pension benefit accrual purposes),
including length-of-service requirements used to determine the number of weeks
of vacation to which a BFS Employee is entitled under the relevant Dime policy
and to satisfy any waiting periods concerning "preexisting conditions" and any
"copayment" or deductible requirements); and provided, further, that nothing
herein shall (1) prevent the amendment or termination of any Compensation Plan
of BFS in accordance with its terms, (2) require the Surviving Corporation to
maintain an employee stock ownership plan or to provide or permit investment
in the securities of BFS or the Surviving Corporation or (3) limit or restrict
the ability of the Surviving Corporation to terminate the employment of any
officer or employee.
(b) Dime agrees to honor in accordance with their terms all employment,
severance and termination contracts, agreements and arrangements and employee
benefit plans set forth in Schedule 4.1(q); provided, that the foregoing shall
not prevent the Surviving Corporation from amending or terminating any such
plan, contract, agreement, arrangement or plan in accordance with its terms.
It is Dime's present intention that current recipients of retiree medical
benefits from BFS and its subsidiaries will receive retiree medical benefits
no less favorable than those generally afforded to employees of Dime and its
subsidiaries holding similar positions; provided, that service with BFS or its
subsidiaries or any predecessor thereto prior to the Effective Time shall be
treated as service with Dime or its subsidiaries; and provided, further, that
such recipients shall not be required to make any contribution in respect of
such benefits unless required in good faith by Dime for reasons related to the
accounting by Dime for postemployment benefits other than pensions under
Statement of Financial Accounting Standards No. 106 (or any amendment or
successor thereto).
(c) BFS shall take such action as is necessary to terminate the BFS Employee
Stock Ownership Plan ("BFS ESOP") effective as of the Effective Time. Subject
to applicable laws and regulations, prior to the Effective Time, BFS shall
cause the BFS ESOP to be amended to provide that, in the event of the
termination of the BFS
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ESOP, participants in the BFS ESOP shall be entitled to rollover the amounts
then credited to their respective accounts under the BFS ESOP to the 401(k)
Savings Plan maintained by Dime. Dime shall use reasonable efforts to have the
401(k) Savings Plan accept such rollovers in the form of cash or cash
equivalents.
5.5 Access and Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, BFS agrees to (and
shall cause each of its subsidiaries to) afford Dime's officers, employees,
counsel, accountants and other authorized representatives (collectively, its
"Representatives") reasonable access (together with the right to copy), during
normal business hours throughout the period until the Closing Date, to its
books, properties, contracts and records (including loan and credit files, tax
returns and work papers of independent auditors) and, during such period,
shall (and shall cause each of its subsidiaries to) furnish to Dime and its
Representatives all information concerning its business, property and
personnel as may reasonably be requested and instruct its officers, employees,
counsel and accountants to be available for, and respond to reasonable
questions of, Dime and its Representatives at reasonable hours and with
reasonable notice and to cooperate with Dime in planning for the integration
of the business of BFS and its subsidiaries with the business of Dime and its
subsidiaries. Neither BFS nor any of its subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of BFS's customers, jeopardize the
attorney-client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) Each of Dime and BFS agree that it and its subsidiaries will not, and
will cause their Representatives not to, use any nonpublic information
obtained from the other party in connection with or relating to this
Agreement, the investigation leading up to its execution or the transactions
contemplated hereby (including by Dime pursuant to Section 5.5(a)) for any
purpose unrelated to the consummation of the transactions contemplated by this
Agreement. Pending consummation of the transactions herein contemplated, each
of Dime and BFS agrees that it and each of its subsidiaries will keep
confidential, and will cause its Representatives to keep confidential, all
nonpublic information and documents so obtained from the other party;
provided, that the obligation to keep such information or documents
confidential shall not apply to (1) any information or document that (A) was
already in Dime or BFS's possession prior to the disclosure thereof by the
other party, (B) was then generally known to the public, (C) became known to
the public through no fault of Dime or BFS, as the case may be, or (D) was
disclosed to Dime or BFS, as the case may be, by a third party not bound by an
obligation of confidentiality or (2) disclosures required by law, governmental
or regulatory authority. Upon any termination of this Agreement, each party
will collect and deliver to the other party all nonpublic documents obtained
by any of it, its subsidiaries or any of their Representatives and then in
their possession (other than documents of the type described in the proviso to
the preceding sentence) and any copies thereof and destroy or cause to be
destroyed all notes, memoranda or other documents in the possession of it, its
subsidiaries or their Representatives containing or reflecting any nonpublic
information obtained from the other party (other than information of the type
described in the proviso to the preceding sentence), except to the extent that
any such information may be embodied in minutes of the meetings of such
party's Board of Directors or in filings, reports or submissions to or with
any Governmental Entity. Promptly after any such termination, each of Dime and
BFS shall deliver to the other a certificate signed on its behalf by a senior
executive officer to the effect of its compliance with the agreements of it
set forth in the preceding sentence.
(c) Without in any way limiting the provisions of Section 5.5(a), BFS shall
provide to Dime within 30 days of the end of each calendar month between the
date hereof and the Closing Date (1) consolidated financial statements
(including a balance sheet and income statement) as of, and for the period
ended, on such month-end, in the form in which such statements are prepared
for use by BFS's management, and (2) such other information customarily
prepared by BFS as may be reasonably requested by Dime.
(d) No investigation, whether pursuant to this Section 5.5 or otherwise,
shall affect or be deemed to modify any representation or warranty herein.
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5.6 Options. BFS shall terminate at its sole cost and expense the BFS Stock
Plans listed on Schedule 4.1(d), effective as of the Effective Time; provided,
however, that immediately prior to the Effective Time, BFS shall take such
action as may be necessary so that all options to purchase BFS Common Stock
granted by BFS under the BFS Stock Plans and that are outstanding at the
Effective Time (collectively, the "BFS Options"), whether or not then
exercisable, shall be cancelled by BFS and shall thereafter represent the
right to receive (immediately prior to the Effective Time) in lieu of each
share of BFS Common Stock that would otherwise have been issuable upon
exercise thereof, consideration in an amount computed by multiplying (a) the
excess, if any, of the Merger Consideration over the per share exercise price
under such BFS Option by (b) the number of shares subject to such BFS Option.
5.7 Stockholder Approval. BFS agrees to take, subject to and in accordance
with applicable law and its Governing Documents, all action necessary to
convene a meeting of holders of BFS Common Stock (the "BFS Meeting") as
promptly as practicable to consider and vote upon the adoption of the
agreement of merger (within the meaning of Section 251 of the DGCL) contained
in this Agreement. Subject to the next sentence, the Board of Directors of BFS
will recommend such approval, and BFS will take all reasonable lawful action
to solicit such approval by its stockholders. The Board of Directors of BFS
may fail to make such a recommendation, or withdraw, modify or change any such
recommendation only if such Board of Directors, after having consulted with
and considered the written advice of outside counsel to such Board, has
determined that the making of such recommendation, or the failure so to
withdraw, modify or change its recommendation, would constitute a breach of
the fiduciary duties of such directors under Delaware law.
5.8 Efforts to Consummate; Proxy Statement; Other Filings. (a) Subject to
the terms and conditions of this Agreement and applicable law, each of Dime
and BFS shall use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including
such actions or things as the other party may reasonably request in order to
cause any of the conditions to such party's obligation to consummate the
Merger specified in Article VI of this Agreement to be fully satisfied.
(b) Without limiting the generality of Section 5.8(a):
(1) BFS shall prepare as promptly as practicable after the date hereof a
proxy statement and the other proxy solicitation materials constituting a
part thereof or, in the alternative, an information statement (as
determined by mutual agreement of BFS and Dime) for the BFS Meeting
(collectively, the "Proxy Statement"). BFS agrees to use all reasonable
efforts to cause the Proxy Statement to be mailed to holders of record of
BFS Common Stock as promptly as practicable after the date hereof.
(2) Dime and BFS agree to cooperate and, subject to the terms and
conditions set forth in this Agreement, use reasonable efforts to (A)
prepare and file all necessary documentation, (B) effect all necessary
applications, notices, petitions, filings and other documents, (C) obtain
all necessary permits, consents, orders, approvals and authorizations of,
or any exemption by, all third parties and Governmental Entities, including
the Regulatory Approvals, to make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable.
(3) Each of Dime and BFS agrees, upon request, to furnish the other with
all information concerning itself, its subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement or any other statement,
filing, notice or application made by or on behalf of such other party or
any of its subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
5.9 Information Supplied. Each of Dime and BFS agrees that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in the Proxy Statement and any amendment or supplement thereto will,
at the date of mailing to the stockholders of BFS and at the time of the BFS
Meeting, contain any statement which, in the light of the circumstances under
which such statement is made, will be false or misleading with respect to any
material fact, or which will omit to state any material fact necessary in
order
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to make the statements therein not false or misleading or necessary to correct
any earlier statement in the Proxy Statement or any amendment or supplement
thereto which has become false or misleading. The Proxy Statement shall not be
filed with the SEC or used, and, prior to the termination of this Agreement,
no amendment or supplement to the Proxy Statement shall be used or so filed,
by BFS without the prior consent of Dime and its counsel, which consent shall
not be unreasonably withheld, delayed or conditioned (including in a manner
that would interfere with the taking by the Board of Directors of BFS of the
actions contemplated by the third sentence of Section 5.7).
5.10 Publicity. Dime and BFS shall consult with each other (a) prior to
issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby, (b) prior to making any filings with
any Governmental Entity (including any self-regulatory organization) with
respect to such transactions and (c) prior to issuing any press releases or
otherwise making public statements with respect to significant regulatory
developments. In any press release or other public statement, each of Dime and
BFS warrants that neither it nor any of its authorized officers has made or
will make, regarding the Merger or any Acquisition Proposal, any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in the light of the circumstances under
which they were made, not misleading.
5.11 Notification of Certain Matters. Each of Dime and BFS will give prompt
notice to the other upon its discovery of the occurrence or failure to occur
of any fact, event or circumstance that would, individually or in the
aggregate, result in (a) a Material Adverse Effect on it, (b) any of the
representations or warranties of such party contained herein being untrue or
inaccurate when made, at the Effective Time or at any time prior to the
Effective Time, (c) a material breach of any of the covenants or agreements of
such party contained herein or (d) the preclusion of the satisfaction of any
condition to consummation set forth in Article VI. Each of Dime and BFS will
give prompt notice to the other of any notice or other communication from any
Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement.
5.12 Indemnification; Directors' and Officers' Insurance. (a) From and after
the Effective Time through the sixth anniversary thereof, Dime agrees to
indemnify, defend and hold harmless each present and former director and
officer of BFS and its subsidiaries determined as of the Effective Time (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees), liabilities or judgments of or in
connection with any claim, action, suit, proceeding or investigation arising
out of matters existing or occurring at or prior to the Effective Time (a
"Claim") in which an Indemnified Party is, or is threatened to be made, a
party or a witness based in whole or in part on, or arising in whole or in
part out of, the fact that such person is or was a director or officer of BFS
or any of its subsidiaries, regardless of whether such Claim is asserted or
claimed prior to, at or after the Effective Time, to the fullest extent to
which directors and officers of BFS are entitled under Delaware or other
applicable law as in effect on the date hereof (and Dime shall pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the extent permissible to a Delaware corporation under
Delaware law as in effect on the date hereof; provided, that the person to
whom expenses are advanced provides an undertaking to repay such expenses if
it is ultimately determined that such person is not entitled to
indemnification). All rights to indemnification in respect of a Claim asserted
or made within the period described in the preceding sentence shall continue
until the final disposition of such Claim.
(b) Any Indemnified Party wishing to claim indemnification under Section
5.12(a), upon learning of any Claim, shall promptly notify Dime, but the
failure to so notify shall not relieve Dime of any liability it may have to
such Indemnified Party except to the extent that such failure materially
prejudices Dime. In the event of any Claim, (1) Dime shall have the right to
assume the defense thereof and shall not be liable to such Indemnified Parties
for any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense thereof,
except that, if Dime elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Dime and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Dime shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are
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received, (2) the Indemnified Parties will cooperate in the defense of any
such Claim and (3) Dime shall not be liable for any settlement effected
without its prior written consent (which consent shall not unreasonably be
withheld).
(c) Dime shall use all reasonable efforts to cause the persons serving as
officers and directors of BFS immediately prior to the Effective Time to be
covered for a period of three years from the Effective Time by the directors'
and officers' liability insurance policy maintained by BFS (provided that Dime
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event shall Dime be required to expend
more than 200% of the current amount expended by BFS (the "Insurance Amount")
to maintain or procure insurance coverage pursuant hereto; and provided,
further, that if Dime is unable to maintain or obtain the insurance called for
by this Section 5.12(c), Dime shall use all reasonable efforts to obtain as
much comparable insurance as is available for the Insurance Amount.
(d) In the event Dime or any of is successors or assigns (1) consolidates
with or merges into any other Person and shall not continue or survive such
consolidation or merger, or (2) transfers or conveys all or substantially all
of its properties and assets to any Person, then, and in each such case, to
the extent necessary, proper provision shall be made so that the successors
and assigns of Dime assume the obligations set forth in this Section 5.12.
(e) The provisions of this Section 5.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives.
5.13 Bank Merger. Unless otherwise agreed by the parties, Dime and BFS will
take all action necessary and appropriate to cause the Bank Merger to occur
immediately after or, if the Bank Merger cannot be effected immediately after,
as promptly as practicable after the Effective Time. Notwithstanding anything
to the contrary in this Section 5.14, Dime and BFS may cause the Bank Merger
to occur on such later date as may be agreed in writing.
5.14 Forbearance by Dime. Dime agrees that, from and after the date hereof
until the Effective Time, except as otherwise expressly contemplated by this
Agreement, Dime will not, and will cause each of its subsidiaries not to,
knowingly take any action that would materially and adversely affect the
ability of any party hereto to obtain, on or before July 31, 1997, any
necessary approvals, consents or waivers of Governmental Entities required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the proviso to Section 6.1(b) or
perform its obligations under this Agreement.
5.15 Advisory Board. Dime agrees, promptly following the Effective Time, to
cause the members of BFS's board of directors immediately prior to the
Effective Time who are (a) not officers or employees of BFS or any of its
subsidiaries, (b) nominated by BFS and (c) are willing so to serve to be
elected or appointed as members of a newly formed advisory board to Dime
Savings, the function of which shall be as determined by the Board of
Directors of Dime Savings from time to time; provided, however, that Dime
Savings may request the resignation of any member of the advisory board, and
such member promptly shall so resign, if Dime Savings reasonably determines
that such member has a conflict of interest or other circumstances exist that
compromise such member's ability to effectively serve as a member of the
advisory board. The advisory board shall terminate on the first anniversary of
the Effective Time. The members of the advisory board shall receive a retainer
fee of $25,000 for their year of service.
ARTICLE VI
Conditions
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Dime, Merger Sub and BFS to consummate the
Merger is subject to the fulfillment or written waiver by each of Dime and BFS
of each of the following conditions prior to the Effective Time:
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(a) Stockholder Approval. The agreement of merger contained in this
Agreement shall have been duly adopted by the requisite vote of the holders of
the outstanding shares of BFS Common Stock in accordance with Section 251 of
the DGCL, other applicable law and the Governing Documents of BFS.
(b) Governmental and Regulatory Consents. The Regulatory Approvals shall
have been obtained and shall be in full force and effect and all related
waiting periods shall have expired; and all other material approvals and
authorizations of, filings and registrations with, and notifications to, all
Governmental Entities required for the consummation of the Merger shall have
been obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired; provided, however, that none of
the preceding shall be deemed obtained or made if it shall be conditioned or
restricted in a manner that, individually or in the aggregate, would result in
a Material Adverse Effect on the Surviving Corporation or the Surviving Bank.
(c) Third Party Consents. All consents or approvals of all Persons (other
than Governmental Entities) required for or in connection with the execution,
delivery and performance of this Agreement and the consummation of the Merger
shall have been obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval, individually or in the
aggregate, would not result in a Material Adverse Effect on the Surviving
Corporation or the Surviving Bank.
(d) No Prohibition. No jurisdiction or Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
6.2 Conditions to Obligation of Dime. The obligation of Dime and Merger Sub
to consummate the Merger is also subject to the fulfillment or written waiver
by Dime of each of the following conditions prior to the Effective Time:
(a) Representations and Warranties. The representations and warranties of
BFS set forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except that representations and warranties that by their terms
speak as of the date of this Agreement or some other date certain shall be
true and correct as of such date; and Dime shall have received a certificate,
dated the Closing Date, signed on behalf of BFS by its Chief Executive Officer
and Chief Financial Officer to such effect.
(b) Performance of Covenants. BFS shall have performed in all material
respects all covenants required to be performed by it under this Agreement at
or prior to the Closing Date, and Dime shall have received a certificate,
dated the Closing Date, signed on behalf of BFS by its Chief Executive Officer
and Chief Financial Officer to such effect.
6.3 Conditions to Obligation of BFS. The obligation of BFS to consummate the
Merger is also subject to the fulfillment or written waiver by BFS of each of
the following conditions prior to the Effective Time:
(a) Representations and Warranties. The representations and warranties of
Dime set forth in this Agreement shall be true and correct as of the date of
this Agreement and as of Closing Date as though made on and as of the Closing
Date, except that representations and warranties that by their terms speak as
of the date of this Agreement or some other date certain shall be true and
correct as of such date, and BFS shall have received a certificate, dated the
Closing Date, signed on behalf of Dime by a senior officer of Dime to such
effect.
(b) Performance of Covenants. Dime shall have performed in all material
respects all covenants required to be performed by it under this Agreement at
or prior to the Closing Date, and BFS shall have received a certificate, dated
the Closing Date, signed on behalf of Dime by a senior officer of Dime to such
effect.
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ARTICLE VII
Termination, Amendment and Waiver
7.1 Termination. This Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time, either before or after the approval
by the stockholders of BFS of the Merger:
(a) By the mutual written consent of Dime and BFS;
(b) By either Dime or BFS, if (1) the Effective Time shall not have occurred
on or prior to July 31, 1997, (2) any approval or authorization of any
Governmental Entity, the lack of which would result in the failure to satisfy
the closing condition set forth in Section 6.1(b), shall have been denied by
such Governmental Entity or such Governmental Entity shall have requested the
withdrawal of any application therefor or indicated an intention to deny, or
impose a condition of a type referred to in the proviso to Section 6.1(b) with
respect to, such approval or authorization or (3) the approval of the
stockholders of BFS referred to in Section 6.1(a) shall not have been obtained
at the BFS Meeting or at any adjournment thereof; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, either the
failure of the Effective Time to occur on or prior to such date or such action
by such Governmental Entity or the stockholders of BFS, as the case may be;
(c) By Dime, if (1) BFS shall have breached any representation, warranty or
covenant contained herein that would result in the failure to satisfy the
closing condition set forth in Section 6.2(a) or 6.2(b) and such breach cannot
be or has not been cured within 30 days after the giving of a written notice
to BFS of such breach, (2) as provided in Section 5.7, the Board of Directors
of BFS withdraws its recommendation of this Agreement, fails to make such
recommendation or modifies or qualifies its recommendation in a manner adverse
to Dime and (3) as provided in Section 5.2, the Board of Directors of BFS
participates in (or authorizes participation in) negotiations regarding the
substantive terms of a formal Acquisition Proposal; or
(d) By BFS, if (1) Dime shall have breached any representation, warranty or
covenant contained herein that would result in the failure to satisfy the
closing condition set forth in Section 6.3(a) or 6.3(b) and such breach cannot
be or has not been cured within 30 days after the giving of a written notice
to Dime of such breach or (2) without breaching Section 5.2, BFS shall have
entered into a definitive agreement with a third party providing for an
Acquisition Transaction (as defined in Section 7.3(b)(1) hereof) on terms
determined by the Board of Directors of BFS, in its sole discretion, after
consultation with and considering the advice of its legal and financial
advisors, to be more favorable to the stockholders of BFS than the Merger;
provided, that the right to terminate this Agreement under Section 7.1(d)(2)
shall not be available to BFS unless it delivers to Dime simultaneously with
such termination the fee referred to in Section 7.3;
provided, that to the extent required by Section 251(d) of the DGCL, any
termination of the Agreement after the approval of the Merger by the
stockholders of BFS shall be by action of the Board of Directors of Dime or
BFS, as the case may be.
7.2 Effect of Termination. In the event of termination of this Agreement and
the abandonment of the Merger pursuant to Section 7.1, no party to this
Agreement shall have any liability or further obligation to any other party
hereunder except (a) as set forth in Sections 7.3 and 8.1 and (b) such
termination will not relieve a breaching party of liability for any breach
directly or indirectly giving rise to such termination.
7.3 Termination Fee. (a) If this Agreement (1) is terminated by Dime
pursuant to Section 7.1(c)(2) or by BFS pursuant to Section 7.1(d)(2) and (2)
prior thereto or within eighteen months after such termination:
(A) BFS shall have entered into an agreement to engage in an Acquisition
Transaction or an Acquisition Transaction shall have occurred; or
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<PAGE>
(B) The Board of Directors of BFS shall have authorized or approved an
Acquisition Transaction or shall have publicly announced an intention to
authorize or approve an Acquisition Transaction or shall have recommended
that the stockholders of BFS approve or accept an Acquisition Transaction
(each of the events set forth in clause (A) or (B), a "Trigger Event");
BFS shall pay to Dime, and Dime shall be entitled to payment of, a fee of
$3,000,000.
(b) The term "Acquisition Transaction" means (1) a merger or consolidation,
or any similar transaction, involving BFS or any of its significant
subsidiaries (the term "significant subsidiary" for purposes of this
definition having the meaning assigned thereto in Regulation S-X promulgated
by the SEC), (2) a purchase, lease or other acquisition of all or
substantially all of the assets or deposits of BFS or any of its significant
subsidiaries or (3) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities representing
25% or more of the voting power of BFS or any of its significant subsidiaries,
in each case other than with or by Dime or a subsidiary of Dime.
ARTICLE VIII
General Provisions
8.1 Survival. Only those agreements and covenants of the parties that by
their express terms apply in whole or in part after the Effective Time shall
survive the Effective Time. All other representations, warranties, agreements
and covenants shall be deemed only to be conditions of the Merger and shall
not survive the Effective Time. If the Merger shall be abandoned and this
Agreement terminated, the provisions of Sections 7.2 and 7.3 shall apply and
the agreements of the parties in Sections 5.5(b) and (d), 5.10 and 8.2 shall
survive such abandonment.
8.2 Expenses. Each of Dime and BFS shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial or
other consultants, investment bankers, accountants and counsel; provided,
however, that the costs and expenses of preparing, printing and mailing the
Proxy Statement and all filing and other fees paid to the SEC in connection
with the Merger shall be borne equally by Dime and BFS.
8.3 Modification or Amendment. (a) Subject to the applicable provisions of
the DGCL, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement by written agreement executed and delivered by
duly authorized officers of the respective parties.
(b) At any time prior to the Effective Time, Dime shall be entitled to
revise the structure of the Merger or the other transactions contemplated
hereby or the manner of effecting such transactions; provided, that each of
the transactions comprising such revised structure or manner shall not, as a
result of such revision, (1) subject any of the stockholders of BFS (or, prior
to the Effective Time, BFS) to adverse Tax consequences, (2) adversely affect
the consideration to be received by any such stockholder or (3) result in any
material delay in the consummation of the transactions contemplated hereby.
This Agreement and any related documents shall be appropriately amended in
order to reflect any such revised structure.
8.4 Waiver of Conditions. The conditions to each party's obligation to
consummate the Merger are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law.
No waiver shall be effective unless it is in a writing signed by a duly
authorized officer of the waiving party that makes express reference to the
provision or provisions subject to such waiver.
8.5 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other shall be in writing and shall be deemed to
have been duly given (1) on the date of delivery if delivered personally or by
telefacsimile upon confirmation of receipt, (2) on the first business day
following the date of mailing if delivered by registered next-day courier
service or (3) on the third business day following the date of
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<PAGE>
mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices, requests, instructions or other
documents to be given hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the
party to receive such notice, request, instruction or document:
(a)If to Dime:
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Attention: Chief Executive Officer
Facsimile: (212) 326-6194
with a copy to:
Mitchell S. Eitel, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588
(b)If to BFS:
BFS Bankorp, Inc.
110 William Street
New York, New York 10038
Attention: James A. Randall President and Chief Executive
Officer
Facsimile: (212) 267-2723
with copies to:
John J. Gorman, Esq.
Luse, Lehman, Gorman, Pomerenk & Schick
5335 Wisconsin Ave., N.W.
Washington, D.C. 20015
Facsimile: (202) 362-2902
and
William S. Rubenstein, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
8.6 Certain Definitions; Interpretation. (a) As used in this Agreement, the
following terms shall have the meanings indicated:
"individually or in the aggregate", when used in or with respect to
Articles IV, V or VI, includes all events, occurrences and circumstances
described in any Section of that Article and is not limited to any specific
Section.
"material" means, with respect to a Person, material to such Person and
its subsidiaries, taken as a whole.
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<PAGE>
"Material Adverse Effect" means, with respect to a Person, a material
adverse effect upon (1) the present or prospective financial condition,
business or results of operations of such Person and its subsidiaries,
taken as a whole (provided, that in relation to the prospective condition,
business or results such effect must be reasonably likely to occur), or (2)
the ability of any party hereto to perform its material obligations under
this Agreement; provided, that in determining whether a Material Adverse
Effect has occurred there shall be excluded any effect on the referenced
party the cause of which is (1) any change in banking and similar laws,
rules or regulations of general applicability or interpretations thereof by
courts or governmental authorities, (2) any change in generally accepted
accounting principles or regulatory accounting requirements applicable to
thrift institutions or their holding companies generally or (3) any changes
in general economic conditions (including changes in interests rates)
affecting generally thrift institutions in the Greater New York
metropolitan area and their holding companies (provided, that such economic
conditions shall not (A) affect BFS and its subsidiaries to any
substantially greater extent than thrift institutions in the Greater New
York metropolitan area and their holding companies generally or (B) cause
the total stockholder's equity of BFS at any date (calculated in accordance
with past practice and the Balance Sheet but determined without regard to
any modification or change undertaken solely on the account of Section 5.3)
to be less than the amount publicly disclosed as such at September 30, 1996
by BFS in its press release dated October 29, 1996).
"Person" includes any individual, corporation, partnership, association,
trust, unincorporated organization or other entity.
"prior consultation" means, with respect to any action, advance notice of
such action and a reasonable opportunity to discuss such action in good
faith prior to the taking thereof.
"subsidiary" with respect to a Person, means any other person controlled
(as defined in Section 10 of the HOLA) by such Person.
(b) When a reference is made in this Agreement to Articles or Sections, such
reference shall be to an Article or Section of this Agreement unless otherwise
indicated. The table of contents, index of defined terms and headings
contained in this Agreement are for ease of reference only and shall not
affect the meaning or interpretation of this Agreement. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall
be deemed followed by the words "without limitation". Any singular term in
this Agreement shall be deemed to include the plural, and any plural term the
singular.
(c) Insofar as any provision of this Agreement shall require a subsidiary to
take or omit to take any action, such provision shall be deemed a covenant by
Dime or BFS, as the case may be, to cause such action or omission to occur.
(d) It is the intention of the parties that this Agreement shall not be
construed more strictly with regard to one party than with regard to any other
party.
8.7 Entire Agreement. This Agreement, including the Annexes and Schedules
thereto, constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral.
8.8 Assignment. Without the prior written consent of the other party hereto,
this Agreement shall not be assigned by operation of law or otherwise (any
attempted assignment in contravention hereof being null and void).
8.9 No Third-Party Beneficiaries. Nothing contained in this Agreement,
expressed or implied, is intended to confer upon any person or entity other
than the parties hereto, any benefit right or remedies, except that the
provisions of Section 5.6 shall inure to the benefit of the holders of the BFS
Options, Section 5.12 shall inure to the benefit of the persons referred to
therein and Section 5.15 shall inure to the benefit of the members of the
advisory board referred to therein.
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<PAGE>
8.10 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
8.11 Counterparts. For the convenience of the parties hereto, this Agreement
may be executed in any number of separate counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
IN WITNESS WHEREOF, Dime, Merger Sub and BFS have caused this Agreement to
be duly executed as of the date first written above by their respective
officers thereunto duly authorized.
DIME BANCORP, INC.
/s/ James M. Large Jr.
By___________________________________
Name: James M. Large, Jr.
Title: Chairman and Chief
Executive Officer
FIFTH AVENUE PROPERTY CORP.
/s/ David E. Sparks
By___________________________________
Name: David E. Sparks
Title: President
BFS BANKORP, INC.
/s/ James A. Randall
By___________________________________
Name: James A. Randall
Title: President and Chief
Executive Officer
A-27
<PAGE>
ANNEX B
December 3, 1996
Dime Bancorp, Inc.,
589 Fifth Avenue,
New York, New York 10017.
RE: AGREEMENT AND PLAN OF MERGER BY AND BETWEEN DIME BANCORP, INC. AND BFS
BANKORP, INC.
Ladies and Gentleman:
The undersigned understand that Dime Bancorp, Inc. ("Dime") is considering
entering into an Agreement and Plan of Merger, to be dated as of the date
hereof (the "Merger Agreement"), with BFS Bankorp, Inc. ("BFS") and providing
for the merger of a wholly owned subsidiary of Dime with and into BFS (the
"Merger"). In consideration of the substantial expenses and other obligations
Dime will incur in connection with the transactions contemplated by the Merger
Agreement and in order to induce Dime to execute the Merger Agreement and to
proceed to incur such expenses, the undersigned agree and undertake as
follows:
1. The undersigned represent and warrant that they collectively are the
beneficial owners of not less than 891,297 shares (the "Shares") of common
stock, par value $.01 per share (the "Common Stock"), of BFS. The Shares
are held of record by the undersigned directly and by Gould BFS, Inc. (of
which Frederic H. Gould is the President and sole Director and Gould
Investors, L.P. is the sole stockholder).
2. The undersigned hereby waive, with respect to the Merger Agreement and
the Merger, the conditions set forth in the proviso to Section 5(a) of the
1993 Agreement (the "Bidding Conditions"). The undersigned agree that the
Merger Agreement is the type of agreement contemplated by Section 5(a) of
the 1993 Agreement and agree to comply with Section 5 of the 1993 Agreement
with respect to the Merger Agreement and the Merger (in all respects as if
the Bidding Conditions were satisfied). For purposes hereof, the "1993
Agreement" shall mean the Agreement, dated as of April 3, 1993, between
BFS, Fredric H. Gould, Gould Investors, L.P. and the other persons and
entities identified therein, as amended by Amendment No. 1 thereto (a true
and complete copy of which has been attached to this letter agreement by
the undersigned upon execution hereof).
3. The undersigned agree not to amend, terminate, or otherwise modify, or
take any action that would have the effect of amending, terminating or
modifying, the terms of the 1993 Agreement, without the express written
consent of Dime. If the 1993 Agreement terminates for any reason before
termination of this letter agreement (including as a result of the
acquisition by the undersigned of additional shares of Common Stock), the
undersigned agree to continue to be bound by Section 5 of the 1993
Agreement (as in effect prior to such termination) for purposes of, and
after giving effect to, this letter agreement.
4. The undersigned agree to, directly or indirectly, sell, transfer,
pledge, assign or otherwise dispose of, or enter into any contract, option,
commitment or other arrangement or understanding with respect to the sale,
transfer, pledge, assignment or other disposition of, any of the Shares
(including as part of a transaction involving the sale of BFS). In the case
of any transfer by operation of law, this letter agreement shall be binding
upon and inure to the transferee. Any transfer or other disposition in
violation of the terms of this paragraph 4 shall be null and void.
5. The undersigned agree that they shall not, and shall direct and use
all reasonably efforts to cause their respective directors, officers,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by them) not to, (a)
initiate, solicit or encourage, directly or indirectly, any inquiries with
respect to, or the making or implementation of, any Acquisition Proposal
(as defined in the Merger Agreement) or engage in any discussions or
negotiations with, or provide any
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<PAGE>
confidential information or data to, any person relating to any such
Acquisition Proposal; provided that, if the undersigned are not otherwise
in violation of this paragraph 5, the undersigned may furnish or cause to
be furnished information and may participate in such discussions or
negotiations directly or through its representatives following a
determination by the Board of Directors of BFS (other than the undersigned
and any of their affiliates who are members of such Board) that it is
required to take the actions contemplated by the proviso to Section 5.2 of
the Merger Agreement.
6. As stockholders of BFS, the undersigned shall cooperate with Dime and
BFS in (a) preparing and filing documentation, (b) effecting applications,
notices, petitions, filings and other documents and (c) obtaining permits,
consents, orders, approvals and authorizations necessary to make effective
the Merger and the other transactions contemplated by the Merger Agreement
and, except as otherwise permitted under this letter agreement or the
Merger Agreement, shall not wilfully take, or cause to be taken, any action
that could significantly impair the prospects of completing the Merger in
accordance with the Merger Agreement.
7. If the Merger Agreement shall terminate in any manner described in
Section 7.3(a) of the Merger Agreement and prior to or within eighteen
months after the date of such termination:
(1) An Acquisition Transaction (as defined in Section 7.3 of the
Merger Agreement) shall be consummated or any of the undersigned shall
transfer, sell or otherwise dispose of any shares of Common Stock to
any person or group (such terms having the meaning assigned thereto
under Section 13(d) of the Securities Exchange Act of 1934) that has,
or as a result thereof will have, a reporting obligation under Section
13(d) of the Securities Exchange Act of 1934 with respect to the Common
Stock; and
(2) As a result of, or in connection with, an event or transaction of
the type described in the preceding clause, the undersigned (directly
or indirectly) received or will receive, in exchange for or otherwise
in respect of shares of Common Stock beneficially owned by them,
property the fair market value of which per share exceeds the
Applicable Consideration (such fair market value being determined in a
mutually agreed upon manner),
then the undersigned will, jointly and severally, pay to Dime at the time
of consummation of such transaction an amount equal to the excess of the
fair market value per share of such property over the Applicable
Consideration. The amount paid shall be either in cash or in the form of
any other property received by the undersigned in such transaction, at the
election of Dime; provided, that Dime shall make its election before the
consummation of any such transaction if it has reasonable notice thereof
(or, in any other case, shall make its election promptly upon the receipt
of notice); and provided, further, that if the undersigned shall receive
property other than cash and Dime shall elect a cash payment, then the
amount paid will be net of reasonable and customary expenses actually
incurred in the sale of such property (solely in an amount necessary to
comply with the terms of this letter agreement) by the undersigned. The
"Applicable Consideration" for purposes of this letter agreement shall mean
$52.00; provided, that if the event or transaction referred to in paragraph
7(1) of this letter agreement occurs after June 1, 1997, the Applicable
Consideration shall be increased by an amount equal to the product of $.01
and the number of days elapsed during the period beginning on but excluding
June 1, 1997, through and including the date on which such event or
transaction occurs.
8. The undersigned agree to cause those other persons and entities that
are parties to the 1993 Agreement (other than BFS), or successors to such
parties, to comply with this letter agreement as if they were a party
hereto.
9. Except for paragraphs 7 and 8, which shall survive the termination of
this letter agreement for the period specified in paragraph 7, this letter
agreement shall terminate at the time of the termination of the Merger
Agreement, except that any such termination shall be without prejudice to
your rights arising out of any breach of any agreement or representation
contained herein.
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<PAGE>
This letter agreement constitutes the complete understanding between the
undersigned and Dime concerning the subject matter hereof. THIS LETTER
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.
Very truly yours,
FREDRIC H. GOULD
/s/ Fredric H. Gould
_____________________________________
Gould Investors, L.P.,
a Delaware limited partnership
By: Georgetown Partners, Inc.,
its Managing General Partner
/s/ Fredric H. Gould
By: _________________________________
Name: Fredric H. Gould
Title: Chairman
Accepted:
Dime Bancorp, Inc.
/s/ James M. Large, Jr.
By: _________________________________
Name: James M. Large, Jr.
Title: Chairman and Chief
Executive Officer
B-3
<PAGE>
ANNEX C
December 3, 1996
Dime Bancorp, Inc.
589 Fifth Avenue,
New York, New York 10017
RE: AGREEMENT AND PLAN OF MERGER BY AND BETWEEN DIME BANCORP, INC. AND BFS
BANKORP, INC.
Ladies and Gentlemen:
The undersigned understands that Dime Bancorp, Inc. ("Dime") is considering
entering into an Agreement and Plan of Merger, to be dated as of the date
hereof (the "Merger Agreement"), with BFS Bankorp, Inc. ("BFS") and providing
for the merger of a wholly owned subsidiary of Dime with and into BFS (the
"Merger"). In consideration of the substantial expenses and other obligations
Dime will incur in connection with the transactions contemplated by the Merger
Agreement and in order to induce Dime to execute the Merger Agreement and to
proceed to incur such expenses, the undersigned agrees and undertakes as
follows:
1. The undersigned represents and warrants that he is the beneficial and
record owner of 55,188 shares of common stock, par value $.01 per share
(the "Common Stock"), of BFS.
2. The undersigned will vote or cause to be voted for approval of the
Merger all shares of Common Stock that, on the record date therefor, are
beneficially owned by the undersigned or with respect to which the
undersigned has the power to vote.
3. The undersigned agrees not to, directly or indirectly, sell, transfer,
pledge, assign or otherwise dispose of, or enter into any contract, option,
commitment or other arrangement or understanding with respect to the sale,
transfer, pledge, assignment or other disposition of, any shares of Common
Stock now or hereafter beneficially owned by the undersigned (including as
part of a transaction involving the sale of BFS); provided, however, that
nothing contained herein shall prohibit the undersigned from pledging any
of such shares pursuant to a standard margin contract or arrangement. In
the case of any transfer by operation of law, this letter agreement shall
be binding upon and inure to the transferee. Any transfer or other
disposition in violation of the terms of this paragraph 3 shall be null and
void.
4. In his capacity as a stockholder of BFS, the undersigned shall
cooperate with Dime and BFS in (a) preparing and filing documentation, (b)
effecting applications, notices, petitions, filings and other documents and
(c) obtaining permits, consents, orders, approvals and authorizations
necessary to make effective the Merger and the other transactions
contemplated by the Merger Agreement and, except as permitted by this
letter agreement or the Merger Agreement, shall not wilfully take, or cause
to be taken, any action that could significantly impair the prospects of
completing the Merger in accordance with the Merger Agreement.
5. This letter agreement shall terminate at the time of the termination
of the Merger Agreement, except that any such termination shall be without
prejudice to your rights arising out of any breach of any agreement or
representation contained herein.
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<PAGE>
This letter agreement constitutes the complete understanding between the
undersigned and Dime concerning the subject matter hereof. THIS LETTER
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.
Very truly yours,
James A. Randall
/s/ James A. Randall
--------------------------------------
Accepted:
Dime Bancorp, Inc.
By: /s/ James M. Large, Jr.
-----------------------------------
Name: James M. Large, Jr.
Title: Chairman and Chief Executive
Officer
C-2
<PAGE>
ANNEX D
KEEFE, BRUYETTE & WOODS, INC.
SPECIALISTS IN BANKING
TWO WORLD TRADE CENTER 85TH FLOOR NEW YORK, N.Y. 10048
February 7, 1997
The Board of Directors
BFS Bankorp, Inc.
110 William Street
New York, NY 10038-3901
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the common shareholders of BFS Bankorp,
Inc. ("BFS Bankorp") of the consideration to be paid pursuant to the Agreement
and Plan of Merger, dated as of December 3, 1996 (the "Merger Agreement"), by
and among BFS Bankorp, Dime Bancorp, Inc., a Delaware corporation ("Dime") and
Fifth Avenue Property Corp., a Delaware corporation ("Merger Sub") the wholly-
owned subsidiary of Dime, and, pursuant to which, among other things, Merger
Sub will merge with and into BFS Bankorp, which will survive the Merger, and
each share of BFS Bankorp's common stock, par value $0.01 per share (the
"Common Stock"), other than shares of Common Stock as to which dissenter's
rights of appraisal have been duly asserted and perfected in accordance with
Delaware law, shares of Common Stock owned by Dime or its subsidiaries (except
for shares held in a fiduciary capacity or in respect of a debt previously
contracted) and shares of Common Stock held by BFS Bankorp or its subsidiaries
in treasury, will be converted into the right to receive $52.00 in cash,
subject to upward adjustment, all as more fully described in the Proxy
Statement.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-
dealer, we may, from time to time purchase securities from, and sell
securities to, BFS Bankorp and Dime, and as a market maker in securities, we
may from time to time have a long or short position in, and buy or sell, debt
or equity securities of BFS Bankorp for our own account and for the accounts
of our customers. To the extent we have any such position as of the date of
this opinion it has been disclosed to BFS Bankorp. We have acted for the Board
of Directors of BFS Bankorp in rendering this fairness opinion and will
receive a fee from BFS Bankorp for our services.
In connection with this opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of BFS Bankorp and
Dime and the Merger, including among other things, the following: (i) the
Merger Agreement; (ii) the proxy statement for the special meeting of
shareholders of BFS Bankorp to be held in connection with the Merger dated
February 7, 1997; (iii) the Annual Reports to Shareholders and Annual Reports
on Form 10-K for the three years ended December 31, 1995 of BFS Bankorp; (iv)
certain interim reports to shareholders and Quarterly Reports on Form 10-Q of
BFS Bankorp, and certain other communications from BFS Bankorp to their
respective shareholders; and (v) other financial information concerning the
businesses and operations of BFS Bankorp furnished to us by BFS Bankorp for
purposes of our analysis. We have also held discussions with senior management
of BFS Bankorp regarding the past and current business operations, regulatory
relations, financial condition and future prospects of their respective
companies and such other matters as we have deemed relevant to our inquiry. In
addition, we have compared certain financial and stock market information for
BFS Bankorp with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the banking industry and performed
such other studies and analyses as we considered appropriate.
D-1
<PAGE>
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any
responsibility for independently verifying the accuracy or completeness of any
such information. We have relied upon the management of BFS Bankorp as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we
have assumed that such forecasts and projections reflect the best currently
available estimates and judgments of such managements and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated by such managements. We are not experts in the independent
verification of the adequacy of allowances for loan and lease losses and we
have assumed, with your consent, that the aggregate allowances for loan and
lease losses for BFS Bankorp are adequate to cover such losses. In rendering
our opinion, we have not made or obtained any evaluations or appraisals of the
property of BFS Bankorp, nor have we examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following:
(i) the historical and current financial position and results of operations of
BFS Bankorp; (ii) the assets and liabilities of BFS Bankorp; and (iii) the
nature and terms of certain other merger transactions involving banks and bank
holding companies. We have also taken into account our assessment of general
economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and knowledge
of the banking industry generally. Our opinion is necessarily based upon
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received in the Merger is fair, from a
financial point of view, to holders of the Common Stock.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, Inc.
D-2
<PAGE>
ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(AS AMENDED)
(S)262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of the State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
E-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
E-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation
E-3
<PAGE>
of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
E-4
<PAGE>
LOGO
REVOCABLE PROXY
BFS BANKORP, INC.
110 WILLIAM STREET
NEW YORK, NEW YORK 10038-3901
ANNUAL MEETING OF STOCKHOLDERS
March 11, 1997
5:00 p.m.
The undersigned hereby appoints Eldon C. Hanes and James A. Randall, or
either of them with full power of substitution, to act as attorney and proxy
for the undersigned, and to vote all shares of common stock of BFS Bankorp,
Inc. (the "Company") which the undersigned is entitled to vote at the Annual
Meeting of Stockholders (the "Annual Meeting"), to be held on March 11, 1997,
at 5:00 p.m., New York Time, at the Continental Club, 180 Maiden Lane, New
York, New York, and at any and all adjournments thereof, as follows:
1. The approval and adoption of the Agreement and Plan of Merger, dated as
of December 3, 1996, by and among BFS Bankorp, Inc., Dime Bancorp, Inc.
and Fifth Avenue Property Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
2. The election of Directors: Fredric H. Gould and Todd M. Poland
[_] FOR all nominees (except as written to the contrary
below) [_] VOTE WITHHELD
INSTRUCTION: To withhold your vote for any individual nominee, write that
nominee's name on the space provided.
---------------------------------------------------------------
3. The ratification of the appointment of KPMG Peat Marwick as independent
auditors for the fiscal year ending September 30, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
(continued on back side)
<PAGE>
LOGO
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS LISTED. If
any other business is presented at the Annual Meeting, this proxy will be voted
by those named in this proxy in their best judgment.
The undersigned acknowledges receipt from BFS Bankorp, Inc. prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and of a
proxy statement dated February 7, 1997 and of the Annual Report to
Stockholders.
Dated: ____________________________________
-------------------------------------------
SIGNATURE OF STOCKHOLDER
-------------------------------------------
SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears
on this card. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title. If
shares are held jointly, each holder may
sign but only one signature is required.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20459
FORM 10-K
Annual report pursuant to Section 13 or 15(d)of
the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
-----------------------
Commission file number 0 - 16825
-----------
BFS BANKORP, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13 - 3475050
------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 William Street NY, NY 10038
- - ---------------------------- -----------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 212-227-4040
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, 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 (229.405 of this chapter) 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 this Form 10-
K or 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 NASDAQ National Market system on November 30, 1996 was approximately
$30,259,000.
The number of shares outstanding of the registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of November 30, 1996,
was 1,647,237 (net of treasury stock).
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 1996 Annual Meeting of Stockholders (Part III).
<PAGE>
BFS BANKORP, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No. Description Page
- - -------- ----------- ----
Part I
1 Business 1
2 Properties 24
3 Legal Proceedings 24
4 Submission of Matters to a Vote of Security Holders 24
Part II
5 Market for Registrant's Common Equity
and Related Stockholder Matters 25
6 Selected Financial Data 26
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
8 Financial Statements and Supplementary Data 38
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 61
Part III
10 Directors and Executive Officers of the Registrant 61
11 Executive Compensation 61
12 Security Ownership of Certain
Beneficial Owners and Management 61
13 Certain Relationships and Related Transactions 61
Part IV
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 62
<PAGE>
PART I
Item 1 - BUSINESS
General
- - -------
BFS BANKORP, Inc. (the "Company"), a Delaware business corporation, is a
holding company whose principal subsidiary is Bankers Federal Savings FSB, (the
"Bank"), a federally-chartered savings bank, headquartered in New York City, New
York. The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF").
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 May 11, 1988. The primary activity of the Company at this time is
its ownership of all the outstanding capital stock of the Bank. At September
30, 1996, the Company had consolidated total assets of $643.2 million and
stockholders' equity of $50.2 million.
On December 3, 1996, BFS Bankorp, Inc. announced it had entered into a
definitive merger agreement with Dime Bancorp Inc., the holding company for The
Dime Savings Bank of New York, FSB. Under the terms of the agreement, approved
by the boards of director of both institutions, Dime Bancorp Inc. agreed to pay
$52.00 cash for each share of stock of BFS Bankorp, Inc. subject to upward
adjustment under certain circumstances. The transaction is subject to the
approval of the stockholders of BFS Bankorp, Inc. as well as federal banking
regulators.
The Bank is a capital stock savings bank organized in 1890 and
headquartered in New York City, New York. The Bank conducts its business through
five full-service banking offices in Manhattan, Queens and Brooklyn, with its
executive office located in Manhattan. At September 30, 1996, the Bank had total
assets of $641.9 million, deposits of $412.0 million and stockholders' equity of
$47.3 million.
The Bank is principally engaged in the business of attracting retail
deposits from the general public and investing those funds in multi-family
residential mortgage loans. The Bank's operating strategy is designed to enhance
the profitability of its operations by emphasizing rate sensitive mortgage loans
secured by multi-family residences and to better match the interest rate
sensitivities of its assets and liabilities, thereby reducing the Bank's
exposure to interest rate risk.
The Bank's results of operations depend primarily upon the level of its net
interest income, which is the difference between the interest income earned on
its interest-earning assets and the interest expense incurred on its interest-
bearing liabilities. The Bank's interest-earning assets consist primarily of
first mortgage loans, mortgage-backed securities, investment securities, and
federal funds. The Bank's interest-bearing liabilities consist primarily of
deposits, Federal Home Loan Bank advances, and collateralized mortgage
obligations. As part of its interest rate risk management policy, the Bank
emphasizes the origination of adjustable rate and balloon multi-family mortgage
loans and attempts to match any lending with savings and borrowings of a similar
maturity or duration.
The Bank generates non-interest income primarily through fees charged for
services rendered. The Bank has instituted a program to maximize fee income on
current services and to offer new services which will generate additional fees.
Fee income has been enhanced over the past few fiscal years by increasing usage
of automated teller machines at the Bank's branches, and introducing credit
cards and telephone banking as additional fee-based services. In addition, the
Bank's wholly-owned subsidiary, Bankers Federal Service Corporation, makes
available for sale mutual funds in addition to tax deferred annuities.
Non-interest expense consists primarily of those expenses associated with
operating the Bank, such as compensation and benefits, office occupancy, data
processing and SAIF deposit insurance premiums.
1
<PAGE>
The consolidated stockholders' equity to assets ratio of the Company at
September 30, 1996 was 7.81%. The Bank's core or leverage capital to assets
ratio was 7.38% at September 30, 1996.
Ratios. The following table sets forth certain ratios regarding the
------
profitability of the Company for the years indicated:
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994 1993 1992
- - --------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on assets (net
income/loss divided by
average total assets) 1.81% 1.53% 1.23% 1.08% (0.69)%
Return on equity (net
income/loss divided by
average equity) 23.10% 22.24% 19.67% 22.92% (16.04)%
Equity-to-assets ratio
(average equity
divided by average
total assets) 7.81% 6.88% 6.27% 4.69% 4.30%
</TABLE>
2
<PAGE>
Lending Activities
- - ------------------
The Bank concentrates its lending activities in residential 1-4 and multi-
family first mortgage loans, in particular ARM and balloon loans. The following
table sets forth the composition of the Bank's total loan portfolio by loan type
at the dates indicated:
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994 1993 1992
- - ---------------- ---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
By type of loan:
Real Estate:
1-4 family $ 10,704 1.81% $ 19,391 3.87% $ 35,885 11.12% $ 47,712 18.34% $ 86,641 25.71%
Multi-family 561,495 95.09% 465,545 93.02% 282,803 87.62% 209,313 80.46% 246,573 73.18%
Commercial 17,393 2.95% 14,375 2.87% 2,755 0.85% 1,293 0.50% 1,421 0.42%
-------- -------- -------- ------ -------- ------ -------- ------ -------- ------
Total first mortgage loans 589,592 99.85% 499,311 99.76% 321,443 99.59% 258,318 99.30% 334,635 99.31%
Other Loans:
Home equity 585 0.10% 744 0.15% 915 0.28% 1,413 0.54% 1,494 0.45%
Student 177 0.03% 234 0.05% 223 0.07% 161 0.06% 304 0.09%
Loans on deposit accounts 126 0.02% 202 0.04% 165 0.05% 229 0.09% 481 0.14%
Consumer --- --- 4 0.00% 19 0.01% 29 0.01% 45 0.01%
-------- -------- -------- ------ -------- ------ -------- ------ -------- ------
Total other loans 888 0.15% 1,184 0.24% 1,322 0.41% 1,832 0.70% 2,324 0.69%
-------- -------- -------- ------ -------- ------ -------- ------ -------- ------
Total Loans 590,480 100.00% 500,495 100.00% 322,765 100.00% 260,150 100.00% 336,959 100.00%
======== ====== ====== ====== ======
Allowance for loan losses (6,032) (5,359) (4,684) (4,651) (4,364)
Deferred fees (3,950) (2,174) (1,176) (558) (818)
Unearned income (1,671) (2,075) --- --- ---
-------- -------- -------- -------- --------
Loans, net $578,827 $490,887 $316,905 $254,941 $331,777
======== ======== ======== ======== ========
</TABLE>
3
<PAGE>
The following table sets forth first mortgage loan originations, purchases,
securitizations and sales activity of the Bank during the years presented.
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994
- - ------------------------- --------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Beginning principal balance of real
estate loans $495,062 $320,267 $257,760
Real estate loans de-securitized:
Multi-family --- 102,711 ---
-------- -------- --------
Real estate loans originated:
Multi-family 179,888 112,799 83,201
One-to-four family 60 719 6,390
Commercial 4,775 4,250 ---
-------- -------- --------
184,723 117,768 89,591
------- -------- --------
Real estate loans purchased:
Multi-family 2,166 3,248 ---
One-to-four family --- 2,662 ---
-------- -------- --------
2,166 5,910 ---
-------- -------- --------
Total real estate loans de-securitized,
originated and purchased 186,889 226,389 89,591
-------- -------- --------
Real estate loans sold:
One-to-four family 7,106 13,997 6,865
Multi-family 593 668 ---
-------- -------- --------
Total real estate loans sold 7,699 14,665 6,865
-------- -------- --------
Satisfactions, principal 84,660 32,680 19,043
reductions and foreclosures -------- -------- --------
Total real estate loans sold, satisfactions,
principal reductions and foreclosures 92,359 47,345 25,908
-------- -------- --------
Ending principal balance of real estate loans 589,592 499,311 321,443
Unearned income and deferred fees (5,621) (4,249) (1,176)
-------- -------- --------
Net principal balance of real estate loans $583,971 $495,062 $320,267
======== ======== ========
</TABLE>
The following table sets forth mortgage loans at September 30, 1996 by weighted
average annual yield and as a percent of the Bank's total mortgage portfolio.
<TABLE>
<CAPTION>
Weighted
Average
Annual
Yield Range Amount Percent Yield
- - ------------------------ -------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
11.00% and higher $ 16,395 2.78% 11.40%
10.00% to 10.99% 122,527 20.78% 10.43%
9.00% to 9.99% 139,433 23.65% 9.21%
8.00% to 8.99% 289,786 49.15% 8.35%
7.99% and below 21,451 3.64% 7.71%
-------- ------- -----
Total $589,592 100.00% 9.05%
======== ======= =====
</TABLE>
Loan Maturity and Repricing
- - ---------------------------
The following table sets forth the estimated maturity/repricing of the Bank's
loan portfolio, assuming amortization and prepayments. (A discussion of the
assumptions used may be found in "Item 7 - Management's Discussion and Analysis
of Financial Condition - Asset/Liability Management".) Loans which have
adjustable rates or prime based rates are shown as being due in the period
during which the interest rates are next subject to change.
4
<PAGE>
<TABLE>
<CAPTION>
1-4 Multi- Other
At September 30, 1996 Family Family Commercial Loans Total
- - --------------------- ------ ------ ---------- ----- -----
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Amount due:
Within 1 year $ 7,075 $215,474 $ --- $ 888 $223,437
After 1 year (1):
1 to 3 years 1,582 168,241 --- --- 169,823
3 to 5 years 274 157,974 17,393 --- 175,641
5 to 10 years 762 15,748 --- --- 16,510
Over 10 years 1,011 4,058 --- --- 5,069
------- -------- ------- ----- --------
Total after 1 year 3,629 346,021 17,393 --- 367,043
------- -------- ------- ----- --------
Total amounts due $10,704 $561,495 $17,393 $ 888 $590,480
======= ======== ======= ===== --------
Less:
Deferred loan fees and unearned income (5,621)
Allowance for loan losses (6,032)
--------
Total loans, net $578,827
========
</TABLE>
(1) Of the $367,043 in loans due after one year, $320,051 are adjustable rate
and balloon loans and $46,992 are fixed rate loans.
Residential Mortgage Lending
- - ----------------------------
In fiscal 1993, the Bank made the determination that it would no longer
participate in the 1-4 family mortgage market. This determination was made
because sufficient volume could not be achieved in order to generate an
acceptable rate of return for this particular product. As a result of this
decision, the 1-4 family origination and secondary market areas were disbanded
during fiscal 1994, after previous commitments of approximately $6 million of
1-4 family originations were fulfilled
Multi-family Lending
- - --------------------
The Bank has emphasized the origination of ARM and balloon loans secured by
multi-family residential real estate, such as apartment buildings, most of which
are located in the New York Metropolitan Area. Multi-family loans are made in
amounts up to 15% of the Bank's unimpaired capital.
The Bank's multi-family residential mortgage loans generally do not exceed 75%
of the loan-to-value ratio at the time granted and generally have a minimum debt
coverage requirement of 1.25 times. Properties securing the loan are appraised
by an independent appraiser. Title insurance is required on all loans and a
credit report is obtained as to all borrowers and the major principals of any
corporate or partnership entity. All multi-family residential mortgage loans
require the approval of the Loan Committee. The Loan Committee consists of two
Outside Directors, the Chief Executive Officer, the Chief Financial Officer, the
Chief Lending Officer and the Chief Underwriter.
The majority of multi-family loan originations are adjustable rate balloon
loans. These loans adjust after four or five years to a rate based on the
Federal Home Loan Bank ("FHLB") four or five year index and continue to adjust
at the same frequency over the term of the loan. The loans generally amortize
based upon a twenty to thirty year term, with the remaining principal balance
due at the balloon maturity date. Balloon maturity dates are generally set at
ten or twelve years. An origination fee of 1% is usually charged. There is no
cap on how high the interest rate on these loans may go and the floor is the
initial rate when the loan is originated.
Other Lending
- - -------------
The Bank offers Government Guaranteed Educational Loans and loans on savings
accounts.
5
<PAGE>
Loan Origination and Other Fees
- - -------------------------------
The Bank also receives income in the form of loan origination and other fees.
The Bank had approximately $3,950,000 in deferred origination fees at September
30, 1996.
Loan origination fees and direct loan origination costs are deferred and
subsequently recognized in interest income as a yield adjustment using the level
yield method over the contractual loan term, adjusted for actual prepayments in
certain circumstances.
Loan Delinquencies
- - ------------------
When a borrower fails to make a payment on a loan, the Bank takes immediate
steps to have the borrower cure the delinquency and restore the loan to current
status. If the loan continues to be delinquent, the Bank will proceed as
quickly as possible with the foreclosure process until title to the property is
taken. In general all mortgage and other loans which are delinquent 90 days or
more are placed on non-accrual status.
The following table sets forth information with respect to loans delinquent 90
days or more at the dates indicated.
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994 1993 1992
- - ---------------- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Multi-Family $5,216 $11,101 $16,785 $18,329 $18,144
1-4 Family 1,192 1,732 2,152 3,781 5,848
Other Loans --- --- 65 444 262
------ ------- ------- ------- -------
Total loans delinquent 90
days or more $6,408 $12,833 $19,002 $22,554 $24,254
====== ======= ======= ======= =======
Percent of loans 90 days or
more delinquent to total loans 1.10% 2.59% 5.89% 8.69% 7.22%
====== ======= ======= ======= =======
Percent of loans 90 days or
more delinquent to total
assets 1.00% 2.31% 3.94% 4.83% 5.03%
====== ======= ======= ======= =======
</TABLE>
The effect of non-accrual loans on interest income for the years ended
September 30, 1996, 1995 and 1994 was a reduction of approximately $664,000,
$1,746,000 and $1,473,000, respectively.
The Bank actively pursues prompt collection on all delinquencies and, since
fiscal 1991, has had in place a department to deal specifically with delinquent
and non-performing loans.
Allowance for Loan Losses
- - -------------------------
The following sets forth the activity in the Bank's allowance for loan losses
for the years indicated:
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994 1993 1992
- - ------------------------- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of the year $ 5,359 $4,684 $ 4,651 $4,364 $ 3,701
Provision charged to operations --- 1,041 1,071 1,206 2,167
Recoveries/(charge-offs), net 673 (366) (1,038) (919) (1,504)
------- ------ ------- ------ -------
Balance at end of the year $ 6,032 $5,359 $ 4,684 $4,651 $ 4,364
======= ====== ======= ====== =======
Allowance for loan losses as a
percentage of total loans
outstanding 1.03% 1.08% 1.45% 1.79% 1.30%
======= ====== ======= ====== =======
Ratio of (recoveries)/charge-offs
to average loans (0.13)% 0.09% 0.36% 0.33% 0.42%
======= ====== ======= ====== =======
</TABLE>
6
<PAGE>
The following table sets forth the allocation of the Bank's allowance for loan
loss by property type for the years indicated:
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1-4 family $ 283 $ 419 $ 544 $ 375 $ 494
Multi-Family 5,749 4,940 4,140 4,276 3,870
------ ------ ------ ------ ------
Total Allowance for loan losses $6,032 $5,359 $4,684 $4,651 $4,364
====== ====== ====== ====== ======
1-4 family loans as
a percent of total loans 1.81% 3.88% 11.12% 18.34% 25.68%
====== ====== ====== ====== ======
Multi-family loans as
a percent of total loans 95.09% 93.50% 87.62% 80.46% 74.32%
====== ====== ====== ====== ======
</TABLE>
The following table sets forth (recovery)/charge-off activity against the Bank's
allowance for loan losses by type for the years indicated:
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1-4 family $ 23 $ 12 $ 321 $ 225 $ 178
Multi-family (696) 354 717 694 1,326
----- ----- ------ ----- ------
Total (recoveries)/charge-offs $(673) $ 366 $1,038 $ 919 $1,504
===== ===== ====== ===== ======
</TABLE>
Real Estate Acquired through Foreclosure
- - ----------------------------------------
Properties acquired through foreclosure are initially recorded at the lower of
cost or fair value less selling costs at the date of acquisition. The carrying
value of the property is subsequently adjusted to the extent it exceeds fair
value. A reserve is provided for these subsequent adjustments to fair value
through a provision for losses on real estate owned.
The amounts the Bank could ultimately recover from real estate acquired
through foreclosure could differ from the amounts used in arriving at the net
carrying value of the asset because of future market factors beyond the Bank's
control or changes in the Bank's strategy for recovering its investment.
The following table sets forth the composition of real estate acquired through
foreclosure:
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994
- - ---------------- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Real estate acquired through foreclosure
1-4 family $ 266 $ 265 $ 848
Multi-family --- 104 ---
----- ----- -----
Total real estate acquired through foreclosure $ 266 $ 369 $ 848
===== ===== =====
</TABLE>
The Bank made provisions for real estate losses of $-0-, $211,000, and
$994,000 and had write-downs/charge-offs of $-0-, $418,000, and $1,454,000 for
the fiscal years ended September 30, 1996, 1995 and 1994, respectively.
7
<PAGE>
Securities Activities
- - ---------------------
The following table sets forth, as of September 30, 1996, an analysis of the
maturity distribution, carrying value, market value and average yield of the
securities held by the Bank, all of which mature in less than five years.
<TABLE>
<CAPTION>
Less than One Year One to Three Years Three to Five Years Total
------------------- ----------------------- ------------------- ----------------------------
Average Estimated
Carrying Average Carrying Average Carrying Average Life in Carrying Market Average
Value Yield Value Yield Value Yield Years Value Value Yield
--------- -------- ----------- ---------- -------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
Notes:
U.S. Government
and Agency Obligations $2,000 6.88% $1,998 6.05% $10,500 6.55% 3.41 $14,498 $14,394 6.52%
Other 149 5.35% --- --- --- --- 0.04 149 149 5.35%
------ ------ ------ ---------- -------- -------- ---- ------- ------- -----
Total bonds and notes $2,149 6.77% $1,998 6.05% $10,500 6.55% 3.38 $14,647 $14,543 6.51%
------ ------ ------ ---------- -------- -------- ---- ------- ------- -----
FHLB of New York Stock 7,313 7,313 6.50%
------- ------- -----
Total securities held to
maturity, at amortized cost $2,149 6.77% $1,998 6.05% $10,500 6.55% 3.38 $21,960 $21,856 6.51%
------ ------ ------ ---------- -------- -------- ---- ------- ------- -----
Securities Available for
Sale:
Marketable equity securities, net 1,364 1,364 1.90%
------- ------- -----
Total investment portfolio $2,149 6.77% $1,998 6.05% $10,500 6.55% 3.38 $23,324 $23,220 6.24%
====== ====== ====== ========== ======== ======= ==== ======= ======= =====
</TABLE>
Securities held to maturity are recorded at cost (as adjusted by any discounts
and premiums) because the Bank has the ability and intent to hold such
securities until maturity. Securities available for sale are recorded at fair
value, with unrealized appreciation and depreciation, net of tax, reported as a
separate component of shareholders' equity. FHLB stock is carried at cost and
not considered a marketable security because the sale of said stock is
restricted as part of the membership requirements of the FHLB.
8
<PAGE>
The Bank is required to maintain regulatory liquidity at or above minimum levels
which vary from time to time. The current minimum regulatory requirement is 5%.
The Bank increases or decreases its level of liquid investments as they mature
depending on the availability of funds and comparative yields on liquid
investments in relation to the return on loans. The Bank's liquid investments
primarily include United States Government securities, overnight federal funds
and triple A corporate obligations. The Bank monitors the credit worthiness and
financial condition of the institutions with which the Bank places federal funds
and other investments. Historically, the Bank has maintained its liquid assets
at levels significantly above the minimum requirements of normal banking
activities. The Bank's daily average liquidity ratio was 6.73% for fiscal 1996.
The following table sets forth the composition of the investment portfolio at
the dates indicated:
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994
- - ---------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Short-term investments:
Federal funds sold $ 5,000 $14,000 $ 5,000
Securities held to maturity:
U.S. Government and agency obligations 14,498 10,993 7,998
Other 149 144 150
FHLB of New York Stock 7,313 4,998 4,173
------- ------- -------
Total securities held to maturity 21,960 16,135 12,321
------- ------- -------
Securities available for sale:
Marketable equity securities 1,364 --- ---
------- ------- -------
Total securities portfolio $28,324 $30,135 $17,321
======= ======= =======
</TABLE>
Subsidiaries of the Bank
- - ------------------------
The Bank has six wholly-owned subsidiaries. One subsidiary, John Street
Service Corporation, is an inactive company.
BFED I Corp. is a limited-purpose finance subsidiary authorized to issue and
sell collateralized mortgage obligations (CMOs), which are debt securities
issued with individual classes of bonds containing stated maturities ranging
from five to thirty years. At September 30, 1996, approximately $12,594,000
(net of unamortized discount of approximately $1,010,000) of CMOs were
outstanding with a coupon interest rate of 8.25%. The CMOs are collateralized
by mortgage-backed securities with unpaid principal balances of approximately
$14,203,000 (net of unamortized discounts of approximately $21,000) and by
short-term investments of approximately $149,000 at September 30, 1996. Such
collateral consists of GNMA and FHLMC certificates having interest rates ranging
from 5.50% to 9.00%. The repayments of bond principal and interest are directly
related to the amounts of principal and interest received on the mortgage-backed
securities collateralizing the CMOs.
Bankers Federal Service Corporation ("BFSC") offers tax-deferred annuities
through various legal reserve life insurance companies. At September 30, 1996,
BFSC had assets of approximately $119,000 and pre-tax losses of approximately
$23,000 for the fiscal year ended September 30, 1996.
Fayette Properties, Inc. ("FPI") is a real estate asset disposal corporation
set up to manage, market and sell real estate acquired through foreclosure. In
addition, FPI, through its subsidiaries, acquires delinquent loans from the Bank
through the assignment of the mortgage and note and manages the properties
through an assignment of rents until the delinquent status is resolved. At
September 30, 1996, FPI had assets of $6,379,000 and pre-tax income of
approximately $495,000.
BFS Credit Corporation and BFS Finance Corporation were established in
November, 1995 for the purpose of granting mortgage loans and letters of credit
to private developers who engage in special
9
<PAGE>
purpose projects. Such projects include public housing authority turnkey
developments, low-to-moderate housing developments, construction of multi-family
housing projects involving Federal Low Income Housing Tax Credits and bond
financing of special use facilities. $4.8 million of loans were originated
during fiscal 1996. The mortgages were assigned to and will be serviced by the
Bank.
Sources of Funds
- - ----------------
The Bank's lending and investment activities are predominantly funded by
savings deposits, interest and principal repayments on loans and other
investments, FHLB advances, and proceeds from the maturities of securities.
Deposits
- - --------
The Bank offers a variety of deposit accounts having a wide range of interest
rates and terms. The Bank's deposits consist of regular savings, NOW, money
market and certificate of deposit accounts. The Bank solicits deposits from its
market area and issued wholesale CD's for the first time in fiscal 1996. The
Bank relies primarily on competitive pricing policies, advertising and customer
service to attract and retain these deposits. The flow of deposits is
influenced significantly by general economic conditions, changes in money market
and prevailing interest rates and competition.
At September 30, 1996, the Bank had the following market-rate certificates in
amounts of $100,000 or more outstanding which mature as follows:
<TABLE>
<CAPTION>
Weighted
Average
Amount Rate
------- ------
(Dollars In Thousands)
<S> <C> <C>
3 months or less $3,005 5.08%
4 to 6 months 4,055 5.63%
7 to 12 months 9,435 5.81%
13 to 36 months 5,052 5.74%
Over 36 months 452 6.40%
-------- -----
$ 21,999 5.67%
======== =====
</TABLE>
10
<PAGE>
The following table shows the distribution of the Bank's deposits along with
the weighted average rates:
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994
- - ---------------- ---- ---- ----
Percent Weighted Percent Weighted Percent Weighted
of Average of Average of Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ -------- -------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Regular savings $108,382 26.4% 2.50% $115,606 29.8% 2.50% $139,551 38.4% 2.50%
NOW accounts 45,819 11.2% 2.53% 44,840 11.5% 2.73% 46,824 12.9% 2.69%
Money market accounts 23,104 5.6% 3.23% 24,526 6.3% 3.22% 26,777 7.4% 2.85%
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total 177,305 43.2% 2.60% 184,972 47.6% 2.65% 213,152 58.7% 2.62%
-------- ----- ---- -------- ----- ---- -------- ----- ----
Certificate accounts by
contractual maturity:
Less than 6 months 11,164 2.7% 4.20% 4,231 1.1% 4.07% 5,554 1.5% 2.90%
6 to 12 months 61,749 15.0% 5.06% 54,206 14.0% 5.24% 40,666 11.2% 3.47%
13 to 24 months 102,051 24.9% 5.58% 93,275 24.0% 5.75% 67,738 18.7% 4.35%
25 to 36 months 36,742 9.0% 6.42% 35,342 9.1% 6.26% 18,366 5.1% 5.47%
Over 36 months 21,313 5.2% 5.96% 16,536 4.2% 6.10% 17,396 4.8% 6.24%
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total certificate
accounts 233,019 56.8% 5.54% 203,590 52.4% 5.69% 149,720 41.3% 4.42%
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total deposits $410,324 100.0% 4.27% $388,562 100.0% 4.25% $362,872 100.0% 3.36%
======== ===== ==== ======== ===== ==== ======== ===== ====
</TABLE>
11
<PAGE>
The following table sets forth the amount of certificate accounts, stratified
by rate, as a percent of total certificate accounts at September 30, 1996.
<TABLE>
<CAPTION>
Weighted
Average
Rate Range Amount Percent Cost
- - ---------- ------ ------- ----
(Dollars in thousands)
<S> <C> <C> <C>
4.99% or less $ 42,693 18.32% 4.21%
5.00% to 5.99% 124,482 53.42% 5.54%
6.00% to 6.99% 57,437 24.65% 6.32%
7.00% to 7.99% 8,379 3.60% 7.13%
8.00% and over 28 0.01% 8.80%
-------- -------- -----
Total certificates by rate $233,019 100.00% 5.54%
======== ======== =====
</TABLE>
The following table sets forth the maturity schedule for certificate accounts
at September 30, 1996.
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Percent Cost
- - --------------- ------ ------- ----
(Dollars in thousands)
<S> <C> <C> <C>
3 months or less $ 37,840 16.24% 4.98%
4 to 6 months 43,818 18.81% 5.31%
7 to 12 months 87,180 37.41% 5.68%
13 to 36 months 54,095 23.22% 5.79%
37 to 60 months 9,656 4.14% 6.25%
Over 60 months 430 0.18% 2.76%
-------- ------- -----
$233,019 100.00% 5.54%
======== ======= =====
</TABLE>
Borrowings
- - ----------
As part of its asset/liability management, the Bank has, on various occasions,
borrowed funds from the FHLB of New York. These borrowings are made to cover
mortgage originations which the Bank chooses not to cover by savings growth.
The borrowing is matched to the mortgage maturities, when possible. At
September 30, 1996 the Bank had borrowings of $146.3 million from the FHLB of
New York.
On May 7, 1993, the Company entered into an agreement with Gould Investors LP
("Gould") to sell to Gould a $1,850,000 adjustable rate non-convertible senior
debenture which matured on April 3, 1996. The interest rate on the debenture was
Prime plus 2.00% and the interest was payable on a quarterly basis. $1,250,000
of the funds received were used to increase the Bank's regulatory capital, with
the remaining $400,000 staying at the Company. Gould owns 54.9% of the net
outstanding common shares of the Company as of November 30, 1996.
12
<PAGE>
The following table sets forth certain information regarding advances from the
FHLB of New York at the dates indicated and the senior debt to Gould Investors,
LP:
<TABLE>
<CAPTION>
Outstanding at September 30, 1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Advances from Federal Home Loan Bank of New York
Variable rate overnight line of credit $ 13,500 $---
7.28% due 1996 20,000 20,000
5.87% due 1997 5,000 ---
6.96% due 1997 12,950 12,950
7.17% due 1998 10,000 10,000
7.20% due 1998 5,000 5,000
6.47% due 1999 5,000 ---
6.89% due 1999 15,000 15,000
6.65% due 1999 5,000 ---
7.44% due 2000 10,000 10,000
6.76% due 2001 5,000 ---
6.90% due 2001 5,000 ---
6.75% due 2002 20,000 20,000
6.95% due 2003 5,000 ---
7.07% due 2003 5,000 ---
7.38% due 2011--Amortizing 808 ---
7.34% due 2011--Amortizing 3,995 ---
Senior Debt
Prime plus 2% due 1996 --- 1,650
-------- -------
Total Borrowed Funds $146,253 $94,600
======== =======
</TABLE>
For the years ended September 30, 1996, 1995 and 1994, the weighted average
interest rates for borrowings were 6.88%, 7.06%, and 7.50%, respectively.
The maximum amount of borrowings outstanding at any month-end during fiscal
1996, 1995 and 1994 was $146,253,000, $94,600,000, and $52,665,000,
respectively. The average outstanding balance and associated average cost of
borrowings for fiscal 1996, 1995 and 1994 was $110,700,000 and 6.92%,
$80,724,000 and 7.31%, and $41,935,000 and 8.11%, respectively.
Competition
- - -----------
The Bank faces significant competition both in making mortgages and in
attracting deposits. The New York City metropolitan area has a high density of
financial institutions, many of which are substantially larger and have greater
financial resources than the Bank, and all of which are competitors of the Bank
to varying degrees. The Bank's competition for loans comes principally from
savings banks, mortgage banking companies (many of which are subsidiaries of
major commercial banks), insurance companies and other institutional lenders.
Its most direct competition for deposits has historically come from savings
banks, commercial banks, credit unions, and other financial institutions.
The Bank faces additional competition for deposits from short-term money market
funds and other corporate and government securities funds. Many of the Bank's
competitors in the New York metropolitan area, whether traditional financial
institutions or otherwise, have much greater financial and marketing resources
than those of the Bank.
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, service and by offering a
variety of deposit accounts.
13
<PAGE>
Personnel
- - ---------
As of September 30, 1996, the Bank had 148 employees, of which 124 were full-
time and 24 were part-time. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be excellent.
REGULATION AND SUPERVISION
General
The Bank is subject to extensive regulation, examination and supervision by
the Office of Thrift Supervision ("OTS"), as its chartering agency, and the
Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The
Bank is a member of the FHLB System and its deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") managed by
the FDIC. 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 financial institutions. There are periodic examinations
by the OTS and the FDIC to test the Bank's 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 for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or through legislation,
could have a material adverse impact on the Company, the Bank and their
operations. The Company, as a savings and loan holding company, is required to
file certain reports with, and otherwise comply with the rules and regulations
of the OTS and of the Securities and Exchange Commission ("SEC") under the
federal securities laws. Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere herein.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
- - --------------------
governed by the Home Owner's Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act"). The HOLA and the FDI
Act were amended by the Financial Institution Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). FIRREA was enacted for the purpose of resolving problem
savings institutions, establishing a new thrift insurance fund, reorganizing the
regulatory structure applicable to savings institutions, and imposing bank-like
standards on savings institutions. FDICIA, among other things, requires that
federal banking regulators intervene promptly when a depository institution
experiences financial difficulties, mandates the establishment of a risk-based
deposit insurance assessment system and requires imposition of numerous
additional safety and soundness operational standards and restrictions. FIRREA
and FDICIA both contain provisions affecting numerous aspects of the operations
and regulations of federally-insured savings banks and empower the OTS and the
FDIC, among other agencies, to promulgate regulations implementing their
provisions. The description of statutory provisions and regulations applicable
to savings institutions set forth in this document do not purport to be a
complete description of such statutes and regulations and their effects on the
Bank.
Loans to One Borrower. Under the HOLA, savings institutions are generally
- - ----------------------
subject to the national bank limits on loans to one borrower. Unless an
exception applies, savings institutions may not make a loan or extend credit to
a single or related group of borrowers in excess of 15.0% of the Bank's
unimpaired capital and surplus. An additional amount may be lent, equal to 10.0%
of unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain securities and bullion, but does
not include real estate. At September 30, 1996, the Bank's largest aggregate
amount of loans to one borrower consisted of $7.8 million, and the second
largest borrower had an aggregate
14
<PAGE>
balance of $7.2 million, which were below the Bank's loans to one borrower limit
of $8.0 million at such date. At September 30, 1996, both of these borrowers
were current.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
- - ---------
lender ("QTL") test. Under the QTL test, as modified by FDICIA, a savings bank
is required to maintain at least 65.0% of its "portfolio assets" (total assets
less (I) specified liquid assets up to 20.0% of total assets, (ii) 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 related securities)
on a monthly basis in 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. If the savings institution does
not convert to a bank charter, generally it will be prohibited from: (i)
engaging in any new activity not permissible for a national bank, (ii) paying
dividends not permissible under national bank regulations, (iii) obtaining
advances from any FHLB, and (iv) establishing any new branch office in a
location not permissible for a national bank in the institution's home state. In
addition, beginning three years after the institution failed the QTL test, the
institution would be prohibited from engaging in any activity not permissible
for a national bank and would have to repay any outstanding advances from an
FHLB as promptly as possible. As of September 30, 1996, the Bank maintained
95.9% of its portfolio assets in qualified thrift investments and, therefore,
met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations upon
- - -----------------------------------
all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its 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, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") 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 earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year; or
(ii) 75.0% of its net earnings for the previous four quarters. Any additional
capital distributions would require prior regulatory approval. In the event the
Bank's capital fell below its fully phased-in 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 could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. Furthermore, under the OTS prompt
corrective action regulations, the Bank would be prohibited 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 ratio of less than 4.0%.
The Bank is also subject to a prior agreement with the OTS that restricted the
Bank from paying cash dividends to the Company in excess of 50% of its net
income since the conversion, without prior OTS approval. In either event, the
Bank is required to give 30 days prior notice to the OTS of the intention to pay
a dividend and there can be no assurance that the OTS will not prohibit the
payment of the dividend.
Liquidity. The Bank is required to maintain an average daily balance of liquid
- - ----------
assets (cash, certain time deposits, bankers' acceptances, specified United
States Government, state or federal agency obligations, shares of certain mutual
funds and certain corporate debt securities and commercial paper) 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 4.0% to
10.0% depending upon economic conditions and the savings flows of member
institutions, and is currently 5.0%. OTS regulations also require each savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1.0%) of the total of its net withdrawable
deposit accounts and borrowings payable in one year or less. Monetary penalties
may be imposed for failure to meet these liquidity requirements. The Bank's
average
15
<PAGE>
liquidity and short-term liquidity ratios for September 30, 1996 were 6.19% and
3.26%, respectively, which exceeded the applicable requirements. The Bank has
never been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings institutions are required to pay assessments to the OTS to
- - ------------
fund the agency's operations. The general assessment, paid on a semi-annual
basis, is computed as a percentage upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the bank's latest quarterly
thrift financial report. The assessments paid by the Bank for the fiscal year
ended September 30, 1996, totaled $124,000.
Branching. The OTS regulations authorize federally chartered savings
- - ----------
associations to branch nationwide. This permits federal savings and loan
associations with interstate networks to diversify more easily their loan
portfolios and lines of business geographically. The OTS authority preempts
any state law purporting to regulate branching by federal savings institutions.
The branching powers afforded federal savings banks are broader than the
branching authority currently available to national banks and state chartered
institutions, which generally lack the authority to branch outside their state
of domicile. However, national banks and state chartered banks and savings banks
will have increased authority under 1995 legislation to establish interstate
branches beginning no later than June 1997.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
- - -----------------------
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA also requires all institutions to make public
disclosure of their CRA ratings. The Bank received a "satisfactory" CRA rating
in its most recent examination.
Transactions with Related Parties. The Bank's authority to engage in certain
- - ----------------------------------
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
"covered transactions" (including extension of credit to, purchases of assets
from or the issuance of a guarantee, acceptance or letter of credit on behalf of
affiliate) with any individual affiliate to 10.0% of the capital and surplus of
the savings institution and also limits the aggregate amount of transactions
with all affiliates to 20.0% of the savings institution's capital and surplus.
Certain transactions with affiliates 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 is generally prohibited. Section 23B provides that
certain transactions with affiliates, (including loan, asset sales or purchases,
and any servicing, leases or other agreements) 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 companies. 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 companies. 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 purchase the securities of any affiliate other than a
subsidiary.
The Bank's authority to extend credit to executive officers, directors and
principal shareholders (generally considered to be those owners controlling or
having the power to vote ten percent or more of any class of the Company's
stock) as well as entities controlled by such persons, are currently governed by
Sections 22(g) and 22(h) of the FRA, and the Federal Reserve Board's ("FRB")
Regulation O thereunder. Among other things, these regulations require such
loans to be made on terms substantially
16
<PAGE>
the same as those offered to unaffiliated individuals and may not involve more
than the normal risk of repayment. Such regulations also place individual and
aggregate 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 Board approval
procedures to be followed. Loans to executive officers are subject to additional
restrictions. The OTS regulations, with certain 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 all "institution-affiliated parties," including officers, directors and
controlling stockholders and other parties participating in the control of the
affairs of the institution. Civil penalties cover a wide range of violations
and actions and range up to $25,000 per day unless a finding of reckless
disregard is made, in which case penalties may be as high as $1 million per day.
Criminal penalties for most financial institution crimes include fines of up to
$1 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, particularly with respect to
the capital requirements, or engages in unsafe and unsound practices. Possible
enforcement action ranges from the imposition of a capital plan, capital
directive or cease and desist order 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.
Standards for Safety and Soundness. FDICIA as amended, required each federal
- - -----------------------------------
banking agency to prescribe for all insured depository institutions and their
holding companies standards relating to internal controls, information systems
and audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. In
February, 1995, the OTS, together with the other federal bank regulatory
agencies, adopted guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended. The guidelines establish general standards relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
employee compensation. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and described compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. Additional
guidelines to establish general standards for asset quality and earnings were
recently finalized. In addition, regulations were adopted pursuant to FDICIA to
require a savings association that is given notice by the OTS that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan to the OTS. If, after being so notified, a savings association fails to
submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the OTS may issue an order directing
corrective actions including certain types of restrictions which a significantly
undercapitalized institution is subject to under the "prompt corrective action"
provisions of FDICIA.
Capital Requirements. The OTS capital regulations require savings
- - ----------------------
institutions to meet three minimum capital standards: a 1.5% tangible capital
standard, a 3.0% leverage ratio (or core capital ratio) and an 8.0% risk-based
capital standard. Core capital is defined as common stockholder's equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain qualifying supervisory goodwill
and certain mortgage servicing rights ("MSR's") and purchased credit card
relationships. The OTS regulations require that, in meeting the leverage ratio,
tangible and risk-based capital standards, institutions must deduct investments
in and loans to subsidiaries engaged in activities as principal not permissible
for a national bank. The OTS also has the authority to establish higher
individual capital requirements for specific institutions which have been deemed
by the OTS to pose an unusual risk. In addition, the OTS prompt corrective
action regulation provides that a savings institution that has a leverage
capital ratio of less than 4.0% (3.0% for institutions receiving the highest
CAMEL examination
17
<PAGE>
rating) will be deemed to be "undercapitalized" and may be subject to certain
restrictions unless the institution has received the highest examination rating.
See "Prompt Corrective Regulatory Action".
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk weighted assets of 4.0% and 8.0%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset. The components of Tier 1 (core)
capital are equivalent to those discussed earlier under the 3.0% leverage ratio
standard. The components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and allowance for
loan and lease losses. Allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25%. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.
FDICIA required that the OTS (and other federal banking agencies) revise the
risk-based capital standards, with appropriate transition rules, to ensure that
such standards take account of interest rate risk, concentration of risk and the
risks of nontraditional activities. The OTS regulations set forth the
methodology for calculating an interest rate risk component that would be
incorporated into the OTS risk-based capital regulations. A savings institutions
with "above normal" interest rate risk exposure must deduct from total capital a
portion of its capital to cover such interest rate risk for purposes of
calculating their 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 institution's measured interest rate risk and 2.0%,
multiplied by the estimated economic value of the bank's assets. That dollar
amount is deducted from an institution's total capital in calculating
compliance with its risk-based capital requirement. For the present time, the
OTS has deferred implementation of the interest-rate risk component. If the Bank
had been subject to an interest-rate risk component as of September 30, 1996,
the Bank would not have been subject to any deduction from capital as a result
of its interest rate risk position.
The Bank's capital, determined in accordance with existing regulations, at
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Risk-
GAAP Tangible Core Based
Capital Capital Percent Capital Percent Capital Percent
------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as reported to the OTS $47,351 $47,351 7.38% $47,351 7.38% $47,351 12.37%
Additional capital items:
General valuation allowance - limited --- --- --- --- 4,803 1.25%
------- ----- ------- ----- ------- -------
Regulatory capital 47,351 7.38% 47,351 7.38% 52,154 13.62%
Minimum capital requirement 9,629 1.50% 19,258 3.00% 30,642 8.00%
------- ----- ------- ----- ------- -------
Regulatory capital-excess $37,722 5.88% $28,093 4.38% $21,512 5.62%
======= ===== ======= ===== ======= =======
</TABLE>
The Bank meets and exceeds all regulatory capital requirements and is deemed
to be a "well capitalized" financial institution.
Prompt Corrective Regulatory Action. FDICIA establishes a system of prompt
- - ------------------------------------
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the banking regulators are required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon
18
<PAGE>
the institution's degree of undercapitalization. Generally, subject to a narrow
exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. FDICIA
authorizes the banking regulators to specify the ratio of tangible capital to
assets at which an institution becomes critically undercapitalized and requires
that ratio to be no less than 2.0% of assets.
Under the OTS final rule implementing FDICIA, a savings institution that has a
ratio of total risk-based capital to risk-based assets of less than 8.0% or a
leverage ratio or a Tier 1 capital to risk-based assets ratio that is less than
4.0% is considered to be "undercapitalized". A savings institution that has a
total risk-based capital ratio of less than 6.0%, a Tier I risk-based capital
ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered
to be "significantly undercapitalized" and a savings institution that has a
tangible capital to assets ratio equal to or less than 2.0% is deemed to be
"critically undercapitalized." Generally, a capital restoration plan must be
filed with the OTS within 45 days of the date an institution receives notice
that it is "undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, capital distributions and management fees. 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.
Insurance of Deposit Accounts. Pursuant to FDICIA, the FDIC established a risk-
- - ------------------------------
based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities and other criteria relevant to each institution's risk
profile as in regard to the insurance fund. Under this system, the FDIC assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, consisting of 1) well capitalized, 2) adequately capitalized
or 3) undercapitalized, and one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information which the FDIC determines to be
relevant to the institution's financial conditions and the risk posed to the
deposit insurance funds (which may include, if applicable, information provided
by the institution's state supervisor). An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. There
are nine assessment risk classifications (i.e., combinations of capital groups
and supervisory subgroups) to which different assessment rates are applied.
Assessment rates range from 0 basis points for an institution in the highest
category (i.e., well-capitalized and healthy) to 27 basis points for an
institution in the lowest category (i.e., undercapitalized and substantial
supervisory concern). The Bank's assessment rate for fiscal year 1996 was .23%
of deposits. The Bank paid $914,000 for federal insurance premiums to the SAIF
for the fiscal year ended September 30, 1996.
The FDI Act requires that the SAIF and BIF funds each be recapitalized until
reserves are at least 1.25% of insured deposits. Upon reaching the 1.25%
reserve ratio, the assessment rates for that fund could be reduced. The FDIC had
concluded that the BIF had attained the 1.25% reserve ratio, but that the SAIF
was not likely to reach the 1.25% reserve ratio until sometime after the year
2000, at the earliest. The FDIC has issued final regulations to reduce the
assessment rates for the BIF. Currently, over 90% of BIF members pay only the
statutory annual minimum of $2,000 for deposit insurance. Under the
regulations, BIF-insured institutions would pay an average of $0.04 per $100 of
insured deposits. The reduction in the BIF assessment rates occurred during the
latter half of calendar year 1995. The resulting disparity in deposit insurance
assessments between SAIF members and BIF members provided BIF-insured
institutions with certain competitive advantages in the pricing of loans and
deposits, because of lowered operating costs and may cause other competitive
inequities. SAIF-insured institutions continued to pay assessments at the
current SAIF assessment rates. Consequently, the Bank was adversely affected in
comparison to BIF-insured institutions.
To recapitalize the SAIF, legislation was passed by Congress and signed into
law by the President of the United States on September 30, 1996 to assess a one
time special assessment of 65.7 basis points of the deposit base of SAIF insured
institutions. Included in the Company's operating results for the
19
<PAGE>
fiscal year ended September 30, 1996 is a $2.5 million one-time charge to
recapitalize the SAIF fund. It is expected that the Bank will be assessed at the
rate of .065% of deposits beginning January 1, 1997 and may be eligible for a
rebate on the .23% premium paid for the period October 1, 1996 through December
31, 1996.
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 deposit insurance.
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional FHLBs.
The FHLB provides a central credit facility primarily for member institutions.
The Bank, as a member of the FHLB, is required to acquire and hold shares of
capital stock in that FHLB in an amount at least equal to 1.0% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at September 30, 1996, of $7.3
million. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the year ended September 30, 1996, dividends
from the FHLB to the Bank amounted to $374,000 or 2.2% of pre-tax earnings. If
dividends were reduced, or interest on future FHLB advances increased, the
Bank's net interest income would likely also be reduced. Further, there can be
no assurance that the impact of FDICIA and the FIRREA on the FHLBs will not also
cause a decrease in the value of the FHLB stock held by the Bank.
Federal Reserve System
The FRB regulations require savings institutions to maintain non-
interest-earning reserves against their transaction accounts (primarily NOW and
regular checking accounts). The FRB regulations generally require that reserves
be maintained against aggregate transaction accounts as follows: For accounts
aggregating $52.0 million or less (subject to adjustment by the FRB) the reserve
requirement is 3.0%; and for accounts greater than $52.0 million, the reserve
requirement is $1.6 million plus 10.0% (subject to adjustment by the FRB between
8.0% and 14.0%) against that portion of total transaction accounts in excess of
$52.0 million. The first $4.3 million of otherwise reservable balances (subject
to adjustments by the FRB) are exempted from the reserve requirements. The Bank
is in compliance with the foregoing requirements. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account
at a FRB or a pass-through account as defined by the FRB, the effect of this
reserve requirement is to reduce the Bank's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve "discount
window," but FRB regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
Holding Company Regulation
The Company is a non-diversified unitary savings and loan holding company
within the meaning of the HOLA, as amended. As such, the Company has registered
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the
20
<PAGE>
holding company's subsidiary savings institution. The Bank must notify the OTS
30 days before declaring any dividend to the Company.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5.0% of the voting
stock of another savings institution or holding company without prior written
approval of the OTS; acquiring or retaining, with certain exceptions, more than
5% of a non-subsidiary company engaged in activities other than those permitted
by the HOLA; or acquiring or retaining control of a depository institution that
is not insured by the FDIC. 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.
As a unitary savings and loan holding company (i.e. one that controls only one
thrift subsidiary), the Company generally will not be restricted under existing
banking laws as to the types of business activities in which it may engage,
provided that the Bank continues to be a QTL. See "Federal Savings Institution
Regulation - QTL Test" for a discussion of the QTL requirements. Upon any non-
supervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a savings institution
by OTS, 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 limitations on the types of business activities in which it could engage.
The HOLA limits the activities of a multiple savings and loan holding company
and its non-insured institution subsidiaries primarily to activities permissible
for bank holding companies under Section 4(c)(8) of the Bank Holding Company
Act, subject to the prior approval of the OTS, and certain other activities
authorized by OTS regulation.
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. Certain
states do not authorize interstate acquisitions under any circumstances;
however, federal law authorizing acquisitions in supervisory cases would preempt
such state law.
Federal law generally provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire "control,"
as that term is defined in OTS regulations, 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 of the proposed acquisition. Such
acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. This requirement would apply to acquisitions of the
Company's stock.
Federal Securities Laws
The Company's Common Stock is registered with the SEC under the Exchange Act
of 1934, as amended (the "Exchange Act"). The Company and its officers and
directors are subject to periodic reporting, proxy solicitation regulations,
insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of 1933 (the "Securities Act") of
shares of the Common Stock issued in the Conversion does not cover the resale of
such shares. Shares of the Common Stock purchased by persons who are not
affiliates of the Company may be resold without registration. Shares purchased
by an affiliate of the Company will be subject to the resale restrictions of
Rule 144 under the Securities Act. If the Company meets the current public
information requirements of Rule 144 under the
21
<PAGE>
Securities Act, each affiliate of the Company who complies with the other
conditions of Rule 144 (including those that require the affiliate's sale to be
aggregated with those of certain other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1.0% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
FEDERAL, STATE AND LOCAL TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a calendar year
- - --------
basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank is being audited by the Internal Revenue Service
("IRS") for the calendar years 1988, 1989 and 1990.
Tax Bad Debt Reserves. For calendar years ended December 31, 1995 and 1994, the
- - ----------------------
Bank was allowed a special bad debt deduction based on the greater of the amount
calculated under the experience method or the percentage of taxable income
method. The statutory percentage under the latter method was 8% for 1995 and
1994. The percentage of taxable income method was allowable 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 have been required to recapture
its tax bad debt reserve into taxable income over a four-year period. The Bank's
qualifying assets as a percentage of total assets exceeded the 60% limitation as
of and during the fiscal years ended September 30, 1996, 1995 and 1994. The Bank
used the percentage of taxable income method in its 1994 and 1995 tax return.
Under legislation recently enacted, the Bank will no longer be able to use the
percentage of taxable income method for federal tax purposes, but will be
permitted to deduct bad debts only as they occur and will additionally be
required to recapture (that is, take into taxable income) the excess balance of
its bad debt reserves as of December 31, 1995 over the balance of such reserves
as of December 31, 1987. However, such recapture requirements would be suspended
for each of two successive taxable years beginning January 1, 1996 in which the
Bank originates a minimum amount of certain residential loans based upon the
average of the principal amounts of such loans made by the Bank during its six
taxable years preceding January 1, 1996. As a result of this legislation, the
Bank will incur additional federal tax liability, but with no impact on the
Bank's results of operations. The New York State tax law has been amended to
prevent a similar recapture of the Bank's bad debt reserve, and to permit
continued future use of the bad debt reserve methods, for purposes of
determining the Bank's New York State tax liability. No amendments to the New
York City law have been made; therefore, the Company cannot predict whether such
changes to New York City law will be adopted and, if so, in what form.
Distributions. To the extent that (I) the Bank's tax bad debt reserve for
- - --------------
losses on qualifying real property loans exceeds the amount that would have been
allowed under the experience method and (ii) the Bank makes "nondividend
distributions" to the Company that are considered to have been made from the
excess bad debt reserve, i.e., that portion, if any, of the balance of the
reserve for qualifying real property loans attributable to certain deductions
under the percentage of taxable income method, or the supplemental reserve for
losses on loans ("Excess Distributions"), then an amount based on the
distribution will be included in the Bank's taxable income. Nondividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Bank's bad debt reserves. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserves and deducted for
federal income tax purposes would create a tax liability for the Bank.
22
<PAGE>
The amount of additional taxable income created from an Excess Distribution is
an amount that when reduced by the tax attributable to the income is equal to
the amount of the distribution. Thus, if after the Conversion, the Bank makes a
"nondividend distribution", approximately one and one-half times the amount so
used would be includable in gross income for federal income tax purposes,
assuming a 35.0% corporate income tax rate (exclusive of state and city taxes).
See "Regulation and Supervision-Limitations on Capital Distributions" for limits
on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code (the "Code")
- - ----------------------------------
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20.0%.
The excess of the tax bad debt reserve deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of computing the
AMTI. Only 90.0% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75.0% of the amount by which the Bank's adjusted
current earnings exceeds its AMTI (determined without regard to this preference
and prior to reduction for net operating losses). In addition, an environmental
tax of .12% of the excess of AMTI (with certain modifications) over $2.0 million
is imposed on corporations, including the Bank, whether or not an Alternative
Minimum Tax ("AMT") is paid. The Bank does not expect to be subject to the AMT.
The Bank was subject to an environmental tax liability for the tax year ended
December 31, 1995, which liability was not material.
Dividends Received Deduction and Other Matters. The Company may exclude from
- - -----------------------------------------------
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70.0% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20.0% of the stock of a
corporation distributing a dividend, 80.0% of any dividends received may be
deducted.
State and Local Taxation
New York State and New York City Taxation. The Bank is subject to the New York
- - ------------------------------------------
State Franchise Tax on Banking Corporations in an amount equal to the greater of
(i) 9.0% of "entire net income" allocable to New York State, during the taxable
year, or (ii) the applicable alternative minimum tax. The alternative minimum
tax is generally the greater of (a) 3.0% of "alternative entire net income"
allocable to New York State, (b) 0.01% of the value of the Bank's assets
allocable to New York State with certain modifications, or (C) $250. Entire net
income is similar to federal taxable income, subject to certain modifications
(including the addition of interest income on state and municipal obligations,
the partial exclusion of interest income on certain United States Treasury, New
York State, and New York City obligations, and an additional New York State bad
debt deduction). Alternative entire net income is equal to entire net income
without certain deductions which are allowable for the calculation of entire net
income. New York State also imposes several surcharges on the Franchise Tax on
Banking Corporations including a 17.0% Metropolitan Transportation Business Tax
Surcharge and an additional 7.5% surcharge which currently apply to the Bank.
The Bank is also subject to the New York City Financial Corporation Tax
calculated, subject to a New York City income and expense allocation, on a
similar basis as the New York State Franchise Tax. Currently, New York City does
not impose surcharges applicable to the Bank.
Delaware Taxation. As a Delaware holding company not earning income in
- - ------------------
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
23
<PAGE>
Item 2 - Properties
The Bank conducts its business through its executive office and five full-
service offices located in New York, New York. The following table sets forth
certain information relating to each of the Bank's offices.
<TABLE>
<CAPTION>
Year Expiration
Facility Date of
Opened Owned/Leased Lease
-------- ------------ ----------
<S> <C> <C> <C>
Executive Office:
- - -----------------
110 William Street
New York, New York 1987 Leased 12/31/97
Branches:
- - ---------
340 Avenue of Americas
New York, New York 1943 Owned N/A
130 Second Avenue
New York, New York 1952 Owned N/A
187-15 Union Turnpike
Flushing, New York 1958 Owned N/A
156-10 Northern Boulevard
Flushing, New York 1974 Leased 8/30/03
1764 Rockaway Parkway
Brooklyn, New York 1960 Owned N/A
</TABLE>
Item 3 - Legal Proceedings
The Bank is involved in routine legal proceedings occurring in the ordinary
course of business, which in the aggregate are believed by management to be
immaterial to the financial condition of the Bank.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) N/A
(b) N/A
(c) N/A
(d) N/A
24
<PAGE>
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
The Company issued 1,437,500 shares of its Common Stock on May 11, 1988, in an
initial public offering in connection with the conversion of the Bank from
mutual to stock form of organization. The common stock is quoted on the NASDAQ
National Market System.
Set forth below is the high and low sales prices paid for the common stock for
each quarterly period within fiscal years 1996 and 1995, as reported on the
NASDAQ National Market System.
<TABLE>
<CAPTION>
Year ended September 30, 1996 High Low
----------------------------- ------- ------
<S> <C> <C>
December 31, 1995 $36.25 $32.00
March 31, 1996 37.50 35.25
June 30, 1996 39.75 36.00
September 30, 1996 55.00 37.75
Year ended September 30, 1995
-----------------------------
December 31, 1994 $27.75 $22.25
March 31, 1995 25.75 23.00
June 30, 1995 26.75 23.00
September 30, 1995 33.50 22.25
</TABLE>
At September 30, 1996, there were 307 shareholders of record and 1,695,428
shares issued and 1,635,488 outstanding.
The Company did not pay a cash dividend in either fiscal 1996 or 1995 and has
no intention of paying a cash dividend in the foreseeable future.
Subject to applicable law, the Board of Directors of the Bank and of the
Company may each provide for the payment of dividends. Future declarations of
cash dividends by the Company will depend upon dividend payments by the Bank to
the Company, which is the Company's primary source of income. The payment of
dividends by the Bank is subject to OTS regulations, as previously discussed in
the section on "Limitations on Capital Distributions".
Earnings allocated to bad debt reserves for losses and deducted for federal
income tax purposes are not available for dividends or other distributions with
respect to the Bank's capital stock, without the payment of tax at the then
current income tax rate.
25
<PAGE>
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
September 30, 1996 1995 1994 1993 1992
- - ------------- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $643,180 $555,151 $482,947 $466,913 $482,275
Federal funds 5,000 14,000 5,000 5,000 2,000
Investment securities held
to maturity, net 21,960 16,135 12,321 13,430 27,417
Investment securities
available for sale, net 1,364 --- --- --- ---
Mortgage-backed
securities, net 14,203 17,194 123,259 145,337 86,053
Loans, net 578,827 490,887 316,905 254,941 331,777
Deposits 410,324 388,562 362,872 350,286 355,468
Borrowed funds 146,253 94,600 52,665 54,215 69,579
Collateralized mortgage
obligations 12,594 15,183 17,541 22,392 25,999
Stockholders' equity
(substantially restricted) $ 50,214 $ 40,812 $ 32,606 $ 26,612 $ 19,553
Years ended September 30, 1996 1995 1994 1993 1992
- - ------------------------- ---- ---- ---- ---- ----
Operating data:
Interest income $ 54,933 $ 47,285 $ 37,845 $ 36,739 $ 40,186
Interest expense 25,738 21,636 16,651 19,581 26,504
-------- -------- -------- -------- --------
Net interest income 29,195 25,649 21,194 17,158 13,682
Provision for loan losses --- 1,041 1,071 1,206 2,167
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 29,195 24,608 20,123 15,952 11,515
-------- -------- -------- -------- --------
Other income:
Gain on sale of assets, net 1,384 557 549 1,359 471
Other 2,605 1,991 2,194 2,095 2,044
-------- -------- -------- -------- --------
Total other income 3,989 2,548 2,743 3,454 2,515
-------- -------- -------- -------- --------
Total other expenses 16,163 12,780 13,077 13,405 17,375
-------- -------- -------- -------- --------
Income (loss) before
provision for income tax
(benefit) and cumulative
effect of change in
accounting principle 17,021 14,376 9,789 6,001 (3,345)
Income tax expense (benefit) 7,785 6,355 4,043 2,540 (30)
Cumulative effect of change
in accounting principle --- --- --- 1,615 ---
-------- -------- -------- -------- --------
Net income (loss) $ 9,236 $ 8,021 $ 5,746 $ 5,076 $ (3,315)
======== ======== ======== ======== ========
</TABLE>
26
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
- - ------------
In May, 1988, Bankers Federal Savings, FSB (the "Bank") converted from a
federal mutual to a federal stock savings bank and formed the Bank's holding
company, BFS Bankorp, Inc. (the "Bankorp"). The Bankorp issued 1,437,500 shares
of stock at $7.00 per share, which resulted in approximately $8,312,500 in
capital. Concurrent with the conversion process, the Bankorp acquired all the
capital stock of the Bank and became a savings and loan holding company.
The Bank's results of operations depend primarily upon the level of its net
interest income, which is the difference between the interest earned on its
interest-earning assets and the interest expense on its interest-bearing
liabilities. The Bank's interest-earning assets consist primarily of first
mortgage loans, investment securities, federal funds, mortgage-backed securities
and other loans. The Bank's interest-bearing liabilities consist primarily of
deposits, Federal Home Loan Bank advances, and collateralized mortgage
obligations.
As part of its interest rate risk management policy, the Bank emphasizes the
origination of adjustable rate and balloon multi-family mortgage loans and
attempts to match lending with savings or borrowings of a similar maturity,
duration or repricing. The Bank no longer originates 1-4 family mortgage loans
since that product line cannot generate a sufficient rate of return. Total
assets increased this fiscal year by approximately $88.0 million as compared to
the previous fiscal year. The increase is the result of increased multi-family
mortgage originations. These originations were funded by an increase in FHLB
advances, an increase in deposits and by other internally generated cash flows.
The Bank meets and exceeds all Office of Thrift Supervision ("OTS")
requirements as of September 30, 1996 and would be deemed to be a "well
capitalized" institution as defined by FDICIA.
The Bank generates non-interest income primarily by fees charged for services
rendered. The Bank has instituted a program to maximize fee income on current
services and to offer new services which will generate additional fees. Fee
income has been enhanced over the past three fiscal years by increasing usage of
automated teller machines at its branches and servicing fees generated by the
sale or securitization of mortgage loans. During fiscal 1994, the Bank began
to offer credit cards and mutual funds (through its wholly owned subsidiary
Bankers Federal Service Corporation) to generate additional fees.
Non-interest expense consists primarily of those expenses associated with
operating the Bank. The Bank believes it was successful in the past fiscal year
in containing the non-interest expense items that it has direct control over.
1993 Agreement with Gould Investors, LP
- - ---------------------------------------
On May 6, 1993, the Company entered into an agreement (the "Agreement") with
Gould Investors, LP and Fredric H. Gould (collectively referred to as "Gould"),
replacing an agreement entered into with Gould in 1990. Pursuant to the
Agreement, on May 7, 1993 Gould purchased from the Company $1,650,000 principal
amount of an adjustable rate non-convertible debenture due on April 3, 1996.
The Company convened a Special Meeting of Shareholders in August, 1993 and
obtained shareholder approval to amend the Certificate of Incorporation to
delete the limitation on voting shares owned in excess of 10% of the shares
outstanding. Following the receipt of regulatory approvals to own in excess of
25% of the Company's common stock, Gould purchased 150,000 shares of common
stock from the Company for an aggregate purchase price of $1,650,000. Until
April 3, 1995, Gould agreed not to acquire more than 50% of the shares of common
stock outstanding (exclusive of the shares purchased directly from the Company).
Gould was given the right to appoint, and has appointed, one director to the
Board of Directors of the Bank.
27
<PAGE>
Until April 3, 1998, Gould agreed to vote all of its voting securities in
favor of any merger agreement approved by a majority of the Board, provided that
if Gould beneficially owns 75% or more of the common stock of the Company, the
merger agreement must offer shareholders a per share consideration in excess of
the per share consideration that Gould has offered and Gould shall be given
substantially the same opportunity to submit an offer as any other party has
been given. If Gould owns less than 75% of the common stock, then Gould is not
required to vote in favor of a merger unless the per share consideration being
offered by any third party is in excess of the per share consideration that
Gould is willing to offer as determined in an open bidding process.
The Agreement terminates on April 3, 1998. However, it shall terminate
earlier if any party, including Gould, acquires beneficial ownership of more
than 90% of the common stock then outstanding of the Company.
Gould owns 54.9% of the net outstanding common shares of the Company as of
November 30, 1996, including the shares Gould acquired directly from the Company
pursuant to the Agreement.
Asset/Liability Management
- - --------------------------
As previously stated, the Bank's interest rate risk management policy has
been structured to reduce the sensitivity of its operating results to
fluctuations in interest rates. The characteristics of interest-earning assets
acquired by the Bank are such that they are generally either adjustable rate
instruments, fixed rate with a short term to maturity, or fixed rate with a long
term to maturity that is matched by a like-maturity interest-bearing liability.
The table on the next page summarizes the estimated contractual maturities of
the Bank's interest-earning assets and interest-bearing liabilities at September
30, 1996. The maturities are adjusted using assumptions for prepayments and
decay rates as developed by the Bank.
The assumptions for prepayments on mortgage loans ranged from 5% to 20%
dependent upon interest rate, type of rate (adjustable or fixed), type of
property (1-4 or multi-family) and type of lien (first or second). The
assumptions for deposits are that (i) certificate accounts are not withdrawn
prior to maturity and (ii) the decay rate for NOW accounts, money market and
regular savings accounts is approximately 20% per annum of the then outstanding
balance.
The effect of these assumptions is to quantify the dollar amounts of items
that are interest-sensitive and can be repriced within each of the periods
specified. Such repricing can occur in one of three ways: (i) the rate of
interest on an assets or liability may adjust periodically on the basis of an
index; (ii) an asset or liability may be amortized, thus permitting reinvestment
of cash flows at the then-prevailing interest rates; or (iii) an asset or
liability has a stated maturity at which time a new asset or liability will be
acquired at current market rates.
28
<PAGE>
<TABLE>
<CAPTION>
More More More
than than than More
1 Year 3 Years 5 Years than
1 Year to 3 to 5 to 10 10
At September 30, 1996 or less Years Years Years Years Total
- - --------------------- ------- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Balloon and adjustable rate $214,262 $155,727 $164,324 $ --- $ --- $534,313
Fixed rate 8,289 14,096 11,317 16,510 5,067 55,279
Mortgage-backed securities 2,364 4,247 3,678 3,914 --- 14,203
Other loans 888 --- --- --- --- 888
Cash, investments and federal funds 24,620 1,998 10,500 --- --- 37,118
-------- -------- -------- -------- -------- --------
Total interest-earning assets 250,423 176,068 189,819 20,424 5,067 641,801
-------- -------- -------- -------- -------- --------
Deposits:
Certificate accounts 168,838 54,094 10,087 --- --- 233,019
NOW accounts 8,768 14,028 8,417 14,606 --- 45,819
Money market accounts 4,539 7,262 4,357 6,946 --- 23,104
Regular savings 21,758 34,813 20,888 30,922 --- 108,382
Borrowed funds 51,450 15,000 45,000 34,803 --- 146,253
Collateralized mortgage obligations 1,266 2,866 3,378 5,084 --- 12,594
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 256,619 128,064 92,127 92,361 --- 569,171
-------- -------- -------- -------- -------- --------
Asset/liability gap per period $ (6,196) $ 48,004 $ 97,692 $(71,937) $ 5,067 $ 72,630
-------- -------- -------- -------- -------- ========
Cumulative gap $ (6,196) $ 41,808 $139,500 $ 67,563 $ 72,630
======== ======== ======== ======== ========
Percent of cumulative gap to total assets (0.96)% 6.50% 21.69% 10.50% 11.29%
Cumulative percentage of
interest-earning assets to
interest-bearing liabilities 97.59% 110.87% 129.26% 111.87% 112..76%
======== ======== ======== ======== ========
</TABLE>
In general, falling interest rates will have a favorable effect on an
institution with a negative interest rate gap (i.e. with interest-earning assets
less than interest-bearing liabilities). The foregoing table does not
necessarily indicate the impact of general interest rate movements on the Bank's
net interest yield, because the repricing of various assets and liabilities is
discretionary and is subject to 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.
29
<PAGE>
The following table sets forth adjustable rate mortgage (ARM) and fixed rate
mortgage loan originations, as well as the originations of other loans, during
the years indicated, and such originations as a percent of total loan
originations during the years indicated.
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994 1993 1992
- - ------------------------- ---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
-------- -------- -------- -------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan originations:
Adjustable rate mortgages $171,203 92.68% $ 94,892 76.54% $76,910 85.60% $44,296 76.54% $40,793 67.58%
Fixed rate mortgages 13,520 7.32% 28,786 23.22% 12,681 14.11% 13,301 22.98% 19,145 31.72%
Other loans --- --- 302 0.24% 260 0.29% 277 0.48% 420 0.70%
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Total loan originations $184,723 100.00% $123,980 100.00% $89,851 100.00% $57,874 100.00% $60,358 100.00%
======== ====== ======== ====== ======= ====== ======= ====== ======= ======
</TABLE>
The following table sets forth the composition of mortgage loans as well as
other loans in the Bank's portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30, 1996 1995 1994 1993 1992
- - ---------------- ---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
--------- -------- --------- -------- --------- ------- --------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans outstanding at year end:
Adjustable rate mortgages $534,313 92.31% $443,219 90.29% $282,839 89.25% $213,263 83.65% $294,857 88.87%
Fixed rate mortgages 55,279 9.55% 56,092 11.43% 38,604 12.18% 45,055 17.67% 39,778 11.99%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans $589,592 101.86% $499,311 101.72% 321,443 101.43% 258,318 101.32% 334,635 100.86%
Other loans 888 0.15% 1,184 0.24% 1,322 0.42% 1,832 0.72% 2,324 0.70%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total gross loans 590,480 102.01% 500,495 101.96% 322,765 101.85% 260,150 102.04% 336,959 101.56%
Allowance for loan losses (6,032) (1.04)% (5,359) (1.09)% (4,684) (1.48)% (4,651) (1.82)% (4,364) (1.31)%
Deferred fees (3,950) (0.68)% (2,174) (0.44)% (1,176) (0.37)% (558) (0.22)% (818) (0.25)%
Unearned income (1,671) (0.29)% (2,075) (0.43)% --- ---% --- ---% --- ---%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $578,827 100.00% $490,887 100.00% $316,905 100.00% $254,941 100.00% $331,777 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
ARM loans to total
mortgage loans 90.62% 88.77% 87.99% 82.56% 88.11%
ARM loans and other
loans to total gross loans 90.64% 88.79% 88.04% 82.68% 88.20%
</TABLE>
30
<PAGE>
Analysis of Net Interest Income
- - -------------------------------
The following table sets forth for the years indicated, based on month end
average balances, the Bank's weighted average yields on its interest-earning
assets, the weighted average interest rates paid on its interest-bearing
liabilities, the yield spread, the ratio of interest-earning assets to interest-
bearing liabilities and the net yield on average interest earning assets.
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
---- ---- ----
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans: (1,2) $532,932 $51,893 9.64% $392,737 $36,740 9.35% $285,295 $24,608 8.63%
Mortgage-backed securities 15,623 1,130 7.23% 92,060 8,585 9.33% 137,689 11,869 8.62%
Investment securities 25,461 1,448 5.69% 24,399 1,431 5.86% 25,102 1,151 4.59%
Federal funds 8,644 462 5.26% 9,317 529 5.60% 6,404 217 3.39%
-------- ------- ----- -------- ------- ---- -------- ------- -----
Total interest-earning assets 582,660 54,933 9.34% 518,513 47,285 9.12% 454,490 37,845 8.33%
-------- ------- ----- -------- ------- ---- -------- ------- -----
Interest-bearing liabilities:
Deposits 394,290 16,610 4.21% 366,645 14,074 3.84% 355,856 11,069 3.11%
Borrowed funds 110,700 7,665 6.92% 80,724 5,898 7.31% 41,935 3,399 8.11%
Collateralized mortgage
obligations 14,067 1,463 10.40% 17,586 1,664 9.46% 21,671 2,183 10.07%
-------- ------- ----- -------- ------- ---- -------- ------- -----
Total interest-bearing
liabilities 519,057 25,738 4.96% 464,955 21,636 4.65% 419,462 16,651 3.97%
-------- ------- ----- -------- ------- ---- -------- ------- -----
Net interest income/interest rate spread $29,195 4.38% $25,649 4.47% $21,194 4.36%
======= ===== ======= ==== ======= =====
Net average interest-earning
assets/ net yield on average
interest-earning assets $ 63,603 4.92% $ 53,558 4.95% $ 35,028 4.66%
======== ===== ======== ==== ======== =====
Ratio of average
interest-earning assets
to average interest-bearing
liabilities 112.25% 111.52% 108.35%
======= ======== ========
</TABLE>
(1) Non-accrual loans are included in the average balance amount and interest
income has been reduced as it is the Bank's policy to generally exclude interest
income on loans that are contractually delinquent over 90 days.
(2) Loan fees considered to be an adjustment to yield of approximately
$486,000, $305,000, and $112,000 for the fiscal years ended September 30, 1996,
1995, and 1994, respectively, are included in interest income on first
mortgages. Approximately $525,000 has been excluded from the 1996 average yield
calculation as a result of non-recurring items
31
<PAGE>
.Rate/Volume Analysis of Net Interest Income
-------------------------------------------
Net interest income can also be analyzed in terms of the impact of changing
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 Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by current rate), (ii) changes attributable to changes in
rates (changes in rates multiplied by prior volume), and (iii) the net change.
The change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Fiscal 1996 Compared to Fiscal 1995 Compared to Fiscal 1994 Compared
Fiscal 1995 Increase Fiscal 1994 Increase Fiscal 1993 Increase
(Decrease) Due to (Decrease) Due to (Decrease) Due to
Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- --- ------ ---- ---
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on interest-earning assets:
First mortgage and other loans $13,640 $1,513 $15,153 $ 9,267 $2,865 $12,132 $ 457 $ 754 $ 1,211
Mortgage-backed securities (7,128) (327) (7,455) (3,933) 649 (3,284) (439) 287 (152)
Investment securities 62 (45) 17 (32) 312 280 14 (12) 2
Federal funds (37) (30) (67) 97 215 312 9 36 45
------- ------ ------- ------- ------ ------- ------- ------- -------
Total interest income 6,537 1,111 7,648 5,399 4,041 9,440 41 1,065 1,106
------- ------ ------- ------- ------ ------- ------- ------- -------
Interest expense on interest-bearing liabilities:
Deposits 1,061 1,475 2,536 336 2,669 3,005 170 (1,510) (1,340)
Borrowed funds 2,190 (423) 1,767 3,144 (645) 2,499 (1,302) 11 (1,291)
Collateralized mortgage obligations (333) 132 (201) (462) (57) (519) (455) 156 (299)
------- ------ ------- ------- ------ ------- ------- ------- -------
Total interest expense 2,918 1,184 4,102 3,018 1,967 4,985 (1,587) (1,343) (2,930)
------- ------ ------- ------- ------ ------- ------- ------- -------
Net interest income $ 3,619 $ (73) $ 3,546 $ 2,381 $2,074 $ 4,455 $ 1,628 $ 2,408 $ 4,036
======= ====== ======= ======= ====== ======= ======= ======= =======
</TABLE>
32
<PAGE>
Operating Results
Interest Income
- - ---------------
Total interest income increased by $7.6 million, or 16% in fiscal 1996 and
increased by $9.4 million, or 25% in fiscal 1995 , each as compared to the
relative prior fiscal year. The increase in fiscal 1996 was primarily the
result of an increase in average interest earnings assets of $64.1 million and
an increase in the average yield of 22 basis points. The increase in average
interest earning assets was primarily from an increase in the amount of multi-
family mortgage loans originated during fiscal 1996 at interest rates that
exceed the portfolio yield. The increase in fiscal 1995 was primarily the
result of an increase in average interest earning assets of $64.0 million and an
increase in the average yield of 79 basis points. The increase in average
interest earning assets was primarily from the increased amount of multi-family
mortgage loans originated during fiscal 1995 at favorable interest rates.
During fiscal 1995, the Bank de-securitized approximately $100 million of its
own privately issued mortgage-backed securities and re-classified the underlying
collateral as multi-family mortgage loans. This decrease in the balance of
mortgage-backed securities is the primary reason for the $7.5 million decrease
in mortgage-backed interest income in 1996. Specific information regarding
average balances, average yields and rate and volume variances can be found in
the tables on the previous two pages titled "Analysis of Net Interest Income"
and "Rate/Volume Analysis of Net Interest Income".
Increased competition for multi-family mortgage loans in the metropolitan area
of New York City is expected to adversely affect the Bank's ability to originate
these types of loans at the fiscal 1996 level without more competitive pricing,
which will adversely affect interest income from new originations. The Bank's
strength in its tradition of personal service will be augmented by new mortgage
products in an attempt to combat said competition.
Interest Expense
- - ----------------
Total interest expense increased by $4.1 million, or 19% in fiscal 1996 and
increased by $5.0 million, or 30% in fiscal 1995, each as compared to the
relative prior fiscal year. The increase in fiscal 1996 was primarily a result
of an increase in average interest bearing liabilities of $54.1 million and an
increase in the average cost of funds of 31 basis points. The increase in the
average balance came from increases to both deposits and FHLB advances to fund
the net growth in multi-family mortgage loans. The increase in the average cost
of funds was a result of utilizing higher cost certificates of deposit and FHLB
advances to fund the growth in mortgage loans. The increase in 1995 was
primarily the result of an increase in interest bearing liabilities of $45.5
million and an increase in the average cost of funds of 68 basis points. The
increase in the average balance was primarily the result of increased borrowing
from the Federal Home Loan Bank to fund multi-family mortgage originations. The
increase in the average cost of funds was primarily from the increased cost of
deposits as certificates of deposit rates rose and balances were transferred
from low cost passbook accounts to higher costing certificates of deposit.
Specific information regarding average balances, average yields and rate and
volume variances can be found in the tables on the previous two pages titled
"Analysis of Net Interest Income" and "Rate/Volume Analysis of Net Interest
Income".
It is expected that future funding of mortgage originations is expected to
come from a combination of borrowed funds and certificates of deposit.
Alternative fund methods will continue to be explored to ensure a steady flow of
cash for planned originations.
Net Interest Income
- - -------------------
Net interest income increased by $3.5 million, or 14% in fiscal 1996 and
increased by $4.5 million, or 21.0% in fiscal 1995, each as compared to the
relative prior fiscal year. Net interest income is the difference between total
interest income and total interest expense and is the primary source of revenue
for the Company and the Bank. The interest rate spread decreased to 4.38% in
fiscal 1996 as compared to 4.47% in fiscal 1995 and 4.36% in fiscal 1994. The
net interest margin decreased to 4.92% in fiscal 1996 as compared to 4.95% in
fiscal 1995. The ratio of average interest earning assets to average
33
<PAGE>
interest bearing liabilities increased to 112.3% in fiscal 1996 as compared to
111.5% in fiscal 1995 and 108.4% in fiscal 1994.
Provision for Loan Losses
- - -------------------------
The Company made no provision for loan losses in fiscal 1996, $1.0 million in
fiscal 1995, and $1.1 million in fiscal 1994. The calculation of the
provision, which is performed on a quarterly basis, is a function of both the
change in value and balance of non-performing loans in addition to the change in
balance of the performing portion of the Company's loan portfolio. The analysis
of the portfolio along with the recommended provision is prepared by management
for review and approval by both the Loan Committee and the Board of Directors.
Other Income
- - ------------
Other income increased by $1.4 million, or 57% in fiscal 1996 and decreased by
$0.2 million, or 2% in fiscal 1995, each as compared to the relative prior
fiscal year. The increase in fiscal 1996 was primarily the result of an
increase in gains on sale of real estate owned, net income from real estate
owned, higher loan prepayment fees and increased ATM fees. The decrease in
fiscal 1995 was primarily the result of lower gains on sale on loans and real
estate owned. Loan prepayment fees are a function of the level of prepayments
of multi-family loans and can not be counted upon to provide a steady source of
recurring income. The Bank continues to add additional automated teller
machines in certain high traffic locations. These machines are primarily used
by non-bank customers and generate service fee income.
Other Expenses
- - --------------
Other expenses increased by $3.4 million, or 26% in fiscal 1996 and decreased
by $0.3 million, or 1.1% in fiscal 1995, each as compared to the relative prior
fiscal year. $2.5 million of the increase in fiscal 1996 was a direct result of
the one-time charge associated with the recapitalization of the FDIC SAIF
insurance fund.
Compensation and benefits increased by $0.5 million, or 7% in fiscal 1996 and
$0.4 million or 6% in fiscal 1995, primarily as a result of merit increases and
higher bonus provisions due to the Company's above average financial performance
in each of the fiscal years.
Occupancy and equipment expense increased by $0.2 million, or 10% in fiscal
1996 and $0.1 million, or 4% in fiscal 1995, primarily as a result of increased
depreciation from renovated facilities and computer equipment.
SAIF deposit insurance premiums were relatively unchanged in fiscal 1996 and
decreased by $0.08 million, or 8.0% in fiscal 1995. The decrease was a result
of paying the lowest premium possible (23 basis points) due to the Bank's
superior capital position. It is expected that the recapitalization will lower
the Bank's insurance premium from 0.23% to 0.064%, a 72% reduction. Based upon
the amount paid in fiscal 1996, the Bank's premium expense would be reduced by
$0.6 million per annum on a going forward basis.
Professional fees, services and marketing increased by $0.4 million, or 44% in
fiscal 1996, primarily as a result of increased legal expenses associated with
the foreclosure process. This category increased by $0.1 million, or 14%, in
fiscal 1995, primarily as a result of increased marketing expenses relative to
the mortgage origination process.
Data processing costs increased by $0.05 million, 8% in fiscal 1996 and
increased by $0.07 million, or 13.9% in fiscal 1995, primarily as a result of
new product offerings and increased third party provider costs. The Bank
established a website at http://www.bankersfed.com, providing information to
depositors and borrowers with respect to their accounts as well as current
interest rate information. It is
34
<PAGE>
expected that this website will be expanding in the future to include
transaction processing and third party payment processing.
There was no provision for real estate losses in fiscal 1996 as none was
necessary. This category decreased by $0.78 million, or 78.8%, in fiscal 1995
primarily as a result of lower levels of real estate owned and in-substance
foreclosures.
Other expenses decreased by $0.1 million, or 7% in fiscal 1996 and decreased
by $0.1 million, or 7% in fiscal 1995, primarily as a result of lower
foreclosure and mortgage-related expenses.
Income Taxes
- - ------------
Income tax expense increased to $7.8 million for fiscal 1996 as compared to
$6.4 million for fiscal 1995 and $4.0 million in fiscal 1994, primarily from
increased pre-tax income. The Company used the percentage method for bad debt
deduction in fiscal 1996 and the experience method in fiscal 1995 and 1994.
Legislation recently passed and signed into law will require that the Company
use the experience method for Federal purposes, but still have the option of the
experience or percentage method for New York State purposes. At the time of
this writing, it is unclear which method will be allowed for New York City.
Net Income
- - -----------
Net income increased to $9.2 million in fiscal 1996 as compared to $8.0
million in fiscal 1995 and $5.7 million in fiscal 1994. The increase is
primarily the result of increased multi-family mortgage originations, the
continuing downward trend in non-performing assets and well planned interest
rate risk management strategies. The level of net income achieved in fiscal 1996
is the highest on record for the Company, which was formed in 1988, and the
Bank, which was founded in 1890.
Liquidity and Capital Resources
The Bank is required by the OTS to maintain average daily balances of liquid
assets and short-term liquid assets (as defined) in amounts equal to 5% and 1%,
respectively, of net withdrawable deposits and borrowings payable in one year or
less to assure its ability to meet demands for withdrawals and repayment of
short-term borrowings. The Bank currently intends to maintain a minimum level
of liquid assets in excess of the requirement. The Bank's average daily
liquidity was 6.73% for the fiscal year ended September 30, 1996, compared to
7.64% for the preceding year. The liquidity of the Bank at September 30, 1996
was 6.19%, which exceeded the then applicable 5% liquidity requirement. Its
short-term liquidity ratio at September 30, 1996 was 3.26%.
The Bank's primary sources of funds are deposits, amortization and repayment
of loan and mortgage-backed security principal, FHLB advances, maturities of
investment securities and short-term investments, and funds provided from
operations. While scheduled loan amortization and maturing investment
securities and short-term investments are a relatively predictable source of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank manages the
pricing of its deposits to maintain a steady deposit balance. The Bank uses its
capital resources principally to meet its ongoing commitments to fund maturing
certificates of deposit and deposit withdrawals, repay borrowings, fund existing
and continuing loan commitments, maintain its liquidity and meet operating
expenses. In the normal course of business, there are outstanding commitments
and contingent liabilities which are not reflected in the accompanying
consolidated financial statements. At September 30, 1996, the Bank had
commitments to originate loans of approximately $8.5 million and unused lines of
credit of approximately $0.2 million. In July, 1996, the Bank renewed a $28.2
million overnight line of credit with the Federal Home Loan Bank of New York
which expires in July, 1997. In management's opinion, the Bank had adequate
resources to fund existing commitments at September 30, 1996.
35
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and notes thereto 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 inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike most industrial companies,
nearly all the assets and liabilities of the Bank are monetary. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long Lived Assets to be Disposed of." SFAS No. 121
establishes accounting standards for recognizing and measuring impairment of
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 121 is effective for financial statements for fiscal
years beginning after December 15, 1995. SFAS No. 121, when adopted, is not
expected to have a material adverse effect on the Company's financial condition.
In June 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities" to eliminate the accounting distinction between rights to
service mortgage loans that are acquired through loan origination and those
acquired through purchase. Thus, if mortgage loans are sold or securitized but
the rights to service those loans are retained, the total cost of such loans
(whether originated or acquired) should be allocated to (1) the mortgage
servicing rights, and (2) the loan themselves based on their relative fair
value. SFAS 122 is effective for fiscal years beginning after December 15, 1995
to loan origination or securitization of mortgage servicing rights and to
impairment evaluations of all mortgage servicing rights, including those
purchased prior to the effective date of SFAS No. 122. SFAS No. 122, when
adopted, is not expected to have a material adverse effect on the Company's
financial condition.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). 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 established
a fair value based method of accounting for stock-based compensation arrangement
with employees, rather then the intrinsic value based method that is contained
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). SFAS No. 123 does not require an entity to adopt the
new fair value based method for purposes of preparing its basic financial
statements. While the SFAS No. 123 fair value based method is considered by the
FASB to be preferable to the APB No. 25 method, entities are allowed to continue
to use the APB No. 25 method for preparing its basic financial statements.
Entities not adopting the fair value based method under SFAS No. 123 are
required to present pro forma net income and earnings per share information, in
the notes to the financial statements, as if the fair value based method had
been adopted.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into during fiscal years that begin after December 15, 1995, but may
also be adopted upon the issuance of SFAS No. 123. The disclosure requirements
are effective for financial statements for fiscal years beginning after December
15, 1995, or for an earlier fiscal year for which SFAS No. 123 is initially
adopted for recognizing compensation cost. Pro forma disclosures required for
entities that elect to continue to measure compensation cost using the APB No.
25 method must include the effects of all awards granted in fiscal years that
begin after December 15, 1994. Pro forma disclosures for awards granted in the
first fiscal year beginning after December 15, 1994 need not be included in
financial statements for that fiscal year but should be presented subsequently
whenever financial statements for that fiscal year are
36
<PAGE>
presented for comparative purposes with financial statements for a later fiscal
year. The Company currently does not intend to adopt the provisions of this
statement early.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial components approach that focuses on
control. Under this approach, an entity, subsequent to a transfer of financial
assets, must recognize the financial and servicing assets it controls and the
liabilities it has incurred, derecognize financial assets when control has been
surrendered, and derecognize liabilities when extinguished. Standards for
distinguishing transfers of financial assets that are sales from those that are
secured borrowings are provided in SFAS No. 125. A transfer not meeting the
criteria for a sale must be accounted for as a secured borrowing with pledge of
collateral.
SFAS No. 125 requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value, if practicable. It additionally requires that servicing assets and
other retained interests in transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
Servicing assets and liabilities must be subsequently measured by amortization
in proportion to and over the period of estimated net servicing income or loss
and assessed for asset impairment, or increased obligation, based on their fair
value.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted. The
Company is currently reviewing the impact of the implementation of SFAS No. 125
on its consolidated financial statements.
37
<PAGE>
Item 8 - Financial Statements and Supplementary Data
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Financial Statements
- - --------------------
BFS Bankorp, Inc. is responsible for the preparation, integrity and fair
presentation of its published financial statement as of September 30, 1996, and
the year then ended. The financial statements have been prepared in accordance
with generally accepted accounting principles, and as such, include amounts,
some of which are based on judgments and estimates of management.
Internal Control Structure Over Financial Reporting
- - ---------------------------------------------------
Management of BFS Bankorp, Inc. is responsible for establishing and maintaining
an effective internal control structure over financial reporting presented in
conformity with both generally accepted accounting principles and the Office of
Thrift Supervision instructions for Thrift Financial Reports (TFRs). The
structure contains monitoring mechanisms, and actions are taken to correct
deficiencies identified.
There are inherent limitations in the effectiveness of any internal control
structure, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurances with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Company's internal control structure over financial
reporting presented in conformity with both generally accepted accounting
principles and TFR instructions as of September 30, 1996. This assessment was
based on criteria for effective control over financial reporting described in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that, as of September 30, 1996, the Company maintained an effective
internal control structure over financial reporting presented in conformity with
both generally accepted accounting principles and TFR instructions.
Compliance With Laws And Regulations
- - ------------------------------------
Management is also responsible for compliance with the federal and state laws
and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders designated by the FDIC as safety and
soundness laws and regulations.
Management assessed its compliance with federal and state laws and regulations
concerning dividend restrictions and federal laws and regulations relating to
safety and soundness. Based on this assessment, management believes that BFS
Bankorp, Inc. complied in all significant respects, with the designated laws and
regulations relating to safety and soundness for the year ended September 30,
1996.
/s/ James A. Randall /s/ Gerard A. Perri
- - ----------------------------- -------------------------------
James A. Randall Gerard A. Perri
Chief Executive Officer Chief Financial Officer
December 17, 1996
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BFS Bankorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of BFS Bankorp, Inc. and Subsidiaries (the "Company") as of September 30, 1996
and 1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFS Bankorp, Inc.
and Subsidiaries as of September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by Statement of Financial
Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure" effective October 1, 1995 and Statement of
Financial Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," effective October 1, 1994.
October 25, 1996, except as to Note 22, which is as of December 3, 1996
New York, New York
39
<PAGE>
BFS BANKORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, 1996 1995
- - -------------- ---- ----
<S> <C> <C>
Assets: (Dollars In Thousands)
Cash and due from banks $ 8,794 $ 5,978
Federal funds 5,000 14,000
Securities held to maturity, net (estimated market value of $21,856
and $16,163 at September 30, 1996 and 1995, respectively)-(notes
5,9 and 10) 21,960 16,135
Securities available for sale, net (note 5) 1,364 ---
Mortgage-backed securities held to maturity, net (estimated
market value of $13,999 and $17,426 at September 30, 1996 and
1995, respectively)-(notes 2,9 and 10) 14,203 17,194
Loans, net (notes 3,4 and 9)
First mortgage loans and other loans 584,859 496,246
Allowance for loan losses (6,032) (5,359)
-------- --------
Loans, net 578,827 490,887
-------- --------
Premises and equipment, net (note 7) 3,178 2,671
Accrued interest receivable:
Loans 4,274 3,780
Securities 251 271
Mortgage-backed securities 172 208
Other assets (note 6 and 11) 5,157 4,027
-------- --------
Total assets $643,180 $555,151
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 8) $410,324 $388,562
Borrowed funds (note 9) 146,253 94,600
Collateralized mortgage obligations, net (note 10) 12,594 15,183
Mortgagors' escrow payments 11,676 10,237
Accrued expenses and other liabilities (notes 11 and 12) 12,119 5,757
-------- --------
Total liabilities 592,966 514,339
-------- --------
Stockholders' equity (notes 14,15,16,17,18 and 19):
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued --- ---
Common stock, $.01 par value, 6,000,000 shares authorized,
1,695,428 and 1,694,567 shares issued and 1,635,488 and 1,634,627
outstanding at September 30, 1996 and 1995, respectively 17 17
Additional paid-in capital 10,742 10,711
Retained earnings, substantially restricted 39,906 30,670
Unrealized gain on available for sale securities, net of tax of $121 133 ---
Common stock acquired for Management Recognition Plan (MRP) (19) (21)
Treasury stock, at cost; 59,940 shares at September 30, 1996 and 1995 (565) (565)
-------- --------
Total stockholders' equity 50,214 40,812
-------- --------
Commitments and contingencies (note 13)
Total liabilities and stockholders' equity $643,180 $555,151
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
BFS BANKORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Interest income:
First mortgage and other loans (note 3) $51,893 $36,740 $24,608
Mortgage-backed securities 1,130 8,585 11,869
Securities 1,448 1,431 1,151
Federal funds 462 529 217
-------- -------- ---------
Total interest income 54,933 47,285 37,845
-------- -------- ---------
Interest expense:
Deposits (note 8) 16,610 14,074 11,069
Borrowed funds 7,665 5,898 3,399
Collateralized mortgage obligations 1,463 1,664 2,183
-------- -------- ---------
Total interest expense 25,738 21,636 16,651
-------- -------- ---------
Net interest income 29,195 25,649 21,194
Provision for loan losses (note 4) --- 1,041 1,071
-------- -------- ---------
Net interest income after provision for loan losses 29,195 24,608 20,123
-------- -------- ---------
Other income:
Loan fees and service charges 1,395 1,112 1,285
Other fees, services charges and other income 1,056 976 855
Gain on sale of real estate owned, net 1,334 165 475
Gain on sale of securities available for sale 50 --- ---
Gain on sales of loans and mortgage-backed securities --- 392 74
Income (loss) from real estate operations, net 154 (97) 54
-------- -------- ---------
Total other income 3,989 2,548 2,743
-------- -------- ---------
Other expenses:
Compensation and benefits (note 12) 7,296 6,797 6,404
FDIC SAIF Special assessment 2,507 --- ---
Occupancy and equipment (notes 7 and 13) 2,343 2,123 2,038
Marketing, professional fees and services 1,278 887 781
FDIC/SAIF deposit insurance premiums 914 892 970
Data processing service fees 637 590 518
Provision for real estate losses (note 6) --- 211 994
Other 1,188 1,280 1,372
-------- -------- ---------
Total other expenses 16,163 12,780 13,077
-------- -------- --------
Income before provision for income taxes 17,021 14,376 9,789
Provision for income taxes (note 11) 7,785 6,355 4,043
-------- -------- ---------
Net income $ 9,236 $ 8,021 $ 5,746
======== ======== =========
Primary earnings per share $ 5.27 $ 4.66 $ 3.37
======== ======== =========
Fully diluted earnings per share $ 5.23 $ 4.65 $ 3.34
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
BFS BANKORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
- - ---------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Common Gain on
Additional Stock Securities
Common Paid-in Retained Acquired Treasury Available
Stock Capital Earnings for MRP Stock For Sale Total
-------- -------- -------- --------- -------- ---------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ 17 $ 10,313 $ 16,903 $ (56) $(565) $--- $26,612
Net income for the year --- --- 5,746 --- --- --- 5,746
Stock options exercised (20,062 shares) --- 224 --- --- --- --- 224
Amortization of ESOP and MRP stock --- --- --- 24 --- --- 24
-------- -------- -------- --------- -------- ---------- -------
Balance at September 30, 1994 17 10,537 22,649 (32) (565) --- 32,606
Net income for the year --- --- 8,021 --- --- --- 8,021
Stock options exercised (20,214 shares) --- 174 --- --- --- --- 174
Amortization of MRP stock --- --- --- 11 --- --- 11
-------- -------- -------- --------- -------- ---------- -------
Balance at September 30, 1995 17 10,711 30,670 (21) (565) --- 40,812
-------- -------- -------- --------- -------- ---------- -------
Net income for the year --- --- 9,236 --- --- --- 9,236
Incentive stock plan issuance (861 shares) --- 31 --- --- --- --- 31
Unrealized gain on securities --- --- --- --- --- 133 133
Amortization of MRP stock --- --- --- 2 --- --- 2
-------- -------- -------- --------- -------- ---------- -------
Balance at September 30, 1996 $ 17 $ 10,742 $ 39,906 $ (19) $(565) $133 $50,214
======== ======== ======== ========= ======== ========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
BFS BANKORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
- - --------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income $ 9,236 $ 8,021 $ 5,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of MRP and ESOP 2 11 24
Accretion of discounts, net of amortization of premiums (1,652) (505) (202)
(Increase) decrease in other assets (1,354) (99) 13,318
Increase (decrease) in accrued expenses and other liabilities 6,362 (2,795) 2,690
Increase in accrued interest receivable (438) (910) (155)
Provision for loan and real estate losses --- 1,252 2,065
Gain on sale of assets, net (1,384) (557) (549)
Incentive stock plan issuance 31 31 31
Depreciation and amortization 749 626 574
--------- --------- --------
Net cash provided by operating activities 11,552 5,075 23,542
--------- --------- --------
Cash flows from investing activities:
Principal payments on mortgage and other loans 84,325 44,142 28,742
Principal payments on mortgage-backed securities 2,978 10,524 22,078
Mortgage and other loans sold 7,699 15,222 7,414
Real estate owned sold 8,064 --- ---
Investments in mortgage and other loans (184,723) (123,980) (89,851)
Investments in mortgage-backed securities --- (7,170) ---
Maturities of securities held to maturity 21,337 15,603 8,189
Sale of securities available for sale 390 --- ---
Purchases of securities held to maturity (27,157) (19,417) (7,080)
Purchase of securities available for sale (1,450) --- ---
Net additions to premises and equipment (1,256) (513) (565)
--------- --------- --------
Net cash used in investing activities (89,793) (65,589) (31,073)
--------- --------- --------
Cash flows from financing activities:
Increase in deposits, net of interest credited 21,762 25,690 12,586
Increase (decrease) in other borrowings 51,653 41,935 (1,550)
Principal payments on collateralized mortgage obligations (2,797) (2,547) (5,240)
Stock options exercised --- 143 193
Increase in advance payments by borrowers 1,439 1,526 1,165
--------- --------- --------
Net cash provided by financing activities 72,057 66,747 7,154
--------- --------- --------
Net (decrease) increase in cash and cash equivalents (6,184) 6,233 (377)
--------- --------- --------
Cash and cash equivalents at beginning of the year 19,978 13,745 14,122
--------- --------- --------
Cash and cash equivalents at ending of the year $ 13,794 $ 19,978 $ 13,745
========= ========= ========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Income taxes $ 6,996 $ 7,552 $ 4,387
Interest on deposits and borrowed money $ 25,738 $ 21,636 $ 16,651
Non-cash transactions:
Transfer from loans to real estate owned $ 7,000 $ 1,902 $ 6,289
Transfer of mortgage-backed securities held for
sale, net to mortgage-backed securities held to
maturity, net $ --- $ 103,354 $ ---
Transfer of mortgage-backed
securities held to maturity,
net to first mortgages and other loans, net $ --- $ 102,711 $ ---
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
- - ---------------------------------------------------------
The accompanying consolidated financial statements are prepared using the
accrual basis of accounting and include the accounts of BFS Bankorp and its
subsidiary, Bankers Federal Savings FSB and its wholly owned subsidiaries
(collectively the "Company"). All material intercompany transactions and
balances have been eliminated in consolidation. Certain amounts in the 1995 and
1994 financial statements have been reclassified to conform to the 1996
financial statement presentation.
(b) Loans, net
- - --------------
Loans are carried at unpaid principal balances plus unamortized premiums
less unearned discounts, deferred loan origination fees and the allowance for
loan losses. Discounts (premiums) on mortgage loans purchased are deferred and
accreted (amortized) to income over the estimated life of the loans, using the
level-yield method. Loan origination fees and direct loan origination costs are
deferred and subsequently recognized in interest income as a yield adjustment
using the level-yield method over the contractual loan term, adjusted for
estimated prepayments in certain circumstances. Interest on loans is recognized
on the accrual basis. Interest on conventional mortgages and other loans
contractually delinquent over 90 days is generally excluded from interest
income. Interest is subsequently recognized on non-accrual loans only to the
extent that cash is received. Loans are returned to accrual status when
management deems that collection is reasonable. Provisions for loan losses on
mortgages and other loans are charged to operations under the reserve method,
based on management's periodic review and evaluation, which considers the Bank's
past loan loss experience, known and inherent risks in the loan portfolio,
adverse situations which may affect the borrowers' ability to repay, overall
portfolio quality, and an assessment of current and prospective economic
conditions. Regulatory examiners may require the Bank to recognize additions to
the allowance based upon their judgments about information available to them at
the time of their examination.
Effective October 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114") as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of Loan-Income Recognition and
Disclosures" (SFAS No. 118"). SFAS No. 114 applies to all loans except for
large groups of smaller balance homogenous loans collectively evaluated for
impairment and certain other loans. Under SFAS No. 114 and SFAS No. 118, a loan
is considered impaired when, based upon current information and events, it is
probable that a creditor will be unable to collect all amounts due including
principal and interest, according to the contractual terms of the loan
agreement. These statements require that impaired loans that are within their
scope 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 current observable market price, or the fair value of the collateral
if the loan is collateral dependent. The amount by which the recorded
investment of an impaired loan exceeds the measurement value is recognized by
creating a valuation allowance through a charge to the provision for loan
losses. In connection with the adoption of SFAS No. 114, the Company has, for
all years prior to adoption, reclassified in-substance loans, net of the related
allowance for losses, if any, from real estate acquired through foreclosure to
Loans, net in the Company's statement of condition. Interest income received on
impaired loans is recognized on a cash basis. The adoption of SFAS No. 114 and
SFAS No. 118 had no impact on fiscal 1996 net income.
(c) 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. At September 30, 1996 and 1995, this category
consisted only of Federal Funds, all of which were sold to the Federal Home Loan
Bank of New York.
44
<PAGE>
(d) Investment and Mortgage-Backed Securities
-----------------------------------------
Effective October 1, 1994 the Bank adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investment in Debt and Equity
Securities" ("SFAS No. 115"). Under SFAS No. 115, investment and mortgage-
backed securities which the Bank 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 adjusted for actual prepayments.
Investment 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 now 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) Premises and Equipment, net
- - -------------------------------
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation of buildings, furniture, fixtures and equipment
is accumulated on a straight-line basis over the estimated useful lives of the
assets. Amortization of leasehold improvements is accumulated on a straight-line
basis over the shorter of their estimated useful lives or the terms of the
lease. Maintenance, repairs, and minor improvements are charged to operating
expense as incurred.
(f) Real Estate Acquired Through Foreclosure, net
- - -------------------------------------------------
Properties acquired through foreclosure are initially recorded at the lower
of cost or fair value less estimated selling costs at the date of acquisition.
The carrying value of the property is subsequently adjusted to the extent it
exceeds fair value. Valuation allowances for subsequent losses are established
on individual properties to the extent of further deterioration in values
through a provision for losses on real estate which is charged to operations.
Routine carrying costs, primarily real estate taxes and property insurance are
charged to operations as incurred.
(g) Income Taxes
- - ----------------
SFAS No. 109, Accounting for Income Taxes, requires a change to the asset
and liability method of accounting for income taxes from the deferred method of
accounting for income taxes previously followed. Deferred income tax expense
(benefit) under SFAS No. 109 is determined by recognizing deferred tax assets
and liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The realization of deferred tax
assets is assessed and a valuation allowance provided for that portion of the
asset for which it is more likely than not that it will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The holding company and its
subsidiaries file calendar year federal, state and local income tax returns on a
consolidated basis.
(h) Primary and Fully Diluted Earnings Per Common Share
- - --------------------------------------------------------
Primary earnings per common share is computed based on net income for the
year divided by the weighted average number of shares of common stock
outstanding. The weighted average number of shares of common stock used in the
computation of primary earnings per share was 1,754,167, 1,722,358 and
1,702,856, for the fiscal years ended September 30, 1996, 1995 and 1994,
respectively.
Fully diluted earnings per common share is computed based on net income for
the year divided by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding. The weighted average number of
shares of common stock and dilutive common stock equivalents used in the
computation of fully diluted earnings per share was 1,764,804, 1,723,160 and
1,722,857 for the fiscal years ended September 30, 1996, 1995 and 1994,
respectively.
45
<PAGE>
(j) Cash and Cash Equivalents
- - -----------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds.
2 Mortgage-backed Securities Held to Maturity, net
Mortgage-backed securities held to maturity, net are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Principal Unearned Carrying market
September 30, 1996 Balance Discounts value value
- - ------------------ --------- --------- -------- -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
GNMA $ 324 $--- $ 324 $ 320
FHLMC 13,900 (21) 13,879 13,679
------- ---- ------- -------
Total mortgage-backed
securities, net $14,224 $(21) $14,203 $13,999
======= ==== ======= =======
<CAPTION>
Estimated
Principal Unearned Carrying market
September 30, 1995 Balance Discounts value value
- - ------------------ --------- --------- -------- -----------
(Dollars In Thousands)
GNMA $ 454 $--- $ 454 $ 457
FHLMC 16,748 (27) 16,721 16,950
REMIC 19 --- 19 19
------- ---- ------- -------
Total mortgage-backed
securities, net $17,221 $(27) $17,194 $17,426
======= ==== ======= =======
</TABLE>
Gross unrealized gains on mortgage-backed securities as of September 30, 1996
and 1995 were approximately $95,000 and $285,000. Gross unrealized losses on
mortgage-backed securities as of September 30, 1996 and 1995 were approximately
$299,000 and $53,000.
<TABLE>
<CAPTION>
3 Loans, net
Loans, net are summarized as follows:
September 30, 1996 1995
- - ------------- ---- ----
(Dollars In Thousands)
<S> <C> <C>
First mortgage loans:
1-4 family $ 10,704 $ 19,391
Multi-family 561,495 465,545
Commercial 17,393 14,375
Deferred loan origination fees (3,950) (2,174)
Unearned income (1,671) (2,075)
-------- --------
583,971 495,062
Other loans:
Home equity 585 744
Student 177 234
Loans on deposit accounts 126 202
Consumer --- 4
-------- --------
888 1,184
-------- --------
584,859 496,246
Allowance for loan losses (6,032) (5,359)
-------- --------
Loans, net $578,827 $490,887
======== ========
</TABLE>
Loans on non-accrual status totaled approximately $6,408,000, $12,833,000 and
$19,002,000 as of September 30, 1996, 1995 and 1994, respectively. The effect of
non-accrual loans on interest income for the years ended September 30, 1996,
1995 and 1994 was approximately $664,000, $1,746,000, and $1,473,000
respectively.
46
<PAGE>
The Bank follows SFAS No. 114 which applies to all loans, except large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment. The Bank's impaired loans under SFAS No. 114 includes the separate
evaluation of all multi-family loans. As of September 30, 1996, the Bank's
recorded investment in impaired loans was $6,408,000 with a related allowance of
$910,000. During the year ended September 30, 1996, the Bank's recorded
investment in impaired loans averaged $9,543,000 and interest income of $135,000
was recognized on impaired loans.
Loans serviced by the Bank for the benefit of others totaled approximately
$45,262,000 and $56,591,000 as of September 30, 1996 and 1995, respectively.
The Bank's primary concentration of loans is located in the downstate New York
area. At September 30, 1996, the major concentrations by collateral type are as
follows: (i) one-to-four family residential, 1.81%; (ii) multi-family, 95.09%;
(iii) commercial, 2.95%; and (iv) other, 0.15%. Substantially all of the Bank's
business activity is through originations of loans secured by real estate with
customers located in the New York metropolitan area. The risk inherent in this
portfolio is dependent not only upon regional and general economic stability
which affects property values, but also financial well-being and
creditworthiness of the borrowers. In order to minimize the credit risk related
to this concentration, the Company utilizes prudent underwriting standards as
well as diversifying the type and locations of real estate projects underwritten
in the area.
4 Allowance for Loan Losses
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Balance at beginning of
year $ 5,359 $ 4,684 $ 4,651
Provision for loan losses --- 1,041 1,071
Recoveries/(charge offs), net 673 (366) (1,038)
------- ------- -------
Balance at end of year $ 6,032 $ 5,359 $ 4,684
======= ======= =======
</TABLE>
5 Securities, net
Securities, net are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
---- ----
Estimated Estimated
Carrying Market Carrying Market
Value Value Value Value
------- ------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities held to maturity
Notes at amortized cost:
U.S. Government and
agency obligations $14,498 $14,394 $10,993 $11,021
Other 149 149 144 144
------- ------- ------- -------
14,647 14,543 11,137 11,165
FHLB of New York stock, at
cost 7,313 7,313 4,998 4,998
------- ------- ------- -------
7,313 7,313 4,998 4,998
------- ------- ------- -------
Total Securities held to
maturity, net $21,960 $21,856 $16,135 $16,163
======= ======= ======= =======
Securities available for sale,
net Equity securities $ 1,364 $ 1,364 $ --- $ ---
======= ======= ======= =======
</TABLE>
Gross unrealized gains on bonds and notes as of September 30, 1996 and 1995
were approximately $23,000 and $33,000. Gross unrealized losses as of
September 30, 1996 and 1995 were approximately $127,000 and $5,000. Of the
$14,500,000 face value of bonds and notes at September 30, 1996 $2,000,000
mature within one year, $2,000,000 mature within three years and $10,500,000
matures
47
<PAGE>
within five years. FHLB stock is carried at cost and is not considered a
marketable equity security because the sale of said stock is restricted as part
of the membership requirements of the FHLB. Gross unrealized gains on securities
available for sale as of September 30, 1996 and 1995 were approximately $254,000
and $-0-. Realized gains on sale of securities available for sale $50,000 and
$-0- for the fiscal years ended September 30, 1996 and 1995. There were no
losses in either year.
6 Real Estate Acquired Through Foreclosure, net
Real estate acquired through foreclosure, net, which is included in other
assets, is summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
(Dollars In Thousands)
<S> <C> <C>
Real estate acquired through foreclosure:
1-4 family $ 266 $ 265
Multi-family --- 104
----- -----
Total $ 266 $ 369
===== =====
</TABLE>
Provisions of $-0-, $211,000, and $994,000 were added and write-downs/charge-
offs totaling $-0-, $418,000, and $1,454,000 were deducted during the fiscal
years ended September 30, 1996, 1995 and 1994, respectively.
7 Premises and Equipment, net
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
(Dollars In Thousands)
<S> <C> <C>
At cost
Land $ 223 $ 223
Office buildings 3,418 2,843
Leasehold improvements 1,121 1,071
Furniture, fixtures and equipment 4,010 3,489
------- -------
8,772 7,626
Accumulated depreciation and amortization (5,594) (4,955)
------- -------
Premises and equipment, net $ 3,178 $ 2,671
======= =======
</TABLE>
Depreciation and amortization expense was approximately $749,000, $626,000,
and $574,000 for the years ended September 30, 1996, 1995, and 1994,
respectively.
48
<PAGE>
8 Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
Percent Weighted Percent Weighted
of Average of Average
Amount Total Rate Amount Total Rate
------ ------ --------- -------- -------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Regular savings $108,382 26.4% 2.50% $115,606 29.8% 2.50%
NOW accounts 45,819 11.2% 2.53% 44,840 11.5% 2.73%
Money market accounts 23,104 5.6% 3.23% 24,526 6.3% 3.22%
-------- ------ ----- -------- ------ -----
Total 177,305 43.2% 2.60% 184,972 47.6% 2.65%
-------- ------ ----- -------- ------ -----
Certificate accounts by contractual maturity:
6 months or less 11,164 2.7% 4.20% 4,231 1.1% 4.07%
7 to 12 months 61,749 15.0% 5.06% 54,206 14.0% 5.24%
13 to 24 months 102,051 24.9% 5.58% 93,275 24.0% 5.75%
25 to 36 months 36,742 9.0% 6.42% 35,342 9.1% 6.26%
Over 36 months 21,313 5.2% 5.96% 16,536 4.2% 6.10%
-------- ------ ----- -------- ------ -----
Total certificate accounts 233,019 56.8% 5.54% 203,590 52.4% 5.69%
-------- ------ ----- -------- ------ -----
Total deposits $410,324 100.0% 4.27% $388,562 100.0% 4.25%
======== ====== ===== ======== ====== =====
</TABLE>
Included in the above are certificate accounts with denominations of $100,000
or more totaling approximately $21,999,000 and $15,885,000 as of September 30,
1996 and 1995, respectively.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
NOW accounts $ 1,038 $ 1,048 $ 1,170
Regular savings 2,786 3,129 3,827
Money market accounts 755 784 757
Certificate accounts 12,031 9,113 5,315
------- ------- -------
Total interest expense $16,610 $14,074 $11,069
======= ======= =======
</TABLE>
To recapitalize the SAIF, legislation was passed by Congress and signed into
law by the President of the United States on September 30, 1996 to assess a one
time special assessment of 65.7 basis points of the deposit base of SAIF insured
institutions. Included in the Company's operating results for the fiscal year
ended September 30, 1996 is a $2.5 million one-time charge to recapitalize the
SAIF fund. It is expected that the Bank will be assessed at the rate of .065% of
deposits beginning January 1, 1997 and may be eligible for a rebate on the .23%
premium paid for the period October 1, 1996 through December 31, 1996.
49
<PAGE>
9 Borrowed Funds
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
---- ----
(Dollars In thousands)
<S> <C> <C>
Advances from Federal Home Loan Bank of New York
Variable rate overnight line of credit $ 13,500 $ ---
7.28% due 1996 20,000 20,000
5.87% due 1997 5,000 ---
6.96% due 1997 12,950 12,950
7.17% due 1998 10,000 10,000
7.20% due 1998 5,000 5,000
6.47% due 1999 5,000 ---
6.89% due 1999 15,000 15,000
6.65% due 1999 5,000 ---
7.44% due 2000 10,000 10,000
6.76% due 2001 5,000 ---
6.90% due 2001 5,000 ---
6.75% due 2002 20,000 20,000
6.95% due 2003 5,000 ---
7.07% due 2003 5,000 ---
7.38% due 2011--Amortizing 808 ---
7.34% due 2011--Amortizing 3,995 ---
Senior Debt
Prime plus 2% due 1996 --- 1,650
-------- -------
Total Borrowed Funds $146,253 $94,600
======== =======
</TABLE>
Under the terms of a blanket collateral agreement with the Federal Home Loan
Bank of New York (FHLBNY), advances are collateralized by certain qualifying
assets not otherwise pledged (primarily first mortgage loans) in an amount at
least equal to 110% of the advances outstanding.
At September 30, 1996, 1995 and 1994 the weighted average interest rates
for borrowings were 6.89%, 7.06%, and 7.50%, respectively. The Bank has procured
a $28.2 million line of credit with the Federal Home Loan Bank of New York which
expires in July, 1997.
10 Collateralized Mortgage Obligations, net
BFED I Corp., a wholly owned limited-purpose finance subsidiary, is authorized
to issue and sell collateralized mortgage obligations (CMOs), which are debt
securities issued with individual classes of bonds containing stated maturities
ranging from five to thirty years.
At September 30, 1996 and 1995, CMOs of $12,594,000 and $15,183,000 (net of
amortized discount of approximately $1,010,000 and $1,217,000), respectively,
were outstanding with a coupon interest rate of 8.25%. The CMOs are
collateralized by mortgage-backed securities of approximately $14,203,000 and
$17,175,000 and by short-term investments of approximately $149,000 and $144,000
at September 30, 1996 and 1995, respectively. Such collateral consists of GNMA
and FHLMC certificates having interest rates ranging from 5.50% to 9.00%. The
repayments of bond principal and interest are directly related to the amounts of
principal and interest received on the mortgage-backed securities
collateralizing a particular class of CMOs.
11 Federal, State and City Taxes
The Company files Federal income tax returns on a calendar-year basis. If
certain definitional tests and other conditions are met, the Bank is allowed a
special bad debt deduction in determining its taxable income. The deduction may
be based either on specified experience formulas or a percentage of taxable
50
<PAGE>
income after utilization of available net operating loss carryforwards. The
statutory percentage is 8% and will be allowable only if the Bank maintains at
least 60% of its total assets in qualifying assets, as defined. If total assets
are greater than $500,000,000 and qualifying assets fall below 60%, the Bank
would be required to recapture its bad debt reserve into taxable income over a
four-year period (in such a case, adverse state and local income tax
consequences will also result). However, if total assets are less than
$500,000,000 and qualifying assets fall below 60% then the Bank would not be
entitled to claim a bad debt tax deduction in that year as computed under the
percentage of taxable income method. At both September 30, 1996 and 1995, the
Bank's qualifying assets as a percentage of total assets were approximately 95%.
At December 31, 1995, the Bank's bad debt reserve on qualifying real property
loans for Federal income tax purposes approximated $4,827,000. Such reserve
reflects the cumulative Federal income tax deductions taken by the Bank to that
date. Any of these reserves used for other than a bad debt on a qualified real
property loan would create income for tax purposes only, which would be subject
to the corporate income tax rate in effect at that time. However, it is not
contemplated that amounts allocated to bad debt deductions will be used in any
manner that would create income tax liabilities.
The Tax Reform Act of 1986 replaced the add-on minimum tax with a new
alternative minimum tax ("AMT"). The AMT is generally the amount by which 20% of
alternative minimum taxable income ("AMTI") exceeds the regular tax which
otherwise would apply. AMTI is regular taxable income as modified by certain
adjustments and increased by certain tax preference items. In the computation of
AMTI, the net operating loss carry forward is permitted to offset only 90% of
AMTI. In addition, for taxable years beginning after December 31, 1986, an
environmental tax of 0.12% of the excess of AMTI excluding net operating loss
carry forwards (with certain modifications) over $2 million is imposed on
corporations.
Included in other assets at September 30, 1995 is a receivable from New York
State and New York City in the amount of approximately $687,000. Included in
accrued expenses and other liabilities at September 30, 1995 was a Federal
Income Tax payable for approximately $502,000.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current $6,175 $4,219 $2,611
Deferred (995) 52 (156)
------ ------ ------
Total 5,180 4,271 2,455
------ ------ ------
State and local tax expense (benefit):
Current 3,390 2,076 2,038
Deferred (785) 8 (450)
------ ------ ------
Total 2,605 2,084 1,588)
------ ------ ------
Total provision for income tax expense $7,785 $6,355 $4,043
====== ====== ======
</TABLE>
Deferred income taxes are provided for certain revenues and expenses that are
recognized in different periods for financial accounting and tax reporting
purposes.
51
<PAGE>
The components of deferred income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
SAIF special assessment $(1,197) $ --- $ ---
General valuation allowance, net (221) 3 (205)
Pension/FASB 106 expense (229) (184) (99)
REMIC tax loss (117) 194 (456)
Deferred loan origination fees 55 56 21
Other, net (71) (9) 133
------- ----- -----
$(1,780) $ 60 $(606)
======= ===== =====
</TABLE>
The reconciliation between the statutory Federal income tax and the net
effective tax (including state and local taxes) is as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Tax at Federal statutory rate $5,957 $5,032 $3,426
State and local income taxes, net of Federal tax
benefit 1,693 1,355 1,032
Prior period tax refunds, net --- (400) (206)
Other, net 135 368 (209)
------ ------ ------
$7,785 $6,355 $4,043
====== ====== ======
The components of the net deferred tax asset are as follows:
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
(Dollars in Thousands)
<S> <C> <C>
Deferred Tax Assets:
SAIF special assessment $1,197 $ ---
General valuation allowance, net 2,559 2,338
Pension/FASB 106 expense 460 231
Deferred loan origination fees 178 233
Other, net 198 127
------ ------
Total deferred tax assets 4,592 2,929
------ ------
Deferred Tax Liability:
REMIC 1,367 1,484
------ ------
Net deferred tax asset $3,225 $1,445
====== ======
</TABLE>
The net deferred tax asset included in other assets at September 30, 1996 and
1995 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 paid income taxes in the
calendar years prior to December 31, 1995. Management believes it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize the deferred tax asset. Accordingly, no valuation
allowance was deemed necessary for the net deferred tax asset at September 30,
1996 and 1995.
State and Local Taxes
- - ---------------------
The Bank files state and local taxes on a calendar-year basis. The basis for
the determination of tax liability was changed to the greater of a tax based on
entire net income, as defined, taxable assets, or a minimum tax. The Bank's
provision for New York State and City taxes for the calendar years ended 1995,
1994 and 1993 was based on entire net income. The Bank anticipates that its
provision for such taxes for the calendar year ended 1996 will also be based on
entire net income. Further, the Bank is subject to a temporary surcharge based
upon New York State tax liability.
52
<PAGE>
12 Retirement Plan
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Bank's funding policy
has been to contribute annually the maximum amount that can be deducted for
Federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
The status of the pension plan at the measurement dates of September 30 is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Actuarial present value of benefit obligations: (Dollars In Thousands)
<S> <C> <C>
Vested benefit obligation $2,799 $2,613
Nonvested benefit obligation 100 115
------ ------
Accumulated benefit obligation 2,899 2,728
------ ------
Actuarial present value projected benefit
obligation for service rendered to date 3,939 4,032
Plan assets at fair value, primarily listed stocks,
U.S. Government obligations and short-term investments 3,422 3,145
------ ------
Projected benefit obligation in excess of plan assets (517) (887)
Unrecognized net asset being amortized over 20 years (237) (258)
Unrecognized net (gain) loss due to past
experience different from assumptions made (15) 661
------ ------
Accrued pension cost $ (769) $ (484)
====== ======
</TABLE>
Pension expense was approximately $285,000, $167,000 and $267,000 for the
years ended September 30, 1996, 1995, and 1994, respectively.
Net pension expense for the years ended September 30 included the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 294 $ 185 $ 288
Interest cost on projected benefit obligation 257 234 220
Actual return on plan assets (526) (512) (249)
Deferred asset gain 281 281 29
Amortization (21) (21) (21)
----- ----- -----
Net pension expense $ 285 $ 167 $ 267
===== ===== =====
</TABLE>
The weighted average discount rate was 7.00% for 1996 and 6.50% for 1995. The
rate of increase in future compensation levels was 6.0% for 1996 and 1995. These
rates are used to determine the actuarial present value of the projected benefit
obligation. The expected long-term rate of return on assets was 8.5% for 1996
and 1995.
The Bank adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" effective October 1, 1994. The Bank, as part of
its overall benefits, provides to its eligible retirees health coverage.
Eligible participants are retired employees of the Bank who retire with a
minimum age of 55 and 25 years of service. The company has elected to defer and
amortize to expense over a twenty six year period the accumulated postretirement
benefit obligation of $1.0 million at the date of adoption.
53
<PAGE>
The following table sets forth the plan's status and amounts recognized in the
Company's consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
Accumulated postretirement benefit obligation: (Dollars in thousands)
<S> <C> <C>
Retirees including covered dependents and beneficiaries $738 $726
Eligible active participants 47 119
Other active participants 247 174
------- -------
Total accumulated postretirement benefit obligation 1,032 1,019
Plan assets --- ---
------- -------
Accumulated benefit obligation in excess of plan assets (1,032) (1,019)
Unrecognized transition obligation 931 970
Unrecognized loss 21 12
------- -------
Accrued benefit obligation $(80) $(37)
======= =======
<CAPTION>
Net periodic postretirement benefit cost included the following components
(in thousands):
Year ended September 30, 1996 1995
- - ------------------------ ---- ----
(Dollars in thousands)
<S> <C> <C>
Service cost $ 34 $ 32
Interest cost 69 75
Amortization of transition obligation of
$1.0 million over 26 years 39 39
------- -------
Total postretirement benefit expense $ 142 $ 146
======= =======
</TABLE>
The above plan does not have any assets and the Company presently intends to
maintain the plan as unfunded. The assumed long-term care cost trend used to
measure the expected cost of benefits under the plan for 1996 and 1995 is 0% as
any future increase in cost will be passed on to the retirees.
13 Commitments and Contingencies
Commitments to originate first mortgage loans approximated $8,540,000 and
$36,920,000 and unused lines of credit on home equity loans approximated
$150,000 and $262,000 at September 30, 1996 and 1995, respectively. Of the
$8,540,000 in mortgage commitments outstanding at September 30, 1996,
approximately $6,665,000 are adjustable rate with expected rates between 8.75%
and 9.50% and approximately $1,875,000 are fixed rate with expected rates
between 9.00% and 10.50%.
At September 30, 1996, the Bank was obligated under non-cancelable operating
leases on properties used as office space. The leases contain renewal options
and escalation clauses which provide for increased rental payments based upon
increases in real estate taxes. Rental expense was approximately $555,000,
$537,000, and $525,000 for the years ended September 30, 1996, 1995 and 1994,
respectively.
The projected future minimum rentals, exclusive of the escalation clauses, under
the terms of the leases follow:
<TABLE>
<CAPTION>
Projected Future
Minimum Rentals
----------------
(Dollars in thousands)
<S> <C>
Years ending September 30,
1997 468
1998 162
1999 60
2000 60
2001 60
2002 and thereafter 130
----
Total $940
====
</TABLE>
54
<PAGE>
14 Regulatory Capital Requirements
Federal regulations require institutions to have a minimum regulatory capital
equal to 1.5% of total assets, a 3% core capital ratio and an 8% risk-based
capital ratio. The OTS prompt corrective action standards effectively establish
a minimum 2% tangible capital ratio, a minimum 4% leverage (core) capital ratio
and a minimum 8% risked-based capital ratio. As of September 30, 1996 and 1995,
the Bank was in compliance with the regulatory capital requirements.
Additionally, under prompt corrective action regulations, the regulators have
adopted rules which require them to take action against undercapitalized
institutions, based upon five categories of capitalization: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". The rules adopted generally provide that an
insured institution whose risk-based capital is 10% or greater, Tier 1 risk-
based capital is 6% or greater and leverage ratio is 5% or greater is considered
a "well capitalized" institution. As of September 30, 1996 and 1995, the Bank
is considered a "well capitalized" institution.
The Bank's capital, determined in accordance with existing regulations, at
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Risk-
GAAP Tangible Core Based
Capital Capital Percent Capital Percent Capital Percent
------- -------- -------- ------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as reported to the OTS $47,351 $47,351 7.38% $47,351 7.38% $47,351 12.37%
Additional capital items:
General valuation allowance - limited --- --- --- --- 4,803 1.25%
------- ---- ------- ---- ------- ------
Regulatory capital 47,351 7.38% 47,351 7.38% 52,154 13.62%
Minimum capital requirement 9,629 1.50% 19,258 3.00% 30,642 8.00%
------- ---- ------- ---- ------- ------
Regulatory capital-excess $37,722 5.88% $28,093 4.38% $21,512 5.62%
======= ===== ======= ===== ======= ======
</TABLE>
15 Conversion to Stock Form of Ownership and Dividend Restrictions
In May 1988, BFS Bankorp issued 1,437,500 shares of its common stock (par
value $.01) at an initial public offering price of $7 per share.
The Bank established a liquidation account at the time of Conversion, in an
amount equal to its net worth at September 30, 1987. In the event of a future
liquidation of the converted Bank (and only in such event), eligible depositors
who continue to maintain accounts shall be entitled to receive a distribution
from the liquidation account. The total amount of the liquidation account will
be decreased (as the balances of eligible depositors are reduced) on annual
determination dates subsequent to the Conversion. The balance of the liquidation
account was approximately $650,000 at September 30, 1996.
Subject to applicable law, the Board of Directors of the Bank and of the
Company may each provide for the payment of dividends. Future declarations of
cash dividends by the Company will depend upon dividend payments by the Bank to
the Company, which is the Company's primary source of income. Under OTS
regulations, if the Bank satisfies all capital requirements applicable to it,
after giving effect to any proposed dividend, the Bank may pay a cash dividend
of up to 100% of its net income during a calendar year, plus up to one half of
its "surplus" capital at the beginning of the calendar year, provided it gives
the OTS thirty days advance notice. The OTS may nevertheless prohibit any such
proposed dividend payment. If the Bank fails to satisfy any of its capital
requirements, it may not pay a dividend to the Company without prior OTS
approval. The Bank is also subject to a prior agreement with the OTS that
restricts the Bank from paying cash dividends to the Company in excess of 50% of
its net income since conversion, without prior OTS approval. Earnings allocated
to bad debt reserves for losses and deducted for federal income tax purposes are
not available for dividends or other distributions with respect to the Bank's
capital stock, without the payment of tax at the then current income tax rate.
The Company has no intention of paying cash dividends in the foreseeable future.
55
<PAGE>
16 Employee Stock Ownership Plan (ESOP) and Trust
Effective upon the Conversion, the Bank established an ESOP for employees who
have at least six months of credited service. The ESOP was funded by the Bank's
contributions made from proceeds of a third-party loan (which was invested in
common stock of the Company). The third-party loan was paid off in fiscal 1993.
Benefits will be paid in shares of common stock. Shares purchased with such
proceeds will be held in a suspense account for allocation among members as the
loan is paid. Contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of compensation in the
year of allocation. Benefits become 20% vested after three years of credited
service, increasing to 100% after seven years. Forfeitures will be reallocated
among remaining participating employees. Benefits are payable upon retirement,
early retirement, disability, or separation from service. There was no expense
in fiscal 1996, 1995 and 1994.
The ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Unallocated
shares, and shares held in the suspense account, will be voted in accordance
with the instructions of the Administrative Committee of the Board of Directors
of the Company.
17 Management Recognition Plan (MRP) and Trust
Effective upon the Conversion, the Bank established the MRP as a method of
providing key management employees with a proprietary interest in the Company in
a manner designed to encourage such key employees to remain with the Bank. The
Bank contributed $402,500 to the MRP to enable it to acquire 57,500 shares of
common stock in the Conversion. Of this amount, approximately $2,000, $11,000,
and $24,000 has been amortized to expense during the years ended September 30,
1996, 1995 and 1994, respectively. The balance represents deferred compensation
and has been accounted for as reduction of stockholders' equity.
18 Incentive Stock Option Plan
The Company established the 1988 Incentive Stock Option Plan for employees of
the Company, whereby incentive stock options may be granted with respect to
102,403 shares of common stock, which are exercisable on a cumulative basis in
five equal installments over a multi-year period. As of September 30, 1996, of
the 62,355 remaining options, 60,355 options have been granted at prices ranging
from $7.00 to $11.00 and 60,355 are vested. During fiscal 1996, none of these
options were exercised.
In 1989, the Company established a 1989 Incentive Stock Option Plan for key
management employees. Under such a plan, incentive stock options may be granted
with respect to 100,000 shares of common stock. As of September 30, 1996, all
of the remaining 75,865 options have been granted at prices ranging from $7.00
to $14.00 and have been vested. During fiscal 1996, none of these options were
exercised.
In 1994, the Company established the 1994 Incentive Stock Option Plan for key
management employees. Under such a plan, incentive stock options may be granted
with respect to 30,000 shares of common stock. As of September 30, 1996, 23,000
of these options have been granted at a price of $18.375 and 23,000 of them are
vested. During fiscal 1996, none of these options were exercised.
19 Option Plan For Outside Directors
In 1988, the Company established an Option plan for outside Directors whereby
each outside Director was granted a single non-qualified stock option to
purchase 5,151 options of the common stock at an exercise price of $7.00 per
share. The plan expired in May, 1993 and there were 25,755 options exercised in
fiscal 1993 at $7.00 per share.
56
<PAGE>
In 1989, the Company established an Option Plan for any new outside
Directors. It is the same as the 1988 plan, except the exercise price of the
options is equal to the market value of the stock at the time the option is
granted. There were 5,151 of these options granted at a price of $8.75 and
vested in 1990, all of which were exercised during fiscal 1995.
In 1994, the Company established the 1994 Incentive Stock Plan for Outside
Directors. Under this plan, each Outside Director of the Bank is awarded $4,500
worth of common stock and each Outside Director of the Company is awarded $3,000
worth of common stock based upon the fair market value of the common stock on
the date of the Annual Meeting of Stockholders. The Plan will terminate upon
the issuance of 10,000 shares of common stock. As of September 30, 1996, 5,918
shares of common stock are remaining in the Plan.
20 Computation of Fair Values
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
the Company to disclose the estimated fair value of its on- and off-balance
sheet financial instruments. A financial instrument is defined in SFAS No. 107
as cash, evidence of ownership interest in an entity or a contract that creates
a contractual obligation or right to deliver to or receive cash or another
financial instrument from a second entity on potentially favorable or
unfavorable terms.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any possible tax ramifications, estimated transaction
costs or any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument.
Because no market exists for a certain portion of the Company's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics and other such factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
<TABLE>
<CAPTION>
September 30, 1996 1995
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 13,794 $ 13,794 $ 19,978 $ 19,978
Securities held to maturity, net 21,960 21,856 16,135 16,163
Securities available for sale 1,364 1,364 --- ---
Mortgage-backed securities
held to maturity, net 14,203 13,999 17,194 17,426
Loans, net 578,827 588,992 490,887 507,555
Financial Liabilities:
Deposits 410,324 399,388 388,562 391,344
Borrowed funds 146,253 146,764 94,600 96,278
Collateralized mortgage obligations 12,594 12,373 15,183 16,572
</TABLE>
The following methods and assumptions were utilized by the Company in
estimating the fair values of its on-balance sheet financial instruments at
September 30, 1996 and 1995:
Cash and cash equivalents are assumed equal to the carrying value as these
financial instruments are either due on demand or mature within 90 days.
Mortgage-backed securities available for investment were valued based upon
quoted market prices for similar instruments traded in the market, adjusted for
differences in interest rates, credit quality, maturity, servicing costs and
other unique characteristics.
57
<PAGE>
Mortgage-backed securities held for sale were valued based upon discounting the
estimated cash flows to a present value using a discount rate which approximates
the current interest rate for these types of securities.
Loans, net were valued based upon discounting the estimated cash flows to a
present value using a discount rate which approximates the current interest rate
for these types of securities. Estimated cash flows are based upon contractual
cash flows, adjusted for prepayments. Prepayment factors are based on a variety
of factors including the Bank's experience with each loan type and the effect
of current economic and lending conditions. This technique of estimating fair
value is extremely sensitive to assumptions and estimates used. While
management has attempted to use assumptions and estimates which are 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, the 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 with no stated maturity, which includes demand deposits, NOW, money
market and passbook accounts are deemed to be equal to the amount payable upon
demand at the balance sheet date. The estimated fair value of fixed-maturity
certificates of deposit is calculated based on the discounted value of
contractual cash flows using interest rates currently offered for deposits of
similar remaining maturities.
Borrowed Funds were valued based on the discounted value of contractual cash
flows using interest rates currently in effect for borrowings with similar
maturities and collateral requirements.
Collateralized Mortgage Obligations were valued based on the discounted value of
contractual cash flows using interest rates currently in effect for CMOs with
similar maturities and collateral requirements.
The Company possesses other financial instruments for which the carrying
value either approximates or is equal to estimated fair value. Such assets and
liabilities include loan commitments, accrued interest receivable and payable,
mortgagors' escrow payments and miscellaneous accounts receivable and payable.
Most of these assets and liabilities are short term in nature with little or no
credit risk.
21 Parent Company Only Financial Information
BFS Bankorp, Inc. operates a wholly owned subsidiary, Bankers Federal Savings
FSB (the "Bank"). The earnings of the Bank are recognized by the Company using
the equity method of accounting. Accordingly, earnings of the Bank are recorded
as increases in the Company's investment and any dividends or losses would
reduce the Company's investment in the Bank. The following are the condensed
financial statements of BFS Bankorp, Inc.:
Condensed Statement of Financial Condition
<TABLE>
<CAPTION>
September 30, 1996 1995
- - ------------- ---- ----
(Dollars In thousands)
<S> <C> <C>
Assets:
Cash $ 1,634 $ 2,443
Investment in the Bank 47,351 40,060
Securities available for sale 1,364 ---
Other assets 3 3
------- -------
Total assets $50,352 $42,506
======= =======
Liabilities and Stockholders' Equity:
Senior debentures $ --- $ 1,650
Accrued expenses and other liabilities 121 44
Stockholders' equity 50,231 40,812
------- -------
Total liabilities and stockholders' equity $50,352 $42,506
======= =======
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Income $ 119 $ 80 $ 69
Operating expenses (156) (237) 225
------- ------- -------
Loss before income tax benefit and equity in
earnings of the Bank (37) (157) (156)
Income tax benefit (17) (66) (66)
------- ------- -------
Loss before equity in earnings of the Bank (20) (91) (90)
Equity in earnings of the Bank 9,256 8,112 5,836
------- ------- -------
Net income $ 9,236 $ 8,021 $ 5,746
======= ======= =======
<CAPTION>
Condensed Statements of Cash Flow
Years ended September 30, 1996 1995 1994
- - ------------------------- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,236 $ 8,021 $ 5,746
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of the Bank (9,256) (8,112) (5,836)
(Increase) decrease in other assets --- --- 15
Increase in other liabilities 77 6 6
Other (156) (66) (66)
------- ------- -------
Net cash used in operating activities (99) (151) (135)
------- ------- -------
Cash flows from investing activities:
Dividend received from Bank 2,000 --- ---
Purchases of securities available for sale (1,450) --- ---
Sales of securities available for sale 390 --- ---
------- ------- -------
Net cash used in investing activities 940 --- ---
------- ------- -------
Cash flows from financing activities:
Decrease in other borrowings (1,650) --- ---
Exercise of stock options --- 174 224
------- ------- -------
Net cash (used in) provided by financing
activities (1,650) 174 224
------- ------- -------
Net (decrease) increase in cash (809) 23 89
Cash at beginning of year 2,443 2,420 2,331
------- ------- -------
Cash at ending of year $ 1,634 $ 2,443 $ 2,420
======= ======= =======
</TABLE>
22 Subsequent Event
On December 3, 1996, BFS Bankorp, Inc. announced it had entered into a
definitive merger agreement with Dime Bancorp Inc., the holding company for The
Dime Savings Bank of New York, FSB. Under the terms of the agreement, approved
by the boards of director of both institutions, Dime Bancorp Inc. agreed to pay
$52.00 cash for each share of stock of BFS Bankorp, Inc. subject to upward
adjustment under certain circumstances. The transaction is subject to the
approval of the stockholders of BFS Bankorp, Inc. as well as federal banking
regulators.
59
<PAGE>
23 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table is a summary of net income by quarter for fiscal 1996 and
1995.
<TABLE>
<CAPTION>
9/30 6/30 3/31 12/31 9/30 6/30 3/31 12/31
Quarters Ended 1996 1996 1996 1995 1995 1995 1995 1994
- - -------------- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars In Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $14,943 $13,595 $13,454 $12,941 $12,784 $12,879 $11,246 $10,376
Total interest expense 7,072 6,404 6,099 6,163 6,078 5,579 5,206 4,773
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 7,871 7,191 7,355 6,778 6,706 7,300 6,040 5,603
Provision for loan losses --- --- --- --- 292 545 31 173
Other income 1,108 805 1,556 520 1,001 579 668 397
Other expense 5,947 3,464 3,477 3,275 3,379 3,062 3,388 3,048
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 3,032 4,532 5,434 4,023 4,036 4,272 3,289 2,779
Income taxes 1,571 2,014 2,456 1,744 1,392 2,037 1,584 1,342
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,461 $ 2,518 $ 2,978 $ 2,279 $ 2,644 $ 2,235 $ 1,705 $ 1,437
======= ======= ======= ======= ======= ======= ======= =======
Primary earnings per share (1) $0.83 $1.44 $1.70 $1.30 $1.52 $1.30 $0.99 $0.83
===== ===== ===== ===== ===== ===== ===== =====
Fully diluted earnings per share (1) $0.83 $1.44 $1.70 $1.30 $1.52 $1.30 $0.99 $0.83
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Note: (1) Primary and fully diluted earnings per common share is calculated by
dividing net income applicable to common stock and equivalents by the weighted
average common shares and equivalents outstanding for each quarter.
Consequently, the sum of the quarters may not equal the total earnings per share
for the fiscal year.
60
<PAGE>
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
Reference is made to the Proxy Statement for the BFS Bankorp, Inc. Annual
Meeting of Stockholders to be held on March 11, 1997 for the incorporation of
information concerning directors and persons nominated to become directors. The
Executive Officers listed below, who are not also directors, are elected
annually by the Board of Directors. There are no family relationships among the
Officers.
<TABLE>
<CAPTION>
Name Age Positions Held and Business Experience of Past Five (5) Years
- - ---- --- -------------------------------------------------------------
<S> <C> <C>
Israel Rosenzweig 49 Executive Vice President and Chief Lending Officer since
October, 1994. Bank Director since November 1993. Mr. Rosenzweig
was employed as President and Chief Executive Officer
of BRT Realty Trust from 1984 to 1994.
Gerard A. Perri 41 Senior Vice President, Chief Financial Officer and Bank
Director. Mr. Perri has been with the Bank since August, 1990.
Edward Powers 59 Senior Vice President and Chief Retail Banking Officer. Mr. Powers
has been employed by the Bank since 1958.
</TABLE>
Item 11 - Executive Compensation
Reference is made to the Proxy Statement of the Company's Annual Meeting of
Stockholders to be held on March 11, 1997 for incorporation of information
concerning executive compensation.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Reference is made to the Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 11, 1997 for incorporation of information
concerning security ownership.
Item 13 - Certain Relationships and Related Transactions
Reference is made to the Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 11, 1997 for incorporation of information
concerning certain relationships and related transactions.
61
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(1) Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable and therefore have been omitted.
(2) 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 Certificate of Incorporation and Bylaws (1)
10.1 BFS Bankorp, Inc. Employee Stock Ownership Plan (1)
10.2 Bankers Federal Savings, FSB Management Recognition Plan and Trust (2)
10.3 BFS Bankorp, Inc. 1988 Incentive Stock Option Plan (2)
10.4 BFS Bankorp, Inc. 1988 Option Plan for Outside Directors (2)
10.5 BFS Bankorp, Inc. 1989 Incentive Stock Option Plan (3)
10.6 BFS Bankorp, Inc. 1989 Option Plan for Outside Directors (3)
10.7 BFS Bankorp, Inc. 1994 Incentive Stock Option Plan (4)
10.8 BFS Bankorp, Inc. 1994 Incentive Stock Plan for Outside Directors (4)
10.9 Employment Agreements between the Bank and Gerard A.
Perri and Israel Rosenzweig.
10.10 Employment Agreements between the Bank and BFS Bankorp, Inc. and James
A. Randall
10.11 Agreement between the Company, Fredric H. Gould, BRT Realty Trust and
Gould Investors LP (5)
22 No Subsidiaries of BFS Bankorp, Inc., except Bankers Federal Savings,
FSB
</TABLE>
(1) Incorporated by reference to Exhibits filed with Registration on Form S-1,
No. 33-16903.
(2) Incorporated by reference to Exhibits to the Company's Proxy Statement for
the Annual Meeting of the stockholders held on February 9, 1989.
(3) Incorporated by reference to Exhibits to the Company's Proxy statement for
the Annual Meeting of the stockholders held February 13, 1990.
(4) Incorporated by reference to Exhibits to the Company's Proxy statement for
the Annual Meeting of the stockholders held February 16, 1994.
(5) Incorporated by reference to Exhibit No. 28.1 filed with Form 8-K dated
May 25, 1993.
(b) Reports on Form 8-K
No Form 8-K was filed during the last quarter of the fiscal year ended
September 30, 1996.
(c) Exhibits to this Form 10-K are attached under separate cover.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BFS BANKORP, INC.
By: /s/ James A. Randall
--------------------------
James A. Randall
President and Chief Executive Officer
Date: December 27, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below on December 27, 1996, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ James A. Randall
- - ------------------------------
James A. Randall President, Chief Executive
Officer and Director
/s/ Gerard A. Perri
- - ------------------------------
Gerard A. Perri Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
Directors:
- - ----------
/s/ Eldon C. Hanes /s/ Fredric H. Gould
- - ------------------------------ -----------------------------
Eldon C. Hanes, Chairman Fredric H. Gould, Director
/s/ Todd M. Poland
- - ------------------------------
Todd M. Poland, Director
Dated: December 27, 1996
63
