<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File No.: 0-21628
HAVEN BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-3153802
(I.R.S. Employer I.D. No.)
93-22 Jamaica Avenue, Woodhaven, New York 11421
(Address of principal executive offices)
(718) 850-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of class)
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not considered herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-
affiliates of the registrant, i.e., persons other than directors
and executive officers of the registrant is $180,478,564 and is
based upon the last sales price as quoted on Nasdaq Stock Market
for March 27, 1998.
The registrant had 8,835,588 shares outstanding as of March 27,
1998.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1997, are incorporated by reference into Parts I and
II of this Form 10-K.
Portions of the Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
INDEX
PART I Page
Item 1. Description of Business .......................... 1 - 53
Business ....................................... 1 - 2
Market Area and Competition .................... 2 - 3
Lending Activities ............................. 3 - 12
Delinquencies and Classified Assets ............ 12 - 16
Allowances for Loan and REO Losses ............. 16 - 19
Investment Activities .......................... 19 - 22
Mortgage-Backed Securities ..................... 23 - 28
Sources of Funds ............................... 28 - 31
Borrowings ..................................... 32 - 33
Subsidiary Activities .......................... 34 - 35
Personnel ...................................... 35
Regulation and Supervision ..................... 35 - 48
Federal and State Taxation ..................... 48 - 50
Item 2. Properties ....................................... 51 - 52
Item 3. Legal Proceedings ................................ 52 - 53
Item 4. Submission of Matters to a Vote of Security Holders 53
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ...................... 53 - 54
Item 6. Selected Financial Data .......................... 54
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 54
Item 7a. Quantitative and Qualitative Disclosures
about Market Risk ................................ 54
Item 8. Financial Statements and Supplementary Data ...... 54
Item 9. Change In and Disagreements with Accountants on
Accounting and Financial Disclosure .............. 54
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation ........................... 55
Item 12. Security Ownership of Certain Beneficial
Owners and Management ............................ 55
Item 13. Certain Relationships and Related Transactions ... 55
PART IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K .............................. 55 - 57
EXHIBIT INDEX
Exhibit 11.0 Computation of earnings per share
Exhibit 13.0 1997 Annual Report to Stockholders
Exhibit 23.0 Consent of Independent Auditors
Exhibit 27.0 Financial Data Schedule
Exhibit 99 Proxy Statement for 1998 Annual Meeting
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was
incorporated under Delaware law on March 25, 1993 as the holding
company for CFS Bank, formerly Columbia Federal Savings Bank
("CFS" or the "Bank") in connection with the Bank's conversion
from a federally chartered mutual savings bank to a federally
chartered stock savings bank. The Company is a savings and loan
holding company and is subject to regulation by the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance
Corporation ("FDIC") and the Securities and Exchange Commission
("SEC"). The Company is headquartered in Woodhaven, New York and
its principal business currently consists of the operation of its
wholly owned subsidiary, the Bank. At December 31, 1997, the
Company had consolidated total assets of $2.0 billion and
stockholders' equity of $112.9 million.
Currently, the Company does not transact any material business
other than through its subsidiary, the Bank.
The Bank was established in 1889 as a New York-chartered building
and loan association. The Bank converted to a New York-chartered
savings and loan association in 1940. The Bank subsequently
converted to a federal savings and loan association and in 1983
the Bank converted to a federal savings bank. The Bank changed
its name to CFS Bank in 1997. The Bank is a member of the
Federal Home Loan Bank ("FHLB") System, and its deposit accounts
are insured to the maximum allowable amount by the Federal
Deposit Insurance Corporation ("FDIC"). At December 31, 1997,
the Bank had total assets of $2.0 billion and stockholders'
equity of $128.5 million.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations and
borrowings, primarily in one-to four-family, owner-occupied
residential mortgage loans. Since 1994, the Bank has gradually
increased its activity in multi-family and commercial real estate
lending. In addition, in times of low loan demand, the Bank will
invest in debt, equity and mortgage-backed securities to
supplement its lending portfolio. The Bank also invests, to a
lesser extent, in home equity loans, home equity lines of credit
and other marketable securities.
The Bank's results of operations are dependent primarily on its
net interest income, which is the difference between the interest
income earned on its loan and securities portfolios and its cost
1
<PAGE>
of funds, which consists of the interest paid on its deposits and
borrowed funds. The Bank's net income also is affected by its
provision for loan losses as well as non-interest income and
operating expenses consisting primarily of compensation and
benefits, occupancy and equipment, real estate operations, net,
federal deposit insurance premiums and other general and
administrative expenses. The earnings of the Bank are
significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, and to
a lesser extent by government policies and actions of regulatory
authorities.
MARKET AREA AND COMPETITION
The Bank has been, and continues to be, a community oriented
savings institution offering a variety of traditional financial
services to meet the needs of the communities in which it
operates. Management considers the Bank's reputation and
customer service as its major competitive advantage in attracting
and retaining customers in its market area.
The Bank's primary market area is concentrated in the
neighborhoods surrounding its eight full service banking and
thirty-nine supermarket banking facilities (seven of which opened
in the first quarter of 1998) located in Queens, Brooklyn,
Manhattan, Staten Island, Nassau, Suffolk, Rockland and
Westchester counties, northern New Jersey and Connecticut.
During 1997, the Bank opened twenty-eight supermarket branches.
Management believes that supermarket branching is a cost
effective way to extend the Bank's franchise and put its sales
force in touch with more prospective customers than possible
through conventional bank branches. Management believes that all
of its branch offices are located in communities that can
generally be characterized as stable, residential neighborhoods
of predominantly one-to four-family residences and middle income
families.
During the past five years, the Bank's expanded loan work-
out/resolution efforts have successfully contributed toward
reducing non-performing assets to manageable levels. Although
there are encouraging signs in the local economy and the Bank's
real estate markets, it is unclear how these factors will affect
the Bank's asset quality in the future. See "Delinquencies and
Classified Assets."
The New York City metropolitan area has a large number of
financial institutions, many of which are significantly 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 and deposits comes principally from savings
2
<PAGE>
and loan associations, savings banks, commercial banks, mortgage
banking companies, insurance companies and credit unions. In
addition, the Bank faces increasing competition for deposits from
non-bank institutions such as brokerage firms and insurance
companies in such areas as short-term money market funds,
corporate and government securities funds, mutual funds and
annuities and insurance. Competition may also increase as a
result of the lifting of restrictions on the interstate
operations of financial institutions.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by owner
occupied one-to four-family residences, and, to a lesser extent,
multi-family residences, commercial real estate and construction
and land loans. Also, the Bank's loan portfolio includes
cooperative loans, which the Bank has not originated since 1990
except to facilitate the sale of real estate owned ("REO") or to
restructure a problem asset. During 1997, loan originations and
purchases totaled $471.3 million (comprised of $322.4 million of
residential one-to four-family mortgage loans, $133.6 million of
commercial and multi-family real estate loans, $3.8 million of
construction loans and $11.5 million of consumer loans). One-to
four-family mortgage loan originations included $200.9 million of
loans purchased in the secondary market during 1997.
At December 31, 1997, the Bank had total mortgage loans
outstanding of $1.1 billion, of which $805.7 million were one-to
four-family residential mortgage loans, or 69.9% of the Bank's
total loans. At that same date, multi-family residential
mortgage loans totaled $143.6 million, or 12.5% of total loans.
The remainder of the Bank's mortgage loans, which totaled $170.6
million, or 14.8% of total loans at December 31, 1997, included
$148.7 million of commercial real estate loans, or 12.9% of total
loans, $19.6 million of cooperative apartment loans, or 1.7% of
total loans and $2.3 million of construction and land loans, or
0.2% of total loans. Other loans in the Bank's portfolio
principally consisted of home equity lines of credit and consumer
loans and totaled $32.3 million, or 2.8% of total loans at
December 31, 1997.
3
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio, excluding loans held for sale, in dollar amounts and
in percentages of the respective portfolios at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
---------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
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>
Mortgage loans:
One-to four-family $805,690 69.93% $556,818 65.63% $325,050 57.03% $258,698 49.34% $211,946 31.07%
Multi-family 143,559 12.46 105,341 12.42 79,008 13.86 94,259 17.98 124,566 18.26
Commercial 148,745 12.91 127,956 15.08 111,038 19.48 102,415 19.54 126,059 18.48
Cooperative 19,596 1.70 19,936 2.35 10,187 1.79 24,369 4.65 183,403 26.88
Construction and land 2,263 0.20 4,227 0.50 5,737 1.01 3,491 0.67 2,347 0.34
--------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total mortgage loans 1,119,853 97.20 814,278 95.98 531,020 93.17 483,232 92.17 648,321 95.03
Other loans:
Home equity lines of
credit 15,449 1.34 15,677 1.85 16,454 2.89 17,802 3.39 17,032 2.50
Property improvement
loans 4,392 0.38 6,957 0.82 10,248 1.80 11,814 2.26 7,794 1.14
Loans on deposit
accounts 895 0.08 809 0.10 821 0.14 940 0.18 1,143 0.17
Commercial loans 453 0.04 351 0.04 479 0.08 605 0.12 693 0.10
Guaranteed student loans 882 0.08 985 0.12 1,181 0.21 1,761 0.34 2,357 0.35
Unsecured consumer loans 450 0.04 809 0.10 1,950 0.34 2,366 0.45 1,659 0.24
Other loans 9,770 0.84 8,506 0.99 7,834 1.37 5,737 1.09 3,220 0.47
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total other loans 32,291 2.80 34,094 4.02 38,967 6.83 41,025 7.83 33,898 4.97
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 1,152,144 100.00% 848,372 100.00% 569,987 100.00% 524,257 100.00% 682,219 100.00%
====== ====== ====== ====== ======
Less:
Unearned discounts,
premiums and deferred
loan fees, net (1,363) (786) (1,029) (1,375) (805)
Allowance for loan
losses (12,528) (10,704) (8,573) (10,847) (21,606)
--------- ------- ------- ------- -------
Loans, net $1,138,253 $836,882 $560,385 $512,035 $659,808
========= ======= ======= ======= =======
</TABLE>
4
<PAGE>
The following table shows the estimated contractual maturity of
the Bank's loan portfolio at December 31, 1997, assuming no
prepayments.
<TABLE>
<CAPTION>
At December 31, 1997
Mortgage Other Total
Loans Loans Loans
-------- ----- -------
(In thousands)
<S> <C> <C> <C>
Amounts due:
Within one year $ 54,756 $ 850 $ 55,606
------- ------ -------
After one year:
One to three years 56,879 2,969 59,848
Three to five years 40,501 2,140 42,641
Five to ten years 179,844 20,415 200,259
Ten to twenty years 278,252 5,474 283,726
Over twenty years 509,621 443 510,064
--------- ------ ---------
Total due after one year 1,065,097 31,441 1,096,538
--------- ------ ---------
Total loans $1,119,853 $32,291 $1,152,144
========= ====== =========
</TABLE>
The following table sets forth at December 31, 1997, the dollar
amount of all loans due after December 31, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1998
Fixed Adjustable Total
----- ---------- -----
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One-to four-family $374,410 $425,800 $ 800,210
Multi-family 44,185 91,026 135,211
Commercial real estate 47,047 63,472 110,519
Cooperative 5,058 14,099 19,157
Other loans 12,807 18,634 31,441
------- ------- ---------
Total loans $483,507 $613,031 $1,096,538
======= ======= =========
5
<PAGE>
The following table sets forth the Bank's loan originations, loan
purchases, sales and principal repayments for the periods
indicated:
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans (gross):
At beginning of year $814,278 $531,020 $483,232 $648,321 $605,309
Mortgage loans originated:
One-to four-family 121,498 98,783 64,139 77,499 121,812
Multi-family 64,181 46,310 11,726 - 4,667
Commercial real estate 69,495 35,886 26,047 4,688 7,386
Cooperative (1) - - 63 499 362
Construction and land loans 3,773 1,562 4,367 1,000 176
------- ------- ------- ------- -------
Total mortgage loans
originated 258,947 182,541 106,342 83,686 134,403
Mortgage loans purchased 200,900 172,300 26,241 - -
Transfer of mortgage loans
to REO (1,695) (3,470) (4,638) (10,998) (22,042)
Transfer of mortgage loans from/
(to) loans held for sale - 10,594 (12,038) - -
Principal repayments (151,215) (78,209) (67,274) (64,686) (60,315)
Sales of mortgage loans (2) (1,362) (498) (845) (173,091) (9,034)
--------- ------- ------- ------- -------
At end of year $1,119,853 $814,278 $531,020 $483,232 $648,321
========= ======= ======= ======= =======
Other loans (gross):
At beginning of year $ 34,094 $ 38,967 $ 41,025 $ 33,898 $ 41,164
Other loans originated 11,491 8,735 10,746 21,533 12,237
Principal repayments (13,294) (13,608) (12,804) (14,406) (19,503)
------- ------- ------- ------- -------
At end of year $ 32,291 $ 34,094 $ 38,967 $ 41,025 $ 33,898
======= ======= ======= ======= =======
</TABLE>
(1) Cooperative loan originations in the five years ended
December 31, 1997 were done solely to facilitate the
restructuring and the sale of delinquent cooperative loans and
cooperative units held by the Bank as REO.
(2) As part of a major bulk sales program in 1994, the Bank sold
$170.5 million of loans.
ONE-TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both fixed-
rate and adjustable rate mortgage ("ARM") loans secured by one-to
four-family residences located in the Bank's primary market area.
The majority of such loans are secured by property located on
Long Island (in Queens, and Nassau and Suffolk Counties), and, to
a lesser extent, Manhattan, Brooklyn, Staten Island, Rockland,
Westchester counties, northern New Jersey and Connecticut and
typically serve as the primary residence of the owner. Loan
originations are generally obtained from existing or past
customers, members of the local communities and local real-estate
brokers and attorney referrals. The substantial majority of the
Bank's loans are originated through efforts of Bank employed
6
<PAGE>
sales representatives who solicit loans from the communities
served by the Bank by calling on real estate attorneys, brokers
and individuals who have expressed an interest in obtaining a
mortgage loan. The Bank also originates loans from its customer
base in its branch offices. In 1995, the Bank also began
purchasing loans on a flow basis from correspondent mortgage
bankers in New York, New Jersey and Connecticut to supplement its
one-to four-family loan originations.
The Bank generally originates one-to four-family residential
mortgage loans in amounts up to 90% of the lower of the appraised
value or selling price of the property securing the loan.
Properties securing such loans are primarily owner-occupied
principal residences. One-to four-family mortgage loans may be
originated with loan-to-value ratios of up to 97% of the
appraised value of the property under the Fannie Mae ("FNMA")
Community Home Buyers Program, which targets low to low/moderate
income borrowers. Residential condominium loans are originated
in amounts up to a maximum of 90% of the appraised value of the
condominium unit. Private mortgage insurance is required
whenever loan-to-value ratios exceed 80% of the price or
appraised value of the property securing the loan. Loan amounts
generally conform to Federal Home Loan Mortgage Corporation
("FHLMC") limits. Mortgage loans originated by the Bank
generally include due-on-sale clauses that provide the Bank with
the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the
property without the Bank's consent. Due-on-sale clauses are an
important means of enabling the Bank to redeploy funds at current
rates thereby causing the Bank's loan portfolio to be more
interest rate sensitive. The Bank has generally exercised its
rights under these clauses.
The Bank currently offers fixed-rate loans up to $750,000 on one-
to four-family residences with terms up to 30 years. During
1996, the Bank introduced 30 year and 15 year fixed-rate bi-
weekly loans. Interest rates charged on fixed-rate mortgage
loans are competitively priced based on market conditions and the
Bank's cost of funds. Origination fees on fixed-rate loans
typically range from 0% to 3% of the principal amount of the
loan. Generally, the Bank's standard underwriting guidelines
conform to the FNMA/FHLMC guidelines.
The Bank currently offers ARM loans up to $750,000 which adjust
either annually, or in 3, 5, 7 or 15 years with maximum loan
terms of 30 years. The Bank's ARM loans typically carry an
initial interest rate below the fully-indexed rate for the loan.
For one year ARMs, the Bank qualifies borrowers based upon a rate
of 2% over the initial rate. The initial discounted rate is
determined by the Bank in accordance with market and competitive
factors and, as of December 31, 1997, the discount offered by the
7
<PAGE>
Bank on the one year ARM loan ranged from 280 basis points (with
0% origination fees) to 330 basis points (with 2% origination
fees) below the fully-indexed rate, which was 8.30% as of such
date. The discount offered by the Bank on the three-year ARM
loan ranged from 180 basis points (with 0% origination fees) to
230 basis points (with 2% origination fees) below the fully-
indexed rate, which was 8.30% as of December 31, 1997. The
discount offered by the Bank on the five year ARM loan ranged
from 167 basis points (with 0% origination fees) to 217 basis
points (with 2% origination fees) below the fully-indexed rate,
which was 8.30% as of December 31, 1997. As of December 31,
1997, the discount offered by the Bank on the seven year ARM loan
ranged from 142 basis points (with 0% origination fees) to 192
basis points (with 2% origination fees) below the fully-indexed
rate, which was 8.30% as of such date. Finally, as of December
31, 1997, the discount offered by the Bank on the fifteen year
ARM loan ranged from 105 basis points (with 0% origination fees)
to 155 basis points (with 2% origination fees) below the fully-
indexed rate which was 8.30%. As of December 31, 1997, the
Bank's ARM loans, with the exception of the five, seven and
fifteen year ARM loans, adjust by a maximum of 2.0% each
adjustment period, with a life-time cap of 6% over the initial
note rate. The maximum periodic rate adjustment on the five year
ARM loan is 2.0% and the maximum periodic rate adjustment on the
seven year and fifteen year ARM loans for the first adjustment
period are 5% which defaults to 2% for all adjustment periods
thereafter. The Bank currently charges origination fees ranging
from 0% to 2.0% for its one-to four-family ARM loans. ARM loans
generally pose a risk that as interest rates rise, the amount of
a borrower's monthly loan payment also rises, thereby increasing
the potential for delinquencies and loan losses. This potential
risk is mitigated by the Bank's policy of originating ARM loans
with annual and lifetime interest rate caps that limit the amount
that a borrower's monthly payment may increase. During 1997, the
Bank originated or purchased $180.0 million of one-to four-family
ARM loans.
The Bank originates 30 year fixed-rate loans for immediate sale
to the FHLMC or FNMA while retaining 10, 15, 20 year and 15 and
30 year bi-weekly fixed-rate loans for portfolio. The Bank
arranges for the sale of such loans at the acceptance of the
commitment by the applicant to FHLMC or FNMA through forward
purchase commitments. The Bank retains the servicing on the
loans it sells. For the year ended December 31, 1997, the Bank
did not emphasize the origination of 30 year fixed-rate loans
and, accordingly, sold only 12 loans totaling $1.4 million to the
FNMA and other lenders.
During 1997, the Bank purchased $200.9 million of one-to four-
family mortgage loans from correspondent mortgage bankers and
bulk whole loan purchases to supplement retail originations.
8
<PAGE>
Purchases of one-to four-family mortgage loans on a flow basis
are limited to the New York, New Jersey and Connecticut
metropolitan area to approved correspondents. Credit packages
submitted to the Bank by a correspondent are underwritten by the
Bank and are subject to the Bank's quality control procedures.
The Bank purchased approximately $93.5 million of bulk
residential whole loan packages during the year. The Bank
performs due diligence procedures on the credit quality of the
loans and the servicing operations of the servicer, if
applicable, before purchasing the loans.
On March 11, 1998 the Bank signed a definitive purchase agreement
with Resource Bancshares Mortgage Group, Inc. ("RBMG") under
which it will purchase the production franchise of RBMG's
subsidiary, Intercounty Mortgage, Inc. ("IMI"). The transaction
is subject to the approval of the OTS. IMI primarily originates
agency-eligible residential mortgages and in 1997 had loan
production of approximately $740 million from six retail offices
in New York, New Jersey and Pennsylvania. The Bank intends to
supplement IMI's present product mix, which is primarily thirty-
year, fixed-rate product with the Bank's wider range of mortgage
products, including adjustable rate and jumbo mortgages. The
Bank intends to retain a portion of IMI's ongoing loan production
in its portfolio.
COOPERATIVE APARTMENT LOANS. Until 1990, the Bank originated
loans secured by cooperative units. Since 1990, the Bank has not
originated any loans secured by cooperative units with the
exception of loans to facilitate the restructuring of a
classified asset or sale of REO. In 1994, the Bank was approved
as a seller/servicer in a FNMA pilot program, enabling it to
originate cooperative apartment loans for immediate sale to FNMA.
During 1997, the Bank did not originate any cooperative loans.
MULTI-FAMILY LENDING. The Bank originates multi-family loans
with contractual terms ranging from 5 to 15 years with interim
interest rate repricing tied to matching U.S. Treasury Notes plus
a margin. These loans are generally secured by apartment and
mixed-use (commercial and residential, with the majority of
income coming from the residential units) properties, located in
the Bank's primary market area and are made in amounts of up to
75% of the appraised value of the property. In making such
loans, the Bank bases its underwriting decision primarily on the
net operating income generated by the real estate to support the
debt service, the financial resources credit history and
ownership/ management experience of the principals/guarantors,
and the marketability of the property. The Bank generally
requires a debt service coverage ratio of at least 1.20x and
sometimes requires personal guarantees from borrowers. As of
December 31, 1997, $143.6 million, or 12.5% of the Bank's total
loan portfolio, consisted of multi-family residential loans.
9
<PAGE>
Multi-family, commercial real estate and construction and land
lending are generally believed to involve a higher degree of
credit risk than one-to four-family lending because such loans
typically involve higher principal amounts and the repayment of
such loans generally is dependent on income produced by the
property sufficient to cover operating expenses and debt service.
Economic events that are outside the control of the borrower or
lender could adversely impact the value of the security for the
loan or the future cash flows from the borrower's property. In
recognition of these risks, the Bank applies stringent
underwriting criteria for all of its loans. The Bank originates
multi-family, commercial real estate and construction and land
loans on a conservative basis. See "Commercial Real Estate
Lending" and "Construction and Land Lending".
COMMERCIAL REAL ESTATE LENDING. The Bank originates commercial
real estate loans that are generally secured by properties used
exclusively for business purposes such as retail stores, mixed-
use properties (residential and retail combined where the
majority of the income from the property comes from the
commercial business) and, light industrial and small office
buildings located in the Bank's primary market area. The Bank's
commercial real estate loans are generally made in amounts up to
the lesser of 70% of the appraised value of the property or 65%
for owner occupied properties. Commercial real estate loans are
made on a negotiated basis for terms of up to 15 years where the
interest rate generally reprices during the term of the loan and
is tied to the prime rate or the U.S. Treasury Note rate matched
to the repricing frequency of the loan. The Bank's underwriting
standards and procedures are similar to those applicable to its
multi-family loans, whereby the Bank considers the net operating
income of the property and the borrower's expertise, credit
history and profitability. The Bank generally requires that the
properties securing commercial real estate loans have debt
service coverage ratios of not less than 1.30x and also generally
requires personal guarantees from the borrowers or the principals
of the borrowing entity. At December 31, 1997, the Bank's
commercial real estate loan portfolio totaled $148.7 million, or
12.9% of the Bank's total loan portfolio.
CONSTRUCTION AND LAND LENDING. The Bank's construction loans
primarily have been made to finance the construction of one-to
four-family residential properties, multi-family residential
properties and retail properties. The Bank's policies provide
that construction and land/development loans may generally be
made in amounts up to 70% of the value when completed for
commercial properties and 75% for multi-family. The Bank
generally requires personal guarantees and evidence that the
borrower has invested an amount equal to and not less than 20% of
the estimated cost of the land and improvements. Construction
loans generally are made on a floating rate basis (subject to
10
<PAGE>
daily adjustment) and a maximum term of 18 months, subject to
renewal. Construction loans are generally made based on pre-
sales or pre-leasing. Loan proceeds are disbursed in increments
as construction progresses and as inspections warrant. As of
December 31, 1997, the Bank had $2.3 million, or 0.2% of its
total loan portfolio invested in construction and land loans.
OTHER LOANS. The Bank also offers home equity loans, equity
lines of credit, business lines of credit and Government-
guaranteed student loans. As of December 31, 1997, other loans
totaled $32.3 million, or 2.8% of the Bank's total loan
portfolio. Home equity loans are offered as fixed-rate loans
with a maximum term of 15 years, as adjustable-rate loans with a
15 year term or as fixed-variable loans which are fixed for the
first 5 years and then become adjustable for the remaining 15
years. The maximum amount is $50,000 and principal and interest
amortize over the life of the loan. The Bank also offers equity
lines of credit with a term of 25 years on which interest only is
due for the first 10 years and thereafter principal and interest
payments sufficient to liquidate the line are required for the
remaining term not to exceed 15 years. The maximum amount for a
equity line of credit is $500,000. The Bank also offers Equity
Plus, a line of credit for $10,000 which closes with the first
mortgage loan. This line is offered to all newly approved first
mortgages. All products are underwritten pursuant to the
standards applicable to one-to four-family loans which include a
determination of the applicant's payment history on other debts
and an assessment of the borrower's ability to meet payments on
the proposed loan in addition to the borrower's existing
obligations. In addition to the credit worthiness of the
applicant, the underwriting process also includes a comparison of
the value of the security to the proposed loan amount. The Bank
also offers secured and unsecured business loans and lines of
credit whose term and rate are negotiable based on the credit
standing and financial position of the customer. Unsecured loans
are offered up to $10,000 for terms up to four years. The Bank's
other loans tend to have higher interest rates and shorter
maturities than one-to four-family mortgage loans, but also tend
to have a higher risk of default than such loans.
LOAN APPROVAL PROCEDURES AND AUTHORITY. For one-to four-family
real estate loans each loan is reviewed and approved by an
underwriter and another departmental officer with credit
authority appropriate for the loan amount and type in accordance
with the policies approved by the Board of Directors. Multi-
family, commercial and construction loans are approved by
designated lending officers within lending authorities approved
by the Board of Directors. Commercial loans up to $3,000,000
must be approved by the Officers Loan Committee, whereas, loans
between $3,000,000 and $5,000,000 must be approved by the Board
of Directors - Loan Committee. Loans exceeding $5,000,000 must
11
<PAGE>
be approved by the Board. Loans not secured by real estate and
unsecured other loans, depending on the amount of the loan and
the loan to value ratio, where applicable, require the approval
of at least one lending officer and/or underwriter designated by
the Board.
For all loans originated by the Bank, upon receipt of a completed
loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by the Bank's
loan underwriters and, if necessary, additional financial
information is required. An appraisal of the real estate
intended to secure the proposed loan is required which currently
is performed by either the staff appraisers of the Bank or by an
independent appraiser designated and approved by the Bank. The
Board annually approves the independent appraisers used by the
Bank and approves the Bank's appraisal policy. It is the Bank's
policy to obtain title insurance on all real estate first
mortgage loans. Borrowers must also obtain hazard insurance
prior to closing and Flood and Private Mortgage Insurance ("PMI")
where required. Borrowers generally are required to advance
funds on a monthly basis together with each payment of principal
and interest to a mortgage escrow account from which the Bank
makes disbursements for items such as real estate taxes, and in
some cases, hazard insurance premiums.
LOAN CONCENTRATIONS. As a result of OTS regulations, the Bank
may not extend credit to a single borrower or related group of
borrowers in an amount greater than 15% of the Bank's unimpaired
capital and surplus. An additional amount of credit may be
extended, equal to 10% of unimpaired capital and surplus, if the
loan is secured by readily marketable collateral, which does not
include real estate.
At December 31, 1997, the Bank's loans-to-one borrower limit was
$21.1 million. There was no one borrower which exceeded this
limit in accordance with applicable regulatory requirements.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENT LOANS. The Bank's collection procedures for mortgage
loans include sending a reminder notice to the borrower if the
loan is 10 days past due, another notice at 16 days and a late
notice after payment is 30 days past due. In the event that
payment is not received after the late notice, the loan is
referred to the collection department and letters are sent or
phone calls are made to the borrower by the collection
department. When contact is made with the borrower at any time
prior to foreclosure, the Bank attempts to obtain full payment or
work out a repayment schedule with the borrower to avoid
foreclosure. Generally, foreclosure procedures are initiated
when a loan is over 90 days delinquent.
12
<PAGE>
CLASSIFIED ASSETS. Federal regulations and the Bank's
Classification of Assets Policy provide for the classification of
loans and other assets considered by the Bank to be of lesser
quality as "substandard", "doubtful" or "loss" assets. An asset
is considered substandard if it is inadequately protected by the
current net worth and paying capacity of the obligor and/or of
the collateral pledged, if any. Substandard assets include those
characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard with the
added characteristic that the weaknesses present make "collection
or liquidation in full," on the basis of currently existing
facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is
not warranted. Pursuant to OTS guidelines, the Bank is no longer
required to classify assets as "special mention" if such assets
possess weaknesses but do not expose the Bank to sufficient risk
to warrant classification in one of the aforementioned
categories. However, the Bank continues to classify assets as
"special mention" for internal monitoring purposes.
Non-performing loans (consisting of non-accrual loans and
restructured loans) decreased from $63.9 million at December 31,
1993 to $28.3 million at December 31, 1994, $16.9 million at
December 31, 1995, $13.9 million at December 31, 1996 and $12.5
million at December 31, 1997. The continued decline in the
balance of non-performing loans during the five year period was
due to the Bank's ongoing efforts to reduce non-performing
assets. The significant decrease in non-performing loans during
1994 was mainly due to the sale of $22.0 million of non-accrual
and restructured loans as part of the major bulk sales program
involving loans and REO completed during the year. REO decreased
each year during the five years ended December 31, 1997 from
$17.9 million at December 31, 1993 (net of an allowance for REO
of $2.2 million) to $7.8 million at December 31, 1994 (net of an
allowance for REO of $717,000), $2.0 million at December 31, 1995
(net of an allowance for REO of $178,000), $1.0 million at
December 31, 1996 (net of an allowance for REO of $81,000) to a
balance at December 31, 1997 of $455,000 (net of an allowance for
REO of $87,000). During 1994, the Bank sold $12.0 million of
cooperative apartment REO in a bulk sale transaction. The Bank
intends to continue its efforts to reduce non-performing assets
in the normal course of business, but it may continue to seek
opportunities to dispose of its non-performing assets through
sales to investors or otherwise.
The Bank also has restructured loans, which has enabled the Bank
to avoid the costs involved with foreclosing on the properties
13
<PAGE>
securing such loans while continuing to collect payments on the
loans under their modified terms. Troubled debt restructurings
("TDRs") are loans for which certain concessions, such as the
reduction of interest rates or the deferral of interest or
principal payments, have been granted due to the borrower's
financial condition.
At December 31, 1997, the Bank had 15 restructured loans with
aggregate principal balances of $2.3 million. Of this amount,
48.6% were residential loans (including cooperative apartment
loans) and 51.4% were multi-family loans. Management is able to
avoid the costs of foreclosing on loans that it has restructured.
However, restructured loans have a higher probability of becoming
delinquent than loans that have no previous history of
delinquency. To the extent that the Bank is unable to return
these loans to performing status, the Bank will have to foreclose
on such loans, which will increase the Bank's REO.
The Bank's policy is to recognize income on a cash basis for
restructured loans for a period of six months, after which such
loans are returned to an accrual basis if they are performing in
accordance with their modified terms. At December 31, 1997, the
Bank had 14 restructured loans with principal balances of $2.1
million that were on accrual status. For restructured loans that
are 90 days or more past due, the loan is returned to non-accrual
status and previously accrued but uncollected interest is
reversed.
At December 31, 1997, the Bank's classified assets consisted of
$11.2 million of loans and REO of which $750,000 was classified
as doubtful. The Bank's assets classified as substandard at
December 31, 1997 consisted of $9.6 million of loans and $534,000
of gross REO. Classified assets in total declined $4.1 million,
or 26.8% since December 31, 1996. At December 31, 1997, the Bank
also had loans aggregating $4.1 million that it had designated
special mention. Of those assets, 37% were multi-family loans
and 63% were commercial real estate loans. The loans were
performing in accordance with their terms at December 31, 1997
but were deemed to warrant close monitoring by management due to
one or more factors, such as the absence of current financial
information relating to the borrower and/or the collateral,
financial difficulties of the borrower or inadequate cash flow
from the security property.
14
<PAGE>
At December 31, 1997, 1996, and 1995, delinquencies in the Bank's
loan portfolio were as follows:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
60-89 Days 90 Days or More 60-89 Days 90 Days or More
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
------ -------- ------ --------- ------ -------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family 8 $ 1,339 42 $ 3,534 9 $ 950 47 $ 4,083
Multi-family - - 9 2,362 - - 6 1,463
Commercial 1 33 9 3,305 - - 11 4,321
Cooperative 3 128 8 699 5 281 9 431
Construction and
land loans - - 1 100 - - 1 60
Other loans 26 452 19 396 26 171 21 375
-- ------ --- ------ --- ------ --- ------
Total loans 38 $ 1,952 88 $10,396 40 $ 1,402 95 $10,733
== ====== === ====== === ====== === ======
Delinquent loans
to total loans (1) 0.17% 0.90% 0.17% 1.27%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
60-89 Days 90 Days or More
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to four-family 18 $ 1,215 42 $ 3,800
Multi-family - - 5 967
Commercial - - 8 2,411
Cooperative 12 580 15 871
Construction and
land loans - - 4 1,067
Other loans 10 53 38 689
--- ------ --- ------
Total loans 40 $ 1,848 112 $ 9,805
=== ====== === ======
Delinquent loans
to total loans (1) 0.32% 1.72%
==== ====
</TABLE>
(1) Restructured loans that have become seasoned for the
required six month period and are currently performing in
accordance with their restructured terms are not included in
delinquent loans. There was 1 restructured loan for $77,000 that
was included in loans delinquent 90 days or more at December 31,
1996 because it had not yet performed in accordance with its
modified terms for the required six month seasoning period.
NON-PERFORMING ASSETS. The following table sets forth
information regarding all non-accrual loans (which consists of
loans 90 days or more past due and restructured loans that have
not yet performed in accordance with their modified terms for the
required six-month seasoning period), restructured loans and REO.
The Bank does not accrue interest on loans 90 days past due and
restructured loans that have not yet performed in accordance with
15
<PAGE>
their modified terms for at least six months. If non-accrual
loans had been performing in accordance with their original
terms, the Bank would have recorded interest income from such
loans of approximately $736,000, $688,000 and $889,000 for the
years ended December 31, 1997, 1996 and 1995, respectively,
compared to $146,000, $220,000 and $280,000, which was recognized
on non-accrual loans for such periods, respectively. If all
restructured loans, as of December 31, 1997, 1996 and 1995, had
been performing in accordance with their original loan terms
(prior to being restructured), the Bank would have recognized
interest income from such loans of approximately $197,000,
$305,000 and $714,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans $ 10,000 $ 10,358 $ 9,116 $ 18,474 $ 43,170
Restructured mortgage loans 2,136 3,160 7,072 9,550 20,398
Non-accrual other loans 396 375 689 275 299
------- ------- ------- ------- -------
Total non-performing loans 12,532 13,893 16,877 28,299 63,867
Real estate owned, net of
related reserves 455 1,038 2,033 7,844 17,887
------- ------- ------- ------- -------
Total non-performing assets $ 12,987 $ 14,931 $ 18,910 $ 36,143 $ 81,754
======= ======= ======= ======= =======
Non-performing loans to total loans 1.09% 1.64% 2.97% 5.41% 9.37%
Non-performing assets to total assets 0.66 0.94 1.28 2.85 6.65
Non-performing loans to total assets 0.63 0.88 1.15 2.23 5.20
</TABLE>
ALLOWANCES FOR LOAN AND REO LOSSES
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Impaired loans
and related reserves have been identified and calculated in
accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114. On January 1, 1995, the
Company adopted, on a prospective basis, SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and the
amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". The
total allowance for loan losses has been determined in accordance
with the provisions of SFAS No. 5, "Accounting for
Contingencies". The Bank's allowance for loan losses is intended
to be maintained at a level sufficient to absorb all estimable
and probable losses inherent in the loan portfolio. The Bank
reviews the adequacy of the allowance for loan losses on a
monthly basis taking into account past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, current and prospective
economic conditions and current regulatory guidance.
16
<PAGE>
In response to the general decline in the economic conditions of
the Bank's primary market area and the national economy in
general, management increased the Bank's allowance for loan
losses in 1993 to account for its evaluation of the potential
effects of such factors and in consideration of the deterioration
of real estate values experienced in such periods. During 1994,
the Bank established additional loan loss provisions totaling
$7.5 million in connection with the bulk sales. At December 31,
1995, the allowance for loan losses was $8.6 million, or 1.51% of
total loans compared to $10.8 million, or 2.07% of total loans at
December 31, 1994. The Bank took charge-offs of $5.5 million in
1995 compared to $24.7 million in 1994, which included $14.4
million in connection with the bulk sales. The allowance as a
percentage of non-performing loans was 50.8% at December 31, 1995
compared to 38.3% at December 31, 1994. During 1996, the Bank
took charge-offs of $1.9 million against its loan portfolio
compared to $5.5 million for 1995. During 1997, the Bank took
charge-offs of $1.7 million against its loan portfolio. The
reduction in charge-offs for 1997 and 1996 when compared to 1995
is a direct result of the ongoing decline in non-performing loans
during the last five years. Non-performing loans as a percentage
of total loans was 1.09% at December 31, 1997 compared to 9.37%
at December 31, 1993. The allowance as a percentage of non-
performing loans was 99.97% at December 31, 1997 compared to
33.83% at December 31, 1993.
The Bank's provisions for loan losses varied significantly in
1993 and 1994, whereas the provision has not changed
significantly over the last three years. Specifically, the Bank
made provisions for loan losses of $6.4 million, $13.4 million,
$2.8 million, $3.1 million and $2.8 million for the five years
ended December 31, 1997, respectively. The decrease in real
estate values that occurred in the early 1990s in the New York
metropolitan area resulted in substantial decreases in the value
of the collateral securing the Bank's non-performing loans and
resulted in an increase in the Bank's charge-offs. Therefore,
during 1993 the Bank booked a loan provision of $6.4 million.
This provision booked was deemed adequate by management given the
decline in the regional economy and the deterioration of real
estate values experienced in such periods as evidenced by receipt
of appraisals. The provision of $13.4 million provided during
1994 included additional provisions of $7.5 million that were
established in connection with the bulk sale transactions.
During 1995, 1996 and 1997, the Bank provided provisions of $2.8
million, $3.1 million and $2.8 million, respectively, to maintain
the allowance at an adequate level.
The Bank will continue to monitor and modify its allowances for
loan and REO losses as conditions dictate. Although the Bank
maintains its allowance at a level that it considers adequate to
provide for potential losses, there can be no assurance that such
losses will not exceed the estimated amounts.
17
<PAGE>
The following table sets forth the changes in the Bank's
allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $10,704 $ 8,573 $10,847 $21,606 $21,027
Charge-offs:
One-to four-family (964) (771) (472) (264) (353)
Cooperative (370) (524) (2,142) (8,747) (3,028)
Multi-family - (30) (1,299) (7,932) (1,174)
Non-residential and other (352) (560) (1,541) (7,798) (1,651)
------ ------ ------ ------ ------
Total charge-offs (1) (1,686) (1,885) (5,454) (24,741) (6,206)
Recoveries 760 891 405 582 385
------ ------ ------ ------ ------
Net charge-offs (926) (994) (5,049) (24,159) (5,821)
Provision for loan losses 2,750 3,125 2,775 13,400 6,400
------ ------ ------ ------ ------
Balance at end of year $12,528 $10,704 $ 8,573 $10,847 $21,606
====== ====== ====== ====== ======
Ratio of net charge-offs during
the year to average loans out-
standing during the year (2) 0.09% 0.15% 0.93% 3.83% 0.90%
Ratio of allowance for loan
losses to total loans at
the end of year (3) 1.09 1.26 1.51 2.07 3.17
Ratio of allowance for loan
losses to non-performing loan
at the end of the year (4) 99.97 77.05 50.80 38.33 33.83
</TABLE>
(1) Total charge-offs for the year ended 1994 were attributable
to the bulk sale transactions.
(2) The ratio of net charge-offs during the year to average
loans outstanding during the year increased significantly in 1994
due to substantial charge-offs taken during the year as a result
of the bulk sale transaction and the decrease in average loans
outstanding due to the bulk sale transactions.
(3) The steady decline in the ratio of allowance for loan losses
to total loans is attributable to a decline in non-performing
loans as previously mentioned coupled with growth in the Bank's
total loans outstanding.
(4) The ratio of allowance for loan losses to non-performing
loans has increased significantly over the last five years as
non-performing loans have declined.
18
<PAGE>
The following table sets forth the Bank's allocation of its
allowance for loan losses to the total amount of loans in each of
the categories listed.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential (1) $7,039 84.09% $5,929 80.40% $3,838 72.67% $5,685 71.97% $12,189 76.20%
Commercial 5,201 12.91 4,340 15.08 4,175 19.48 4,308 19.53 8,646 18.47
Construction - 0.20 - 0.50 69 1.00 248 0.66 258 0.34
Other loans 288 2.80 435 4.02 491 6.85 606 7.84 515 4.99
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total allowance for
loan losses (2) $12,528 100.00% $10,704 100.00% $8,573 100.00% $10,847 100.00% $21,606 100.00%
====== ====== ====== ====== ===== ====== ====== ====== ====== ======
</TABLE>
(1) Includes one-to four-family, multi-family and cooperative
loans.
(2) In order to comply with certain regulatory reporting
requirements, management has prepared the above allocation of the
Bank's allowance for loan losses among various categories of the
loan portfolio for each of the years in the five-year period
ended December 31, 1997. In management's opinion, such
allocation has, at best, a limited utility. It is based on
management's assessment as of a given point in time of the risk
characteristics of each of the component parts of the total loan
portfolio and is subject to changes as and when the risk factors
of each such component changes. Such allocation is not
indicative of either the specific amounts or the loan categories
in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. In addition, by
presenting such allocation, management does not mean to imply
that the allocation is exact or that the allowance has been
precisely determined from such allocation.
INVESTMENT ACTIVITIES
The investment policy of the Bank, which is established by the
Board of Directors and implemented by the Bank's Asset/ Liability
Committee, is designed primarily to provide and maintain
liquidity, to generate a favorable return on investments without
incurring undue interest rate and credit risk, and to complement
the Bank's lending activities. Federally chartered savings
institutions have the authority to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of
various federal agencies, certain certificates of deposit of
19
<PAGE>
insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements and federal funds. Subject to
various restrictions, federally chartered savings institutions
may also invest their assets in commercial paper, investment
grade corporate debt securities and mutual funds whose assets
conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Additionally, the Bank must maintain minimum levels of
investments that qualify as liquid assets under OTS regulations.
See "Regulation and Supervision-Federal Savings Institution
Regulation-Liquidity." Historically, the Bank has maintained
liquid assets above the minimum OTS requirements and at a level
believed to be adequate to meet its normal daily activities. At
December 31, 1997, the Bank had money market investments and debt
and equity securities in the aggregate amount of $4.6 million and
$185.2 million (including $118.8 million of debt and equity
securities available for sale) with a fair value of $4.6 million
and $185.2 million, respectively.
In November, 1995, the Financial Accounting Standards Board
("FASB") issued an implementation guide for SFAS No. 115. The
implementation guide provided guidance in the form of a question
and answer format and allowed an opportunity from mid-November
1995 to December 31, 1995 for companies to reclassify securities
in the held to maturity portfolio to securities in the available
for sale portfolio without tainting the remainder of the
portfolio. In connection with the implementation guide for SFAS
No. 115, the Company reclassified $41.9 million of debt
securities and $405.3 million of MBSs previously classified as
held to maturity to securities available for sale. The carrying
value of the MBSs was adjusted to their market value, which
resulted in increasing the carrying value by $3.9 million, and
increasing stockholders' equity by $2.1 million, which was net of
taxes of $1.8 million. The carrying value of the debt securities
approximated market value at the time of the reclassification.
At December 31, 1997, the securities available for sale portfolio
totaled $499.4 million of which $250.5 million were adjustable-
rate securities and $248.9 million were fixed-rate securities.
At December 31, 1997, the held to maturity portfolios totaled
$229.5 million, comprised of $59.1 million of adjustable-rate
securities and $170.4 million of fixed-rate securities. The
estimated fair value of the Company's debt securities and MBSs
held to maturity portfolios was $237,000 above the carrying value
of the portfolios at December 31, 1997. It is the Company's
intent to hold these securities until maturity and therefore the
Company does not expect to realize the current unrealized losses
brought about by the current market environment.
20
<PAGE>
The following table sets forth certain information regarding the
carrying and market values of the Company's money market
investments, debt and equity securities and Federal Home Loan
Bank ("FHLB") of New York stock at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
------ ------ ------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ -------- ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt and Equity Securities:
U.S. Government and
agency obligations $135,672 $135,715 $170,709 $169,849 $142,383(2) $142,281(2)
Corporate debt securities 45,390 45,315 45,350 45,227 45,320 44,437
Preferred stock 4,123 4,123 27,329 27,329 - -
------- ------- ------- ------- ------- -------
Subtotal 185,185 185,153 243,388 242,405 187,703 186,718
------- ------- ------- ------- ------- -------
Adjustable-rate MBS-
Mutual Fund - - - - 3,976 3,976
Federal Funds sold - - 5,000 5,000 5,000 5,000
FHLB-NY stock 12,885 12,885 9,890 9,890 8,138 8,138
Money market investments 4,561 4,561 1,869 1,869 4,064 4,064
------- ------- ------- ------- ------- -------
Total $202,631(1) $202,599(1) $260,147(1) $259,164(1) $208,881(1) $207,896
======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes debt and equity securities available for sale
totaling $118.8 million, $146.1 million and $63.9 million, at
December 31, 1997, 1996 and 1995, respectively, carried at fair
value.
(2) Included in U.S. Government and agency obligations at
December 31, 1995 are federal government agency and FHLB multiple
step-up callable notes available for sale with a carrying value
and estimated fair value of $42.0 million. These notes are
callable periodically at the option of the issuer, but, if not
called, have a pre-determined upward adjustment of the interest
rate. The notes at December 31, 1995 had contractual maturities
between February 1999 and April 2004, and a weighted average rate
of 5.75%. During 1996, $40.0 million of the notes were sold and
$2.0 million were called.
21
<PAGE>
The table below sets forth certain information regarding the
carrying value, weighted average yields and maturities of the
Company's money market investments and debt and equity securities
at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
----------------------------------------------------------------------------------------------------------------
Total Money Market Investments
More than More than Five and Debt and Equity Securities
One Year or Less One to Five Years to Ten Years Due After 10 Years ---------------------------------------
----------------- ----------------- --------------- ------------------ Average
Weighted Weighted Weighted Weighted Remaining Estimated Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Years to Carrying Fair Average
Value Yield Value Yield Value Yield Value Yield Maturity Value Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
securities and
agency
obligations $ - - % $ 25,788 5.94% $ 22,867 6.60% $ 87,017 7.47% 13.3 $135,672 $135,715 7.03%
Corporate debt
securities 8,609 5.73 36,781 5.70 - - - - 1.2 45,390 45,315 5.71
Money market
investments 4,561 5.68 - - - - - - - 4,561 4,561 5.68
------- ------- ------- ------- ------- ------- -----
Total $ 13,170 5.71% $ 62,569 5.80% $ 22,867 6.60% $ 87,017 7.47% 10.0 $185,623(1) $185,591(1) 6.67%
======= ===== ======= ===== ======= ===== ======= ===== ==== ======= ======= =====
Preferred Stock $ 4,123 $ 4,123 6.27%
FHLB-NY stock $ 12,885 $ 12,885 6.63%
======= ======= =====
</TABLE>
(1) Includes U.S. Government and agency obligations available
for sale totaling $114.7 million.
22
<PAGE>
MORTGAGE-BACKED SECURITIES
The Bank also invests in MBSs. At December 31, 1997, total MBSs,
net, aggregated $543.7 million (including MBSs available for sale
with a fair value of $380.6 million, net), or 27.5% of total
assets. At December 31, 1997, 68.8% of the MBS portfolio,
including Collateralized Mortgage Obligations ("CMOs") and Real
Estate Mortgage Investment Conduits ("REMICs"), were insured or
guaranteed by either FNMA, FHLMC or the Government National
Mortgage Association ("GNMA"). At December 31, 1997, $259.3
million, or 47.7% of total MBSs were adjustable-rate and $284.4
million, or 52.3% of total MBSs were fixed-rate.
The following table sets forth the carrying amount of the
Company's MBS portfolio in dollar amounts and in percentages at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
------ ------ ------
Percent Percent Percent
Carrying of Carrying of Carrying of
Value Total Value Total Value Total
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
MBSs(1):
CMOs and REMICS - Agency-backed(2) $174,707 32.14% $117,969 27.96% $220,284 34.97%
CMOs and REMICS - Non-agency(2) 169,480 31.17 94,877 22.48 69,109 10.97
FHLMC 91,110 16.76 97,953 23.21 172,770 27.43
FNMA 107,377 19.75 110,182 26.12 153,793 24.42
GNMA 982 0.18 983 0.23 13,933 2.21
------- ------ ------- ------ ------- ------
Net MBSs $543,656 100.00% $421,964 100.00% $629,889 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
(1) Includes MBSs available for sale of $380.6 million, $224.0
million and $439.2 million at December 31, 1997, 1996 and 1995,
respectively. Effective January 1, 1994, the Company's MBSs
available for sale are carried at estimated fair value with the
resultant net unrealized gain or loss reflected as a separate
component of stockholders' equity, net of related income taxes.
(2) Included in total MBSs are CMOs and REMICs, which, at
December 31, 1997, had a gross carrying value of $344.2 million.
A CMO is a special type of pass-through debt in which the stream
of principal and interest payments on the underlying mortgages or
MBSs is used to create classes with different maturities and, in
some cases, amortization schedules, as well as a residual
interest, with each such class possessing different risk
characteristics. The Bank has in recent periods increased its
23
<PAGE>
investment in REMICs and CMOs because these securities generally
exhibit a more predicable cash flow than mortgage pass-through
securities. The Bank's policy is to limit its purchases of
REMICs to non high-risk securities as defined by the OTS.
The following tables set forth certain information regarding the
carrying and market values and percentage of total carrying
values of the Bank's mortgage-backed and related securities
portfolio.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
------ ------ ------
Carrying % of Market Carrying % of Market Carrying % of Market
Value Total Value Value Total Value Value Total Value
-------- ----- ------ -------- ----- ------ -------- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
MBSs:
FHLMC $ 27,472 5.05% $ 27,769 $ 39,889 9.45% $ 39,594 $ 41,222 6.54% $ 41,352
FNMA 61,492 11.31 61,093 71,460 16.94 69,914 78,995 12.54 78,114
------- ----- ------- ------- ----- ------- ------- ----- -------
Total MBSs 88,964 16.36 88,862 111,349 26.39 109,508 120,217 19.09 119,466
------- ----- ------- ------- ----- ------- ------- ----- -------
Mortgage-related securities:
CMOs and REMICS-Agency
backed 21,217 3.90 21,101 24,449 5.79 24,142 22,969 3.65 22,476
CMOs and REMICS-
Non-agency 52,876 9.73 53,363 62,142 14.73 62,032 47,528 7.55 47,609
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-related
securities 74,093 13.63 74,464 86,591 20.52 86,174 70,497 11.20 70,085
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-backed and
related securities
held to maturity 163,057 29.99 163,326 197,940 46.91 195,682 190,714 30.29 189,551
------- ----- ------- ------- ----- ------- ------- ----- -------
Available for sale:
MBSs:
GNMA 982 0.18 982 983 0.23 983 13,933 2.21 13,933
FHLMC 63,638 11.71 63,638 58,064 13.76 58,064 131,548 20.88 131,548
FNMA 45,885 8.44 45,885 38,722 9.18 38,722 74,798 11.87 74,798
------- ----- ------- ------- ----- ------- ------- ----- -------
Total MBSs 110,505 20.33 110,505 97,769 23.17 97,769 220,279 34.96 220,279
------- ----- ------- ------- ----- ------- ------- ----- -------
Mortgage-related securities:
CMOs and REMICs-Agency
backed 153,490 28.23 153,490 93,520 22.16 93,520 197,315 31.32 197,315
CMOs and REMICs-
Non-agency 116,604 21.45 116,604 32,735 7.76 32,735 21,581 3.43 21,581
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-related
securities 270,094 49.68 270,094 126,255 29.92 126,255 218,896 34.75 218,896
------- ----- ------- ------- ----- ------- ------- ----- -------
Total available for sale
securities 380,599 70.01 380,599 224,024 53.09 224,024 439,175 69.71 439,175
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-backed and
related securities $543,656 100.00% $543,925 $421,964 100.00% $419,706 $629,889 100.00% $628,726
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
24
<PAGE>
The table below sets forth certain information regarding the
carrying value, weighted average yields and maturities of the
Company's mortgage-backed and related securities at December
31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
Over One to Over Five to Mortgage-Backed
One Year or Less Five Years Ten Years Over Ten Years and Related Securities Totals
---------------- ----------- ------------ -------------- -----------------------------
Average
Weighted Weighted Weighted Weighted Remaining Estimated Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Years to Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Maturity Value Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
FNMA $ 1,788 6.44% $ 1,992 7.02% $ 8,066 5.66% $49,646 6.67% 14.5 $61,492 $61,093 6.54%
FHLMC 637 7.00 345 7.00 5,623 6.61 20,867 7.00 16.7 27,472 27,769 6.92
CMOs and Remics - - 3,997 5.94 - - 70,096 6.77 22.0 74,093 74,464 6.73
------ ---- ------ ---- ------ ---- ------- ---- ---- ------- ------- ----
Total mortgage-
backed and
related
securities held
to maturity 2,425 6.59 6,334 6.34 13,689 6.05 140,609 6.77 18.3 163,057 163,326 6.69
------ ---- ------ ---- ------ ---- ------- ---- ---- ------- ------- ----
Available for sale:
FNMA - - - 45,885 7.04 26.1 45,885 45,885 7.04
FHLMC 1 5.50 127 7.84 2,342 6.39 61,168 7.07 25.1 63,638 63,638 7.04
GNMA - - - 982 7.18 26.3 982 982 7.18
CMOs and Remics - - - 270,094 6.78 25.1 270,094 270,094 6.78
------ ---- ------ ---- ------ ---- ------- ---- ---- ------- ------- ----
Total mortgage-
backed and
related
securities
available
for sale 1 5.50 127 7.84 2,342 6.39 378,129 6.86 25.3 380,599 380,599 6.86
------ ---- ------- ---- ------- ---- ------- ---- ---- ------- ------- ----
Total mortgage-
backed and
related
securities $ 2,426 6.59% $ 6,461 6.37% $16,031 6.10% $518,738 6.84% 23.2 $543,656 $543,925 6.81%
====== ==== ====== ==== ====== ==== ======= ==== ==== ======= ======= ====
</TABLE>
At December 31, 1997, the weighted average contractual maturity
of the Bank's mortgage-backed and related securities portfolio
was 23.2 years.
25
<PAGE>
The following table shows the carrying value, maturity or period
to repricing of the Company's mortgage-backed and related
securities portfolio at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
Total
Mortgage
Fixed Backed
Fixed Rate ARM Rate ARM and Related
MBSs MBSs CMOs CMOs Securities(1)
---------- ---------- ----- ---- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due or repricing:
Within one year $ 2,414 55,494 - 157,398 215,306
------- ------- ------ ------- -------
After one year:
One to three years 2,337 43,246 - - 45,583
Three to five years 130 - 3,997 - 4,127
Five to 10 years 15,954 - - - 15,954
10 to 20 years 62,848 - 50,384 - 113,232
Over 20 years 14,252 - 132,244 - 146,496
------- ------- ------- ------- -------
Total due or repricing
after one year 95,521 43,246 186,625 - 325,392
------- ------- ------- ------- -------
Total 97,935 98,740 186,625 157,398 540,698
Adjusted for:
Unamortized yield
adjustment 877 864 (877) (1,299) (435)
Unrealized gain/loss (84) 1,137 (117) 2,457 3,393
------- ------- ------- ------- -------
Total mortgage-backed and
related securities $ 98,728 100,741 185,631 158,556 543,656
======= ======= ======= ======= =======
</TABLE>
(1) Includes $380.6 million of mortgage-backed and related
securities available for sale at December 31, 1997, carried at
fair value.
26
<PAGE>
The following table sets forth the carrying value and the
activity in the Company's mortgage-backed and related securities
portfolio during the periods indicated.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Mortgage-backed and related
securities:
At beginning of period $421,964 $629,889 $526,248
MBSs purchased 56,941 41,647 68,990
MBSs sold (18,932) (101,604) -
CMOs and Remics purchased 365,002 158,654 123,835
CMOs and Remics sold (206,901) (205,760) (17,465)
Amortization and repayments (76,771) (97,969) (78,086)
Change in unrealized gain (loss) 2,353 (2,893) 6,367
-------- ------- -------
Balance of mortgage-backed and
related securities at end
of period (1) $543,656 $421,964 $629,889
======= ======= =======
</TABLE>
(1) Includes $380.6 million, $224.0 million and $439.2 million
of mortgage-backed and related securities available for sale at
December 31, 1997, 1996 and 1995, respectively, carried at fair
value.
The Asset/Liability Committee determines when to make substantial
changes in the MBS portfolio. In 1995, the Company purchased
$192.8 million of MBSs, of which $160.8 million were adjustable-
rate which are expected to help protect the net interest margin
during periods of rising interest rates as was experienced during
the second half of 1996. The Company completed a $75.0 million
leverage transaction in the second quarter of 1995 which utilized
short-term borrowings to purchase floating rate, prime-based
CMOs. In 1996, the Company purchased $199.5 million of MBSs, of
which $49.3 million were adjustable-rate and $150.2 million were
fixed-rate primarily to supplement weak loan demand in the first
half of 1996. In 1997, the Company purchased $421.9 million of
MBSs, of which $136.7 million were adjustable-rate and $285.2
million were fixed-rate securities. During 1997, the Bank placed
a greater emphasis on MBSs reflecting management's strategy to
improve duration and yield of the AFS portfolio with MBSs rather
than debt and equity securities. Adjustable-rate securities as a
percentage of total MBSs was 48%, 42% and 46% at December 31,
1997, 1996 and 1995, respectively. At December 31, 1997, $374.2
27
<PAGE>
million, or 68.8% of the Bank's MBS portfolio, was directly
insured or guaranteed by the FNMA, FHLMC or GNMA. FNMA and FHLMC
provide the certificate holder a guarantee of timely payments of
interest and scheduled principal payments, whether or not they
have been collected. The GNMA MBSs provide a guarantee to the
holder of timely payments of principal and interest and is backed
by the full faith and credit of the U.S. Government. The
privately-issued CMOs and REMICs contained in the Bank's held to
maturity portfolio and available for sale portfolio totaling
$169.5 million, or 31.2% of MBSs have generally been underwritten
by large investment banking firms with the timely payment of
principal and interest on these securities supported (credit
enhanced) in varying degrees by either insurance issued by a
financial guarantee insurer, letters of credit or subordination
techniques. Substantially all such securities are rated AAA by
one or more of the nationally recognized securities rating
agencies.
MBSs generally yield less than the loans that underlie such
securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. The MBS
portfolio had a weighted average yield of 6.79% for the year
ended December 31, 1997. In addition, MBSs are more liquid than
individual mortgage loans and may be used to collateralize
obligations of the Bank. In general, MBSs issued or guaranteed
by FNMA and FHLMC and certain AA-rated mortgage-backed pass-
through securities are weighted at no more than 20% for risk-
based capital purposes, and MBSs issued or guaranteed by GNMA are
weighted at 0% for risk-based capital purposes, compared to an
assigned risk weighting of 50% to 100% for whole residential
mortgage loans. These types of securities thus allow the Bank to
optimize regulatory capital to a greater extent than non-
securitized whole loans.
SOURCES OF FUNDS
GENERAL. Deposits, loan, mortgage-backed and debt securities
repayments, retained earnings and, to a lesser extent, FHLB
advances are the primary source of the Company's and the Bank's
funds for use in lending, investing and for other general
purposes.
DEPOSITS. The Bank offers a variety of deposit accounts having a
range of interest rates and terms. The Bank's deposits consist
of passbook, NOW, checking, money market and certificate
accounts. The flow of deposits is influenced significantly by
general economic conditions, changes in money market rates,
prevailing interest rates and competition.
During 1996, the Bank implemented its supermarket banking
program. During September of 1996, the Bank and Pathmark Stores,
28
<PAGE>
Inc. entered into an agreement to open approximately 44 full-
service bank branches in Pathmark supermarkets throughout New
York City, Long Island, Westchester and Rockland counties by
early 1998. By the end of 1996, the Bank had opened four
supermarket branches with deposits totaling $12.1 million.
During 1997, the Bank opened twenty-eight supermarket branches
resulting in a total of thirty-two locations at December 31, 1997
with deposits totaling $157.2 million. The supermarket branches
are located in Queens, Brooklyn, Manhattan, Staten Island,
Nassau, Suffolk, Rockland and Westchester counties and Northern
New Jersey. At December 31, 1997, the Bank had 25 branches in
Pathmark Stores, Inc., 3 in ShopRite Supermarket, Inc., 3 in
Edward Super Food Stores, and 1 mini-branch in The Grand Union
Co. Core deposits equaled 32.5% of total in-store branch
deposits, compared to 45.3% in traditional branches. Overall
core deposits represented 42.7% of total deposits at December 31,
1997 compared to 47.2% at December 31, 1996. The Bank believes
that supermarket branching is a cost-effective way to extend its
franchise and put its sales force in touch with a significant
number of prospective customers. The branches are open seven
days a week and provide a broad range of traditional banking
services, as well as the full package of financial services
offered by CFS Investments, Inc. ("CFSI"). In 1998, the Bank
plans to open an additional 28 supermarket branches, 13 of which
will be in Pathmark. The Bank has recently established a
relationship with Big Y Foods, Inc. to open 2 branches in
Connecticut in 1998 and with ShopRite to open 8 branches in
southern New Jersey and 5 branches in Connecticut during 1998.
The Bank's deposits are obtained primarily from the areas in
which its branch offices are located. The Bank relies primarily
on customer service and long-standing relationships with
customers to attract and retain these deposits. Certificate
accounts in excess of $100,000 are not actively solicited by the
Bank nor does the Bank use brokers to obtain deposits. During
1997, the Bank continued to offer competitive rates without
jeopardizing the value of existing core deposits. During 1997,
the Bank continued to experience a transfer of deposits from
passbook accounts into certificates of deposit. Certificates of
deposit increased from 52.8% of deposits at December 31, 1996 to
57.3% of deposits at December 31, 1997. The Company has been
able to maintain a substantial level of core deposits which the
Company believes helps to limit interest rate risk by providing a
relatively stable, low cost long-term funding base. The Company
expects to attract a higher percentage of core deposits from its
supermarket branch locations as these locations continue to grow
and mature.
29
<PAGE>
The following table presents the deposit activity of the Bank for
the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Deposits $3,208,355 2,441,295 2,055,132
Withdrawals 3,031,457 2,428,315 2,041,495
--------- --------- ---------
Net deposits (withdrawals) 176,898 12,980 13,637
Deposits acquired - - 17,024
Interest credited on deposits 50,326 41,362 39,623
--------- --------- ---------
Total increase (decrease)
in deposits $ 227,224 54,342 70,284
========= ========= =========
</TABLE>
Time deposits by maturity at December 31, 1997 over $100,000 are
as follows:
Maturity Period Amount
--------------- ------
(In thousands)
Three months or less $11,563
Over three through six months 15,659
Over six through 12 months 21,678
Over 12 months 15,644
------
Total $64,544
======
30
<PAGE>
The following table sets forth the distribution of the Bank's
deposit accounts for the periods indicated and the weighted
average nominal interest rates for each category of deposits
presented.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------ ------ ------
Percent Weighted Percent Weighted Percent Weighted
of Average of Average of Average
Average Total Nominal Average Total Nominal Average Total Nominal
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts $371,872 30.01% 2.51% $373,337 33.46% 2.49% $405,932 38.60% 2.49%
Checking accounts 134,546 10.86 1.31 111,425 9.99 1.01 96,242 9.15 1.11
------- ----- ---- ------- ----- ----- ------- ----- -----
Total passbook and checking
accounts 506,418 40.87 2.07 484,762 43.45 2.13 502,174 47.75 2.21
------- ----- ---- ------- ----- ----- ------- ----- -----
Money market accounts 54,107 4.37 3.37 58,108 5.21 3.32 45,472 4.32 3.49
------- ----- ---- ------- ----- ----- ------- ----- -----
Certificate accounts:
91 days 5,799 0.47 3.83 7,783 0.70 3.92 11,125 1.06 4.61
6 months 85,558 6.90 5.37 85,768 7.69 5.12 75,616 7.19 5.47
7 months 13,116 1.06 5.26 2,228 0.20 2.99 3,894 0.37 2.94
One year 265,891 21.45 5.69 203,259 18.22 5.51 166,956 15.88 5.91
13 months 21,314 1.72 5.79 11,036 0.99 5.12 5,784 0.55 3.60
18 months 34,321 2.77 5.79 23,407 2.10 5.98 40,453 3.85 6.03
2 to 4 years 145,081 11.71 6.04 131,931 11.82 5.87 88,054 8.37 5.66
Five years 101,972 8.23 6.23 101,690 9.11 6.30 106,366 10.11 6.40
7 to 10 years 5,547 0.45 6.31 5,666 0.51 6.28 5,742 0.55 6.25
--------- ------ ---- -------- ------ ---- ------- ------ ----
Total certificates 678,599 54.76 5.79 572,768 51.34 5.66 503,990 47.93 5.84
--------- ------ ---- --------- ------ ---- --------- ------ ----
Total deposits $1,239,124 100.00% 4.16% $1,115,638 100.00% 4.00% $1,051,636 100.00% 4.00%
========= ====== ==== ========= ====== ==== ========= ====== ====
</TABLE>
<PAGE>
The following table presents, by various rate categories, the
amount of certificate accounts outstanding at December 31, 1997,
1996 and 1995 and the periods to maturity of the certificate
accounts outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Period of Maturity from December 31, 1997
Within One to Two to Over
At December 31, One Two Three Three
1997 1996 1995 Year Years Years Years Total
------ ------ ------ ------ ------ ------ ----- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less $ 6,682 10,396 10,425 6,237 39 - 406 6,682
4.00% to 4.99% 6,942 18,545 55,732 3,725 1,564 1,307 346 6,942
5.00% to 5.99% 548,849 456,789 267,113 489,729 45,469 3,931 9,720 548,849
6.00% to 6.99% 211,302 104,732 175,183 93,129 58,331 18,905 40,937 211,302
7.00% to 7.99% 7,808 10,637 24,557 2,887 500 4,421 - 7,808
------- ------- ------- ------- ------- ------ ------ -------
Total $781,583 601,099 533,010 595,707 105,903 28,564 51,409 781,583
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
31
<PAGE>
BORROWINGS
Although deposits are the Bank's primary source of funds, the
Bank has from time to time utilized borrowings as an alternative
or less costly source of funds. The Bank's primary source of
borrowing is advances from the FHLB-NY. These advances are
collateralized by the capital stock of the FHLB-NY held by the
Bank and certain of the Bank's MBSs. See "Regulation and
Supervision-Federal Home Loan Bank System." Such advances are
made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum
amount that the FHLB-NY will advance to member institutions,
including the Bank, for purposes other than meeting withdrawals,
fluctuates from time to time in accordance with the policies of
the OTS and the FHLB-NY. At December 31, 1997, the Bank had
$247.0 million of advances outstanding from the FHLB-NY.
In addition, the Bank may, from time to time, enter into sales of
securities under agreements, generally for up to 30 days, to
repurchase ("reverse repurchase agreements") with nationally
recognized investment banking firms. Reverse repurchase
agreements are accounted for as borrowings by the Bank and are
secured by designated securities. The proceeds of these
transactions are used to meet cash flow or asset/liability needs
of the Bank. At December 31, 1997, the Bank had $193.0 million
of reverse repurchase agreements outstanding.
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware, issued $25 million of 10.46%
capital securities. The Company is the owner of all the
beneficial interests represented by common securities of the
Trust. See Note 8 of Notes to Consolidated Financial Statements
in the Registrant's 1997 Annual Report to Stockholders on page 38
which is incorporated herein by reference.
The Bank has an ESOP loan from an unrelated third party lender
with an outstanding balance of $1.8 million and an interest rate
of 8.70% at December 31, 1997. See Note 11 of Notes to
Consolidated Financial Statements in the Registrant's 1997 Annual
Report to Stockholders on page 43 which is incorporated herein by
reference. The loan, as amended on December 29, 1995, is payable
in thirty-two equal quarterly installments beginning December
1995 through September 2003. The loan bears interest at a
floating rate based on the federal funds rate plus 250 basis
points.
32
<PAGE>
The following table sets forth certain information regarding
borrowed funds for the dates indicated:
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
1997 1996 1995
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB-NY advances:
Average balance outstanding $191,550 $152,005 $ 95,775
Maximum amount outstanding at any
month-end during the period 247,000 195,000 134,175
Balance outstanding at end of period 247,000 178,450 134,175
Weighted average interest rate
during the period 5.69% 5.54% 5.59%
Weighted average interest rate
at end of period 5.86% 4.72% 4.21%
Securities Sold under Agreements to
Repurchase:
Average balance outstanding $172,310 $128,677 $ 94,375
Maximum amount outstanding at any
month-end during the period 229,280 142,906 150,249
Balance outstanding at end of period 193,028 142,906 126,032
Weighted average interest rate
during the period 5.68% 5.65% 5.98%
Weighted average interest rate
at end of period 5.94% 5.09% 4.47%
Other Borrowings (1):
Average balance outstanding $ 25,231 $ 7,667 $ 13,293
Maximum amount outstanding at any
month-end during the period 30,120 10,725 16,162
Balance outstanding at end of period 26,766 5,077 10,376
Weighted average interest rate
during the period 8.15% 6.38% 5.49%
Weighted average interest rate
at end of period 10.29% 9.63% 7.03%
Total Borrowings:
Average balance outstanding $389,091 $288,349 $203,443
Maximum amount outstanding at any
month-end during the period 466,794 348,631 270,583
Balance outstanding at end of period 466,794 326,433 270,583
Weighted average interest rate
during the period 5.86% 5.84% 6.50%
Weighted average interest rate
at end of period 6.15% 5.11% 4.83%
</TABLE>
(1) Includes the CMO, ESOP loan and Holding Company Obligated
Mandatorily Redeemable Capital Securities.
33
<PAGE>
SUBSIDIARY ACTIVITIES
COLUMBIA RESOURCES CORP. Columbia Resources is a wholly owned
subsidiary of the Bank and was formed in 1984 for the sole
purpose of acting as a conduit for a partnership to acquire and
develop a parcel of property in New York City. Columbia
Resources acquired the property, but never developed it. The
property was later sold. During 1996, two REO commercial
properties totaling $524,000 were transferred from the Bank to
Columbia Resources to limit exposure to the Bank from unknown
creditors. By December 31, 1996 the properties were written down
to a combined value of $440,000. The properties were
subsequently sold during 1997.
CFSB FUNDING CORP. CFSB Funding is a limited purpose wholly
owned finance subsidiary of the Bank that was established in 1986
for the issuance and sale of a CMO collateralized by FHLMC
Participation Certificates. The Bank transferred to CFSB Funding
FHLMC Participation Certificates having a market value of $91.2
million and $10,000 in cash. The outstanding aggregate balance
of the CMO at December 31, 1996 was $3.0 million and the book
value of the MBSs collateralizing the CMO was $12.2 million. The
CMO was originally issued in four tranches, the fourth being a
zero coupon tranche. The fourth and final tranche was paid out
during the fourth quarter of 1997. Therefore, CFS Funding was
dissolved since it served its limited purpose as a finance
subsidiary of the Bank. See "Borrowings."
CFS INVESTMENTS, INC. ("CFSI") CFSI is a wholly owned subsidiary
of the Bank organized in 1989 that is engaged in the sale of tax
deferred annuities, securities brokerage activities and
insurance. CFSI participates with FISERV Investor Services,
Inc., which is registered as a broker-dealer with the SEC, NASD,
and state securities regulatory authorities. All employees of
CFSI engaged in securities brokerage activities are dual
employees of FISERV. Products offered through FISERV include
debt and equity securities, mutual funds, unit investment trusts
and variable annuities. Fixed annuities, life and health
insurance, and long term nursing care products are offered
through CFSI; a licensed general agent with the New York State
Department of Insurance.
HAVEN CAPITAL TRUST I. On February 12, 1997, Haven Capital Trust
I, a statutory business trust fund formed under the laws of the
State of Delaware issued $25 million of 10.46% capital
securities. See Note 8 of Notes to Consolidated Financial
Statements in the Registrant's 1997 Annual Report to Stockholders
on page 38 which is incorporated herein by reference.
34
<PAGE>
COLUMBIA PREFERRED CAPITAL CORPORATION. On June 9, 1997, the
Bank established a real estate investment trust ("REIT")
subsidiary, Columbia Preferred Capital Corporation ("CPCC"). At
December 31, 1997, the REIT held $427.4 million of the Bank's
residential loan portfolio. The establishment of the REIT will
enable the Bank to achieve certain business goals including
providing the Bank with a contingency funding mechanism without
disrupting its investment policies and enhancing the Bank's
ability to track and manage the mortgage portfolio transferred to
CPCC since the transferred portion of its mortgage loan portfolio
is segregated into a separate legal entity.
CFS TRAVEL. The Company, through its wholly owned subsidiary,
CFS Travel Services, Inc. ("CFS Travel"), established February
21, 1998, offers customers and their families and friends, and
any other program participant, organized, escorted daylong
excursions and overnight trips. These trips include one-day bus
tours, cruises, air travel, and other vacation tours that are
contracted for and by CFS Travel with a specific tour company or
travel agency. The program has been renamed the "GoodFriends,
GreatTimes Club" and is marketed to the public through the use of
brochures, statement stuffers and branch posters, as well as
through a page on the Bank's Internet site.
PERSONNEL
As of December 31, 1997, the Bank had 514 full-time employees and
72 part-time employees. Even though the employees are not
represented by a collective bargaining unit, the Bank considers
its relationship with its employees to be good.
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the 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. Periodic examinations by the OTS and the
FDIC monitor 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.
35
<PAGE>
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of federal savings
institutions are governed by the Home Owners' Loan Act, as
amended (the "HOLA") and, in certain respects, the Federal
Deposit Insurance Act ("FDI Act") and the regulations issued by
the agencies to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in
which federal associations may engage. In particular, many types
of lending authority for federal associations, (e.g., commercial,
non-residential real property loans, consumer loans), are limited
to a specified percentage of the institutions's capital or
assets.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one
borrower. Generally, this limit is 15% of the Bank's unimpaired
capital and surplus plus an additional 10% of unimpaired capital
and surplus if such loan is secured by readily-marketable
collateral, which is defined to include certain financial
instruments and bullion. At December 31, 1997, the Bank's
unimpaired capital and surplus was $140.8 million and its limit
on loans to one borrower was $21.1 million. At December 31,
1997, the Bank's largest aggregate amount of loans to one
borrower had an aggregate balance of $19.2 million.
QTL Test. The HOLA requires savings institutions to meet a
Qualified Thrift Lender ("QTL") test. Under the QTL test, a
savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) 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) in at least 9 months out
of each 12 month period. A savings association that fails the
QTL test must either convert to a bank charter or operate under
certain restrictions. As of December 31, 1997, the Bank
maintained 78.1% of its portfolio assets in qualified thrift
investments and had more than 65% of its portfolio assets in
qualified thrift investments in each of the prior 12 months.
Therefore, the Bank met the QTL test.
Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings
institutions, 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
36
<PAGE>
regulatory 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, but without the approval of 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% of its net earnings for the previous four
quarters. Any additional capital distributions would require
prior OTS approval. In the event the Bank's capital fell below
its capital requirements 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. The OTS has proposed
amendments of its capital distribution regulations to reduce
regulatory burdens on savings associations. If adopted as
proposed, certain savings associations will be permitted to pay
capital distributions within the amounts described above for Tier
1 institutions without notice to, or the approval of, the OTS.
However, a savings association subsidiary of a savings and loan
holding company, such as the Association, will continue to have
to file a notice unless the specific capital distribution
requires an application.
Liquidity. The Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of
not less than a specified percentage (currently 4%) of its net
withdrawable deposit accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet the
liquidity requirements. The Bank's average liquidity ratio for
December 31, 1997 was 8.94% which exceeded the then applicable
requirement. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required by regulation to
pay assessments to the OTS to fund the agency's operations. The
general assessment, paid on a semi-annual basis, is computed 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 years
ended December 31, 1997 and 1996, totaled $285,000 and $262,000,
respectively.
Branching. OTS regulations permit federally chartered savings
associations to branch nationwide under certain conditions.
Generally, federal savings associations may establish interstate
37
<PAGE>
networks and geographically diversify their loan portfolios and
lines of business. The OTS authority preempts any state law
purporting to regulate branching by federal savings associations.
Proposed legislation would subject thrifts to the same
restrictions applicable to the interstate branching of national
banks. See "-Legislative Developments."
Transactions with Related Parties. The Bank's authority to
engage in transactions with related parties or "affiliates"
(i.e., any company that controls or is under common control with
an institution, including the Company and its 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 with any individual
affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions
with all affiliates to 20% of the savings institution's capital
and surplus. 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 generally
requires that certain transactions with affiliates, including
loans and asset purchases, must be on terms and under
circumstances, including credit underwriting standards, that are
substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable
transactions with non-affiliated 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 its executive officers,
directors and 10% shareholders, as well as to entities controlled
by such persons, is currently governed by Sections 22(g) and
22(h) of the FRA, and Regulation O thereunder. Among other
things, these regulations require that such loans to be made on
terms and conditions, including credit underwriting standards,
substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of
repayment. Regulation O also places 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 requires that
certain board approval procedures be followed. HOLA and 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
38
<PAGE>
bring action against all "institution-affiliated parties,"
including controlling stockholders, and any stockholders,
attorneys, appraisers and accountants who knowingly or recklessly
participate in any violation of applicable law or regulation or
breach of fiduciary duty or certain other wrongful actions that
causes or is likely to cause a more than a minimal loss or other
significant adverse effect on an insured savings association.
Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of
officers or directors, receivership, conservatorship or
termination of deposit insurance. Civil penalties cover a wide
range of violations and can amount to $5,000 per day for less
serious violations, and up to $1 million per day in more
egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action
be taken with respect to a particular savings institution. If
action is not taken by the Director of the OTS, the FDIC has
authority to take such action under certain circumstances.
Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The FDI Act requires each
federal banking agency to prescribe for all insured depository
institutions standards relating to, among other things, 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. The OTS and the federal banking agencies have
adopted a final rule and Interagency Guidelines Prescribing
Standards for Safety and Soundness ("Guidelines") to implement
these safety and soundness standards. The Guidelines set forth
the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The
Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality;
earnings and compensation, fees and benefits. If the appropriate
federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may
require the institution to submit to the agency an acceptable
plan to achieve compliance with the standard, as required by the
FDI Act. The final rule establishes deadlines for the submission
and review of such safety and soundness compliance plans, when
such plans are required.
Capital Requirements. The OTS capital regulations require
savings institutions to meet three minimum capital standards: a
tangible capital ratio requirement of 1.5% of total assets as
adjusted under the OTS regulations, a leverage ratio requirement
39
<PAGE>
of 3.0% of core capital to such adjusted total assets, and a
risk-based capital ratio requirement of 8.0% of core and
supplementary capital to total risk-based assets. The OTS and
the federal banking regulators have proposed amendments to their
minimum capital regulations to provide that the minimum leverage
capital ratio for a depository institution that has been assigned
the highest composite rating of 1 under the Uniform Financial
Institutions Ratings System will be 3% and that the minimum
leverage capital ratio for any other depository institution will
be 4%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository
institution. Tangible capital is defined, generally, as common
stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related earnings,
minority interests in equity accounts of fully consolidated
subsidiaries, less intangibles other than certain mortgage
servicing rights and investments in and loans to subsidiaries
engaged in activities not permissible for a national bank. Core
capital (also called "Tier 1" capital) is defined similarly to
tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a
leverage capital ratio of less than 4% (3% for institutions
receiving the highest rating under the Uniform Financial
Institutions Rating System will be deemed to be
"undercapitalized" and may be subject to certain restrictions).
See "- Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires
the maintenance of total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of at
least 8%. 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 core capital are
equivalent to those discussed earlier under the 3% leverage
standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible debt securities, subordinated debt
and intermediate preferred stock and, within specified limits,
the allowance for loan and lease losses. Overall, the amount of
supplementary capital included as part of total capital cannot
exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also
adjusts the risk-weighting for certain mortgage derivative
securities. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a
40
<PAGE>
deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association'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 divided by the estimated economic value of
the association's assets, as calculated in accordance with
guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% 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%, multiplied by
the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement.
Under the rule, there is a two quarter lag between the reporting
date of an institution's financial data and the effective date
for the new capital requirement based on that data. A savings
association with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest
rate risk component, unless the OTS determines otherwise. The
rule also provides that the Director of the OTS may waive or
defer an association's interest rate risk component on a
case-by-case basis. The OTS has indefinitely deferred the
implementation of the interest rate risk component in the
computation of an institution's risk-based capital requirement.
The OTS continues to monitor the interest rate risk of individual
institutions and retains the right to impose additional capital
on individual institutions. If the Bank had been subject to an
interest rate risk capital component as of December 31, 1997,
there would have been no material effect on the Bank's
risk-weighted capital.
At December 31, 1997, the Bank met each of its capital
requirements, in each case on a fully phased-in basis. A chart
which sets forth the Bank's compliance with its capital
requirements appears in Note 14 to Notes to Consolidated
Financial Statements in the Registrant's 1997 Annual Report to
Stockholders on page 47, and is incorporated herein by reference.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is
required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon
the institution's degree of capitalization. Generally, a savings
institution that has a total risk-based capital of less than 8.0%
or either a leverage ratio or a Tier 1 risk-based capital ratio
that is less than 4.0% is considered to be undercapitalized. A
41
<PAGE>
savings institution that has a total risk-based capital less than
6.0%, a Tier 1 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." Subject to a
narrow exception, the banking regulator is required to appoint a
receiver or conservator for an institution that is critically
undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the
date an association receives notice that it is "under-
capitalized", "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed
by any parent holding company. In addition, numerous mandatory
supervisory actions become immediately applicable to the
institution depending upon its category, including, but not
limited to, increased monitoring by regulators, restrictions on
growth,and capital distributions and limitations on expansion.
The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and
directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment 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
condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and
supervisory category to which it is assigned.
Assessment rates currently range from 0.0% of deposits for an
institution in the highest category (i.e., well-capitalized and
financially sound, with no more than a few minor weaknesses) to
0.27% of deposits for an institution in the lowest category
(i.e., undercapitalized and substantial supervisory concern).
The FDIC is authorized to raise the assessment rates as necessary
to maintain the required reserve ratio of 1.25%. As a result of
the Deposit Insurance Funds Act of 1996 (the "Funds Act"), both
the BIF and the SAIF currently satisfy the reserve ratio
requirement. If the FDIC determines that assessment rates should
be increased, institutions in all risk categories could be
affected. The FDIC has exercised this authority several times in
42
<PAGE>
the past and could raise insurance assessment rates in the
future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of the Bank.
The Funds Act also amended the FDIA to expand the assessment base
for the payments on the Financing Corporation ("FICO")
obligations. Beginning January 1, 1997, the assessment base
included the deposits of both BIF- and SAIF-insured institutions.
Under December 31, 1999, or any earlier date on which the last
savings association ceases to exist, the rate of assessment for
BIF-assessable deposits shall be one-fifth of the rate imposed on
SAIF-assessable deposits. Under proposed legislation, the BIF
and the SAIF will be merged on January 1, 2000, and the savings
association charter will be continued. See "-Legislative
Developments." The annual rate of assessments for the payments
on the FICo obligations for the semi-annual period beginning on
January 1, 1997 was 0.0130% for BIF-assessable deposits and
0.0648% for SAIF-assessable deposits. For the semi-annual period
beginning on July 1, 1997, the rates of assessment for the FICO
obligations are 0.0126% for BIF-assessable deposits and 0.0630%
for SAIF-assessable deposits. Accordingly, as a result of the
Funds Act, the Bank has seen a decrease in the deposit
assessments paid to the FDIC.
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 of New York, is required to acquire and hold shares of
capital stock in the FHLB in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or
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 December 31, 1997 of $12.9
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 years ended December 31,
1997, 1996 and 1995, dividends from the FHLB to the Bank amounted
to $710,000, $571,000 and $496,000, respectively. 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 recent
legislation on the FHLBs will not also cause a decrease in the
value of the FHLB stock held by the Bank.
43
<PAGE>
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings
institutions to maintain non-interest-earning reserves against
their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve Board regulations generally
require that reserves be maintained against aggregate transaction
accounts as follows: for accounts aggregating $47.8 million or
less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8
million, the reserve requirement is $1.5 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in
excess of $47.8 million. The first $4.7 million of otherwise
reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. The
Bank is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault
cash, a non-interest-bearing account at a Federal Reserve Bank or
a pass-through account as defined by the Federal Reserve Board,
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 Federal
Reserve Board 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 such, the Company is
required to be 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 subsidiary savings institution. The Bank must notify the OTS
30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company
generally is not restricted under existing laws as to the types
of business activities in which it may engage, provided that the
Bank continues to 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, the Company would become a multiple savings
and loan holding company (if the acquired institution is held as
a separate subsidiary) and would be subject to extensive
limitations on the types of business activities in which it could
engage. 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 BHC Act, subject to the prior
44
<PAGE>
approval of the OTS, and to other activities authorized by OTS
regulation.
The HOLA prohibits a savings and loan holding company, directly
or indirectly, or through one or more subsidiaries, from
acquiring more than 5% of the voting stock of another savings
institution or holding company thereof, without prior written
approval of the OTS; and from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding
company, or 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.
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, except: (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.
The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
LEGISLATIVE DEVELOPMENTS
The 1996 Funds Act requires the Secretary of the Treasury to
conduct a study of the relevant factors with respect to the
development of a common charter for all insured depository
institutions and to the abolition of separate charters for banks
and thrifts, and the Secretary of the Treasury is to report his
conclusions and findings to the Congress. The Secretary of the
Treasury recommended to the Congress that the separate charter
for thrifts be eliminated only if other legislation is adopted
that permits bank holding companies to engage in such non-
financial activities. Absent legislation permitting bank holding
companies to engage in such-financial activities, the Secretary
of the Treasury recommended that the thrift charter be retain.
Proposed legislation agreed to in March 1998 by the House
Committee on Banking and Financial Services and the House
Committee on Commerce provides for the retention of the thrift
charter, subject to a requirement that a thrift invest at least
10% of its assets in home mortgages. The interstate branching
powers of thrifts would be changed so as to conform to the
restrictions applicable to the interstate branching of national
banks. The proposed legislation would grandfather unitary
savings and loan holding companies in the activities currently
45
<PAGE>
permitted such holding companies and would expand significantly
the financial services that could be offered by the bank holding
companies that qualified as well capitalized and well managed and
had a CRA record of satisfactory or better. The Committees also
agreed that the BIF and the SAIF would be merged on January 1,
2000 and that the OTS would be made a division of the Office of
the Comptroller of the Currency. The outcome of such proposed
legislation is uncertain. Therefore, the Company is unable to
determine the extent to which any such legislation, if enacted,
would affect the Company's business.
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the Securities and
Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to the information, proxy solicitation,
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 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% of the
outstanding shares of the Company or (ii) the average weekly
volume of trading in such shares during the preceding four
calendar weeks. Shares acquired through the Company's option
plans have been registered under the Securities Act and,
therefore, are not subject to resale restrictions. 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.
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" centers on the inability of computer
systems to recognize the Year 2000. Many existing computer
programs and systems were originally programmed with six digit
dates that provided only two digits to identify the calendar year
in the date field, without considering the upcoming change in the
century. With the impending millennium, these program and
computers will recognize "00" as the year 1900 rather than the
46
<PAGE>
year 2000. Like most financial service providers, the Company
and its operations may be significantly affected by the Year 2000
Problem due to the nature of financial information. Software,
hardware, and equipment both within and outside the Company's
direct control and with whom the Company electronically or
operationally interfaces (e.g. third party vendors providing data
processing, information system management, maintenance of
computer systems, and credit bureau information) are likely to be
affected. Furthermore, if computer systems are not adequately
changed to identify the Year 2000, many computer applications
could fail or create erroneous results. As a result, many
calculations which rely on the date field information, such as
interest, payment or due dates and other operating functions,
will generate results which could be significantly misstated, and
the Company could experience a temporary inability to process
transactions, send invoices or engage in similar normal business
activities. In addition, under certain circumstances, failure to
adequately address the Year 2000 Problem could adversely affect
the viability of the Company's suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately
addressed, the Year 2000 Problem could result in a significant
adverse impact on the Company's products, services and
competitive condition.
Financial institution regulators have recently increased their
focus upon Year 2000 issues, issuing guidance concerning the
responsibilities of senior management and directors. The Federal
Financial Institutions Examination Council ("FFIEC") has issued
several interagency statements on Year 2000 Project Management
Awareness. These statements require financial institutions to,
among other things, examine the Year 2000 implications of
reliance on vendors, data exchange and potential impact on
customers, suppliers and borrowers. These statements also
require each federal regulated financial institution to survey
its exposure, measure its risk and prepare a plan in order to
solve the Year 2000 Problem. In addition, the FDIC and the other
federal banking regulators have issued safety and soundness
guidelines to be followed by insured depository institutions,
such as the Bank, to assure resolution of any Year 2000 problems.
The federal banking agencies have asserted that Year 2000 testing
and certification is a key safety and soundness issue in
conjunction with regulatory exams, and thus an institution's
failure to address appropriately the Year 2000 problem could
result in supervisory action, including such enforcement actions
as the reduction of the institution's supervisory ratings, the
denial of applications for approval of a merger or acquisition,
or the imposition of civil money penalties.
In order to address the Year 2000 issue and to minimize its
potential adverse impact, management has begun a process to
identify areas that will be affected by the Year 2000 Problem,
47
<PAGE>
determine if outside consultants are needed to coordinate the
project and create a Year 2000 committee, assess its potential
impact on the operations of the Bank, develop a scheduled plan
for compliance on each item, monitor the progress of third party
software vendors in addressing the matter, test changes provided
by these vendors, and develop contingency plans for any critical
systems which are not effectively reprogrammed. The Company's
plan is divided into the five phases: (1) awareness; (2)
assessment; (3) renovation; (4) validation/testing; and (5)
implementation. The Bank has an internal Year 2000 committee
which meets monthly to monitor and discuss the plan.
The Company has substantially completed the first two phases of
the plan and is currently working internally and with external
vendors on the final three phases. Because the Company
outsources its data processing and item processing operations, a
significant component of the Year 2000 plan is working with
external vendors to test and certify their systems as Year 2000
compliant. Vendors have been asked to submit their Year 2000
plans, including target and compliance dates, which will be
monitored by the committee. Management believes the plan can be
realized by tracking those systems affected and the date on which
the Year 2000 Problem is expected to have an impact. Each
committee member is responsible for coordinating effects and
compliance within their respective areas. The committee now has
begun the task of developing testing programs. Each affected
systems area will be tested, including any associated computer
programs, to insure that the Year 2000 Problem will not have a
significant impact on the Bank's operations. The Company expects
to complete its timetable for carrying out its plans to address
Year 2000 issues by December 31, 1998.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Bank 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. 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 and the Company
have not been audited by the Internal Revenue Service during the
last five fiscal years.
The Company and its subsidiaries file a consolidated Federal
income tax return on a calendar-year basis. Under Section 593 of
the Internal Revenue Code of 1986, as amended ("Code"), prior to
January 1, 1996 thrift institutions such as the Bank which met
certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish a tax
48
<PAGE>
reserve for bad debts. Such thrift institutions were also
permitted to make annual additions to the reserve, to be deducted
in arriving at their taxable income within specified limitations.
The Bank's deduction was computed using an amount based on the
Bank's actual loss experience ("experience method"), or a
percentage equal to 8% of the Bank's taxable income ("PTI
method"). Similar deductions for additions to the Bank's bad
debt reserve were also permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, the special rules for bad debt
reserves of thrift institutions no longer apply and, therefore,
the Bank cannot make additions to the tax bad debt reserves but
is permitted to deduct bad debts as they occur. Additionally,
under the 1996 Act, the Bank is required to recapture (that is,
include in taxable income) the excess of the balance of its bad
debt reserves as of December 31, 1995 over the balance of such
reserves as of December 31, 1987 ("base year"). The Bank's
federal tax bad debt reserves at December 31, 1995 exceeded its
base year reserves by $2.7 million which will be recaptured into
taxable income ratably over a six year period. This recapture
was suspended for 1996 and 1997 since the Bank satisfies certain
residential loan requirement. Thus, the Bank will begin this
recapture in its current taxable year. The base year reserves
will be subject to recapture, and the Bank could be required to
recognize a tax liability, if (i) the Bank fails to qualify as a
"bank" for Federal income tax purposes; (ii) certain
distributions are made with respect to the stock of the Bank (see
"Distributions"); (iii) the Bank uses the bad debt reserves for
any purpose other than to absorb bad debt losses; or (iv) there
is a change in Federal tax law. Management is not aware of the
occurrence of any such event.
Distributions. To the extent that the Bank makes "non-dividend
distributions" to stockholders, such distributions will be
considered as made from the Bank's base year reserve to the
extent thereof, and then from the supplemental reserve for losses
on loans and an amount based on the amount distributed will be
included in the Bank's taxable income. Non-dividend
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.
Corporate Alternative Minimum Tax. The Internal Revenue
49
<PAGE>
Code (the "Code") imposes a tax on alternative minimum taxable
income ("AMTI") at a rate of 20%. AMTI is increased by an amount
equal to 75% of the amount by which a corporation's adjusted
current earnings exceeds its AMTI (determined without regard to
this adjustment and prior to reduction for net operating losses).
In addition, pending legislative proposals would retroactively
reinstate 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.
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% 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 or the Bank owns more than 20%
of the stock of a corporation distributing a dividend, 80% of any
dividends received may be deducted.
STATE AND LOCAL TAXATION
New York State and New York City Taxation. The Bank and the
Company are subject to New York State and City franchise taxes on
net income or one of several alternative bases, whichever results
in the highest tax. "Net income" means Federal taxable income
with adjustments. The Company's annual tax liability for each
year is the greatest of a tax on allocated entire net income;
allocated alternative entire net income; allocated assets to New
York State and/or New York City; or a minimum tax. Operating
losses cannot be carried back or carried forward for New York
State or New York City tax purposes. The Bank is also subject to
the 17% Metropolitan Commuter District Surcharge on its New York
State tax after the deduction of credits.
In response to the 1996 Act, the New York State and New York City
tax laws have been amended to prevent the recapture of existing
tax bad debt reserves and to allow for the continued use of the
PTI method to determine the bad debt deduction in computing New
York City and New York State tax liability.
Delaware Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempted 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.
50
<PAGE>
ITEM 2. PROPERTIES
The Bank conducts its business through eight full-service banking
and thirty-nine supermarket banking facilities (seven of which
were opened during the first quarter of 1998) located in Queens,
Brooklyn, Manhattan, Staten Island, Nassau, Suffolk, Rockland
andWestchester counties, Northern New Jersey and Connecticut.
The Bank also maintains an office for data processing and other
property for possible future expansion. In December 1997, the
Bank purchased an office building on Long Island in Westbury, New
York for $7.3 million and entered into a lease agreement and
Payment-in-Lieu-of-Tax ("PILOT") agreement with the Town of
Hempstead Industrial Development Agency ("IDA"). The building
will be used for the Company's and the Bank's headquarters, and
occupancy is expected to occur in mid-1998. The total net book
value of the Company's and the Bank's premises and equipment was
$27.1 million at December 31, 1997, which included thirty-two
supermarket branches. The Company believes that the Bank's
current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company.
51
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
of Property or
Leasehold
Date Improvements
Leased or Leased or Date of Lease at December 31,
Location Owned Acquired Expiration(1) 1997
-------- --------- --------- ------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Main Office Complex:
93-22/93-30 & 94-09/94-13 Jamaica Avenue Owned 1957 - $2,387
& 87-14/86-35 94th St. Woodhaven, NY 11421
Traditional Branches:
80-35 Jamaica Avenue, Woodhaven, NY 11421 Owned 1979 - 276
82-10 153rd Avenue, Howard Beach, NY 11414 Owned 1971 - 579
98-16 101st Avenue, Ozone Park, NY 11416 Owned 1976 - 463
244-19 Braddock Avenue, Bellerose, NY 11426(2) Leased 1973 2003 123
106-17 Continental Ave, Forest Hills, NY 11375 Leased 1959 1999 31
343 Merrick Road, Amityville, NY 11701 Leased 1977 2001 440
104-08 Rockaway Beach Blvd., Rockaway
Beach, NY 11693 Leased 1996 1998 38
Administrative Office:
242 & 250 Old Country Road, Mineola, NY 11501 Leased 1996 1998 3
Supermarket Branches:
700-60 Patchogue Rd., Medford, NY 11763 Leased 1996 2001 193
1121 Jerusalem Avenue, Uniondale, NY 11553 Leased 1996 2001 217
533 Montauk Highway, Bayshore, NY 11708 Leased 1996 2001 252
625 Atlantic Avenue, Brooklyn, NY 11217 Leased 1996 2001 324
575 Montauk Highway, W. Babylon, NY 11704 Leased 1997 2002 226
2335 New Hyde Park Rd, New Hyde Park, NY 11040 Leased 1997 2002 245
1251 Deer Park Ave., N. Babylon, NY 11703 Leased 1997 2002 239
101 Wicks Road, Brentwood, New York 11717 Leased 1997 2002 244
3635 Hempstead Turnpike, Levittown, NY 11756 Leased 1997 2002 254
6070 Jericho Turnpike, Commack, NY 11726 Leased 1997 2002 250
2150 Middle Country Rd., Centereach, NY 11720 Leased 1997 2002 249
1897 Fron Street, East Meadow, NY 11554 Leased 1997 2002 253
8101 Jericho Turnpike, Woodbury, NY 11796 Leased 1997 2002 247
92-10 Atlantic Avenue, Ozone Park, NY 11416 Leased 1997 2002 256
395 Route 112, Patchogue, NY 11772 Leased 1997 2002 243
1764 Grand Avenue, Baldwin, NY 11510 Leased 1997 2002 228
5145 Nesconset Hwy., Port Jefferson, NY 11776 Leased 1997 2002 255
31-06 Farrington Street, Whitestone, NY 11357 Leased 1997 2002 248
5801 Sunrise Highway, Sayville, NY 11741 Leased 1997 2002 246
531 Montauk Highway, W. Babylon, NY 11776 Leased 1997 2002 249
155 Islip Avenue, Islip, NY 11751 Leased 1997 2002 255
800 Montauk Highway, Shirley, NY 11967 Leased 1997 2002 243
253-01 Rockaway Turnpike, Woodmere, NY 11422 Leased 1997 2002 246
227 Cherry Street, New York, NY 10002 Leased 1997 2002 228
45 Route 59 Monsey, NY 10952 Leased 1997 2002 225
Route 59, East Nanuet, NY 10954 Leased 1997 2002 228
1905 Sunrise Highway, Bayshore, NY 11708 Leased 1997 2002 272
941 Carmens Road, Massapequa, NY 11758 Leased 1997 2002 84
500 South River Street, Hackensack, NJ 07470 Leased 1997 2002 203
1 Pathmark Plaza, Mount Vernon, NY Leased 1997 2002 232
2875 Richmond Avenue, Staten Island, NY 10306 Leased 1997 2002 239
111-10 Flatlands Avenue, Brooklyn, NY 11230 Leased 1997 2002 232
Corporate Headquarters:
615 Merrick Avenue, Westbury, NY Owned 1997 - 7,300
</TABLE>
(1) Rent expense for the year ended December 31, 1997 was $1.7
million.
(2) Includes land that is adjacent to the branch office that was
acquired by the Bank in 1973.
ITEM 3. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
52
<PAGE>
1997, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 of unspecified damages. The Bank's ultimate
liability, if any, which might arise from the disposition of
these claims cannot presently be determined. Management believes
it has meritorious defenses against these actions and has and
will continue to defend its position. Accordingly, no provision
for any liability that may result upon adjudication has been
recognized in the accompanying consolidated financial statements.
The Company is involved in various legal actions arising in the
ordinary course of business, which in the aggregate, are believed
by management to be immaterial to the financial position of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information relating to the market for Registrant's common equity
and related stockholder matters appears under "Common Stock
Information" in the Registrant's 1997 Annual Report to
Stockholders on page 54, and is incorporated herein by reference.
Information relating to the payment of dividends by the
Registrant appears in "Note 14 to Notes to Consolidated Financial
Statements" in the Registrant's Annual Report on page 47 and is
incorporated herein by reference.
The Company initiated a quarterly cash dividend of $0.05 per
share in the third quarter of 1995 paid on October 20, 1995. The
following schedule summarizes the cash dividends paid for 1995,
1996 and 1997:
Dividend Payment Dividend Paid
Date Per Share (1) Record Date
---------------- ------------- -----------
October 20, 1995 .05 October 2, 1995
January 19, 1996 .05 January 2, 1996
April 29, 1996 .05 April 8, 1996
July 12, 1996 .075 June 27, 1996
October 28, 1996 .075 October 7, 1996
January 17, 1997 .075 December 30, 1996
April 24, 1997 .075 April 4, 1997
July 18, 1997 .075 June 30, 1997
October 17, 1997 .075 September 29, 1997
(1) As adjusted to reflect the 2-for-1 stock split effective
November 1997 ("stock split").
53
<PAGE>
The following schedule summarizes the dividend payout ratio
(dividends declared per share divided by net income per share)
Dividends Net income
Year Paid per share per share Payout ratio
------ -------------- ---------- ------------
1995 $0.05 $0.99 0.051%
1996 0.25 1.13 0.221
1997 0.30 1.32 0.227
ITEM 6. SELECTED FINANCIAL DATA
The above-captioned information appears in the Registrant's 1997
Annual Report to Stockholders on pages 10 and 11 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1997 Annual Report to
Stockholders on pages 12 through 24 and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Discussion of Market Risk" and "- Interest Rate
Sensitivity Analysis" in the Registrant's 1997 Annual Report to
Stockholders on pages 13 through 15 and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Haven Bancorp, Inc. and
its subsidiaries, together with the report thereon by KPMG Peat
Marwick LLP appears in the Registrant's 1997 Annual Report to
Stockholders on pages 25 through 52 and are incorporated herein
by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers of
the Registrant is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 22, 1998, on pages 5 through 8.
54
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is
incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on
April 22, 1998, on pages 9 through 22 (excluding the Report of
the Compensation Committee on pages 11 through 14 and the Stock
Performance Graph on page 15).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information relating to security ownership of certain
beneficial owners and management is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 22, 1998, on pages 4
and 6 through 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 22, 1998, on pages 22 and 23.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are
incorporated by reference to the following indicated pages of the
1997 Annual Report to Stockholders.
Pages
Consolidated Statements of Financial Condition
as of December 31, 1997 and 1996 ................... 25
Consolidated Statements of Income for the Years
Ended December 31, 1997, 1996 and 1995 ............. 26
Consolidated Statements of Changes In Stockholders'
Equity for the Three Years Ended December 31, 1997 . 27
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 ............. 28
Notes to Consolidated Financial Statements ......... 29 - 51
Independent Auditors' Report ....................... 52
The remaining information appearing in the Annual Report to
Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.
55
<PAGE>
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
(3) Exhibits (filed herewith unless otherwise noted)
(a) The following exhibits are filed as part of this
report:
3.1 Amended Certificate of Incorporation of Haven
Bancorp, Inc.*
3.2 Certificate of Designations, Preferences and Rights
of Series A Junior Participating Preferred Stock**
3.3 Bylaws of Haven Bancorp, Inc.*
4.0 Rights Agreement between Haven Bancorp, Inc. and
Chase Manhattan Bank (formerly Chemical Bank)**
10.1(A) Employment Agreement between Haven Bancorp, Inc. and
Philip S. Messina****
10.1(B) Amendatory Agreement to the Employment Agreement
between Haven Bancorp, Inc. and Philip S. Messina
(filed herewith)
10.1(C) Employment Agreement between CFS Bank and Philip S.
Messina (filed herewith)
10.2(A) Form of Change in Control Agreement between
Columbia Federal Savings Bank and certain executive
officers, as amended****
10.2(B) Form of Amendment to Change in Control Agreement
between CFS Bank and certain executive officers
(filed herewith)
10.2(C) Form of Change in Control Agreement between Haven
Bancorp, Inc. and certain executive officers, as
amended****
10.2(D) Form of Amendment to Change in Control Agreement
between Haven Bancorp, Inc. and certain executive
officers (filed herewith)
10.2(E) Employment Agreement between Columbia Federal
Savings Bank and Andrew L. Kaplan (filed herewith)
10.4 (a) Amended and Restated Columbia Federal Savings
Bank Recognition and Retention Plans and Trusts for
Officers and Employees***
10.4 (b) Amended and Restated Recognition and Retention
Plan and Trusts for Outside Directors***
10.5 Haven Bancorp, Inc. 1993 Incentive Stock Option
Plan***
10.6 Haven Bancorp, Inc. 1993 Stock Option Plan for
Outside Directors***
10.7 Columbia Federal Savings Bank Employee Severance
Compensation Plan, as amended****
10.8 Columbia Federal Savings Bank Consultation and
Retirement Plan for Non-Employee Directors***
10.9 Form of Supplemental Executive Retirement Plan*
10.10 Haven Bancorp, Inc. 1996 Stock Incentive Plan****
11.0 Computation of earnings per share (filed herewith)
56
<PAGE>
13.0 1997 Annual Report to Stockholders (filed herewith)
21.0 Subsidiary information is incorporated herein by
reference to "Part I - Subsidiaries"
23.0 Consent of Independent Auditors (filed herewith)
27.0 Financial Data Schedule (filed herewith)
99 Proxy Statement for 1998 Annual Meeting (filed
herewith)
_______________
* Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement and any amendments
thereto, filed on April 14, 1993, Registration No. 33-61048.
** Incorporated herein by reference into this document from the
Exhibits to Form 8-K, Current Report, filed on January 30, 1996.
*** Incorporated herein by reference into this document from the
Exhibits to Form 10-K for the year ended December 31, 1994, filed
on March 30, 1995.
**** Incorporated herein by reference into this document from the
Exhibits to Form 10-K for the year ended December 31, 1995, filed
on March 29, 1996.
(b) Reports on Form 8-K.
One report on Form 8-K was filed by the Company dated
March 26, 1998 relating to the Bank's agreement to purchase
Intercounty Mortgage, Inc. No financial statements were filed as
a part of such report.
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
HAVEN BANCORP, INC.
By: /s/ George S. Worgul
--------------------
George S. Worgul
Dated: March 30, 1998 Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ George S. Worgul Chairman of the Board March 30, 1998
- - --------------------------
George S. Worgul
/s/ Philip S. Messina President and Chief March 30, 1998
- - -------------------------- Executive Officer
Philip S. Messina
/s/ Robert L. Koop Director March 30, 1998
- - --------------------------
Robert L. Koop
/s/ Robert M. Sprotte Director March 30, 1998
- - --------------------------
Robert M. Sprotte
/s/ Joseph A. Ruggiere Director March 30, 1998
- - --------------------------
Joseph A. Ruggiere
58
<PAGE>
/s/ Michael J. Fitzpatrick Director March 30, 1998
- - --------------------------
Michael J. Fitzpatrick
/s/ William J. Jennings II Director March 30, 1998
- - --------------------------
William J. Jennings II
/s/ Michael J. Levine Director March 30, 1998
- - --------------------------
Michael J. Levine
/s/Msgr. Thomas J. Hartman Director March 30, 1998
- - --------------------------
Msgr. Thomas J. Hartman
/s/ Catherine Califano Senior Vice President and March 30, 1998
- - -------------------------- Chief Financial Officer
Catherine Califano
59
</TABLE>
Exhibit 10
AMENDATORY AGREEMENT
This Amendatory Agreement ("Agreement") is made effective as of May
28, 1997 by and between Haven Bancorp, Inc. ("Company"), a publicly
held business corporation organized and operating under the laws of
the State of Delaware and having an office at 93-22 Jamaica Avenue,
Woodhaven, New York 11421 ("Company") and Philip S. Messina, an
individual residing at No. 8 Bryan Meadow Path, Fort Salonga, New
York 11768 ("Executive"). Any reference to "Bank" herein shall
mean Columbia Federal Savings Bank, a wholly owned subsidiary of
the Company, or any successor thereto.
Witnesseth:
Whereas, the Company and the Executive entered into an employment
agreement dated September ___, 1995 ("Employment Agreement"); and
Whereas, the Company and Executive desire to amend the Employment
Agreement, effective as of May 28, 1997; and
Now, Therefore, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter
provided, the parties hereby agree as follows:
First. The preamble of the Employment Agreement shall be amended
by deleting the phrases, "and the Bank" where they appear in the
third whereas clause thereof.
Second. Section 3 of the Employment Agreement shall be amended by
deleting the phrases "and the Bank," "and of the Bank Board" and
"and the Bank" where they appear therein and by addition the
following at the end thereof:
In the event that the Executive's employment with the Bank
terminates for any reason, Executive's duties shall be limited
solely to his position as President and Chief Executive Officer of
the Company and he shall not participate, either directly or
indirectly, in the affairs of the Bank.
Third. Section 4 of the Employment Agreement shall be amended by
deleting the parenthetical "(or cause the Bank to pay)" and the
words "or Bank's" from the first sentence thereof, changing the
reference to "$300,000" in the first sentence thereof to" One
hundred Fifty Eight Thousand, Three Hundred Thirty Three Dollars
($158,333)" and by deleting the words "or Bank" from the last
sentence thereof.
Fourth. Section 5 of the Employment Agreement shall be amended by
deleting the phrases "and the Bank", "or the Bank" and "and the
Bank's" from the first sentence thereof.
Fifth. Section 6 of the Employment Agreement shall be amended by
deleting the parenthetical "(or cause the Bank to provide)" from
the first sentence thereof.
Sixth. Section 7(a) of the Employment Agreement shall be amended
by deleting the words "or the Bank" from the first sentence
thereof.
Seventh. Section 9 of the Employment Agreement shall be amended by
deleting the words "or cause the Bank to provide" from the second
sentence thereof.
Eighth. Section 10 of the Employment Agreement shall be amended by
deleting the words "or the Bank" from the first sentence thereof,
by amending Sections 10(a)(ii)(A) and 10(a)(ii)(B) in their
entirety to read as follows:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect Executive to the office of President and Chief Executive
Officer (or a more senior office) of the Company; or
(B) the failure of the stockholders of the Company to elect or re-
elect Executive as a member of the Board or the failure of the
Board (or nominating committee thereof) to nominate Executive for
such election or re-election; or
and by deleting the words "or the Bank's" and "Bank Board" and the
comma preceding the words "Bank Board" from Section 10(a)(ii)(C).
Ninth. Section 11 of the Employment Agreement shall be amended by
deleting the parenthetical "(or cause the Bank to pay and provide)"
from the first sentence thereof and by deleting the words "and the
Bank" from the last sentence of Sections 11(i) and 11(j) and from
Section 11(k) in each place they appear therein.
Tenth. Section 12 of the Employment Agreement shall be amended by
deleting the words "and the Bank" from section 12(a) in each place
they appear therein and by deleting the parenthetical "(or cause
the Bank to pay)" from Section 12(b).
Eleventh. Section 28 of the Employment Agreement shall be amended
by adding the following sentence at the end thereof:
Notwithstanding the foregoing, the Bank shall not be deemed a party
to this Agreement or obligated to take any actions or make any
payments pursuant to the terms hereof.
Twelfth. The Employment Agreement shall be amended by adding the
following Section 29 in its entirety:
Section 29. Guarantee.
The Company hereby agrees to guarantee the payment by the Bank of
any benefits and compensation to which Mr. Messina is or may be
entitled to under the terms and conditions of the employment
agreement dated May 28, 1997 between the Bank and Mr. Messina.
Thirteenth. The Employment Agreement shall be amended by replacing
the words "Change of Control" wherever they appear therein with the
words "Change in Control."
Fourteenth. Except as expressly amended herein, the Employment
Agreement shall remain in full force and effect.
In Witness Whereof, the Company has caused this Agreement to be
executed and Executive has hereunto set his hand, all as of the day
and year first above written.
/s/ Philip S. Messina
-------------------------
Philip S. Messina
--------------------------
ATTEST: Haven Bancorp, Inc.
By: ------------------------
Secretary By: /s/ George S. Worgul
------------------------
Name: George S. Worgul
Title: Chairman of the Board
[Seal]
STATE OF NEW YORK)
: ss.:
COUNTY OF QUEENS )
On this ________ day of May, 1997, before me personally came Philip
S. Messina, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said
instrument, and that he signed his name to the foregoing
instrument.
________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ____ day of May, 1997, before me personally came
___________________________, to me known, who, being by me duly
sworn, did depose and say that he resides at
________________________________________________, that he is a
member of the Board of Directors of Haven Bancorp, the Delaware
corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such seal; that it was so
affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
_________________________
Notary Public
Bank Employment Agreement
This Employment Agreement ("Agreement") is made and entered into as
of May 28, 1997, by and between Columbia Federal Savings Bank, a
savings bank organized and operating under the federal laws of the
United States and having an office at 93-22 Jamaica Avenue,
Woodhaven, New York 11421 ("Bank") and Philip S. Messina, an
individual residing at No. 8 Bryan Meadow Path, Fort Salonga, New
York 11768 ("Executive"). Any reference to "Company" herein shall
mean Haven Bancorp, Inc., the Bank's holding company, or any
successor thereto.
W i t n e s s e t h :
Whereas, Executive currently serves the Bank in the capacity of
President and Chief Executive Officer and as a member of the Board
of Directors of the Bank ("Board"); and
Whereas, the Bank desires to assure for itself the continued
availability of Executive's services and the ability of Executive
to perform such services with a minimum of personal distraction in
the event of a pending or threatened Change in Control (as
hereinafter defined); and
Whereas, the Executive is willing to continue to serve the Bank on
the terms and conditions hereinafter set forth;
Now, Therefore, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and
Executive hereby agree as follows:
Section 1. Employment.
The Bank agrees to continue to employ Executive, and Executive
hereby agrees to such continued employment, during the period and
upon the terms and conditions set forth in this Agreement.
Section 2. Employment Period; Remaining Unexpired Employment
Period.
(a) The terms and conditions of this Agreement shall be and remain
in effect during the period of employment established under this
Section 2 ("Employment Period"). The Employment Period shall be
for an initial term of three years beginning on the date of this
Agreement. On September 23, 1997, and on each anniversary of such
date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and the Executive's performance
of services hereunder and may, in the absence of objection from the
Executive, approve an extension of the Employment Agreement. In
such event, the Employment Agreement shall be extended to the third
anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period
beginning on such date and ending on the Anniversary Date on which
the Employment Period (as extended pursuant to Section 2(a) of this
Agreement) is then scheduled to expire.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating Executive's employment during the
Employment Period with or without notice for any reason; provided,
however, that the relative rights and obligations of the Bank and
Executive in the event of any such termination shall be determined
under this Agreement.
Section 3. Duties.
Executive shall serve as President and Chief Executive Officer of
the Bank, and as a member of the Board, having such power,
authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Bank and as are
customarily associated with such positions. Executive shall devote
his full business time and attention (other than during weekends,
holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Bank
and shall use his best efforts to advance the interests of the
Bank.
Section 4. Cash Compensation.
In consideration for the services to be rendered by Executive
hereunder, the Bank shall pay to Executive a salary at an initial
annual rate of Three Hundred Sixteen Thousand, Six Hundred Sixty
Seven Dollars ($316,667) payable in approximately equal
installments in accordance with the Bank's customary payroll
practices for senior officers. Prior to each Anniversary Date
occurring during the Employment Period, the Board shall review
Executive's annual rate of salary and may, in its discretion,
approve an increase therein. In addition to salary, Executive may
receive other cash compensation from the Bank for services
hereunder at such times, in such amounts and on such terms and
conditions, as the Board may determine from time to time.
Section 5. Employee Benefit Plans and Programs.
During the Employment Period, Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified
retirement, pension, savings, profit-sharing or stock bonus plans,
any and all group life, health (including hospitalization, medical
and major medical), dental, accident and long-term disability
insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and
restricted stock plans) (collectively, "Benefit Plans") as may from
time to time be maintained by, or cover employees of, the Bank, in
accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and
consistent with the Bank's customary practices. Nothing paid to
the Executive under any such plan or arrangement will be deemed to
be in lieu of other compensation to which the Executive is entitled
under this Agreement.
Section 6. Supplemental Executive Retirement Benefits.
Without limiting the generality of Section 5 hereof, in the event
that the amount of benefits or contributions Executive would have
received or accrued under the benefit formulas of the tax-qualified
Benefit Plans of the Bank and the Company is limited by Sections
401(a)(17), 401(k)(3), 401(m), 402(g) or 415 of the Internal
Revenue Code of 1986 ("Benefit Limitations"), the Bank shall
provide Executive with supplemental benefits equal to the benefits
attributable to employer contributions that he would have received
if the Benefit Limitations did not apply. Such supplemental
benefits shall be provided on a non-qualified, deferred
compensation basis and shall be determined under the benefit
formulas and actuarial assumptions of the applicable Benefit Plans.
Payment of such supplemental benefits shall be made in the same
manner and at the same time as payment of the Executive's benefits
under the applicable Benefit Plan.
Section 7. Indemnification.
(a) During the Employment Period and for a period of six (6) years
thereafter, the Bank shall cause Executive to be covered by and
named as an insured under any policy or contract of insurance
obtained by it to insure directors and officers against personal
liability for acts or omissions in connection with service as an
officer or director of the Bank, or service in other capacities at
the request of the Bank. The coverage provided to Executive
pursuant to this Section 7 shall be of the same scope and on the
same terms and conditions as the coverage (if any) provided to
other officers or directors of the Bank.
(b) To the maximum extent permitted under applicable law, during
the Employment Period and for a period of six (6) years thereafter,
the Bank shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures to the
fullest extent and on the most favorable terms and conditions that
similar indemnification is offered to any director or officer of
the Bank or affiliate thereof. This Section 7(b) shall not be
applicable where Section 20 is applicable.
Section 8. Outside Activities.
Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as Executive may
disclose to and as may be approved by the Board (which approval
shall not be unreasonably withheld); provided, however, that such
service shall not materially interfere with the performance of his
duties under this Agreement. Executive may also engage in personal
business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided,
however, that such activities are not prohibited under any code of
conduct or investment or securities trading policy established by
the Bank and generally applicable to all similarly situated
executives. The Executive may also serve as an officer or director
of the Company on such terms and conditions as the Bank and the
Company may mutually agree upon, and such service shall not be
deemed to materially interfere with the Executive's performance of
his duties hereunder or otherwise to result in a material breach of
this Agreement.
Section 9. Working Facilities and Expenses.
Executive's principal place of employment shall be at the Bank's
executive offices at the address first above written, or at such
other location within Queens County at which the Bank shall
maintain its principal executive offices, or at such other location
as the Bank and Executive may mutually agree upon. The Bank shall
provide Executive at his principal place of employment with a
private office, secretarial services, an automobile, and other
support services and facilities suitable to his position with the
Bank and necessary or appropriate in connection with the per-
formance of his assigned duties under this Agreement. The Bank
shall reimburse Executive for his ordinary and necessary business
expenses, including, without limitation, all expenses associated
with his business use of the aforementioned automobile, membership
fees, dues, capital contributions or such other business-related
charges required for, or related to, membership or participation in
such clubs and organizations as Executive and the Bank shall
mutually agree are necessary and appropriate for business purposes,
and his travel and entertainment expenses incurred in connection
with the performance of his duties under this Agreement, in each
case upon presentation to the Bank of an itemized account of such
expenses in such form as the Bank may reasonably require.
Section 10. Termination of Employment.
Executive shall be entitled to the severance benefits described in
Section 11 hereof in the event that his employment with the Bank
terminates during the Employment Period under any of the following
circumstances:
(a) prior to a Change in Control, as defined in Section 14 hereof:
(i) the termination by the Bank of the Executive's employment
hereunder for any reason other than Disability, as defined in
Section 12 hereof, Retirement, as defined in Section 13(d) hereof,
or Cause, as defined in Section 13(a) hereof; or
(ii) Executive's voluntary resignation from employment with the
Bank upon (60) days written notice given within six full calendar
months following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect Executive to the office of President and Chief Executive
Officer of the Bank; or
(B) the failure of the stockholders of the Bank to elect or re-
elect Executive as a member of the Board, or the failure of the
Board (or the nominating committee thereof) to nominate Executive
for such election or re-election; or
(C) the expiration of a thirty (30) day period following the date
on which Executive gives written notice to the Bank of its the
material failure, whether by amendment of the Bank's Organization
Certificate or By-laws, action of the Board, or the Bank's
stockholders or otherwise, to vest in Executive the functions,
duties, or responsibilities attributable to the positions described
in Section 3 of this Agreement, unless, during such thirty (30) day
period, the Bank cures such failure in a manner determined by
Executive, in his discretion, to be satisfactory; or
(D) the expiration of a thirty (30) day period following the date
on which Executive gives written notice to the Bank of its material
breach of any term, condition or covenant contained in this
Agreement (including, without limitations, any reduction of
Executive's rate of base salary in effect from time to time, any
change in the terms and conditions of any compensation or benefit
program in which Executive participates, or change in Executive's
fringe benefits and perquisites, which, either individually or
together with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless, during
such thirty (30) day period, the Bank cures such failure in a
manner determined by Executive, in his discretion, to be
satisfactory; or
(E) the relocation of Executive's principle place of employment by
more than 30 miles from its location at the effective date of this
Agreement or any change in working conditions at such principal
place of employment which Executive, in his reasonable discretion,
determines to be embarrassing, derogatory or otherwise adverse; or
(b) subsequent to a Change in Control, as defined in Section 14,
Executive shall be entitled to the payments and benefits
contemplated by Section 11 in the event of his termination of
employment with the Bank under the circumstances described in
Section 10(a)(i) or (ii) or under any of the following
circumstances:
(i) resignation, voluntary or otherwise, by the Executive at any
time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant
authority or responsibility, or following any material reduction in
any element of his package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at any
time during the Employment Period and within ninety (90) days
following (A) any relocation of his principal place of employment
outside of a 30-mile radius of the principal place of employment
immediately prior to the Change in Control that would require a
relocation of his residence in order to be able to commute to such
new place of employment within a commuting time not in excess of
the greater of 60 minutes or the Executive's commuting time prior
to the Change in Control or (B) any material adverse change in
working conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at any
time during the Employment Period following the failure of any
successor to the Bank in the Change in Control to include the
Executive in any compensation or benefit program maintained by it
or covering any of its executive officers, unless the Executive is
already covered by a substantially similar plan of the Bank which
is at least as favorable to him.
Section 11. Severance Benefits.
Upon the termination of Executive's employment with the Bank under
the circumstances described in Section 10 of this Agreement, the
Bank shall pay and provide to Executive (or, in the event of his
death following his termination of employment, to his estate):
(a) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under Section 190.1 of
the New York Labor Law and the payment of which is not otherwise
provided for under this Section 11) as of the date of the
termination of his employment with the Bank, such payment to be
made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days
after termination of employment;
(b) the benefits, if any, to which Executive is entitled as a
former employee under the Benefit Plans maintained by the Bank for
their officers and employees;
(c) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term
disability insurance benefits, in addition to that provided
pursuant to Section 11(b), and after taking into account the
coverage provided by any subsequent employer, if and to the extent
necessary to provide coverage for Executive and his family
equivalent to the coverage to which Executive would be entitled
under the applicable Benefit Plans (as in effect on the date of his
termination of employment, or, if his termination of employment
occurs after a Change in Control, on the date of such Change in
Control, whichever benefits are greater), if Executive had con-
tinued working for the Bank either:
(i) during the Remaining Unexpired Employment Period, if
Executive's termination of employment occurs under the
circumstances described in Section 10(a); or
(ii) until Executive's death, if the Executive's termination of
employment occurs under the circumstances described in Section
10(b);
and during such period Executive received the highest annual rate
of compensation achieved during that portion of the Employment
Period prior to Executive's termination of employment, such
benefits to be provided without regard to whether Executive's
continued participation in the applicable Benefit Plans is
prohibited during such period and to include continuation coverage
for Executive and members of Executive's family following the
expiration of the applicable period set forth in Section 11(c)(i)
or (ii) above equivalent to the continuation coverage that they
would be entitled to under the Consolidated Omnibus Budget
Reconciliation Act ("COBRA") if such benefits were provided under
the applicable Benefit Plans; and
(d) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment, in an amount equal to
the present value of the salary that Executive would have earned if
Executive had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during that portion of the Employment Period which is
prior to Executive's termination of employment with the Bank, where
such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under Section
1274(d) of the Internal Revenue Code of 1986 ("Code"), compounded
using the compounding period corresponding to the Bank's regular
payroll periods for its officers;
(e) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to
the excess, if any, of:
(i) the present value of the aggregate benefits to which Executive
would be entitled under any and all qualified and non-qualified
defined benefit pension plans maintained by, or covering employees
of, the Bank, if Executive were 100% vested thereunder and had con-
tinued working for the Bank during the Remaining Unexpired
Employment Period, such benefits to be determined as of the date of
termination of employment by adding to the service actually
recognized under such plans an additional period equal to the
Remaining Unexpired Employment Period and by including in the
compensation recognized under such plans all amounts payable under
Sections 11(a), (d), (h), (i) and (j) which would be credited under
such plans had they been paid over the Remaining Unexpired
Employment Period; over
(ii) the present value of the benefits to which Executive is actu-
ally entitled under such defined benefit pension plans as of the
date of his termination;
where such present values are to be determined using the mortality
tables prescribed under Section 415(b)(2)(E)(v) of the Code
("Applicable Mortality Table") and a discount rate, compounded
monthly equal to the annualized rate of interest prescribed by the
Pension Benefit Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit
plans for the month in which Executive's termination of employment
occurs ("Applicable PBGC Rate");
(f) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to
the present value of the additional employer contributions to which
Executive would have been entitled under any and all qualified and
non-qualified defined contribution plans maintained by, or covering
employees of, the Bank, and if Executive were 100% vested
thereunder and had continued working for the Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to Executive's termination of employment and making
the maximum amount of employee contributions, if any, required
under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding
period that corresponds to the frequency with which employer
contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(g) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to
the fair market value (determined as of the date of his termination
of employment, or, if his termination of employment occurs after a
Change in Control, on the date of such Change in Control, whichever
value is greater) of any stock that would have been allocated or
awarded to Executive under any and all stock-based qualified or
non-qualified employee benefit plan or plans maintained by, or
covering employees of, the Bank, if Executive were 100% vested
thereunder and continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to the Executive's termination of employment;
(h) the payments that would have been made to Executive under any
cash bonus or long-term or short-term cash incentive compensation
plan maintained by, or covering employees of, the Bank if Executive
had continued working for the Bank during the Remaining Unexpired
Employment Period and had earned the maximum bonus or incentive
award in each calendar year that ends during the Remaining
Unexpired Employment Period, such payments to be equal to the
product of:
(A) the maximum percentage rate at which an award was ever avail-
able to Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to Executive during each
such calendar year at the highest annual rate of salary achieved
during that portion of the Employment Period which is prior to
Executive's termination of employment with the Bank:
such payments to be made (without discounting for early payment)
within thirty (30) days following Executive's termination of
employment;
(i) at the election of Executive made within thirty (30) days fol-
lowing his termination of employment, upon the surrender of options
or appreciation rights issued to Executive under any stock option
and appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to
the product of:
(i) the excess of (A) the fair market value of a share of stock of
the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(B) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(ii) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this Section 11(i) and for purposes of determining
Executive's right following his termination of employment with the
Bank to exercise any options or appreciation rights not surrendered
pursuant hereto, Executive shall be deemed fully vested in all
options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering
employees of, the Bank, even if Executive is not vested under such
plan or program;
(j) at the election of Executive made within thirty (30) days fol-
lowing Executive's termination of employment, upon the surrender of
any shares awarded to Executive under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum
payment in an amount equal to the product of:
(i) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of
Executive's termination of employment; multiplied by
(ii) the number of shares which are being surrendered.
For purposes of this Section 11(j) and for purposes of determining
Executive's right following his termination of employment with the
Bank to any stock not surrendered pursuant hereto, Executive shall
be deemed fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Bank, even
if Executive is not vested under such plan;
(k) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to
the present value of the additional benefits to which the Executive
would have been entitled under Section 6 of this Agreement if
Executive had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during that portion of the Employment Period which is
prior to Executive's termination of employment, where such present
value is to be determined using the Applicable Mortality Table and
Applicable PBGC Rate and assuming that the Benefit Limitations as
in effect at the time of Executive's termination remained in effect
during the Remaining Unexpired Employment Period;
(l) if Executive's termination of employment occurs under the
circumstances described in Section 10(b), within thirty (30) days
following his termination, a lump sum payment in an amount equal to
the excess, if any, of:
(i) the present value of the aggregate benefits to which Executive
would be entitled under any and all qualified and non-qualified
defined benefit plans maintained by, or covering employees of, the
Bank, including the supplemental benefits relating to such plans
that are provided for under Section 6 of the Agreement, if
Executive were 100% vested thereunder and had continued working for
the Bank during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the
Employment Period which is prior to Executive's termination of
employment, and such plans provided for an early retirement benefit
commencing at the later of Executive's attainment of age 55 or the
expiration of the Remaining Unexpired Employment Period, equal to
the retirement benefit payable under such plans as of Executive's
normal retirement date thereunder and without any actuarial
reduction to reflect benefit commencement prior to such normal
retirement date, such benefits to be determined in the same manner
as specified for determining the amount specified under Section
11(e)(i) of this Agreement; over
(ii) the sum of: (A) the present value of the benefits to which
Executive is actually entitled to receive under the qualified and
non-qualified defined benefit plans maintained by, or covering
employees of, the Bank, and the provisions of Section 6 of this
Agreement and (B) the payment to be made pursuant to Section 11(e)
of this Agreement;
where such present values are to be determined using the Applicable
Mortality Table and Applicable PBGC Rate; and
(m) if Executive's termination of employment occurs under the
circumstances described in Section 10(b), continuation, at no cost
to Executive, of the fringe benefits and perquisites made available
or provided to Executive immediately prior to the Change in Control
for the Remaining Unexpired Employment Period, including, but not
limited to, use of the automobile provided to Executive by the Bank
immediately prior to the Change in Control, and continued payment
of all membership fees, dues, capital contributions and other
expenses for membership in such clubs, associations or other
organizations for which expenses were paid by the Bank on behalf of
Executive during the Employment Period prior to the Change in
Control.
The Bank and Executive hereby stipulate that the damages which may
be incurred by Executive following any termination of employment
under the circumstances described in Section 10 of this Agreement
are not capable of accurate measurement as of the date first above
written and that the payments and benefits contemplated by this
Section 11 constitute reasonable damages under the circumstances
and shall be payable without any requirement of proof of actual
damage and without regard to Executive's efforts, if any, to
mitigate damages.
Section 12. Termination for Disability.
(a) If, as a result of Executive's incapacity due to physical or
mental illness, he shall have been absent from his duties with the
Bank on a full-time basis for six (6) consecutive months, and
within thirty (30) days after written notice of potential
termination is given he shall not have returned to the full-time
performance of his duties, the Bank may terminate Executive's
employment for "Disability" and he shall be entitled to the
payments and benefits provided for under Sections 12(b) and (c).
For purposes of this Section 12(a), "Disability" shall have the
same meaning set forth in the group long-term disability policy or
plan maintained by the Bank for employees as in effect on the
effective date of this Agreement, or if no such plan or policy is
maintained on such date, "Disability" shall mean a condition of
total incapacity, mental or physical, for the performance of the
Executive's stated duties hereunder, which incapacity shall have
been determined, by a doctor selected by the Bank and acceptable to
the Executive or his legal representatives, is likely to be
permanent.
(b) The Bank will pay Executive, as disability pay, three-quarters
(3/4) of Executive's rate of salary as in effect pursuant to
Section 4 on the effective date of such termination, payable in
approximately equal installments in accordance with the Bank's
customary payroll practices. These disability payments shall
commence on the effective date of Executive's termination and will
end on the earlier of (i) the date Executive returns to the full-
time employment of the Bank in the same capacity as he was employed
prior to his termination for Disability and pursuant to an
employment agreement between Executive and the Bank; (ii)
Executive's full-time employment by another employer; (iii)
Executive attaining the age of 65; (iv) Executive's death; or (v)
the expiration of the term of this Agreement. The disability pay
shall be reduced by the amount, if any, paid to the Executive under
any plan of the Bank providing disability benefits to the
Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his termination for
Disability. This coverage and payments shall cease upon the
earlier of (i) the date Executive returns to the full-time
employment of the Bank, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an
employment agreement between Executive and the Bank; (ii)
Executive's full-time employment by another employer; (iii)
Executive's attaining the age of 65; (iv) the Executive's death; or
(v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in
the compensation otherwise payable to Executive during any period
during which Executive is incapable of performing his duties
hereunder by reason of temporary disability.
Section 13. Termination without Additional Bank Liability.
In the event that Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of Executive for "Cause," which, for purposes of
this Agreement, shall mean personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease and desist order,
or any material breach of this Agreement, in such case as measured
against standards generally prevailing at the relevant time in the
savings and community banking industry; provided, however, that the
Executive shall not be deemed to have been discharged for Cause
unless and until he shall have received a written notice of
termination from the Board, accompanied by a resolution duly
adopted by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose (after reasonable notice
to the Executive and a reasonable opportunity for the Executive to
make oral and written presentations to the members of the Board, on
his own behalf, or through a representative, who may be his legal
counsel, to refute the grounds for the proposed determination)
finding that in the good faith opinion of the Board grounds exist
for discharging the Executive for Cause; or
(b) Executive's voluntary resignation from employment with the
Bank for reasons other than those specified in Section 10;
(c) Executive's death; or
(d) Executive's "Retirement," which, for purposes of this
Agreement, shall mean Executive's voluntary termination at a time
when he is eligible for a normal retirement benefit under the
qualified defined benefit pension plan or plans of the Bank, or if
no such plan is currently maintained, the Executive's voluntary
termination at or after the attainment of age 65;
then the Bank shall have no further obligations under this Agree-
ment, other than the payment to Executive (or, in the event of his
death, to his estate) of his earned but unpaid salary as of the
date of the termination of his employment, and the provision of
such other benefits, if any, to which Executive is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employ-
ees of, the Bank.
Section 14. Change in Control.
(a) A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following
events:
(i) approval by the stockholders of the Bank of a transaction that
would result in the reorganization, merger or consolidation of the
Bank, respectively, with one or more other persons, other than a
transaction following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the
Bank; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the
Bank;
(ii) the acquisition of all or substantially all of the assets of
the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Bank entitled to vote generally in
the election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Bank of any
transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to
any of the following groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the
date of this Agreement either:
(I) upon election to serve as a member of the Board by affirmative
vote of three-quarters of the members of such Board, or of a
nominating committee thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of the Bank to serve as a
member of the Board, but only if nominated for election by affir-
mative vote of three-quarters of the members of the Board, or of a
nominating committee thereof, in office at the time of such first
nomination;
provided, however, that such individual's election or nomination
did not result from an actual or threatened election contest
(within the meaning of Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation
of proxies or consents (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) other than by or
on behalf of the Board; or
(v) any event which would be described in Section 14(a), (b), (c)
or (d) if the term "Company" were substituted for the term "Bank"
therein.
In no event, however, shall a Change in Control be deemed to have
occurred as a result of any acquisition of securities or assets of
the Bank, the Company, or a subsidiary of either of them, by the
Bank, the Company, or a subsidiary of either of them, or by any
employee benefit plan maintained by any of them. For purposes of
this Section 14, the term "person" shall have the meaning assigned
to it under Section 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) Upon a Change in Control, the Bank shall establish an
irrevocable grantor trust, which satisfies the requirements of
Revenue Procedure 92-64, 1992 C.B. 422, and shall contribute to
such trust an amount sufficient to provide for the benefits to be
paid to Executive pursuant to Section 6 of this Agreement, the
amounts to be paid to Executive pursuant to Section 11(c)(ii), if
such amounts may not be provided under the Benefit Plans, and the
fringe benefits and perquisites to be provided under Section 11(m).
Section 15. Covenant Not To Compete.
Executive hereby covenants and agrees that, in the event of his
termination of employment with the Bank prior to the expiration of
the Employment Period for any reason other than the circumstances
provided under Section 10 hereof, for a period of one (1) year
following the date of his termination of employment with the Bank
(or, if less, for the Remaining Unexpired Employment Period),
Executive shall not, without the written consent of the Bank,
become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan
holding company, bank or bank holding company, or any direct or
indirect subsidiary or affiliate of any such entity, that competes
with the business of the Bank in any city, town or county in which
the Bank has an office or has filed an application for regulatory
approval to establish an office as of the date of Executive's
termination of employment; provided, however, that if Executive's
employment shall be terminated on account of Disability as provided
in Section 12 of this Agreement, this Section 15 shall not prevent
Executive from accepting any position or performing any services if
(a) Executive first offers, by written notice, to accept a similar
position with, or perform similar services for, the Bank on
substantially the same terms and conditions and (b) the Bank
declines to accept such offer within ten (10) days after such
notice is given.
Section 16. Confidentiality.
Unless Executive obtains the prior written consent of the Bank,
Executive shall keep confidential and shall refrain from using for
the benefit of himself, or any person or entity other than the Bank
or any entity of which the Bank is a subsidiary, any material
document or information obtained from the Bank, or from its parent
or subsidiaries, in the course of his employment with any of them
concerning their properties, operations or business (unless such
document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made
available to the public through no fault of his own) until the same
ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this Section 16 shall prevent
Executive, with or without the Bank's consent, from participating
in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to
the extent that such participation or disclosure is required under
applicable law.
Section 17. No Effect on Employee Benefit Plans or Programs.
The termination of Executive's employment during the term of this
Agreement or thereafter, whether by the Bank or by Executive, shall
have no effect on the rights and obligations of the parties hereto
under the Bank's qualified or non-qualified retirement, pension,
savings, thrift, profit-sharing or stock bonus plans, group life,
health (including hospitalization, medical and major medical),
dental, accident and long term disability insurance plans or such
other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank
from time to time.
Section 18. Successors and Assigns.
This Agreement will inure to the benefit of and be binding upon
Executive, his legal representatives and testate or intestate
distributees, the Bank and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or
any other person or firm or corporation to which all or substan-
tially all of the assets and business of the Bank may be sold or
otherwise transferred. Failure of the Bank to obtain from any
successor its express written assumption of the Bank's obligations
hereunder at least sixty (60) days in advance of the scheduled
effective date of any such succession shall be deemed a material
breach of this Agreement.
Section 19. Notices.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent,
instruction, objection or waiver, shall be in writing and shall be
deemed to have been given at such time as it is delivered personal-
ly, or five (5) days after mailing if mailed, postage prepaid, by
registered or certified mail, return receipt requested, addressed
to such party at the address listed below or at such other address
as one such party may by written notice specify to the other party:
If to Executive:
Philip S. Messina
No. 8 Bryan Meadow Path
Fort Salonga, New York 11768
If to the Bank:
Columbia Federal Savings Bank
93-22 Jamaica Avenue
Woodhaven, New York 11421
Attention: Chairman of the Compensation Committee
of the Board of Directors
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Lisa M. Miller, Esq.
Section 20. Indemnification for Attorneys' Fees.
The Bank shall indemnify, hold harmless and defend Executive
against reasonable costs, including legal fees, incurred by
Executive in connection with or arising out of any action, suit or
proceeding in which Executive may be involved, as a result of his
efforts, in good faith, to defend or enforce the terms of this
Agreement; provided, however, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment,
decree, or order of a court of competent jurisdiction or of an
arbitrator in an arbitration proceeding, or in a settlement. For
purposes of this Agreement, any settlement agreement which provides
for payment of any amounts in settlement of the Bank's obligations
hereunder shall be conclusive evidence of Executive's entitlement
to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement
agreement, unless such settlement agreement expressly provides
otherwise.
Section 21. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of
any other provision hereof.
Section 22. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition. A waiver of any provision of this
Agreement must be made in writing, designated as a waiver, and
signed by the party against whom its enforcement is sought. Any
waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of
such right or power at any other time or times.
Section 23. Counterparts.
This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
Section 24. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the
extent that federal law is inapplicable, in accordance with the
laws of the State of New York applicable to contracts entered into
and to be performed entirely within the State of New York.
Section 25. Headings and Construction.
The headings of Sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any
Section. Any reference to a Section number shall refer to a
Section of this Agreement, unless otherwise stated.
Section 26. Entire Agreement; Modifications.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its
entirety any and all prior agreements, understandings or rep-
resentations relating to the subject matter hereof, including all
terms of the Prior Agreement between the Bank and Executive. No
modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto. No provision of this
Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without
reference to this Agreement.
Section 27. Required Regulatory Provisions.
The following provisions are included for the purpose of complying
with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in
no event shall the aggregate amount of compensation payable to the
Executive under Section 11 hereof (exclusive of amounts described
in Sections 11(a) and (b)) exceed the lesser of (i) three times the
Executive's average annual total compensation for the last five
consecutive calendar years to end prior to his termination of
employment with the Bank (or for his entire period of employment
with the Bank if less than five calendar years) and (ii) the
maximum amount that may be paid without producing an "excess
parachute payment" (as such term is defined in section 280G of the
Code), the applicability of such provision to the Executive and any
such maximum amount to be determined in good faith by the firm of
independent certified public accountants regularly retained to
audit the Bank's books and records.
(b) Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if
the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the affairs of the
Bank pursuant to a notice served under Section 8(e)(3) or 8(g)(1)
of the FDI Act, 12 U.S.C. Section 1818(e)(3) or 1818(g)(1), the
Bank's obligations under this Agreement shall be suspended as of
the date of service of such notice, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the
Bank, in its discretion, may (i) pay to the Executive all or part
of the compensation withheld while the Bank's obligations hereunder
were suspended and (ii) reinstate, in whole or in part, any of the
obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if
the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all prospective obligations of the
Bank under this Agreement shall terminate as of the effective date
of the order, but vested rights and obligations of the Bank and the
Executive shall not be affected.
(e) Notwithstanding anything herein contained to the contrary, if
the Bank is in default (within the meaning of Section 3(x)(1) of
the FDI Act, 12 U.S.C. Section 1813(x)(1), all prospective
obligations of the Bank under this Agreement shall terminate as of
the date of default, but vested rights and obligations of the Bank
and the Executive shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is
necessary for the continued operation of the Bank: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his
designee or the Federal Deposit Insurance Corporation ("FDIC"), at
the time the FDIC enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section
13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the
Director of the OTS or his designee at the time such Director or
designee approves a supervisory merger to resolve problems related
to the operation of the Bank or when the Bank is determined by such
Director to be in an unsafe or unsound condition. The vested
rights and obligations of the parties shall not be affected.
If and to the extent that any of the foregoing provisions shall
cease to be required by applicable law, rule or regulation, the
same shall become inoperative as though eliminated by formal
amendment of this Agreement.
In Witness Whereof, the Bank has caused this Agreement to be
executed and Executive has hereunto set his hand, all as of the day
and year first above written.
/s/ Philip S. Messina
------------------------
Philip S. Messina
ATTEST: Columbia Federal Savings Bank.
By ________________________
Secretary By /s/ George S. Worgul
_______________________
Name: George S. Worgul
Title: Chairman of the Board
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1997, before me personally
came Philip S. Messina, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that he resides at the address set
forth in said instrument, and that he signed his name to the
foregoing instrument.
___________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of _____________, 1997, before me personally
came ___________________________, to me known, who, being by me
duly sworn, did depose and say that he resides at
________________________________________________, that he is a
member of the Board of Directors of Columbia Federal Savings Bank.,
the savings bank described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such seal; that it was so
affixed by order of the Board of Directors of said savings bank;
and that he signed his name thereto by like order.
___________________________
Notary Public
Second Amendment to Bank Change in Control Agreement
This Second Amendment to Bank Change in Control Agreement, made and
entered in to as of May 28, 1997 by and between Columbia Federal
Savings Bank, a savings bank organized and operating under the
federal laws of the United States and having an office at 93-22
Jamaica Avenue, Woodhaven, New York 11421 ("Bank") and
_________________, an individual residing at
______________________________________________________________ (the
"Executive") amends the Change in Control Agreement dated September
23, 1993 between the Bank and the Executive ("Agreement") as
follows:
First. Section 2(a) of the Agreement shall be amended by replacing
the last sentence thereof in its entirety with the following:
For purposes of this Agreement, Executive's voluntary
termination of employment shall mean his resignation following his
demotion, a reduction in his title, office or significant
authority, a reduction in his annual compensation or benefits or a
relocation of his principal place of employment by more than 30
miles from its location immediately prior to the Change in Control.
Second. Section 2(b) of the Agreement shall be amended in its
entirety to read as follows:
(b) Definition of a Change in Control. A "Change in Control"
shall mean a change in control of a nature that: (i) would be
required to be reported in response to Item 1(a) of the Company's
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change of Control
of the Bank or Company within the meaning of the Change in Bank
Control Act and the rules and regulations promulgated thereunder by
the appropriate federal banking agency, as in effect on the date
hereof; or (iii) results in a transaction requiring prior Federal
Reserve Board ("FRB") approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB, as
in effect on the date hereof; or (iv) results in a transaction
requiring prior Office of Thrift Supervision ("OTS") approval under
the Home Owners' Loan Act and the regulations promulgated
thereunder by the OTS, as in effect on the date hereof. Without
limiting the foregoing, a Change in Control shall be deemed to have
occurred at such time as: (A) any "person" (as the term is used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Bank or the
Company representing 20% or more of the Bank's or the Company's
outstanding securities, except for any securities of the Bank
purchased by the Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's
employee stock ownership plan and trust; (B) individuals who
constitute the Board of Directors of the Company or the Board on
the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes
of this clause (B), considered as though he were a member of the
Incumbent Board; (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the
Bank or the Company becomes effective or a similar transaction
occurs in which the Bank or Company is not the resulting entity;
(D) a plan of reorganization, merger or consolidation of the
Company or Bank or a similar transaction with one or more
corporations, which will result in the outstanding shares of the
class of securities then subject to such plan or transaction being
exchanged for or converted into cash or property or securities not
issued by the Bank or the Company, is approved by the stockholders
of the Company in response to a proxy statement that was
distributed, soliciting proxies from stockholders of the Company,
by someone other than the current management of the Company, or (E)
20% or more of the voting securities of the Bank or Company then
outstanding are tendered and accepted by an offeror as of the
closing of a tender offer for such securities.
Third. Section 2(c) shall be amended by deleting the fourth
sentence thereof.
Fourth. Sections 3(a) and (b) of the Agreement shall be amended in
their entirety to read as follows:
(a) Upon the occurrence of a Change in Control, followed at any
time during the term of this Agreement by the voluntary or
involuntary termination of the Executive's employment with the
Bank, other than for Termination for Cause, the Bank shall pay the
Executive, or in the event of Executive's subsequent death,
Executive's beneficiary or beneficiaries, or Executive's estate, as
the case may be, as severance pay or liquidated damages, or both,
a sum equal to the following:
(i) within thirty (30) days following Executive's termination of
a lump sum payment, in an amount equal to the present value of the
salary that Executive would have earned if Executive had continued
working the Bank during the two (2) year period immediately
following the Executive's Date of Termination at the annual rate of
salary in effect for Executive immediately prior to the Change of
Control or Executive's Date of Termination (whichever is greater),
where such present value is to be determined using a discount rate
equal to the applicable short-term federal rate prescribed under
Section 1274(d) of the Internal Revenue Code of 1986 ("Code"), com-
pounded using the compounding period corresponding to the Bank's
regular payroll periods for its officers;
(ii) within thirty (30) days following Executive's termination of
employment, a lump sum payment in an amount equal to the excess, if
any, of:
(A) the present value of the aggregate benefits to which Executive
would be entitled under any and all qualified and non-qualified
defined benefit pension plans maintained by, or covering employees
of, the Bank, if Executive were 100% vested thereunder and had con-
tinued working for the Bank for the two (2) year period following
Executive's Date of Termination, such benefits to be determined as
of Date of Termination by adding to the service actually recognized
under such plans an additional period equal to the two (2) year
period following Executive's Date of Termination and by including
in the compensation recognized under such plans, all the amounts
payable under Sections 3(a)(i) and (v) to the extent such amounts
would have been credited under such plans had they been paid over
such two (2) year period; over
(B) the present value of the benefits to which Executive is actu-
ally entitled under such defined benefit pension plans as of
Executive's Date of Termination;
where such present values are to be determined using the mortality
tables prescribed under Section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which
Executive's termination of employment occurs ("Applicable PBGC
Rate");
(iii) within thirty (30) days following Executive's termination of
employment, a lump sum payment in an amount equal to the present
value of the additional employer contributions to which Executive
would have been entitled under any and all qualified and non-
qualified defined contribution plans maintained by, or covering
employees of, the Bank, if Executive were 100% vested thereunder
and had continued working for the Bank during the two (2) year
period following Executive's Date of Termination at the annual rate
of compensation in effect for Executive immediately prior to the
Change in Control or Executive's Date of Termination (whichever is
greater), and making the maximum amount of employee contributions,
if any, required under such plan or plans, such present value to be
determined on the basis of a discount rate, compounded using the
compounding period that corresponds to the frequency with which
employer contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(iv) within thirty (30) days following Executive's termination of
employment, a lump sum payment in an amount equal to the fair
market value (determined as of Executive's Date of Termination, or,
if Executive's termination of employment occurs after a Change of
Control, on the date of such Change of Control, whichever value is
greater) of any stock that would have been allocated or awarded to
Executive under any and all stock-based qualified or non-qualified
employee benefit plan or plans maintained by, or covering employees
of, the Bank, if Executive were 100% vested thereunder and
continued working for the Bank during the two (2) year period
following Executive's Date of Termination at the annual rate of
compensation in effect for him immediately prior to the Change in
Control or Executive's Date of Termination (whichever is greater);
(v) the payments that would have been made to Executive under any
cash bonus or long-term or short-term cash incentive compensation
plan maintained by, or covering employees of, the Bank, if
Executive had continued working for the Bank during the two (2)
year period following Executive's Date of Termination and had
earned the maximum bonus or incentive award in each calendar year
that ends during such period, such payments to be equal to the
product of:
(A) the maximum percentage rate at which an award was ever
available to Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to Executive during each
such calendar year at the annual rate of salary in effect for
Executive immediately prior to the Change in Control or Executive's
Date of Termination (whichever is greater);
such payments to be made (without discounting for early payment)
within thirty (30) days following Executive's termination of
employment;
(b) Upon the occurrence of a Change in Control, followed at any
time during the term of this Agreement by the Executive's voluntary
or involuntary termination of employment, other than for
Termination for Cause, the Bank shall provide the following for the
two (2) year period following Executive's Date of Termination:
(i) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term
disability insurance benefits, if and to the extent necessary to
provide coverage for Executive and Executive's family equivalent to
the coverage to which Executive would be entitled under the
applicable insurance benefit plans of the Bank as in effect on
Executive's Date of Termination or on the date of such Change of
Control, whichever benefits are greater; and
(ii) the fringe benefits and perquisites made available or
provided to Executive by the Bank immediately prior to the Change
of Control including, but not limited to, use of any automobile
provided to Executive by the Bank immediately prior to the Change
of Control, and continued payment of all membership fees, dues,
capital contributions and other expenses for membership in such
clubs, associations or other organizations which expenses were paid
by the Bank on behalf of Executive prior to the Change of Control.
Fifth. Except as expressly amended herein, the Agreement shall
remain in full force and effect.
In Witness Whereof, the Company and the Bank have caused this
Second Amendment to Bank Change in Control Agreement to be executed
and Executive has hereunto set Executive's hand, all as of the day
and year first above written.
/s/ Catherine Califano
--------------------------
[Name] Catherine Califano
ATTEST: Columbia Federal Savings Bank
By /s/ Joseph W. Rennhack By /s/ Philip S. Messina
------------------------ ----------------------
Name: Joseph W. Rennhack Philip S. Messina
Title: Sr. Vice President/Secretary President and Chief Executive
Officer
[Seal]
ATTEST: Haven Bancorp, Inc.
By /s/ Joseph W. Rennhack By /s/ Philip S. Messina
------------------------ ------------------------
Name: Joseph W. Rennhack Philip S. Messina
Title: Sr. Vice President/Secretary President and Chief
Executive Officer
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1997, before me personally
came _______________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that (s)he resides at the address
set forth in said instrument, and that (s)he signed his/her name to
the foregoing instrument.
_______________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1997, before me personally
came Philip S. Messina, to me known, who, being by me duly sworn,
did depose and say that he resides at No. 8 Bryan Meadow Path, Fort
Salonga, New York 11768, that he is President and Chief Executive
Officer of Columbia Federal Savings Bank, the savings bank de-
scribed in and which executed the foregoing instrument; that he
knows the seal of said savings bank; that the seal affixed to said
instrument is such seal; that it was so affixed by order of the
Board of Directors of said savings bank; and that he signed his
name thereto by like order.
__________________________
Notary Public
Schedule of Individuals
Each of the following individuals has entered into a Second
Amendment to Bank Change in Control Agreement:
Thomas J. Seery
Gerard H. McGuirk
Catherine Califano
Joseph W. Rennhack
Third Amendment to Company Change in Control Agreement
This Third Amendment to Company Change in Control Agreement, made
and entered in to as of May 28, 1997 by and between Haven Bancorp,
Inc., a publicly held business corporation organized and operating
under the laws of the State of Delaware and having an office at
office at 93-22 Jamaica Avenue, Woodhaven, New York 11421 (the
"Company") and, __________________ an individual residing at
_____________________________________ (the "Executive") amends the
Change in Control Agreement dated September 23, 1993 between the
Company and the Executive, as amended by the Amendment to Change in
Control Agreement dated as of November 18, 1994 and the Second
Amendment to Change in Control Agreement dated September ___, 1995
("Agreement") as follows:
First. Section 2(b) of the Agreement shall be amended in its
entirety to read as follows:
(b) Definition of a Change in Control. A "Change in Control" shall
mean a change in control of a nature that: (i) would be required to
be reported in response to Item 1(a) of the Company's current
report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change of Control of the Bank
or Company within the meaning of the Change in Bank Control Act and
the rules and regulations promulgated thereunder by the appropriate
federal banking agency, as in effect on the date hereof; or (iii)
results in a transaction requiring prior Federal Reserve Board
("FRB") approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB, as in effect on the
date hereof; or (iv) results in a transaction requiring prior
Office of Thrift Supervision ("OTS") approval under the Home
Owners' Loan Act and the regulations promulgated thereunder by the
OTS, as in effect on the date hereof. Without limiting the
foregoing, a Change in Control shall be deemed to have occurred at
such time as: (A) any "person" (as the term is used in Section
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company
representing 20% or more of the Bank's or the Company's outstanding
securities, except for any securities of the Bank purchased by the
Company in connection with the conversion of the Bank to the stock
form and any securities purchased by the Bank's employee stock
ownership plan and trust; (B) individuals who constitute the Board
of Directors of the Bank or the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote
of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause
(B), considered as though he were a member of the Incumbent Board;
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company becomes
effective or a similar transaction occurs in which the Bank or
Company is not the resulting entity; (D) a plan of reorganization,
merger or consolidation of the Company or Bank or a similar
transaction with one or more corporations, which will result in the
outstanding shares of the class of securities then subject to such
plan or transaction being exchanged for or converted into cash or
property or securities not issued by the Bank or the Company, is
approved by the stockholders of the Company in response to a proxy
statement that was distributed, soliciting proxies from
stockholders of the Company, by someone other than the current
management of the Company, or (E) 20% or more of the voting
securities of the Bank or Company then outstanding are tendered and
accepted by an offeror as of the closing of a tender offer for such
securities.
Second. The first paragraph of Section 3(a) of the Agreement shall
be amended by deleting the words "and/or the Bank" and the
parenthetical "(or cause the Bank to pay)" where they appear
therein.
Third. The first paragraph of Section 3(b) of the Agreement shall
be amended by deleting the parenthetical "(or cause the Bank to
provide)" where it appears therein.
Fourth. Except as expressly amended herein, the Agreement shall
remain in full force and effect.
In Witness Whereof, the Company has caused this Third Amendment to
Company Change in Control Agreement to be executed and Executive
has hereunto set Executive's hand, all as of the day and year
first above written.
_______________________
ATTEST: Haven Bancorp, Inc.
By /s/ Thomas J. Seery By /s/ Philip S. Messina
----------------------- -----------------------
Name: Thomas J. Seery Philip S. Messina
Title: Executive Vice President President and Chief Executive
Officer
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1997, before me personally
came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that he resides at the address set
forth in said instrument, and that he signed his name to the
foregoing instrument.
_________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ___ day of ______________, 1997, before me personally came
Philip S. Messina, to me known, who, being by me duly sworn, did
depose and say that he resides at No. 8 Bryan Meadow Path, Fort
Salonga, New York 11768, that he is President and Chief Executive
Officer of Haven Bancorp, Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of
said corporation; that the seal affixed to said instrument is such
seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like
order.
___________________________
Notary Public
Schedule of Individuals
Each of the following individuals has entered into a Third
Amendment to Company Change in Control Agreement:
Thomas J. Seery
Gerard H. McGuirk
Catherine Califano
Joseph W. Rennhack
BANK CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of May 28, 1997 by and between
Columbia Federal Savings Bank ("Bank"), a federally chartered
savings institution, with an office at 93-22 Jamaica Avenue,
Woodhaven, New York 11421, and Andrew L. Kaplan (the "Executive"),
an individual residing at 4 North Gate Drive, Greenlawn, New York
11740. The Bank is a wholly owned subsidiary of Haven Bancorp, Inc.
(the "Company"), a corporation organized under the laws of the
State of Delaware.
WHEREAS, the Bank and Columbia Investment Services ("CIS"), an
investment services company which is a wholly owned subsidiary of
the Bank, recognize the substantial contribution Executive has made
to the Bank and CIS and wish to protect his position therewith for
the period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in
the position of President of CIS and an employee of the Bank,
positions of substantial responsibility;
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and
conditions hereinafter provided, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of two
years thereafter; provided, however, that on September 23, 1997,
the Board of Directors of the Bank ("Board") may extend this
Agreement to the second anniversary of such date and continuing at
each anniversary of such date thereafter, the Board may extend this
Agreement for an additional year. The Board will review the
Agreement and the Executive's performance annually for purposes of
determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed at any time during the term of this Agreement by the
voluntary or involuntary termination of Executive's employment,
other than for Cause, as defined in Section 2(c) hereof, the
provisions of Section 3 shall apply. For purposes of this
Agreement, Executive's voluntary termination of employment shall
mean his resignation following his demotion, a reduction in his
title, office or significant authority, a reduction in his annual
compensation or benefits or a relocation of his principal place of
employment by more than 30 miles from its location immediately
prior to the Change in Control.
(b) Definition of a Change in Control. A "Change in Control" shall
mean a change in control of a nature that: (i) would be required to
be reported in response to Item 1(a) of the Company's current
report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change of Control of the Bank
or Company within the meaning of the Change in Bank Control Act and
the rules and regulations promulgated thereunder by the appropriate
federal banking agency, as in effect on the date hereof; or (iii)
results in a transaction requiring prior Federal Reserve Board
("FRB") approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB, as in effect on the
date hereof; or (iv) results in a transaction requiring prior
Office of Thrift Supervision ("OTS") approval under the Home
Owners' Loan Act and the regulations promulgated thereunder by the
OTS, as in effect on the date hereof. Without limiting the
foregoing, a Change in Control shall be deemed to have occurred at
such time as: (A) any "person" (as the term is used in Section
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company
representing 20% or more of the Bank's or the Company's outstanding
securities, except for any securities of the Bank purchased by the
Company in connection with the conversion of the Bank to the stock
form and any securities purchased by the Bank's employee stock
ownership plan and trust; (B) individuals who constitute the Board
of Directors of the Company or the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote
of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause
(B), considered as though he were a member of the Incumbent Board;
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company becomes
effective or a similar transaction occurs in which the Bank or
Company is not the resulting entity; (D) a plan of reorganization,
merger or consolidation of the Company or Bank or a similar
transaction with one or more corporations, which will result in the
outstanding shares of the class of securities then subject to such
plan or transaction being exchanged for or converted into cash or
property or securities not issued by the Bank or the Company, is
approved by the stockholders of the Company in response to a proxy
statement that was distributed, soliciting proxies from
stockholders of the Company, by someone other than the current
management of the Company, or (E) 20% or more of the voting
securities of the Bank or Company then outstanding are tendered and
accepted by an offeror as of the closing of a tender offer for such
securities.
(c) Executive shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon Termination for Cause.
The term "Termination for Cause" shall mean termination because of
the Executive's personal dishonesty, incompetence, willful
misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of
any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material
breach of any material provision of this Agreement. In determining
incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institutions
industry. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the
Board of the Bank at a meeting of such Board called and held for
that purpose (after reasonable notice to the Executive and an
opportunity for him, together with counsel, to be heard before the
Board at such meeting and which such meeting shall be held not more
than 30 days from the date of notice during which period the
Executive may be suspended with pay), finding that in the good
faith opinion of the Board, the Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars
thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after
Termination for Cause. Any stock options or limited rights granted
to Executive under any stock option plan or any unvested awards
granted under any other stock benefit plan of the Bank or any
subsidiary thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to
Section 4 hereof, and shall not be exercisable by Executive at any
time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any
time during the term of this Agreement by the voluntary or
involuntary termination of the Executive's employment with the Bank
and/or CIS, other than for Termination for Cause, the Bank shall
pay (or shall cause CIS to pay) the Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages,
or both, a sum equal to the following:
(i) within thirty (30) days following his termination of
employment, a lump sum payment, in an amount equal to the present
value of the salary that Executive would have earned if Executive
had continued working for the Bank and CIS during the two (2) year
period immediately following the Executive's Date of Termination at
the annual rate of salary in effect for Executive immediately prior
to the Change of Control or Executive's Date of Termination
(whichever is greater), where such present value is to be deter-
mined using a discount rate equal to the applicable short-term
federal rate prescribed under Section 1274(d) of the Internal
Revenue Code of 1986 ("Code"), compounded using the compounding
period corresponding to the Bank's regular payroll periods for its
officers;
(ii) within thirty (30) days following his termination of
employment, a lump sum payment in an amount equal to the excess, if
any, of:
(A) the present value of the aggregate benefits to which Executive
would be entitled under any and all qualified and non-qualified
defined benefit pension plans maintained by, or covering employees
of, the Bank or CIS, if Executive were 100% vested thereunder and
had continued working for the Bank and CIS for the two (2) year
period following Executive's Date of Termination, such benefits to
be determined as of the Date of Termination by adding to the
service actually recognized under such plans an additional period
equal to the two (2) year period following Executive's Date of
Termination and by including in the compensation recognized under
such plans, all the amounts payable under Sections 3(a)(i) and (v)
to the extent such amounts would have been credited under such
plans had they been paid over such two (2) year period; over
(B) the present value of the benefits to which Executive is actu-
ally entitled under such defined benefit pension plans as of his
Date of Termination;
where such present values are to be determined using the mortality
tables prescribed under Section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which
Executive's termination of employment occurs ("Applicable PBGC
Rate");
(iii) within thirty (30) days following his termination of
employment, a lump sum payment in an amount equal to the present
value of the additional employer contributions to which Executive
would have been entitled under any and all qualified and non-
qualified defined contribution plans maintained by, or covering
employees of, the Bank or CIS, if Executive were 100% vested
thereunder and had continued working for the Bank and CIS during
the two (2) year period following Executive's Date of Termination
at the annual rate of compensation in effect for Executive
immediately prior to the Change in Control or Executive's Date of
Termination (whichever is greater), and making the maximum amount
of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are
made to the relevant plan, equal to the Applicable PBGC Rate;
(iv) within thirty (30) days following his termination of
employment, a lump sum payment in an amount equal to the fair
market value (determined as of his Date of Termination, or, if his
termination of employment occurs after a Change of Control, on the
date of such Change of Control, whichever value is greater) of any
stock that would have been allocated or awarded to Executive under
any and all stock-based qualified or non-qualified employee benefit
plan or plans maintained by, or covering employees of, the Bank or
CIS, if Executive were 100% vested thereunder and continued working
for the Bank and CIS during the two (2) year period following
Executive's Date of Termination at the annual rate of compensation
in effect for him immediately prior to the Change in Control or
Executive's Date of Termination (whichever is greater);
(v) the payments that would have been made to Executive under any
cash bonus or long-term or short-term cash incentive compensation
plan maintained by, or covering employees of, the Bank or CIS, if
Executive had continued working for the Bank and CIS during the two
(2) year period following Executive's Date of Termination and had
earned the maximum bonus or incentive award in each calendar year
that ends during such period, such payments to be equal to the
product of:
(A) the maximum percentage rate at which an award was ever
available to Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to Executive during each
such calendar year at the annual rate of salary in effect for
Executive immediately prior to the Change in Control or Executive's
Date of Termination (whichever is greater);
such payments to be made (without discounting for early payment)
within thirty (30) days following Executive's termination of
employment;
(b) Upon the occurrence of a Change in Control, followed at any
time during the term of this Agreement by the Executive's voluntary
or involuntary termination of employment, other than for
Termination for Cause, the Bank shall provide (or shall cause CIS
to provide) the following for the two (2) year period following
Executive's Date of Termination:
(i) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term
disability insurance benefits, if and to the extent necessary to
provide coverage for Executive and his family equivalent to the
coverage to which Executive would be entitled under the applicable
insurance benefit plans of the Bank and CIS as in effect on his
Date of Termination or on the date of such Change of Control; and
(ii) the fringe benefits and perquisites made available or
provided to Executive by the Bank and CIS immediately prior to the
Change of Control.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Bank, CIS or by Executive
shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to
the performance of his or her duties on a full-time basis during
such thirty (30) day period), and (B) if his or her employment is
terminated for any other reason, the date specified in the Notice
of Termination which, in the instance of Termination for Cause,
shall be immediate. For purposes of this Section 4(b),
"Disability" shall have the same meaning set forth in the group
long-term disability policy or plan maintained by the Bank for
employees as in effect on the effective date of this Agreement, or
if no such plan or policy is maintained on such date, "Disability"
shall mean a condition of total incapacity, mental or physical, for
the performance of the Executive's stated duties hereunder, which
incapacity shall have been determined, by a doctor selected by the
Bank and acceptable to the Executive or his legal representatives,
is likely to be permanent.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general
funds of the Bank or CIS. The Company guarantees payment and
provision of all amounts and benefits due hereunder to the
Executive and, if such amounts and benefits due from the Bank or
CIS are not timely paid or provided by the Bank or CIS, such
amounts and benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior agreement between the Bank
and the Executive, except that this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is
subject to receiving fewer benefits than those available to him
without reference to this Agreement.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, the Executive and the Bank and their respective successors and
assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) Notwithstanding anything herein contained to the contrary, in
no event shall the aggregate amount of compensation payable to the
Executive under Section 3 hereof exceed the lesser of (i) three
times the Executive's average annual total compensation for the
last five consecutive calendar years to end prior to his
termination of employment with the Bank (or for his entire period
of employment with the Bank if less than five calendar years) and
(ii) the maximum amount that may be paid without producing an
"excess parachute payment" (as such term is defined in section 280G
of the Code), the applicability of such provision to the Executive
and any such maximum amount to be determined in good faith by the
firm of independent certified public accountants regularly retained
to audit the Bank's books and records.
(b) The Bank may terminate the Executive's employment at any time,
but such termination, other than Termination for Cause, shall not
prejudice the Executive's right to compensation or other benefits
under this Agreement. The Executive shall not have the right to
receive compensation or other benefits for any period after
Termination for Cause as defined in Section 2 hereinabove.
(c) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), the
obligations of the Bank and CIS under this contract shall be
suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank
may, in its discretion, (i) pay the Executive all or part of the
compensation withheld while their contract obligations were
suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(d) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all
obligations of the Bank or CIS under this contract shall terminate
as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) (12
U.S.C. 1813(x)(1)) of the Federal Deposit Insurance Act), all
obligations of the Bank or CIS under this contract shall terminate
as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
(f) All obligations of the Bank or CIS under this contract shall
be terminated, except to the extent determined that continuation of
the contract is necessary for the continued operation of the
institution, (i) by the Federal Deposit Insurance Corporation
("FDIC"), at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority
contained in Section 13(c) (12 U.S.C. Section 1823(c)) of the
Federal Deposit Insurance Act; or (ii) by the Office of Thrift
Supervision ("OTS") at the time the OTS or its District Director
approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS or
FDIC to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by
such action.
(g) Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with
12 U.S.C. Section 1828(k).
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
In the event the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs
by a notice described in Section 9(b) hereof (the "Notice") during
the term of this Agreement and a Change in Control, as defined
herein, occurs, the Bank or CIS will assume their obligation to
pay, and the Executive will be entitled to receive, all of the
termination benefits provided for under Section 3 of this Agreement
upon the Bank's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect
any other provision of this Agreement or any part of such provision
not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force
and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by New York law to the extent not
preempted by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators sitting in a location selected
by the employee within fifty (50) miles from the location of the
Bank, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement,
Executive shall be entitled to the payment of all back-pay,
including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this
Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid or reimbursed by the Bank if the
Executive is successful on the merits pursuant to a legal judgment,
arbitration or settlement, which payments are guaranteed by the
Company pursuant to Section 5 hereof.
16. INDEMNIFICATION.
The Bank shall provide (or cause CIS to provide) Executive
(including his or her legal representatives, successors and
assigns) with coverage under a standard directors' and officers'
liability insurance policy at their expense, or in lieu thereof,
shall indemnify Executive (including his or her legal
representatives, successors and assigns) for reasonable costs and
expenses incurred by Executive in defending or settling any
judicial or administrative proceeding, or threatened proceeding,
whether civil, criminal or otherwise, including any appeal or other
proceeding for review.
Indemnification by the Bank (or by CIS) shall be made only upon the
final judgment on the merits in the favor of the Executive, in case
of settlement, in case of final judgment against Executive or in
the case of final judgment in favor of Executive other than on the
merits, if a majority of the disinterested directors of the Bank
determine Executive was acting in good faith within the scope of
Executive's employment or authority in accordance with 12 C.F.R.
section 545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. part 545.121(c)(iii) to indemnify Executive
to the fullest for such expenses and liabilities to include, but
not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements, such settlements to be approved
by the Board, if such action is brought against Executive in his or
her capacity as an officer or director of the Bank, however, shall
not extend to matters as to which Executive is finally adjudged to
be liable for willful misconduct in the performance of his or her
duties.
17. SUCCESSORS TO THE BANK.
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of
the Bank or the Company, expressly and unconditionally to assume
and agree to perform the obligations of the Bank or CIS under this
Agreement, in the same manner and to the same extent that the Bank
and the Company would be required to perform if no such succession
or assignment had taken place.
<PAGE>
18. SIGNATURES.
IN WITNESS WHEREOF, Columbia Federal Savings Bank and Haven
Bancorp, Inc. have caused this Agreement to be executed and their
respective seals to be affixed hereunto by their duly authorized
officers and Executive has signed this Agreement, on the
day of , 1997.
ATTEST: Columbia Federal Savings Bank
By: /s/ Joseph W. Rennhack By: /s/ Philip S. Messina
------------------------ -------------------------
Joseph W. Rennhack Philip S. Messina
Secretary President and Chief
Executive Officer
[SEAL]
ATTEST: Haven Bancorp, Inc.
/s/ Joseph W. Rennhack By: /s/ Philip S. Messina
- - ------------------------ ------------------------
Joseph W. Rennhack Philip S. Messina
Secretary President and Chief Executive
Officer
[SEAL]
WITNESS:
__________________________ /s/ Andrew L. Kaplan
____________________________
Andrew L. Kaplan
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this _____ day of _______________, 1997, before me personally
came Philip S. Messina, to me known, who, being by me duly sworn,
did depose and say that he resides at No. 8 Bryan Path, Fort
Salonga, New York 11768, that he is President and Chief Executive
Officer of Columbia Federal Savings Bank, the savings bank
described in and which executed the foregoing instrument; that he
knows the seal of said savings bank; that the seal affixed to said
instrument is such savings bank's seal; that it was so affixed by
order of the Board of Directors of said savings bank; and that he
signed his name thereto by like order.
__________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this _____ day of _______________, 1997, before me personally
came Philip S. Messina, to me known, who, being by me duly sworn,
did depose and say that he resides at No. 8 Bryan Path, Fort
Salonga, New York 11768, that he is President and Chief Executive
Officer of Haven Bancorp, Inc., the savings bank holding company
described in and which executed the foregoing instrument; that he
knows the seal of said company; that the seal affixed to said
instrument is such company's seal; that it was so affixed by order
of the Board of Directors of said company; and that he signed his
name thereto by like order.
__________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this _____ day of ________________, 1997, before me personally
came Andrew L. Kaplan, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that he resides at 4 North Gate
Drive, Greenlawn, New York 11740, and that he signed his name to
the foregoing instrument.
_____________________
Notary Public
Exhibit No. 11 Statement re Computation of Earnings Per Share
Year Ended
December 31, 1997
Net income $ 11,083,467
==========
Weighted average shares outstanding 8,420,321
=========
Basic earnings per share $ 1.32
=========
Weighted average shares outstanding 8,420,321
Additional diluted shares from assumed
conversions of options and warrants 493,437
---------
Adjusted weighted average shares
outstanding 8,913,758
=========
Diluted earnings per share $ 1.24
=========
EXHIBIT 13.0
This report contains statements that are forward-looking in
nature within the meaning of the Private Securities Litigation
Reform Act of 1995 and are subject to risks and uncertainties
that could cause actual results to differ materially. Such risks
and uncertainties include, but are not limited to, those related
to overall business conditions, particularly in the markets in
which Haven operates, fiscal and monetary policy, competitive
products and pricing, credit risk management and changes in
regulations affecting financial institutions and other risks and
uncertainties discussed from time to time in the Company's SEC
filings.
Table of Contents
1 President's Letter
4 Financial Highlights
5 A Year of Achievement
12 Selected Financial and Other Data
14 Management's Discussion and Analysis
27 Consolidated Financial Statements
31 Notes to Consolidated Financial Statements
54 Independent Auditors' Report
55 Directors and Officers/Directory
56 Stockholder Information
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands of dollars, except per share data) 1997 1996
<S> <C> <C>
At Year End
Total Assets $1,974,890 1,583,545
Loans, Net 1,138,253 836,882
Securities Available for Sale 499,380 370,105
Debt Securities Held to Maturity 66,404 97,307
Mortgage-Backed Securities Held to Maturity 163,057 197,940
Real Estate Owned, Net 455 1,038
Deposits 1,365,012 1,137,788
Borrowed Funds 466,794 326,433
Stockholders' Equity 112,865 99,384
Non-Performing Assets 12,987 14,931
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
For the Year
Net Interest Income $ 51,906 47,885 41,319
Provision for Loan Losses 2,750 3,125 2,775
Non-Interest Income 13,912 9,554 9,022
Real Estate Operations, Net 352 277 1,405
SAIF Assessment Charge - 6,800 -
Other Non-Interest Expense 45,495 31,378 30,387
Income Tax Expense 6,138 6,434 7,230
Net Income 11,083 9,425 8,544
Net Income per common share(1):
Basic 1.32 1.13 0.99
Diluted 1.24 1.08 0.96
Performance Ratios
Return on Average Assets 0.62% 0.62 0.63
Return on Average Assets excluding
SAIF Assessment Charge 0.62 0.89 0.63
Return on Average Equity 10.41 9.83 9.27
Return on Average Equity excluding
SAIF Assessment Charge 10.41 14.04 9.27
Net Interest Margin 3.06 3.29 3.17
Non-Performing Assets to Total Assets 0.66 0.94 1.28
Allowance for Loan Losses to
Non-Performing Loans 99.97 77.05 50.80
</TABLE>
(1) Per share amounts reflect the 2-for-1 stock split effective
November 1997.
(2) Net income excluding the SAIF assessment charge would have
been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
Haven Bancorp, Inc. is the holding company for CFS Bank (formerly
Columbia Federal Savings Bank), its wholly owned subsidiary which
converted from a federally chartered mutual to a federally
chartered stock savings bank on September 23, 1993, whose
principal business is the operation of the Bank. The Bank, which
was organized in 1889, is a community oriented institution
offering deposit products, residential and commercial real estate
loans and a full range of financial services including discount
brokerage, mutual funds, annuities and insurance. Headquartered
in Woodhaven, New York, the Bank serves its customers through
eight full-service banking and thirty-eight supermarket banking
facilities located in the New York City Boroughs of Queens,
Brooklyn, Manhattan and Staten Island and in Nassau, Suffolk,
Rockland and Westchester Counties, New York, northern New Jersey
and western Connecticut. The Bank's deposits are insured up to
the maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC").
Dear Fellow Stockholders,
I am pleased to report that by all accounts 1997 was a
remarkable year for Haven Bancorp. There were many positive
developments during the year that I'll describe in detail below.
Above all, it was a year in which we added a substantial number
of new customers. The absolute numbers documenting our
accomplishments are quite impressive. The strategies underlying
these measures are equally notable because they form the basis of
our business plan that we continue to successfully implement. Our
supermarket branching program, a major element in our overall
strategy, reflects Haven's efforts to create value in products
and services for our existing and new customers, which in turn we
expect will create value for our shareholders.
Haven Bancorp reported net income for 1997 of $11.1 million,
marking the first time in the Company's history that earnings
exceeded $10 million. The principal earnings drivers last year
were excellent growth in mortgage loans and strong increases in
fee income. What makes these figures even more noteworthy was
that in 1997 we made a substantial net investment in the
supermarket branching program. During the year, we opened twenty-
eight new supermarket branches compared to four in 1996, the year
we began the program. The supermarket branching program is
rolling out close to our original plan for new locations and we
expect to open a similar number this year. More importantly, the
internal measures we use to gauge the success of the program
indicate we are meeting our projections. We believe that in 1998
the majority of our supermarket branches will have exceeded their
breakeven thresholds.
Haven's earnings gains are largely the result of our successful
mortgage loan origination efforts. In 1993, we began emphasizing
traditional single family mortgage lending. During 1995, we began
purchasing single family residential mortgages from a select
number of third-party originators and also stepped up our
commercial real estate lending activities. Over the past three
years, the volume of real estate mortgage loans originated and
purchased has progressively increased from $133 million in 1995
to $355 million in 1996 and to $460 million last year. By year-
end 1997, our portfolio of first mortgage loans totaled $1.1
billion, more than double the size of the portfolio just two
years earlier. The quality of these loans remains excellent as
reflected in the delinquency and charge-off measures we closely
monitor. At year-end 1997, our ratio of non-performing assets to
total assets was 0.66%, 30% better than that ratio at year-end
1996 and well below that of our industry peers. We remain
steadfastly committed to maintaining a high level of asset
quality.
Another important element in Haven's earnings has been fee
income, which was approximately $14 million in 1997, representing
a 45% increase over fee income in 1996. Substantial increases in
deposit fees and annuity, mutual fund and insurance revenues were
increasingly generated at the supermarket branches. The increase
in deposit fees reflect the early measures of customer acceptance
and product profitability, particularly at the supermarket
branches and have exceeded our initial expectations. Positively
Free Checking continues to be CFS Bank's most popular deposit
product and has gained an even greater customer response at the
supermarket branches than at traditional branches. We also
continue to experience good customer response to CFS Investments
offerings. CFSI's sales volume in 1997 totaled $71.7 million.
To put the growing importance of fee income into perspective, the
combination of deposit account and CFSI fees last year were equal
to approximately 18% of net interest income. We are pleased with
the efforts of Haven's marketing staff in creating innovative,
exciting new products and services and the job our sales force
has done transforming these products into revenues. We are
delivering a diverse package of financial services to a growing
market in a cost-effective manner. Many financial institutions
talk about this concept. At Haven, we have made it a reality.
Our supermarket branching strategy is an example of our belief
that "business as usual" doesn't work anymore. We are continually
thinking of new ways to reach out to our customers and provide
them with innovative products and services. Haven's long-standing
and deeply ingrained sales orientation is proving to be a
valuable element in this equation. Our growing franchise provides
us with a dynamic platform to increase our business base and our
sales force is successfully leading the effort to produce an
increasing share of the new markets in which we are operating. To
illustrate, during 1997 we opened approximately 7,000 new
accounts at traditional branches and approximately 55,000 new
accounts at supermarket branches. This contrast between the
growth characteristics of a mature traditional branch system and
a rapidly expanding in-store banking environment is quite
dramatic. Even more exciting is the 50,000 - plus new customers
available to whom we can cross-sell our products, and, we expect
the number of new accounts to continue to grow in 1998. Instead
of waiting for business to come to us we are actively creating
new opportunities every day through product development and
aggressive customer outreach which continue to be an integral
part of our daily activities.
The expansion of our supermarket branching program into New
Jersey and Connecticut prompted us to change our Bank's name from
Columbia Federal Savings Bank to CFS Bank. We did this to ensure
a uniform identity at all our branches in the three states in
which we now operate. CFS Bank branches are now located
throughout New York City, Nassau and Suffolk counties on Long
Island, Westchester and Rockland counties north of New York City,
Fairfield county in Connecticut and Bergen county in New Jersey.
In order to support an expanding staff associated with our
growing franchise, we recently purchased a building in Westbury,
Long Island that will be our new corporate headquarters. We plan
to relocate this summer and will consolidate the four separate
locations we have outgrown. We expect to realize operating
efficiencies from having all of Haven's non-branch employees
under one roof and certain tax advantages associated with being
headquartered outside New York City.
While our name and headquarters changes provide a sense of
newness to the organization, we continue to benefit from the
continuity and experience provided by our senior management. I
am confident in our executive leadership's ability to analyze and
navigate through the complexities and rapid change of the
financial services industry. We continue to emphasize the
generation of high quality assets and the operating efficiencies
emanating from our increasing market share. We anticipate, as
incremental costs associated with the expanding supermarket
branching program level off that tangible evidence of this cost-
effective method of delivering products and services to our
banking customers will become more apparent.
Our customers and the investment community are recognizing the
Company more and more as a thoughtful and creative
innovator. In February 1997, Haven Capital Trust issued $25
million of 10.46% Capital Securities which Haven is using for
general corporate purposes. Last year, CFS Bank established
Columbia Preferred Capital Corporation, a majority-owned
operating subsidiary organized as a Real Estate Investment Trust,
to hold a portion of the Bank's residential loan portfolio. This
structure gives us considerable latitude to more efficiently
finance our growth and has resulted in certain tax savings.
We remain committed to enhancing shareholder value. Haven
produced a total return to its shareholders in 1997 of 57%
compared to 31% for the S & P 500 Stock Index. We announced a
two-for-one stock split paid in November 1997 in the form of a
100% stock dividend that should increase our stock market
liquidity and attract additional shareholders.
We constantly consider the future and what we must do to make
certain Haven Bancorp remains in the vanguard of the financial
services industry. Our efforts in supermarket branching have
opened many new doors for us and have contributed greatly to the
Company's growing franchise value. These new branches are
providing attractive sources of core funding and fee income. As
this network matures, we expect to see it generate an increasing
proportion of incremental loan growth. An indication of this
occurred in January, when we received a record number of loan
applications to re-finance home mortgages. Slightly more than
twenty percent of these applications were generated at our
supermarket branches and virtually all of them were from new
customers. To further broaden our appeal to existing and
prospective customers, we recently re-energized our home equity
lending program, providing our sales force with an additional,
attractive product.We continue to explore other possible
alternatives that would provide Haven with incremental sources of
quality asset growth and new products.
Amidst all of the changes occurring at Haven, we have not lost
sight of the importance of maintaining our focus on one critical
issue, our employees. With a growing staff, particularly at the
sales level, senior management has been creating new methods to
more effectively train and motivate our employees to reach new
levels of achievement. Rather than view employees as existing
solely to serve management, Haven demonstrates to employees that
management exists to support their needs and to extend their
capabilities to serve our customers. Our organization has grown
from 422 employees at the end of 1996 to 683 currently, and I am
pleased with how the Company has effectively assimilated and
guided these new people to impressive levels of productivity. We
are constantly thinking of additional ways to further engage our
staff in order to raise still higher the standard of our
accomplishments. We are dedicated to the belief that the people
of Haven represent our most valuable asset.
We are optimistic about our vision for the year. Although the
current interest rate environment, with a relatively flat yield
curve, places great pressure on our margins, we entered the year
with very strong growth momentum. We are confident this strength
in new business will mitigate the current spread compression.
We anticipate this year will be the turning point in our
supermarket branching program and are enthusiastic about the
course of this strategy. I offer my most sincere gratitude to our
loyal shareholders who continue to demonstrate their confidence
and support in Haven Bancorp and to our dedicated and tireless
staff without whom we could not have achieved our success.
Sincerely,
Philip S. Messina
President and Chief Executive Officer
March 3, 1998
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total assets $1,974,890 1,583,545 1,472,816 1,268,774 1,229,140
Loans, net 1,138,253 836,882 560,385 512,035 659,808
Securities available for sale 499,380 370,105 503,058 48,189 38,190
Debt securities held to maturity 66,404 97,307 127,796 130,706 19,208
Mortgage-backed securities held to maturity 163,057 197,940 190,714 495,111 412,677
Real estate owned, net 455 1,038 2,033 7,844 17,887
Deposits 1,365,012 1,137,788 1,083,446 1,013,162 986,760
FHLB advances 247,000 178,450 134,175 86,000 55,800
Other borrowed funds 219,794 147,983 136,408 39,081 80,216
Stockholders' equity 112,865 99,384 98,519 86,235 95,810
</TABLE>
SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
(In thousands of dollars, 1997 1996 1995 1994 1993
except per share data) ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets 0.62% 0.62 0.63 (0.35) (0.06)
Return on average assets excluding SAIF
assessment charge (1) 0.62 0.89 0.63 (0.35) (0.06)
Return on average equity 10.41 9.83 9.27 (4.90) (1.05)
Return on average equity excluding SAIF
assessment charge (1) 10.41 14.04 9.27 (4.90) (1.05)
Stockholders' equity to total assets 5.72 6.28 6.69 6.80 7.79
Net interest spread 2.89 3.12 2.99 3.34 3.28
Net interest margin (2) 3.06 3.29 3.17 3.48 3.38
Average interest-earning assets to
average interest-bearing liabilities 104.02 103.95 104.23 104.42 102.61
Operating expenses to average assets (3) 2.54 2.04 2.18 2.26 2.26
Stockholders' equity per share (4) $ 12.85 11.49 10.92 9.47 9.74
Asset Quality Ratios:
Non-performing loans to total loans (5) 1.09% 1.64 2.97 5.41 9.37
Non-performing assets to total assets 0.66 0.94 1.28 2.85 6.65
Allowance for loan losses to non-
performing loans (5) 99.97 77.05 50.80 38.33 33.83
Allowance for loan losses to total loans 1.09 1.26 1.51 2.07 3.17
Other Data:
Number of deposit accounts 234,183 171,382 155,424 140,701 132,044
Mortgage loans serviced for others $174,866 197,017 219,752 239,844 110,058
Loan originations and purchases $471,338 363,576 143,329 105,219 146,640
Facilities:
Full service offices 40 14 9 9 9
</TABLE>
(1) Excludes the SAIF assessment charge in 1996 of $6.8 million.
(2) Calculation is based on net interest income before provision
for loan losses divided by average interest-earning assets.
(3) For purposes of calculating these ratios, operating expenses
equal non-interest expense less real estate operations, net where
applicable, of $0.4 million, $0.3 million, $1.4 million, $12.3
million and $9.4 million for the five years ended December 31,
1997, respectively. For the five years ended December 31, 1997,
non-performing loan expense of $0.2 million, $0.4 million, $0.6
million, $0.9 million and $1.2 million, respectively, was also
excluded from non-interest expense. For the year ended December
31, 1996, the SAIF assessment charge of $6.8 million was also
excluded.
(4) Based on 8,784,700, 8,650,814, 9,022,914, 9,102,812 and
9,833,750 shares outstanding at December 31, 1997, 1996, 1995,
1994 and 1993, respectively. Share amounts
reflect the 2-for-1 stock split effective November 1997.
(5) For purposes of calculating these ratios, non-performing
loans consist of all non-accrual loans and restructured loans.
SELECTED CONSOLIDATED OPERATING DATA
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands of dollars, 1997 1996 1995 1994 1993
except per share data) ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income $126,306 109,253 96,434 81,491 79,236
Interest expense 74,400 61,368 55,115 40,289 41,833
Net interest income 51,906 47,885 41,319 41,202 37,403
Provision for loan losses 2,750 3,125 2,775 13,400 6,400
Net interest income after provision
for loan losses 49,156 44,760 38,544 27,802 31,003
Non-interest income:
Loan fees and servicing income 3,110 1,807 2,241 790 943
Savings/checking fees 5,478 3,378 2,861 2,282 2,205
Net (loss) gain on sales of
interest-earning assets (5) 140 126 372 552
Insurance annuity and mutual fund fees 3,758 3,114 2,525 2,025 1,736
Other 1,571 1,115 1,269 1,060 1,072
Total non-interest income 13,912 9,554 9,022 6,529 6,508
Non-interest expense:
Compensation and benefits 24,251 15,737 14,889 13,605 11,809
Occupancy and equipment 6,334 3,478 3,334 3,238 3,631
Real estate operations, net 352 277 1,405 12,253 9,401
SAIF recapitalization charge - 6,800 - - -
Federal deposit insurance premiums 736 2,327 2,653 2,709 2,554
Other 14,174 9,836 9,511 9,336 9,416
Total non-interest expense 45,847 38,455 31,792 41,141 36,811
Income (loss) before income tax expense
(benefit) 17,221 15,859 15,774 (6,810) 700
Income tax expense (benefit) 6,138 6,434 7,230 (2,475) 1,392
Net income (loss) $ 11,083 9,425(2) 8,544 (4,335) (692)
Net income (loss) per common share (1):
Basic $ 1.32 1.13(2) 0.99 (0.48) (0.05)(3)
Diluted $ 1.24 1.08(2) 0.96 (0.47) (0.05)(3)
</TABLE>
(1) Per share amounts reflect the 2-for-1 stock split effective
November 1997.
(2) Net income excluding the SAIF assessment charge would have
been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
(3) Represents loss per common share for the quarter ended
December 31, 1993 since the stock conversion occurred on
September 23, 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was formed
on March 25, 1993 as the Holding Company for CFS Bank (formerly
Columbia Federal Savings Bank) ("CFS" or the "Bank") in
connection with the Bank's conversion from a federally chartered
mutual savings bank to a federally chartered stock savings bank.
The Company is headquartered in Woodhaven, New York and its
principal business currently consists of the operation of its
wholly-owned subsidiary, CFS Bank. The Company had no operations
prior to September 23, 1993.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one-to four-family, owner occupied residential
mortgage loans. In addition, in times of low loan demand, the
Bank will invest in debt, equity and mortgage-backed securities
to supplement its lending portfolio. The Bank also invests, to a
lesser extent, in multi-family residential mortgage loans,
commercial real estate loans and other marketable securities.
The Bank's results of operations are dependent primarily on its
net interest income, which is the difference between the interest
income earned on its loan and securities portfolios and its cost
of funds, which consist of the interest paid on its deposits and
borrowed funds. The Bank's net income also is affected by its
provision for loan losses as well as non-interest income and
operating expenses consisting primarily of compensation and
benefits, occupancy and equipment, real estate operations, net,
federal deposit insurance premiums and other general and
administrative expenses. The earnings of the Bank are
significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, and to
a lesser extent by government policies and actions of regulatory
authorities.
FINANCIAL CONDITION
The Company had total assets of $1.97 billion at December 31,
1997 compared to $1.58 billion at December 31, 1996, an increase
of $391.3 million, or 24.7%.
The Company's portfolio of debt and equity securities and
mortgage-backed securities ("MBSs") available for sale ("AFS")
totaled $499.4 million, an increase of $129.3 million, or 34.9%
at December 31, 1997 compared to $370.1 million at December 31,
1996. At December 31, 1997, $250.5 million of the AFS securities
portfolio were adjustable-rate securities and $248.9 million were
fixed-rate securities. The overall growth in the AFS portfolio in
1997 was primarily due to securities purchased for a leverage
program related to the issuance of trust preferred securities by
the Company as well as the investment of deposit flows during the
year not utilized for loan originations and the reinvestments of
cash flows from the securities held to maturity portfolio.
During 1997, the Company purchased $511.1 million of debt and
equity securities and MBSs for its AFS portfolio, of which $136.8
million were adjustable-rate and $374.3 million were fixed-rate.
The purchases were intended to minimize market risk and improve
the overall net interest margin in the portfolio. The purchases
for the AFS portfolio included $41.5 million related to a $85.0
million leverage program implemented during the first quarter to
initially invest a portion of the proceeds of the $25.0 million
10.46% Capital Securities issued by Haven Capital Trust I and to
offset the additional interest expenses. Principal repayments,
calls and proceeds from sales of AFS securities totaled $386.1
million. A portion of the proceeds from AFS sales were used to
fund loan originations and to purchase both residential loans on
a flow basis and bulk whole loan packages totaling $200.9
million.
At December 31, 1997, the debt securities and MBS held to
maturity portfolios totaled $229.5 million, comprised of $59.1
million of adjustable-rate securities and $170.4 million of
fixed-rate securities. During 1997, the Company did not purchase
any securities for its held to maturity portfolio. Principal
repayments on MBSs and debt securities and maturities and calls
on debt securities held to maturity totaled $65.6 million. The
estimated fair value of the Company's debt securities and MBS
held to maturity portfolios were $0.2 million above the carrying
value of the portfolios at December 31, 1997. It is the Company's
intent to hold these securities until maturity and therefore the
Company does not expect to realize the current unrealized gains
brought about by the current market environment.
Net loans increased by $301.4 million, or 36.0% during 1997 to
$1.14 billion at December 31, 1997 from $836.9 million at
December 31, 1996. Loan originations and purchases during 1997
totaled $471.3 million (comprised of $322.4 million of
residential one-to four-family mortgage loans, $133.6 million of
commercial and multi-family real estate loans, $3.8 million of
construction loans and $11.5 million of consumer loans). One-to
four-family mortgage loan originations included $200.9 million of
loans purchased in the secondary market during 1997. Commercial
and multi-family real estate loan originations increased by $49.8
million to $133.6 million in 1997 from $83.8 million in 1996, or
59.4% comprised of $64.2 million of multi-family loans and $69.4
million of commercial real estate loans. Total loans increased
substantially while the Company continued towards its objective
to shift toward adjustable-rate loans. At December 31, 1997,
total loans were comprised of $626.4 million adjustable-rate
loans and $524.4 million fixed-rate loans. During 1997, principal
repayments totaled $164.5 million and $1.7 million was
transferred to real estate owned ("REO").
Included in other assets at both December 31, 1997 and 1996 was
$6.2 million of net deferred tax assets. The overall deferred
tax asset was unchanged from 1996 because the increase in the
difference between the financial statement credit loss provision
and the tax bad debt deduction was offset by an increase in the
deferred tax liability related to securities marked to market for
financial statement purposes. Also, there was a $0.3 million
decrease in the deferred tax liability related to the potential
recapture of the New York City tax bad debt reserve which was no
longer necessary due to New York tax legislation enacted in 1997.
(See Note 9 to Notes to Consolidated Financial Statements).
Management believes that the Company's projected future earnings
will allow the Company to generate future taxable income
sufficient to utilize the deferred tax asset over time.
Deposits totaled $1.37 billion at December 31, 1997, an increase
of $227.2 million, or 20.0% from $1.14 billion at December 31,
1996. Interest credited retained totaled $50.3 million in
addition to deposit growth of $176.9 million. As of December 31,
1997, the Bank had thirty-two supermarket branches with total
deposits of $157.2 million compared to four locations with
deposits totaling $12.1 million at December 31, 1996. The
supermarket branches are located in Queens, Brooklyn, Manhattan,
Staten Island, Nassau, Suffolk, Rockland and Westchester counties
and northern New Jersey. Core deposits equaled 32.5% of total
in-store branch deposits, compared to 45.3% in traditional
branches. Overall, core deposits represented 43.8% of total
deposits at December 31, 1997 compared to 47.2% at December 31,
1996.
Borrowed funds increased 43.0% to $466.8 million at December 31,
1997 from $326.4 million at December 31, 1996. The increase in
borrowings was primarily due to the addition of $25.0 million of
10.46% Capital Securities issued by Haven Capital Trust I in
February 1997 which are included in borrowed funds in the
consolidated statements of financial condition and the addition
of an $85.0 million leverage program which was implemented during
the first quarter to offset the additional interest expense
resulting from the issuance of the Capital Securities. A portion
of the increase was offset by the pay-down of short-term
borrowings as a result of deposit growth during 1997.
Stockholders' equity totaled $112.9 million, or 5.7% of total
assets at December 31, 1997, an increase of $13.5 million, or
13.6% from $99.4 million, or 6.3% of total assets at December 31,
1996. The increase reflects net income of $11.1 million, an
increase of $1.7 million related to the allocation of ESOP stock,
amortization of awards of shares of common stock by the Bank's
Recognition and Retention Plans and Trusts ("RRPs") and
amortization of deferred compensation plan and $0.8 million
related to stock options exercised, and related tax effect. In
addition, there was an increase of $2.5 million in unrealized
appreciation on AFS securities. These were partially offset by
dividends declared of $2.6 million.
DISCUSSION OF MARKET RISK
As a financial institution, the Company's primary component of
market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense
recorded on a large portion of the Bank's assets and liabilities,
and the market value of all interest-earning assets, other than
those which possess a short term to maturity. Since virtually all
of the Company's interest-bearing liabilities and interest-
earning assets are at the Bank, virtually all of the Company's
interest-rate risk exposure lies at the Bank level. As a result,
all significant interest rate risk management procedures are
performed at the Bank level. Based upon the Bank's nature of
operations, the Bank is not subject to foreign currency exchange
or commodity price risk. The Bank's real estate loan portfolio,
concentrated primarily within the New York metropolitan area, is
subject to risks associated with the local economy. The Bank does
not own any trading assets. See "Non-Performing Assets." At
December 31, 1997, the Bank had $25.0 million of interest rate
caps outstanding. (See Note 13 to Notes to Consolidated Financial
Statements.) The Bank's interest rate management strategy is
designed to stabilize net interest income and preserve capital
over a broad range of interest rate movements. See "Interest Rate
Sensitivity Analysis" below.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to
be interest rate sensitive within a specific time period if it
will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount
of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing
liabilities maturing or repricing within the same period. A gap
is considered positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing
liabilities maturing or repricing within the same period. A gap
is considered negative when the amount of interest-bearing
liabilities maturing or repricing exceeds the amount of interest-
earning assets maturing or repricing within the same period.
Accordingly, in a rising interest rate environment, an
institution with a positive gap would be in a better position to
invest in higher yielding assets which would result in the yield
on its assets increasing at a pace closer to the cost of its
interest-bearing liabilities, than would be the case if it had a
negative gap. During a period of falling interest rates, an
institution with a positive gap would tend to have its assets
repricing at a faster rate than one with a negative gap, which
would tend to restrain the growth of its net interest income.
The Company closely monitors its interest rate risk as such risk
relates to its operational strategies. The Company's Board of
Directors has established an Asset/Liability Committee,
responsible for reviewing its asset/liability policies and
interest rate risk position, which generally meets weekly and
reports to the Board on interest rate risk and trends on a
quarterly basis.
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December
31, 1997 which are anticipated by the Company, based upon certain
assumptions described below, to reprice or mature in each of the
future time periods shown. Adjustable-rate assets and liabilities
are included in the table in the period in which their interest
rates can next be adjusted. For purposes of this table,
prepayment assumptions for fixed interest-rate assets are based
upon industry standards as well as the Company's historical
experience and estimates. The Company has assumed an annual
prepayment rate of approximately 14% for its fixed-rate MBS
portfolio. The computation of the estimated one-year gap assumes
that the interest rate on passbook account deposits is variable
and, therefore, interest sensitive. During the falling interest
rate environment throughout 1997, these funds were maintained at
an average rate of 2.51%. The Company has assumed that its
passbook, NOW and money market accounts, which totaled $528.0
million at December 31, 1997, are withdrawn at the annual
percentages of approximately 10%, 5% and 17%, respectively.
<TABLE>
<CAPTION>
More Than More Than More Than More Than
Three One Year Three Five Years Ten Years
Months Three to to Years to to to More Than
(Dollars in thousands) or Less Twelve Months Three Years Five Years Ten Years Twenty Years Twenty Years Total
------- ------------- ----------- ---------- ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $ 76,500 144,539 302,465 257,904 220,947 107,498 - 1,109,853
Other loans (1) 12,138 7,911 2,026 2,325 5,224 2,271 - 31,895
MBSs held to maturity 6,255 16,796 44,829 42,510 52,667 - - 163,057
Debt securities held to maturity 5,000 3,609 41,815 - - 15,981 - 66,405
Securities available for sale 499,379 - - - - - - 499,379
Money market investments 4,561 - - - - - - 4,561
------- ------- ------- ------- ------- ------- ------ ---------
Total interest-earning assets 603,833 172,855 391,135 302,739 278,838 125,750 - 1,875,150
Premiums, net of unearned
discount and deferred fees (2) 19 5 12 9 9 4 - 58
------- ------- ------- ------- ------- ------- ------ ---------
Net interest-earning assets 603,852 172,860 391,147 302,748 278,847 125,754 - 1,875,208
------- ------- ------- ------- ------- ------- ------ ---------
Interest-bearing liabilities:
Passbook accounts 9,582 28,671 105,746 69,121 87,717 60,637 17,271 378,745
NOW accounts 1,334 4,003 49,868 13,343 17,905 9,830 1,826 98,109
Money market accounts 2,173 6,514 22,241 10,456 8,180 1,483 82 51,129
Certificate accounts 162,950 432,757 135,522 50,136 218 - - 781,583
Borrowed funds 310,775 93,163 20,620 17,020 232 - 24,984 466,794
Total interest-bearing liabilities 486,814 565,108 333,997 160,076 114,252 71,950 44,163 1,776,360
Interest sensitivity gap $117,038 (392,248) 57,150 142,672 164,595 53,804 (44,163) 98,848
======= ======= ======= ======= ======= ======= ====== =========
Cumulative interest sensitivity
gap $117,038 (275,210) (218,060) (75,388) 89,207 143,011 98,848
======= ======= ======= ======= ======= ======= ====== =========
Cumulative interest sensitivity gap
as a percentage of total assets 5.93% (13.94)% (11.04)% (3.82)% 4.52% 7.24% 5.01%
Cumulative net interest-earning
assets as a percentage of
interest-sensitive liabilities 124.04% 73.84% 84.27% 95.12% 105.37% 108.26% 105.56%
</TABLE>
(1) For purposes of the gap analysis, mortgage and other loans
are reduced for non-performing mortgage loans and other loans but
are not reduced for the allowance for loan losses.
(2) For purposes of the gap analysis, premiums, unearned
discount and deferred fees are pro-rated.
At December 31, 1997, the Company's total interest-bearing
liabilities maturing or repricing within one year exceeded its
total interest-earning assets maturing or repricing within the
same time period by $275.2million, representing a one year
cumulative gap ratio of negative 13.94%.
In order to reduce its sensitivity to interest rate risk, the
Company's current strategy includes emphasizing the origination
or purchase for portfolio of adjustable-rate loans, debt
securities and MBSs and maintaining an AFS securities portfolio.
During 1997, the Company purchased $136.8 million of adjustable-
rate MBSs which are expected to help protect net interest margins
during periods of rising interest rates. In 1997, the Company
originated or purchased $317.4 million of adjustable-rate
mortgage loans. Historically, the Company has been able to
maintain a substantial level of core deposits which the Company
believes helps to limit interest rate risk by providing a
relatively stable, low cost long-term funding base. At December
31, 1997, core deposits represented 43.8% of deposits compared to
47.2% of deposits at December 31, 1996. The Company expects to
attract a higher percentage of core deposits from its supermarket
branch locations as these locations continue to grow and mature.
The Company's interest rate sensitivity is also monitored by
management through the use of a model which internally generates
estimates of the change in net portfolio value ("NPV") over a
range of interest rate change scenarios. NPV is the present
value of expected cash flows from assets, liabilities, and off-
balance sheet contracts. The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The Office of
Thrift Supervision ("OTS") also produces a similar analysis using
its own model, based upon data submitted on the Bank's quarterly
Thrift Financial Reports, the results of which may vary from the
Company's internal model primarily due to differences in
assumptions utilized between the Company's internal model and the
OTS model, including estimated loan prepayment rates,
reinvestment rates and deposit decay rates. For purposes of the
NPV table, prepayment speeds similar to those used in the Gap
table were used. The following table sets forth the Company's
NPV as of December 31, 1997.
<TABLE>
<CAPTION>
Net Portfolio Value
Changes Net Portfolio Value as a % of Assets
in Rates ---------------------------- -------------------
in Basis Dollar Percentage Change in
Points Amount Change Change % Percentage(1)
------ ------ ---------- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
200 $ 77,239 $(68,181) (46.89)% 4.16% (43.55)%
100 119,736 (25,684) (17.66) 6.25 (15.20)
Base case 145,420 - - 7.37 -
(100) 181,427 36,007 24.76 8.98 21.85
(200) 207,720 62,300 42.84 10.11 37.18
</TABLE>
(1) Based on the portfolio value of the Company's assets in the
base case scenario.
As in the case with the Gap table, certain shortcomings are
inherent in the methodology used in the above interest rate risk
measurements. Modeling changes in NPV requires the making of
certain assumptions which may or may not reflect the manner in
which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes
that the composition of the Company's interest-sensitive assets
and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly,
although the NPV measurements provide an indication of the
Company's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest
rates on the Company's net portfolio value and will differ from
actual results.
AVERAGE STATEMENTS OF FINANCIAL POSITION
The following table sets forth certain information relating to
the Company's average consolidated statements of financial
condition and consolidated statements of income for the three
years ended December 31, 1997 and reflects the average yield on
assets and average cost of liabilities for the periods indicated.
Such yields and costs are derived by dividing income or expense
by the average balance of assets or liabilities, respectively,
for the periods shown. Average balances are derived from average
daily balances. The average balance of loans includes loans on
which the Company has discontinued accruing interest. The yields
and costs include fees which are considered adjustments to
yields.
<TABLE>
<CAPTION>
1997 1996 1995
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $ 956,819 $75,266 7.87% $647,516 $53,110 8.20% $503,085 $42,115 8.37%
Other loans 32,639 3,220 9.87 35,952 3,638 10.12 40,418 4,215 10.43
MBSs(1) 482,523 32,755 6.79 543,810 37,517 6.90 557,977 37,510 6.72
Money market investments 5,743 343 5.97 2,175 176 8.09 4,313 339 7.86
Debt and equity securities (1) 215,926 14,722 6.82 227,521 14,812 6.51 199,600 12,255 6.14
--------- ------- --------- ------ --------- ------
Total interest-earning assets 1,693,650 126,306 7.46 1,456,974 109,253 7.50 1,305,393 96,434 7.39
Non-interest earning assets 88,231 ------- 61,120 ------- 57,149 ------
--------- --------- ---------
Total assets 1,781,881 1,518,094 1,362,542
========= ========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 371,872 9,338 2.51 373,337 9,314 2.49 405,932 10,105 2.49
Certificate accounts 134,546 1,130 0.84 572,768 32,436 5.66 503,990 29,426 5.84
NOW accounts 54,107 1,823 3.37 111,425 999 0.90 96,242 939 0.98
Money market accounts 678,599 39,309 5.79 58,108 1,929 3.32 45,472 1,585 3.49
Borrowed funds 389,091 22,800 5.86 285,951 16,690 5.84 200,788 13,060 6.50
--------- ------- --------- ------ --------- ------
Total interest-bearing liabilities 1,628,215 74,400 4.57 1,401,589 61,368 4.38 1,252,424 55,115 4.40
Other liabilities 47,247 ------- 20,628 ------ 17,946 ------
--------- --------- ---------
Total liabilities 1,675,462 1,422,217 1,270,370
Stockholders' equity 106,419 95,877 92,172
--------- --------- ---------
Total liabilities and stockholders'
equity $1,781,881 $1,518,094 $1,362,542
Net interest income/net interest ========= ========= =========
rate spread (2) $51,906 2.89% $47,885 3.12% $41,319 2.99%
Net interest-earning assets/net ====== ==== ====== ==== ====== ====
interest margin (3) $65,435 3.06% $55,385 3.29% $52,969 3.17%
Ratio of interest-earning assets ====== ==== ====== ==== ====== ====
to interest-bearing liabilities 104.02% 103.95% 104.23%
====== ====== ======
</TABLE>
(1) Includes AFS securities and securities held to maturity.
(2) Net interest rate spread represents the difference between
the average yield on interest-earning assets and the average cost
of interest-bearing liabilities.
(3) Net interest margin represents net interest income before
provision for loan losses divided by average interest-earning
assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1996
GENERAL
The Company reported net income of $11.1 million for 1997
compared to net income of $9.4 million for 1996. The $1.7 million
increase in earnings was primarily attributable to an increase of
$17.1 million in interest income, an increase of $4.4 million in
non-interest income, a decrease of $0.4 million in the provision
for loan losses and a decrease of $0.3 million in income tax
expense. These factors were mainly offset by interest expense
which increased by $13.0 million and non-interest expense which
increased by $7.4 million primarily due to the Bank's in-store
branch expansion.
INTEREST INCOME
Interest income increased by $17.1 million, or 15.6% to $126.3
million in 1997 from $109.3 million in 1996. The increase was
primarily the result of an increase in interest income on
mortgage loans which was partially offset by a decrease in
interest income on MBSs and other loans.
Interest income on mortgage loans increased by $22.2 million, or
41.7% to $75.3 million in 1997 from $53.1 million in 1996
primarily as a result of an increase in the average mortgage loan
balance of $309.3 million partially offset by a decrease in
average yield on mortgage loans of 33 basis points. During 1997,
the Bank originated or purchased $459.8 million of mortgage
loans. Mortgage loans were originated at an average rate of
7.52% for 1997 compared to 7.56% for 1996. The decline in the
average rate for originations was primarily due to decreases in
the rate indices used for residential and commercial real estate
loans and the increasing percentage of relatively lower yielding
residential mortgages. These indices which are the 30 year
treasury bond and the 5 year treasury note declined 71 and 50
basis points, respectively, during 1997 when compared to December
31, 1996. In addition, loan satisfactions during 1997 totaled
$134.1 million, some of which were at higher interest rates than
current originations. Principal repayments totaled $151.2
million in 1997 compared to $78.2 million in 1996.
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in
interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the
Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect
to (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate), (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume), and
(iii) the net change. The changes attributable to the combined
impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
Compared to Compared to
Year Ended December 31, 1996 Year Ended December 31, 1995
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $24,376 (2,220) 22,156 11,866 (871) 10,995
Other loans (329) (89) (418) (455) (122) (577)
MBSs(1) (4,172) (590) (4,762) (974) 981 7
Money market investments 223 (56) 176 (173) 10 (163)
Debt and equity securities(1) (776) 1,431 (90) 1,787 770 2,557
------ ----- ------ ------ ------ ------
Total 19,322 (1,524) 17,053 12,051 768 12,819
------ ----- ------ ------ ------ ------
Interest-bearing liabilities:
Passbook accounts (41) 65 24 (791) - (791)
NOW accounts 200 (69) 131 141 (81) 60
Money market accounts (135) 29 (106) 424 (80) 344
Certificate accounts 6,113 760 6,873 3,935 (925) 3,010
Borrowed funds 6,053 57 6,110 5,067 (1,437) 3,630
------ ----- ------ ------ ------ ------
Total 12,190 842 13,032 8,776 (2,523) 6,253
------ ----- ------ ------ ------ ------
Net change in net interest income $ 7,132 (3,111) 4,021 3,275 3,291 6,566
====== ===== ====== ====== ====== ======
</TABLE>
(1) Includes AFS securities and securities held to maturity.
Interest income on other loans decreased by $418,000, or 11.5% to
$3.2 million in 1997 from $3.6 million in 1996 due to a decrease
of $3.3 million in average balances and a decline of 25 basis
points in the average yield. The Bank's consumer loan products
with the exception of equity loan/lines were discontinued in
November 1995. However, during the fourth quarter of 1997, the
Bank added unsecured loans to its list of consumer loan products
to expand the array of products available to its customers.
Interest income on MBSs was $32.8 million for 1997 compared to
$37.5 million in 1996. The average balance for 1997 decreased by
$61.3 million, or 11.3% to $482.5 million from $543.8 for 1996.
In addition, the average yield on the MBS portfolio decreased by
11 basis points to 6.79% for 1997 from 6.90% in 1996. During
1997, the Bank purchased $421.9 million of MBSs for its AFS
portfolio which were partially offset by sales totaling $226.3
million. The MBS securities purchased for the AFS portfolio
during 1997 represented 82.5% of total purchases for the AFS
portfolio because these securities allow the Bank to shorten its
duration exposure for net interest margin purposes and also
provide a better cash flow for reinvestment purposes. The sales
from the AFS portfolio were used to fund mortgage loan
originations, purchases of loans in the secondary market and also
for managing the AFS portfolio to improve overall yield and
shorten duration of various securities.
Interest income on money market investments increased by
$167,000, or 94.9% to $343,000 in 1997 from $176,000 in 1996
primarily as a result of an increase in average balances of $3.6
million in 1997.
Interest on debt and equity securities decreased by $90,000, or
0.6% to $14.7 million in 1997 from $14.8 million in 1996
primarily as a result of a decrease in the average balance of
$11.6 million partially offset by an increase in average yield of
31 basis points. During 1997, the Company purchased $89.2 million
of debt and equity securities for its AFS portfolio which were
offset by sales totaling $111.4 million. The increase in the
overall yield to 6.82% from 6.51% was due to the purchase of
callable agency securities and sales of Federal National Mortgage
Association ("FNMA") preferred stock.
INTEREST EXPENSE
Interest expense increased by $13.0 million, or 21.2% to $74.4
million in 1997 from $61.4 million in 1996. The increase was
partially attributable to an increase in interest on deposits of
$6.9 million, or 15.5% to $51.6 million in 1997 from $44.7
million in 1996. The increase in interest on deposits was due to
an increase of $123.5 million, or 11.1% in average deposits to
$1.24 billion in 1997 from $1.12 billion in 1996. The increase in
average deposits was due to inflows of $145.1 million in the
supermarket branches and $104.4 million in the traditional
branches. The overall cost of deposits was 4.16% in 1997
compared to 4.00% in 1996.
Interest expense on certificate accounts increased by $6.9
million, or 21.2% to $39.3 million in 1997 from $32.4 million in
1996. The average balance of certificate accounts increased by
$105.8 million, or 18.5% to $678.6 million in 1997 from $572.8
million in 1996. The increase in average balances of certificate
accounts was primarily due to inflows of $98.4 million in the
supermarket branches and $82.1 million in the traditional
branches. The average cost of certificates increased to 5.79% in
1997 from 5.66% in 1996. In 1997, passbook accounts experienced
an excess of deposits over withdrawals of $14.0 million primarily
due to inflows into the supermarket branches of $28.7 million.
Certificates of deposit experienced an excess of deposits over
withdrawals of $141.3 million. The Company's in-store branch
program accounted for $98.4 million of the increase in deposit
balances for certificates of deposit. Money market accounts
decreased by $3.9 million during 1997.
Interest on borrowed funds increased by $6.1 million, or 36.6% to
$22.8 million in 1997 compared to $16.7 million in 1996. Borrowed
funds on an average basis increased by $103.1 million in 1997 due
to the addition of $25.0 million of capital securities issued by
Haven Capital Trust I and the addition of an $85.0 million
leverage program which was implemented during the first quarter
to offset the additional interest expense resulting from the
issuance of the capital securities. The average cost of
borrowings increased to 5.86% in 1997 from 5.84% in 1996.
NET INTEREST INCOME
Net interest income increased by $4.0 million, or 8.4% to $51.9
million in 1997 from $47.9 million in 1996. The average yield on
interest-earning assets decreased to 7.46% in 1997 from 7.50% in
1996, and the average cost of liabilities increased by 19 basis
points to 4.57% in 1997 from 4.38% in 1996 primarily due to the
growth in certificate of deposit accounts and the issuance of the
trust preferred securities. The net interest rate spread was
2.89% in 1997 compared to 3.12% in 1996.
PROVISION FOR LOAN LOSSES
The Bank provided $2.7 million for loan losses in 1997 compared
to $3.1 million in 1996. The provision for loan losses reflects
management's periodic review and evaluation of the loan
portfolio. The decrease in the provision for loan losses was
mainly due to the continued decline in non-performing loans to
$12.5 million at December 31, 1997 from $13.9 million at December
31, 1996. As of December 31, 1997, the allowance for loan losses
was $12.5 million compared to $10.7 million at December 31, 1996.
As of December 31, 1997, the allowance for loan losses was 1.09%
of total loans compared to 1.26% of total loans at December 31,
1996. The decrease was attributable to the growth in the loan
portfolio and a decline in non-performing loans. The allowance
for loan losses was 99.97% of non-performing loans at December
31, 1997 compared to 77.05% at December 31, 1996.
NON-INTEREST INCOME
Non-interest income increased by $4.4 million, or 45.6% to $13.9
million in 1997 from $9.6 million in 1996. Fee income on savings
and checking accounts increased by $2.1 million, or 62.2%
primarily due to an increase of approximately 53,000 in the
number of savings and checking accounts. This growth was
primarily due to the Company's in-store branch program which
added approximately 48,000 savings and checking accounts during
1997. Insurance, annuity and mutual fund fees increased by
$644,000, or 20.7% due to an increase of $185,000 in annuity
income and an increase of $471,000 in mutual fund income. The
increase in sales of annuity and mutual fund products by CFS
Investment Services, Inc. (formerly Columbia Investment Services,
Inc.) ("CFSI"), the Bank's wholly-owned subsidiary, is partially
due to the increased demand for alternative sources of
investments by the Bank's depositors and the addition of the
supermarket branches. Approximately 63% of CFSI sales were
external. Loan fees and servicing income increased by $1.3
million, or 72.1% to $3.1 million in 1997 from $1.8 million in
1996. The increase was attributable to a prepayment fee of $2.0
million on a commercial real estate loan during the fourth
quarter of 1997. During 1997, the Company realized a net loss of
$5,000 on the sales of interest-earning assets. Miscellaneous
income increased by $456,000, or 40.9% to $1.6 million in 1997
from $1.1 million in 1996. The increase is primarily due to an
increase of $186,000 in fees on ATM surcharges and $142,000 due
to the close-out of CFSB Funding, Inc., the Bank's finance
subsidiary during 1997. Also, fee income on refinance
transactions increased by $67,000 from 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $7.4 million, or 19.2% to $45.8
million in 1997 from $38.5 million in 1996. Non-interest expense
for 1996 included a one-time SAIF recapitalization charge of $6.8
million which was paid during the fourth quarter of 1996.
Excluding this special assessment, non-interest expense increased
by $14.2 million, or 44.8% in 1997. The Company's in-store
branch expansion program accounted for $11.5 million of the
increase in 1997. Compensation and benefit costs increased by
$8.5 million, or 54.1% to $24.3 million in 1997 from $15.7
million in 1996. The in-store branch expansion accounted for
$5.3 million of the increase in compensation costs since the Bank
added 226 employees for its supermarket branches in 1997. Salary
costs for the Bank's subsidiary, CFSI, also increased by $540,000
due to higher sales volume. Federal social security taxes
increased by $537,000 and the cost incurred for hospitalization,
group life insurance, federal and NYS unemployment insurance
increased by $431,000 from the prior year due to the increase in
staff. ESOP compensation increased by $201,000 from 1996 due to
the increase in the average price of Haven Bancorp common stock
for the year. Occupancy and equipment costs increased by $2.9
million, or 82.1% to $6.3 million in 1997 from $3.5 million in
1996 primarily due to the addition of 28 supermarket branches
during 1997 and a $150,000 charge for obsolete signage in
connection with the name change to CFS Bank. REO operations, net
increased by $75,000, or 27.1% to $352,000 for 1997 from $277,000
for 1996. The increase is due to a decline in profits realized
on the sale of REO properties since the REO portfolio, exclusive
of reserves, decreased to $542,000 at December 31, 1997 from $1.1
million at December 31, 1996. The significant decrease in the
federal deposit insurance premium costs of $1.6 million was due
to a decrease in the assessment rate from 23 basis points in 1996
to 6.48 basis points in 1997. Miscellaneous operating costs
increased by $4.3 million, or 44.1% to $14.2 million in 1997 from
$9.8 million in 1996. Operating expenses including stationery,
telephone, postage and insurance increased by $1.6 million and
professional consulting fees increased by $555,000 from 1996
primarily due to the in-store branch program and services related
to the formation of Columbia Preferred Capital Corp. ("CPCC"),
the Bank's real estate investment trust ("REIT") subsidiary. In
addition, the Bank incurred staff placement costs of $184,000
primarily for in-store branches in New Jersey and Connecticut.
Advertising costs increased by $430,000 due to the growth in both
the loan portfolio and deposit base. NYCE and PLUS fees
increased by $122,000 also due to the growth in the deposit base.
Appraisal and credit costs increased by $162,000 during 1997 due
to the growth in the loan portfolio. Miscellaneous operating
losses increased by $416,000 because the results for 1996
included the reversal of a reserve regarding claims subsequently
paid by a check collection service. Operating expenses for CFSI
increased by $209,000 due to higher sales volume.
INCOME TAX EXPENSE
Income tax expense was $6.1 million in 1997 compared to $6.4
million in 1996. The effective tax rate for 1997 was 35.6%
compared to 40.6% for 1996. The decrease in the effective tax
rate is due to several factors: first, during the first quarter
of 1997, a deferred tax liability of $330,000 was reversed
related to the potential recapture of the New York City tax bad
debt reserve which was no longer necessary due to New York City
tax legislation enacted earlier this year. The New York City tax
law was amended in the first quarter of 1997 to conform to the
New York State tax treatment for bad debt reserve. The
legislation "decouples" New York State's and New York City's
thrift bad debt provisions from the federal tax law and allows
for the use of the percentage of taxable income method ("PTI")
for computing the tax bad debt reserves. The second factor which
contributed to the tax savings when compared to the prior period
was the switch to the PTI method for calculating the bad debt
deduction for New York City. The final factor contributing to
the decline in the effective tax rate for 1997 was the
establishment of CPCC during the second quarter of 1997 which
resulted in certain tax savings. (See Note 9 to Notes to
Consolidated Financial Statements.)
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995
GENERAL
The Company reported net income of $9.4 million for 1996 compared
to a net income of $8.5 million for 1995. The $0.9 million
increase in earnings was primarily attributable to an increase of
$12.9 million in interest income, an increase of $0.5 million in
non-interest income and a reduction of $0.8 million in income tax
expense. These factors were mainly offset by interest expense
which increased by $6.3 million, an increase of $0.4 million in
the provision for loan losses and non-interest expense which
increased by $6.7 million (which included the one-time $6.8
million SAIF assessment charge).
INTEREST INCOME
Interest income increased by $12.9 million, or 13.3% to $109.3
million in 1996 from $96.4 million in 1995. The increase was
primarily the result of an increase in interest income on
mortgage loans, and debt and equity securities which were
partially offset by a decrease in interest income on other loans
and money market investments.
Interest income on mortgage loans increased by $11.0 million, or
26.1% to $53.1 million in 1996 from $42.1 million in 1995
primarily as a result of an increase in the average mortgage loan
balance of $144.4 million partially offset by a decrease in
average yield on mortgage loans of 17 basis points. During 1996,
the Bank originated or purchased $354.9 million of mortgage loans
which included $172.3 million of one-to four-family mortgage
loans purchased in the secondary market during 1996. Mortgage
loan originations for 1996 were originated at an average rate of
7.56% compared to 8.03% for 1995. The decline in the average
rate for originations was primarily due to decreases in the rate
indices used for residential and commercial real estate loans.
These indices which are the 30 year treasury bond and the 5 year
treasury note declined 19 and 21 basis points, respectively, for
1996 when compared to 1995. Principal repayments totaled $78.2
million in 1996 compared to $67.0 million in 1995.
Interest income on other loans decreased by $577,000, or 13.7% to
$3.6 million in 1996 from $4.2 million in 1995 due to a decrease
of $4.5 million in average balances and a decline of 31 basis
points in the average yield. The Bank's consumer loan products
with the exception of equity loan/lines were discontinued in
November 1995. The consumer loan portfolio balance will continue
to amortize until all loans are satisfied except for the
overdraft line-of-credit product.
Interest income on MBSs was $37.5 million for both 1996 and 1995.
The average balance for 1996 decreased by $14.2 million, or 2.5%
to $543.8 million from $558.0 for 1995. This decrease was offset
by the average yield which increased by 18 basis points to 6.90%
for 1996 from 6.72% in 1995. During 1996, the Bank purchased
$161.1 million of MBSs for its AFS portfolio which were offset by
sales totaling $304.2 million. The average balance for 1996 was
down only $14.2 million because 96% of the net change in the MBS
portfolio occurred during the second half of 1996. The sales from
the AFS portfolio were used to fund mortgage loan originations,
purchases of loans in the secondary market and also for managing
the AFS portfolio to improve overall yield and shorten duration
of various securities. The improvement in the overall yield on
MBS securities was due to an increase in market rates during the
first quarter of 1996. During 1996, the Bank also purchased $38.4
million of MBSs for the held to maturity portfolio which were
offset by principal repayments totaling $32.0 million.
Interest income on money market investments decreased by
$163,000, or 48.1% to $176,000 in 1996 from $339,000 in 1995
primarily as a result of a decrease in average balances of $2.1
million in 1996. The decrease in the average balances is the
result of the Company's strategy to take advantage of its
liquidity and invest in higher yielding assets.
Interest on debt and equity securities increased by $2.6 million,
or 20.9% to $14.8 million in 1996 from $12.3 million in 1995
primarily as a result of an increase in the average balance of
$27.9 million and an increase in average yield of 37 basis
points. During 1996, the Company purchased $160.1 million of debt
and equity securities for its AFS portfolio which were offset by
sales totaling $63.5 million. The increase in the overall yield
to 6.51% from 6.14% was due to the acquisition of callable agency
securities and FNMA preferred stock. In addition, during 1996,
the Bank purchased $7.0 million of debt securities for the held
to maturity portfolio offset by principal repayments totaling
$37.5 million.
INTEREST EXPENSE
Interest expense increased by $6.3 million, or 11.3% to $61.4
million in 1996 from $55.1 million in 1995. The increase was
partially attributable to an increase in interest on deposits of
$2.6 million, or 6.2% to $44.7 million in 1996 from $42.1 million
in 1995. The increase in interest on deposits was due to an
increase of $64.0 million, or 6.1% in average deposits to $1.12
billion in 1996 from $1.05 billion in 1995. The overall cost of
deposits was 4.00% for both years.
Interest expense on certificate accounts increased by $3.0
million, or 10.2% to $32.4 million in 1996 from $29.4 million in
1995. The average balance of certificate accounts increased by
$68.8 million, or 13.6% to $572.8 million in 1996 from $504.0
million in 1995. The average cost of certificates decreased to
5.66% in 1996 from 5.84% in 1995. During most of 1996, the Bank
continued to experience net outflows from passbook accounts into
its certificates of deposit accounts. In 1996, passbook accounts
experienced an excess of withdrawals over deposits of $16.0
million, while certificates of deposit experienced an excess of
deposits over withdrawals of $36.8 million. Interest expense on
passbook accounts decreased by $791,000, or 7.8% to $9.3 million
in 1996 from $10.1 million in 1995 primarily due to a decrease in
average balances of $32.6 million due to customers seeking higher
yielding investment opportunities including the Bank's
certificates of deposit accounts. The Bank maintained its
passbook rate at 2.49% for both years.
Interest on borrowed funds increased by $3.6 million, or 27.8% to
$16.7 million in 1996 compared to $13.1 million in 1995. Borrowed
funds on an average basis increased by $85.2 million in 1996 due
to an increase in short-term advances with the Federal Home Loan
Bank ("FHLB") and reverse repurchase agreements with brokers to
provide funding for loan originations and partial funding for
residential loans purchased in the secondary market which
included two bulk purchases totaling approximately $70.0 million.
The average cost of borrowings decreased to 5.84% in 1996 from
6.50% in 1995 due to a reduction in short and intermediate term
rates during the end of 1995 and the beginning of 1996.
NET INTEREST INCOME
Net interest income increased by $6.6 million, or 15.9% to $47.9
million in 1996 from $41.3 million in 1995. The average yield on
interest-earning assets increased by 11 basis points to 7.50% in
1996 from 7.39% in 1995, and the average cost of liabilities
decreased by 2 basis points to 4.38% in 1996 from 4.40% in 1995.
The net interest rate spread was 3.12% in 1996 compared to 2.99%
in 1995.
PROVISION FOR LOAN LOSSES
The Bank provided $3.1 million for loan losses in 1996 compared
to $2.8 million in 1995. The provision for loan losses reflects
management's periodic review and evaluation of the loan
portfolio. The increase in the provision for loan losses was due
to the growth in the Bank's residential and commercial mortgage
loan portfolios. As of December 31, 1996, the allowance for loan
losses was $10.7 million compared to $8.6 million at December 31,
1995. As of December 31, 1996, the allowance for loan losses was
1.26% of total loans compared to 1.51% of total loans at December
31, 1995. The decrease was attributable to the growth in the loan
portfolio and a decline in non-performing loans. The allowance
for loan losses was 77.05% of non-performing loans at December
31, 1996 compared to 50.80% at December 31, 1995.
NON-INTEREST INCOME
Non-interest income increased by $532,000, or 5.9% to $9.6
million in 1996 from $9.0 million in 1995. Fee income on savings
and checking accounts increased by $517,000, or 18.1% primarily
due to an increase of approximately 16,000 in the number of
active accounts. Annuity, insurance and mutual fund fees
increased by $589,000, or 23.3% due to an increase of $224,000 in
annuity income, an increase of $200,000 in mutual fund income and
an increase of $165,000 in revenue from the distribution of
traditional life insurance products. The increase in sales of
annuity and mutual fund products by CFSI, the Bank's wholly-owned
subsidiary, is partially due to the increased demand for
alternative sources of investments by the Bank's depositors.
Approximately 45% of sales were from withdrawals of deposit
balances from the Bank. Finally, loan fees and servicing income
decreased by $434,000, or 19.4% to $1.8 million in 1996 from $2.2
million in 1995. The decrease was attributable to prepayment fees
on commercial real estate loans which were higher in 1995 due to
the prepayment of several large commercial real estate loans.
During 1996, the Company realized net gains of $371,000 on the
sales of AFS securities which were offset by an increase of
$228,000 in the valuation allowance on cooperative apartment
loans held for sale.
NON-INTEREST EXPENSE
Non-interest expense increased by $6.7 million, or 21.0% to $38.5
million in 1996 from $31.8 million in 1995. The increase in non-
interest expense was primarily due to the SAIF recapitalization
charge of $6.8 million which was recorded in the third quarter of
1996. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 which empowered the Board of
Directors of the FDIC to impose and collect the assessment. The
special assessment rate was 65.7 basis points per $100 of insured
deposits at March 31, 1995. Compensation and benefit costs
increased by $848,000, or 5.7% to $15.7 million in 1996 from
$14.9 million in 1995. Salary costs increased by $1.6 million due
to normal merit increases, staff hired for the supermarket
banking program and an increase in commission costs for CFSI.
These factors were partially offset by a curtailment gain of
$266,000 which was recorded upon the freeze of the Bank's pension
plan as of July 1, 1996. The curtailment gain coupled with a
decrease in the normal accrual for 1996 reduced pension expense
by $462,000 when compared to the previous year. During 1996, the
Bank accrued a matching contribution for its employee 401(k)
contributions of $120,000. REO operations, net decreased by $1.1
million, or 80.3% to $277,000 for 1996 from $1.4 million for
1995. REO expenses incurred on properties in the portfolio
decreased by $669,000 and the provision for REO decreased by
$459,000, respectively, since the REO portfolio decreased by
$995,000, or 48.9% from the previous year. The annual premium
paid for SAIF insurance, exclusive of the SAIF assessment charge,
decreased by $326,000, or 12.3% to $2.3 million for 1996 from
$2.7 million for 1995 due to a reduction in the premium for the
fourth quarter of 1996 which included a rebate for the 1996
overassessment. Finally, other non-interest expenses increased by
$325,000, or 3.4% to $9.8 million for 1996 from $9.5 million for
1995. During 1996, advertising costs increased by $233,000 to
support the Bank's various products and for the implementation of
the supermarket banking program. Miscellaneous expenses increased
by $587,000 due to the settlement of two legal suits totaling
$150,000 and agency fees incurred to hire staff for the
supermarket program. These increases were partially offset by the
reversal of a reserve of $430,000 for potential losses relating
to checks in process of collection which were held by Nationar.
During 1996, the Bank recovered all of its previously outstanding
claims.
INCOME TAX EXPENSE
Income tax expense was $6.4 million in 1996 compared to $7.2
million in 1995. In the fourth quarter of 1996, the Company
recorded the benefit resulting from a change in the method it
used for determining the federal tax return treatment of its bad
debt reserve. This resulted in a reduction in its effective
federal tax rate for the fourth quarter of 1996 and the entire
year. In the third quarter of 1996, the Company recorded a tax
benefit relating to the method of computing its bad debt reserve
for New York State income tax purposes. Income tax expense for
1996 was reported at an effective tax rate of 40.6% compared to
45.8% in 1995. (See Note 9 to Notes to Consolidated Financial
Statements.)
NON-PERFORMING ASSETS
The following table sets forth information regarding non-
performing assets which include all non-accrual loans (which
consist of loans 90 days or more past due and restructured loans
that have not yet performed in accordance with their modified
terms for the required six-month seasoning period), accruing
restructured loans and real estate owned.
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Non accrual loans:
One-to four-family $ 3,534 4,083 3,800
Cooperative 698 431 871
Multi-family 2,531 1,463 967
Non-residential and other 3,633 4,756 4,167
------ ------ ------
Total non-accrual loans 10,396 10,733 9,805
------ ------ ------
Restructured loans:
One-to four-family 679 887 853
Cooperative 290 486 494
Multi-family 1,167 1,427 3,602
Non-residential and other - 360 2,123
------ ------ ------
Total restructured loans 2,136 3,160 7,072
------ ------ ------
Total non-performing loans 12,532 13,893 16,877
------ ------ ------
REO, net:
One-to four-family 126 266 1,148
Cooperative 295 292 723
Multi-family - - 156
Non-residential and other 121 561 184
------ ------ ------
Total REO 542 1,119 2,211
Less allowance for REO (87) (81) (178)
------ ------ ------
REO, net 455 1,038 2,033
------ ------ ------
Total non-performing assets $12,987 14,931 18,910
====== ====== ======
</TABLE>
The Company's expanded loan workout/resolution efforts have
successfully contributed toward reducing non-performing assets to
manageable levels. Since year-end 1995, non-performing assets
have declined by $5.9 million, or 31.3%, from a level of $18.9
million to $13.0 million at year-end 1997. The decrease in non-
performing assets is reflected in the following ratios: Non-
performing loans to total loans was 1.09% for 1997 compared to
1.64% for 1996 and 2.97% for 1995; Non-performing assets to total
assets was 0.66% for 1997 compared to 0.94% for 1996 and 1.28%
for 1995 and Non-performing loans to total assets was 0.63% for
1997 compared to 0.87% for 1996 and 1.15% for 1995. There can be
no assurance that non-performing assets will continue to decline.
The decrease in non-performing assets in 1997 was primarily due
to continued sales of REO properties and a continued decline in
non-performing loans. During 1997, the Company sold 37 REO
properties with a fair value of $1.4 million. Total restructured
loans decreased by $1.0 million during 1997 due to transfers to
classified loan status and the REO portfolio. Total non-accrual
loans decreased by $337,000 during 1997.
The decrease in non-performing assets in 1996 was primarily due
to continued sales of REO properties and a continued decline in
non-performing loans. During 1996, the Company sold 60 REO
properties with a fair value of $3.1 million. During 1996, 2
restructured loans with a balance of $2.1 million were
reclassified to performing loans since they had performed in
accordance with their modified terms for a period of 18 months
and are no longer considered classified assets. Total non-accrual
loans increased by $928,000 during 1996 due to an increase in
non-residential loans.
LIQUIDITY
The Bank is required to maintain minimum levels of liquid assets
as defined by the OTS regulations. This requirement, which may be
varied by the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of withdrawable deposits and
short-term borrowings. The required ratio is currently 4%. The
Bank's ratio was 8.94 % at December 31, 1997 compared to 14.99%
at December 31, 1996.
The Company's primary sources of funds are deposits, principal
and interest payments on loans, debt securities and MBSs,
retained earnings and advances from FHLB and other borrowings.
Proceeds from the sale of AFS securities are also a source of
funding, as are, to a lesser extent, the sales of annuities,
insurance and securities brokerage activities conducted by the
Bank's wholly-owned subsidiary, CFSI. While maturities and
scheduled amortization of loans and securities are somewhat
predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates,
economic conditions, competition and regulatory changes.
The Company's most liquid assets are cash and short term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At December 31, 1997 and December 31,
1996, cash and short term investments totaled $40.3 million and
$35.7 million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year and AFS
securities. Other sources of funds include FHLB advances, which
at December 31, 1997, totaled $247.0 million. If needed, the Bank
may borrow an additional $3.9 million from the FHLB.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities; investing
activities and financing activities. Net cash provided by (used
in) operating activities, consisting primarily of interest and
dividends received less interest paid on deposits were $26.0
million, $10.7 million and $(8.3) million for the years ended
December 31, 1997, 1996 and 1995, respectively. Net cash used in
investing activities, consisting primarily of disbursements of
loan originations and securities purchases, offset by principal
collections on loans and proceeds from maturities of securities
held to maturity or sales of AFS securities or disposition of
assets including REO were $385.8 million, $117.6 million and
$197.6 million for the years ended December 31, 1997, 1996 and
1995, respectively. Net cash provided by financing activities,
consisting primarily of net activity in deposits and borrowings,
purchases of treasury stock, payments of common stock dividends
and proceeds from stock options exercised were $364.4 million,
$103.7 million and $214.3 million for the years ended December
31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the Bank had outstanding loan commitments
to originate $77.4 million of loans. The Bank also had
commitments to purchase $10.0 million of MBSs. The Bank believes
that it will have sufficient funds available to meet these
commitments. At December 31, 1997, certificates of deposit which
are scheduled to mature in one year or less totaled $595.7
million.
CAPITAL RESOURCES
See Note 14 to Notes to Consolidated Financial Statements.
INFLATION AND CHANGING PRICES
The consolidated 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 changes due to 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.
COMPUTER ISSUES FOR THE YEAR 2000
As a financial services company, the Bank is aware of the
potential issues the year 2000 could have on its computer systems
and programs. During fiscal year 1997, the Bank initiated a
review of its computer systems and programs to determine which,
if any, systems and programs are not capable of recognizing the
year 2000. Communications were initiated with all of the Bank's
vendors that supply the Bank with these systems and programs.
The Bank's efforts to determine what, if any, issues exist have
been substantially completed. Where the potential computer
issues for the year 2000 have been identified, vendors have
committed to resolving such issues by no later than December 31,
1998. Management has not yet determined the total financial
impact of resolving year 2000 computer issues.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to Notes to Consolidated Financial Statements.
STOCK DATA
Haven common stock, listed under the symbol HAVN is publicly
traded on the Nasdaq Stock Market. As of March 4, 1998, the
Company had approximately 428 stockholders of record (not
including the number of persons or entities holding stock in
nominee or street name through various brokerage firms) and
8,835,588 outstanding shares of common stock (excluding treasury
shares). The common stock traded in a high and low range of $23
and $137/8 during the year ended December 31, 1997 which have
been adjusted to reflect the stock split.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in thousands, except for share data) 1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,745 28,848
Money market investments 4,561 6,869
Securities available for sale (note 2) 499,380 370,105
Debt securities held to maturity (estimated
fair value of $66,372 and $96,324 in 1997
and 1996, respectively) (note 3) 66,404 97,307
Federal Home Loan Bank of NY Stock, at cost 12,885 9,890
Mortgage-backed securities held to maturity
(estimated fair value of $163,326 and $195,682
in 1997 and 1996, respectively) (notes 4 and 8) 163,057 197,940
Loans (note 5):
First mortgage loans 1,098,894 793,556
Cooperative apartment loans 19,596 19,936
Other loans 32,291 34,094
--------- ---------
Total loans 1,150,781 847,586
Less allowance for loan losses (note 6) (12,528) (10,704)
--------- ---------
Loans, net 1,138,253 836,882
Premises and equipment, net (note 13) 27,062 8,820
Accrued interest receivable (notes 2, 3, 4 and 5) 12,429 12,172
Other assets (note 9) 15,114 14,712
--------- ---------
Total assets $1,974,890 1,583,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 7) $1,365,012 1,137,788
Borrowed funds (note 8) 466,794 326,433
Mortgagors' escrow balances 3,234 4,621
Due to broker 10,000 1,000
Other liabilities (note 9) 16,985 14,319
--------- ---------
Total liabilities 1,862,025 1,484,161
--------- ---------
Commitments and contingencies (notes 6 and 13)
Stockholders' Equity(1) (note 14):
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 10,500,000 shares
authorized, 9,918,750 issued; 8,784,700 and
8,650,814 shares outstanding in 1997 and 1996,
respectively 100 100
Additional paid-in capital 50,065 48,794
Retained earnings, substantially restricted (note 14) 73,567 65,092
Unrealized gain (loss) on securities available for
sale, net of tax effect (note 2) 1,671 (840)
Treasury stock, at cost (1,134,050 and 1,267,936
shares in 1997 and 1996, respectively) (10,246) (11,049)
Unallocated common stock held by ESOP (note 11) (1,529) (1,854)
Unearned common stock held by Bank's Recognition
Plans and Trusts (note 11) (364) (267)
Unearned compensation (note 11) (399) (592)
--------- ---------
Total stockholders' equity 112,865 99,384
--------- ---------
Total liabilities and stockholders' equity $1,974,890 1,583,545
========= =========
</TABLE>
(1) Share amounts reflect the 2-for-1 stock split effective
November 1997.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data) 1997 1996 1995
<S> <C> <C> <C>
Interest income:
Mortgage loans $ 75,266 53,110 42,115
Other loans 3,220 3,638 4,215
Mortgage-backed securities 32,755 37,517 37,510
Money market investments 343 176 339
Debt and equity securities 14,722 14,812 12,255
------- ------- ------
Total interest income 126,306 109,253 96,434
------- ------- ------
Interest expense:
Deposits:
Passbook accounts 9,338 9,314 10,105
NOW accounts 1,130 999 939
Money market accounts 1,823 1,929 1,585
Certificate accounts 39,309 32,436 29,426
Borrowings 22,800 16,690 13,060
------- ------- ------
Total interest expense 74,400 61,368 55,115
------- ------- ------
Net interest income before provision for loan losses 51,906 47,885 41,319
Provision for loan losses (note 6) 2,750 3,125 2,775
------- ------- ------
Net interest income after provision for loan losses 49,156 44,760 38,544
------- ------- ------
Non-interest income:
Loan fees and servicing income 3,110 1,807 2,241
Savings/checking fees 5,478 3,378 2,861
Net (loss) gain on sales of interest-earning assets (5) 140 126
Insurance annuity and mutual funds fees 3,758 3,114 2,525
Other 1,571 1,115 1,269
Total non-interest income 13,912 9,554 9,022
Non-interest expense:
Compensation and benefits (notes 10 and 11) 24,251 15,737 14,889
Occupancy and equipment (note 13) 6,334 3,478 3,334
Real estate owned operations, net 352 277 1,405
SAIF recapitalization charge (note 7) - 6,800 -
Federal deposit insurance premiums 736 2,327 2,653
Other 14,174 9,836 9,511
------- ------- ------
Total non-interest expense 45,847 38,455 31,792
------- ------- ------
Income before income tax expense 17,221 15,859 15,774
Income tax expense (note 9) 6,138 6,434 7,230
------- ------- ------
Net income $11,083 9,425 8,544
======= ======= ======
Net income per common share:(1) Basic $ 1.32 1.13 0.99
Diluted $ 1.24 1.08 0.96
======= ======= ======
</TABLE>
(1) Per share amounts reflect the 2-for-1 stock split effective
November 1997.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
The three years ended December 31, 1997
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Unallocated Unearned
Additional on Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
Stock Capital Earnings for Sale Stock by ESOP by RRPs Compensation Total
------ ---------- -------- ------------- -------- ----------- ---------- ------------ -----
(In thousands of dollars, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 100 46,445 50,331 (1,880) (5,093) (2,725) (943) - 86,235
Net income - - 8,544 - - - - - 8,544
Dividends declared - - (902) - - - - - (902)
Purchase of treasury stock
(151,140 shares) - - - - (1,360) - - - (1,360)
Reissued Treasury Stock contributed
to RRP (19,836 shares) - 49 - - 119 - (168) - -
Stock options exercised and
related tax effect (51,406 shares) - 45 (54) - 311 - - - 302
Unrealized appreciation on
securities transferred from
held to maturity to available
for sale, net of tax effect - - - 2,091 - - - - 2,091
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of
tax effect - - - 1,872 - - - - 1,872
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 742 528 467 1,737
---- ------ ------ ----- ------ ------ ------ ---- ------
Balance at December 31, 1995 100 47,281 57,919 2,083 (6,023) (2,197) (644) - 98,519
Net income - - 9,425 - - - - - 9,425
Dividends declared - - (2,229) - - - - - (2,229)
Purchase of treasury stock
(451,074 shares) - - - - (5,516) - - - (5,516)
Treasury Stock issued for deferred
compensation plan (60,162 shares) - 401 - - 372 - - (782) -
Stock options exercised and related
tax effect (18,812 shares) - 104 (23) - 118 - - - 199
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of
tax effect - - - (2,923) - - - - (2,923)
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits - 999 - - - 343 377 - 1,719
Amortization of deferred compensation
plan 190 190
---- ------ ------ ----- ------ ------ ------ ---- ------
Balance at December 31, 1996 100 48,794 65,092 (840) (11,049) (1,854) (267) (592) 99,384
Net income - - 11,083 - - - - - 11,083
Dividends declared - - (2,608) - - - - - (2,608)
Reissued treasury stock contributed
to RRP and deferred compensation
plan (18,904 shares) - 236 - - 113 - (206) (143) -
Stock options exercised and related
tax effect (114,982 shares) - 116 - - 690 - - - 806
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of
tax effect 2,511 2,511
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits 919 325 109 1,353
Amortization of deferred compensation
plan 336 336
---- ------ ------ ----- ------ ------ ------ ---- ------
Balance at December 31, 1997 $ 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399) 112,865
</TABLE>
(1) Share amounts reflect the 2-for-1 stock split effective
November 1997.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,083 9,425 8,544
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization of cost of stock benefit plans 1,689 1,909 1,737
Amortization of net deferred loan origination fees (231) (245) (433)
Premiums and discounts on loans, mortgage-backed
and debt securities 210 233 390
Provision for loan losses 2,750 3,125 2,775
Provision for losses on real estate owned 251 291 750
Deferred income taxes (1,540) 230 5,232
Net loss (gain) on sales of interest-earning assets 5 (140) (126)
Depreciation and amortization 1,592 878 925
Increase in accrued interest receivable (257) (1,436) (2,163)
Increase (decrease) in due to broker 9,000 (4,000) (25,800)
Increase in other liabilities 2,702 2,278 1,682
Increase in other assets (1,265) (1,804) (1,844)
------- ------- -------
Net cash provided by (used in) operating activities 25,989 10,744 (8,331)
------- ------- -------
Cash flows from investing activities:
Net increase in loans (306,328) (269,343) (65,505)
Proceeds from disposition of assets (including REO) 2,785 4,313 9,703
Purchases of securities available for sale (511,075) (321,162) (28,964)
Principal repayments on securities available for sale 48,377 73,472 2,800
Proceeds from sales of securities available for sale 337,696 374,840 25,152
Purchases of debt securities held to maturity - (6,989) (99,022)
Principal repayments, maturities and calls on debt
securities held to maturity 30,954 37,511 60,693
Purchases of mortgage-backed securities held to maturity - (38,357) (175,859)
Principal repayment on mortgage-backed securities
held to maturity 34,660 32,004 74,163
Purchases of Federal Home Loan Bank Stock, net (2,995) (1,752) (1,250)
Net (increase) decrease in premises and equipment (19,834) (2,108) 483
------- ------- -------
Net cash used in investing activities (385,760) (117,571) (197,606)
------- ------- -------
Cash flows from financing activities:
Net increase in deposits 227,224 54,342 70,284
Net increase in borrowed funds 140,361 55,850 145,502
(Decrease) increase in mortgagors' escrow balances (1,387) 1,394 90
Purchase of treasury stock - (5,516) (1,360)
Payment of common stock dividends (2,598) (2,475) (454)
Stock options exercised 760 95 257
------- ------- -------
Net cash provided by financing activities 364,360 103,690 214,319
------- ------- -------
Net increase (decrease) in cash and cash equivalents 4,589 (3,137) 8,382
Cash and cash equivalents at beginning of year 35,717 38,854 30,472
------- ------- -------
Cash and cash equivalents at end of year $ 40,306 35,717 38,854
======= ======= =======
Supplemental information:
Cash paid during the year for:
Interest $ 73,757 60,187 54,042
Income taxes5,893 7,824 685
Additions to real estate owned 1,695 3,470 4,638
Loans transferred (from) to loans held for sale - (10,594) 12,038
Securities purchased not yet received 10,000 1,000 5,000
Mortgage-backed securities and debt securities
held to maturity transferred to securities
available for sale - - 447,200
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Haven Bancorp, Inc. (the "Holding Company") was formed on March
25, 1993, as the holding company for CFS Bank, formerly known as
Columbia Federal Savings Bank (the "Bank"). On September 23,
1993, the Holding Company completed its initial public offering
of 9,918,750 shares of common stock in connection with the Bank's
conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion").
Concurrent with the conversion process, the Holding Company
acquired all of the issued and outstanding stock of the Bank with
a portion of the net proceeds.
The accounting and reporting policies of the Holding Company and
the Bank and its subsidiaries (the "Company") conform to
generally accepted accounting principles and to general practices
within the banking industry. The following summarizes the
significant policies and practices:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Holding Company and its subsidiary, the Bank, and
its wholly-owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of each
consolidated statement of financial condition and revenues and
expenses for the year then ended. Actual results could differ
from those estimates.
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and money market investments.
On October 23, 1997, the Company's Board of Directors approved a
two-for-one common stock split. The additional shares were issued
on November 28, 1997 to shareholders of record on October 31,
1997. The par value of the Company's common stock remains
unchanged at $.01. Accordingly, all information with respect to
shares of common stock fully reflects the stock split.
MONEY MARKET INVESTMENTS
Money market investments represent instruments with maturities of
ninety days or less. These investments are carried at cost,
adjusted for premiums and discounts which are recognized in
interest income over the period to maturity.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES
Debt and mortgage-backed securities ("MBSs") which the Company
has the positive intent and ability to hold until maturity are
carried at cost, adjusted for amortization of premiums and
accretion of discounts on a level yield method over the remaining
period to contractual maturity, adjusted, in the case of MBSs,
for actual prepayments. Debt and equity securities and MBSs to be
held for indefinite periods of time and not intended to be held
to maturity are classified as available for sale securities and
are recorded at fair value, with unrealized gains (losses), net
of tax, reported as a separate component of stockholders' equity.
Gains and losses on the sale of securities are determined using
the specific identification method and are included in non-
interest income.
LOANS
Loans are carried at their unpaid principal balances, less
unearned discounts, net deferred loan origination fees and the
allowance for loan losses. Purchased loans are recorded at cost.
Related premiums or discounts are amortized to expense or
accreted to income using the level-yield method over the
estimated life of the loans.
Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" and the
amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures"
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. SFAS No. 114 does not apply to those
large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment, which, for the Company,
include one-to four-family first mortgage loans and cooperative
apartment loans ("residential loans") and consumer loans.
Loans individually reviewed for impairment by the Company within
the scope of SFAS No. 114 are limited to loans modified in
a troubled debt restructuring ("TDR") and commercial and multi-
family first mortgage loans. The measurement value of the
Company's impaired loans was based on the fair value of the
underlying collateral. The Company's impaired loan identification
and measurement process are conducted in conjunction with the
Company's review of the adequacy of its allowance for loan
losses. Specific factors utilized in the impaired loan
identification process include, but are not limited to,
delinquency status, loan-to-value ratio, the condition of the
underlying collateral, credit history and debt coverage. At a
minimum, such loans are classified as impaired by the Company
when they become past due 90 days. A loan modified in a TDR
subsequent to the adoption of SFAS No. 114 (prospectively on
January 1, 1995) is, except as noted, considered impaired. A loan
modified in a TDR subsequent to the adoption of SFAS No. 114 is
not considered impaired in years following the restructuring if
the restructuring agreement specifies an interest rate equal to
or greater than the rate the Company was willing to accept at the
restructuring date for a new loan with comparable risk and the
loan is not impaired based on the terms of the restructuring
agreement. Loans that were modified in a TDR prior to the
Company's adoption of SFAS No. 114 that are not considered
impaired based on the terms of the restructuring agreement
continue to be accounted for under SFAS No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings."
The Company places loans, including impaired loans, on non-
accrual status when they become past due 90 days. All interest
previously accrued and not collected is reversed against interest
income, and income is subsequently recognized only to the extent
cash is received until, in management's judgement, a return to
accrual status is warranted.
Cash receipts on impaired loans are applied to principal and
interest in accordance with the contractual terms of the loan
unless full payment of principal is not expected, in which case,
both principal and interest payments received are applied as a
reduction of the carrying value of the loan. For non-performing
impaired loans, interest income is recognized to the extent
received in cash and not otherwise utilized to reduce the
carrying value of the loan. For impaired loans not classified as
non-performing by the Company, interest income is recognized on
an accrual basis as the Company anticipates the full payment of
principal and interest due. The Company's policy is to recognize
income on a cash basis for TDRs for a period of six months, after
which such loans are returned to an accrual status.
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Impaired loans
and related reserves have been identified and calculated in
accordance with the provisions of SFAS No. 114. The total
allowance for loan losses has been determined in accordance with
the provisions of SFAS No. 5, "Accounting for Contingencies." The
Company's allowance for loan losses is intended to be maintained
at a level sufficient to absorb all estimable and probable losses
inherent in the loan portfolio. The Company reviews the adequacy
of the allowance for loan losses on a monthly basis taking into
account past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, current and prospective economic conditions and
current regulatory guidance.
Management believes that the allowance for loan losses is
adequate. While Management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions and the
reviews of various regulatory agencies.
Loan fees received and certain direct loan origination costs are
deferred, and the net fee or cost is recognized in income using
the interest method over the contractual lives of the related
loans, adjusted for estimated prepayments.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements,
furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Premises and equipment
are depreciated using the straight-line method over the estimated
useful lives of the respective assets except for leasehold
improvements which are amortized over the related lease term or
estimated useful life.
REAL ESTATE OWNED
Real estate properties acquired through loan foreclosure are
recorded at the lower of cost or estimated fair value less
estimated selling costs at the time of foreclosure. Subsequent
valuations are periodically performed by management and the
carrying value may be adjusted by a valuation allowance,
established through charges to income and included in real estate
operations, net to reflect subsequent declines in the estimated
fair value of the real estate. REO is shown net of the allowance.
Operating results of REO, including rental income, operating
expenses, and gains and losses realized from the sales of
properties owned, are also recorded in real estate operations,
net.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing
transactions. Accordingly, the collateral securities continue to
be carried as assets and a borrowing liability is established for
the transaction proceeds.
INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date. Additionally, the recognition of net deferred tax
assets is based upon the likelihood of realization of tax
benefits in the future. A valuation allowance would be provided
for deferred tax assets which are determined more than likely not
to be realized.
BENEFIT PLANS
The Company maintains various pension, savings, employee stock
ownership and other benefit plans and programs for its employees,
including the Bank's Retirement Plan covering substantially all
employees who have attained minimum service requirements. The
Bank's funding policy is to make contributions to the plan at
least equal to the amounts required by applicable Internal
Revenue Service regulations. The Bank periodically evaluates the
overall effectiveness and economic value of such programs, in the
interest of maintaining a comprehensive benefit package for
employees. Based on an evaluation of the Retirement Plan in 1996,
the Bank concluded that future benefit accruals under the
Retirement Plan would cease, or "freeze" on July 1, 1996.
Although the benefit accruals are frozen, the Bank will continue
to maintain and provide benefits under its Employee Stock
Ownership Plan ("ESOP") and Employee 401(k) Thrift Incentive
Savings Plan ("401(k) Plan"). In connection with the Retirement
Plan "freeze," the Bank resumed its matching of contributions to
the 401(k) Plan on July 1, 1996.
Post-retirement and post-employment benefits are recorded on an
accrual basis with an annual provision that recognizes the
expense over the service life of the employee, determined on an
actuarial basis.
STOCK COMPENSATION PLANS
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 permits
either the recognition of compensation cost for the estimated
fair value of employee stock-based compensation arrangements on
the date of grant, or the continued application of APB Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
in accounting for its plans with disclosure in the notes to the
financial statements of the pro forma effects on net income and
earnings per share, determined as if the fair value-based method
had been applied in measuring compensation cost. The Company has
adopted the disclosure option. Accordingly, no compensation cost
has been recognized for the Company's stock option plans.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company has utilized interest rate caps to manage its
interest rate risk. Generally, the net settlements on such
transactions used as hedges of non-trading liabilities are
accrued as an adjustment to interest expense over the life of the
agreements.
NET INCOME (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128, "Accounting for Earnings Per
Share" effective December 15, 1997. SFAS No. 128 requires
restatement of all prior-period earnings per share ("EPS") data
presented. SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS. Basic EPS excludes dilution
and is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding for the relevant period. The weighted average number
of shares outstanding does not include shares which are
unallocated by the ESOP in accordance with American Institute of
CPAs ("AICPA") Statement of Position ("SOP") 93-6, "Employers
Accounting for ESOPs." Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock
that then shares in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB No. 15
"Earnings Per Share."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." The
Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial
statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. SFAS
No. 130 requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 130 also requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of
prior periods will be required. Management has not completed its
review of SFAS No. 130, and has not determined the impact, if
any, that adoption of SFAS No. 130 will have on the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The
Statement establishes standards for the way an enterprise reports
information about operating segments in annual financial
statements and requires that enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. Operating segments are components of an
enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. The Statement requires a reconciliation
of total segment revenue and expense items and segment assets to
the amounts in the enterprise's financial statements. The
Statement also requires a descriptive report on how the operating
segments were determined, the products and services provided by
the operating segments, and any measurement differences used for
segment reporting and financial statement reporting. SFAS No.
131 is effective for fiscal years beginning after December 15,
1997. In the initial year of application, comparative
information for earlier years is to be restated. Management has
not completed its review of SFAS No. 131, but does not anticipate
that the adoption of SFAS No. 131 will have a significant effect
on the Company.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
<S> <C> <C> <C> <C>
1997
Debt and equity securities available for sale:
U.S. Government and agency obligations $115,466 285 (1,093) 114,658
Preferred stock 4,095 38 (10) 4,123
------- ----- ----- -------
119,561 323 (1,103) 118,781
------- ----- ----- -------
MBSs available for sale:
GNMA Certificates 943 39 - 982
FNMA Certificates 45,860 556 (531) 45,885
FHLMC Certificates 62,649 1,074 (85) 63,638
CMOs and REMICs 267,754 3,228 (888) 270,094
------- ----- ----- -------
377,206 4,897 (1,504) 380,599
------- ----- ----- -------
Total $496,767 5,220 (2,607) 499,380
======= ===== ===== =======
1996
Debt and equity securities available for sale:
U.S. Government and agency obligations $121,647 163 (3,058) 118,752
Preferred stock 26,896 433 - 27,329
------- ----- ----- -------
148,543 596 (3,058) 146,081
------- ----- ----- -------
MBSs available for sale:
GNMA Certificates 949 34 - 983
FNMA Certificates 38,230 518 (26) 38,722
FHLMC Certificates 56,863 1,226 (25) 58,064
CMOs and REMICs 126,942 230 (917) 126,255
------- ----- ----- -------
222,984 2,008 (968) 224,024
------- ----- ----- -------
Total $371,527 2,604 (4,026) 370,105
======= ===== ===== =======
</TABLE>
Gross gains of approximately $1,044,000, $1,948,000 and $126,000
for the years ended December 31, 1997, 1996 and 1995,
respectively, were realized on sales of securities available for
sale. Gross losses amounted to approximately $1,064,000 and
$1,577,000 for the years ended December 31, 1997 and 1996,
respectively. There were no gross losses during the year ended
December 31, 1995.
The Company's portfolio of MBSs available for sale has an
estimated weighted average expected life of approximately 7 years
at December 31, 1997. At December 31, 1997, $250.5 million of
MBSs available for sale were adjustable-rate securities.
U.S. Government and agency obligations at December 31, 1997 had
contractual maturities between April 30, 1999 and June 25, 2024.
Accrued interest receivable on securities available for sale
amounted to approximately $4,286,000 and $4,848,000 at December
31, 1997 and 1996, respectively.
3. DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of debt securities held to maturity at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
<S> <C> <C> <C> <C>
1997
U.S. Government and agency obligations $ 21,014 70 (27) 21,057
Corporate debt securities 45,390 31 (106) 45,315
------- ---- ----- -------
Total $ 66,404 101 (133) 66,372
======= ==== ===== =======
1996
U.S. Government and agency obligations $ 51,957 16 (876) 51,097
Corporate debt securities 45,350 46 (169) 45,227
------- ---- ----- -------
Total $ 97,307 62 (1,045) 96,324
======= ==== ===== =======
</TABLE>
The amortized cost and estimated fair value of debt securities
held to maturity at December 31 by contractual maturity are shown
below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1997 1996
Estimated Estimated
Amortized fair Amortized fair
(In thousands) Cost value Cost value
<S> <C> <C> <C> <C>
Due in one year or less $ 8,609 8,605 - -
Due after one year through five years 41,815 41,801 54,324 54,212
Due after five years through ten years - - 12,022 11,853
Due after ten years 15,980 15,966 30,961 30,259
------ ------ ------ ------
Total $ 66,404 66,372 97,307 96,324
====== ====== ====== ======
Accrued interest receivable on debt securities held to maturity
amounted to approximately $667,000 and $1,318,000 at December 31,
1997 and 1996, respectively.
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of MBSs held to maturity at December 31 are
summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
<S> <C> <C> <C> <C>
1997
FNMA Certificates $ 61,492 258 (657) 61,093
FHLMC Certificates 27,472 465 (168) 27,769
CMOs and REMICs 74,093 821 (450) 74,464
------- ----- ----- -------
Total $163,057 1,544 (1,275) 163,326
======= ===== ===== =======
1996
FNMA Certificates $ 71,460 185 (1,731) 69,914
FHLMC Certificates 39,889 284 (579) 39,594
CMOs and REMICs 86,591 409 (826) 86,174
------- ----- ----- -------
Total $197,940 878 (3,136) 195,682
======= ===== ===== =======
</TABLE>
The estimated weighted average expected life of the MBSs held to
maturity portfolio was approximately 4 years at December 31,
1997.
At December 31, 1997 and 1996, $8.8 million and $10.1 million,
respectively, of the MBSs held to maturity portfolio consists of
adjustable-rate securities. Such securities had an estimated fair
value of $8.8 million and $10.0 million, respectively.
The privately-issued CMOs and REMICs contained in the Company's
held to maturity and available for sale portfolios have generally
been underwritten by large investment banking firms with the
timely payment of principal and interest on these securities
supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of
credit or subordination techniques. Substantially all such
securities are rated AAA by one or more of the nationally
recognized securities rating agencies. These securities are
subject to certain credit-related risks normally not associated
with U.S. Government and agency mortgage-backed securities. Among
such risks is the limited loss protection generally provided by
the various forms of credit enhancements as losses in excess of
certain levels are not protected. Furthermore, the credit
enhancement itself is subject to the credit worthiness of the
enhancer. Thus, in the event a credit enhancer does not fulfill
its obligations, the MBS holder could be subject to risk of loss
similar to the purchaser of a whole loan pool. Management
believes that the credit enhancements are adequate to protect the
Company from losses, and therefore the Company has not provided
an allowance for losses on its privately issued MBSs.
Accrued interest receivable on MBSs held to maturity amounted to
approximately $1,025,000 and $1,180,000 at December 31, 1997 and
1996, respectively.
5. LOANS
Loans, net at December 31 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
First mortgage loans:
Principal balances:
One-to four-family $802,766 552,968
Multi-family 143,559 105,341
Commercial 148,745 127,956
Construction 2,263 4,227
Partially guaranteed by VA or insured by FHA 2,924 3,850
--------- -------
1,100,257 794,342
Less net deferred loan origination fees,
unearned discounts and unamortized premiums (1,363) (786)
--------- -------
Total first mortgage loans 1,098,894 793,556
--------- -------
Cooperative apartment loans, net 19,596 19,936
--------- -------
Other loans:
Consumer loans 14,413 15,938
Home equity loans 15,449 15,677
Other 2,429 2,479
--------- -------
Total other loans 32,291 34,094
--------- -------
1,150,781 847,586
Less allowance for loan losses (12,528) (10,704)
--------- -------
Total $1,138,253 836,882
========= =======
</TABLE>
Included in total loans are loans on which interest is not being
accrued and loans which have been restructured with the result
that interest has been reduced or foregone. The principal
balances of these loans at December 31 are summarized as follows:
(In thousands) 1997 1996
Non-accrual loans $ 10,396 10,733
Restructured loans 2,136 3,160
Total $ 12,532 13,893
If interest income on non-accrual loans had been current in
accordance with the original terms, approximately $736,000,
$688,000 and $889,000 of interest income would have been recorded
for the years ended December 31, 1997, 1996 and 1995,
respectively. Approximately $146,000, $220,000 and $280,000 of
interest income was recognized on non-accrual loans for the years
ended December 31, 1997, 1996 and 1995, respectively. The Bank
has no obligation to fund any additional monies on these loans.
The amount of interest income that would have been recorded if
restructured loans had been performing in accordance with their
original terms (prior to being restructured) was approximately
$197,000, $305,000 and $714,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Bank services for investors first mortgage loans which are
not included in the accompanying consolidated statements of
financial condition. The unpaid principal balances of such loans
were approximately $174.9 million and $197.0 million at December
31, 1997 and 1996, respectively.
The geographical location of the Bank's loan portfolio is
primarily within the New York metropolitan area.
During 1996, $10.6 million of cooperative apartment loans
previously transferred to loans held for sale were returned to
the loan portfolio at their estimated market value.
Accrued interest receivable on loans amounted to approximately
$6,443,000 and $4,826,000 at December 31, 1997 and 1996,
respectively.
6. ALLOWANCES FOR LOAN AND REAL ESTATE OWNED LOSSES
Impaired loans and related reserves have been identified and
calculated in accordance with the provisions of SFAS No. 114. The
total allowance for loan losses has been determined in accordance
with the provisions of SFAS No. 5, "Accounting for
Contingencies."
As such, the Company has provided amounts for anticipated losses
that exceed the immediately identified losses associated with
loans that have been deemed impaired. Provisions have been made
and reserves established accordingly, based upon experience and
expectations, for losses associated with the general population
of loans, specific industry and loan types, including residential
and consumer loans which are not subject to the provisions of
SFAS No. 114.
The following table summarizes information regarding the
Company's impaired loans at December 31:
<TABLE>
<CAPTION>
1997 1996
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
<S> <C> <C> <C> <C> <C> <C>
Residential loans:
Without a related allowance $ 4,232 - 4,232 4,423 - 4,423
------ --- ------ ------ --- ------
Total residential loans 4,232 - 4,232 4,423 - 4,423
------ --- ------ ------ --- ------
Multi-family and non-residential
loans:
With a related allowance 970 207 763 981 321 660
Without a related allowance 5,194 - 5,194 5,329 - 5,329
------ --- ------ ------ --- ------
Total multi-family and non-residential
loans 6,164 207 5,957 6,310 321 5,989
------ --- ------ ------ --- ------
Total impaired loans $10,396 207 10,189 10,733 321 10,412
====== === ====== ====== === ======
</TABLE>
The Company's average recorded investment in impaired loans for
the years ended December 31, 1997 and 1996 was $10.3 million and
$9.8 million, respectively. Interest income recognized on
impaired loans, which was not materially different from cash-
basis interest income, amounted to approximately $146,000,
$220,000 and $280,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Activity in the allowance for loan losses for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $10,704 8,573 10,847
Charge-offs:
One-to four-family (964) (771) (472)
Cooperative (370) (524) (2,142)
Multi-family - (30) (1,299)
Non-residential and other (352) (560) (1,541)
------ ------ ------
Total charge-offs (1,686) (1,885) (5,454)
Recoveries 760 891 405
------ ------ ------
Net charge-offs (926) (994) (5,049)
Provision for loan losses 2,750 3,125 2,775
------ ------ ------
Balance at end of year $12,528 10,704 8,573
====== ====== ======
</TABLE>
Activity in the allowance for REO for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<C> <C> <C> <C>
Balance at beginning of year $ 81 178 717
Provision charged to operations 251 291 750
Charge-offs (275) (450) (1,414)
Recoveries 30 62 125
---- ---- ----
Balance at end of year $ 87 81 178
==== ==== ====
</TABLE>
7. DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
(Dollars in thousands) Amount Percent rates
<S> <C> <C> <C>
1997
Passbook accounts $ 378,745 27.7% 2.58%
Money market 51,128 3.7 3.44
NOW 98,108 7.2 1.40
Demand 55,448 4.1 -
--------- -----
583,429 42.7 2.21
Certificates of deposit 781,583 57.3 6.05
--------- -----
Total $1,365,012 100.0% 4.41%
========= ===== ====
1996
Passbook accounts $ 361,707 31.8% 2.58%
Money market 55,010 4.8 3.51
NOW 111,516 9.8 0.90
Demand 8,456 0.8 -
--------- -----
536,689 47.2 2.28
Certificates of deposit 601,099 52.8 5.40
--------- -----
Total $1,137,788 100.0% 3.93%
========= ===== ====
</TABLE
The aggregate amount of certificates of deposit in denominations
of $100,000 or more amounted to approximately $64,544,000
and $41,691,000 at December 31, 1997 and 1996, respectively.
Scheduled maturities of certificates of deposit at December 31
are summarized as follows:
</TABLE>
<TABLE>
<CAPTION
1997 1996
(Dollars in thousands) Amount Percent Amount Percent
<C> <C> <C> <C> <C>
Within six months $345,302 44.2% $305,641 50.8%
Six months to one year 250,405 32.0 140,529 23.4
One to two years 105,903 13.6 116,982 19.5
Over two years 79,973 10.2 37,947 6.3
------- ----- ------- -----
Total $781,583 100.0% $601,099 100.0%
======= ===== ======= =====
</TABLE>
The deposits of the Bank are insured up to $100,000 per depositor
(as defined by law and regulation) by the Savings Association
Insurance Fund ("SAIF") which is administered by the FDIC.
Deposits of certain other financial institutions are insured by
the Bank Insurance Fund ("BIF"). On September 30, 1996, Congress
passed and the President signed legislation that recapitalized
the SAIF. The legislation required SAIF-insured institutions to
pay a special one-time assessment to recapitalize the SAIF. The
Bank's special one-time insurance assessment amounted to $6.8
million. Beginning January 1, 1997, the schedule of SAIF
assessment rates became the same as the schedule of BIF
assessment rates. The Act also required BIF-insured institutions
to pay a portion of the interest due on Financial Corporation
("FICO") bonds beginning January 1, 1997. Beginning January 1,
2000, or the date at which no thrift institution continues to
exist, BIF-insured institutions will be required to pay their
full pro rata share of FICO payments.
8. BORROWED FUNDS
Borrowed funds at December 31 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
<C> <C> <C>
Fixed-rate advances from the FHLB of New York:
5.55% to 7.125% due in 1997 $ - 138,450
5.74% to 6.188% due in 1998 227,000 20,000
5.355% due in 1999 20,000 20,000
------- -------
247,000 178,450
------- -------
Securities sold under agreements to repurchase:
Fixed rate agreements:
5.50% to 6.250% due in 1997 - 108,106
5.72% to 6.25% due in 1998 176,628 34,800
6.27% due in 2002 16,400 -
------- -------
193,028 142,906
------- -------
Holding Company Obligated Mandatorily
Redeemable CapitalSecurities of Haven
Capital Trust I at 10.46% due 02/01/27 24,984 -
------- -------
Debt of Employee Stock Ownership Plan
(note 11) 1,782 2,092
------- -------
Other secured borrowings:
Collateralized mortgage obligation at
9.00% maturing through 2016, secured by
mortgage-backed securities with a carrying
value of$12,214 in 1996 (notes 2 and 4) - 2,985
------- -------
$466,794 326,433
======= =======
</TABLE>
At December 31, 1997 and 1996, pursuant to a physical pledge
collateral agreement, advances from the FHLB of New York were
collateralized by MBSs with an estimated fair value of
approximately $231,131,000 and $90,814,000, respectively. At
December 31, 1997 and 1996, advances from the FHLB of New York
were also collateralized by U.S. Government and agency
obligations with an estimated fair value of approximately
$81,446,000 and $126,826,000, respectively. At December 31, 1997
the Bank has unused lines of credit totalling $3,900,000 with the
FHLB of New York.
At December 31, 1997, all securities sold under agreements to
repurchase were delivered to primary dealers who arranged the
transactions. The securities will remain registered in the name
of the Bank and will be returned at maturity. During the years
ended December 31, 1997 and 1996, securities sold under
agreements to repurchase averaged $172,310,000 and $128,677,000,
respectively. The maximum amounts outstanding at any month-end
were $229,280,000 and $142,906,000, respectively. The average
interest rate paid during the years ended December 31, 1997 and
1996 were 5.68% and 5.65%, respectively. MBSs with an estimated
fair value of approximately $194,227,000 and $151,700,000 were
pledged as collateral at December 31, 1997 and 1996,
respectively.
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware (the "Trust") issued $25
million of 10.46% capital securities. The Holding Company is the
owner of all the beneficial interests represented by common
securities of the Trust. The Trust exists for the sole purpose
of issuing the Trust securities (comprised of the capital
securities and the common securities) and investing the proceeds
thereof in the 10.46% junior subordinated deferrable interest
debentures issued by the Holding Company on February 12, 1997
which are scheduled to mature on February 1, 2027. Interest on
the capital securities is payable in semiannual installments,
commencing on August 2, 1997. The Trust securities are subject to
mandatory redemption (i) in whole, but not in part upon repayment
in full, at the stated maturity of the junior subordinated
debentures at a redemption price equal to the principal amount
of, plus accrued interest on, the junior subordinated debentures,
(ii) in whole but not in part, at any time prior to February 1,
2007, contemporaneously with the occurrence and continuation of a
special event, defined as a tax event or regulatory capital
event, at a special event redemption price equal to the greater
of 100% of the principal amount of the junior subordinated
debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional redemption
of the junior subordinated debentures on the initial optional
repayment date to and including the initial optional prepayment
date, discounted to the prepayment date plus accrued and unpaid
interest thereon, and (iii) in whole or in part, on or after
February 1, 2007, contemporaneously with the optional prepayment
by the Corporation of the junior subordinated debentures at a
redemption price equal to the optional prepayment price. Subject
to prior required regulatory approval, the junior subordinated
debentures are redeemable during the 12-month periods beginning
on or after February 1, 2007 at 105.230% of the principal amounts
outstanding, declining ratably each year thereafter to 100%, plus
accrued and unpaid interest thereon to the date of redemption.
Deferred issuance costs are being amortized over ten years.
9. FEDERAL, STATE AND LOCAL TAXES
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return on a calendar-year basis. Under Section 593 of
the Internal Revenue Code of 1986, as amended ("Code"), prior to
January 1, 1996 thrift institutions such as the Bank which met
certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish a tax
reserve for bad debts. Such thrift institutions were also
permitted to make annual additions to the reserve, to be deducted
in arriving at their taxable income within specified limitations.
The Bank's deduction was computed using an amount based on the
Bank's actual loss experience ("experience method"), or a
percentage equal to 8% of the Bank's taxable income ("PTI
method"). Similar deductions for additions to the Bank's bad
debt reserve were also permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, Section 593 of the Code was
amended. The Bank will be unable to make additions to the tax
bad debt reserves but will be permitted to deduct bad debts as
they occur. Additionally, the 1996 Act required institutions to
recapture (that is, include in taxable income) the excess of the
balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987 ("base year").
The Bank's federal tax bad debt reserves at December 31, 1995
exceeded its base year reserves by $2.7 million which will be
recaptured into taxable income ratably over a six year period.
This recapture will be frozen for 1997 since the Bank satisfies
specified mortgage origination tests. The base year reserves
will be subject to recapture, and the Bank could be required to
recognize a tax liability, if (I) the Bank fails to qualify as a
"bank" for Federal income tax purposes; (ii) certain
distributions are made with respect to the stock of the Bank;
(iii) the Bank uses the bad debt reserves for any purpose other
than to absorb bad debt losses; and (iv) there is a change in
Federal tax law. Management is not aware of the occurrence of
any such event.
In response to the Federal legislation, the New York State and
New York City tax law has been amended to prevent the recapture
of existing tax bad debt reserves and to allow for the continued
use of the PTI method to determine the bad debt deduction in
computing New York State and City tax liability.
The components of the net deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Deferred tax assets:
Difference between financial statement credit
loss provision and tax bad-debt deduction $ 5,872 4,874
Non-accrual interest and non-performing loan
expense 1,268 1,002
Securities marked to market for financial
statement purposes - 582
Other 1,211 1,235
------ ------
Total deferred tax assets 8,351 7,693
------ ------
Deferred tax liabilities:
Recapture of Tax Bad Debt Reserve (937) (1,241)
Securities marked to market for financial
statement purposes (942) -
Basis difference of fixed assets (145) (143)
Other (126) (124)
------ ------
Total deferred tax liabilities (2,150) (1,508)
------ ------
Net deferred tax assets $ 6,201 6,185
====== ======
</TABLE>
Income tax expense for the years ended December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,433 3,391 1,273
State and local 1,245 2,813 725
----- ----- -----
7,678 6,204 1,998
----- ----- -----
Deferred:
Federal (760) 906 3,302
State and local (780) (676) 1,930
----- ----- -----
(1,540) 230 5,232
----- ----- -----
Total income tax expense $ 6,138 6,434 7,230
===== ===== =====
</TABLE>
The following is a reconciliation of statutory Federal income tax
expense to the combined effective tax expense for the years ended
December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax expense $ 6,027 5,392 5,363
State and local income taxes, net of Federal
income tax benefit 301 1,410 1,752
Change in deferred tax asset valuation allowance - (800) (300)
Tax bad debt reserve - (780) -
Other, net (190) 1,212 415
------ ------ ------
Total income tax expense $ 6,138 6,434 7,230
====== ====== ======
</TABLE>
The Company had an $800,000 valuation allowance for its deferred
tax asset as of December 31, 1995, related to potential New York
State and New York City deferred tax assets. Upon review of the
Company's deferred tax assets as of December 31, 1996, the
Company determined that the valuation allowance was no longer
required. The Company will continue to review the recognition
criteria as set forth in SFAS No. 109, "Accounting for Income
Taxes" on a quarterly basis and determine the need for a
valuation allowance accordingly.
STATE AND LOCAL TAXES
The Company and subsidiaries file combined New York State
franchise tax and New York City financial corporation tax returns
on a calendar-year basis. The Company's annual tax liability for
each year is the greater of a tax on (I) allocated entire net
income; (ii) located alternative entire net income; (iii)
allocated assets to New York State and/or New York City; or (iv)
a minimum tax. Operating losses cannot be carried back or
carried forward for New York State or New York City tax purposes.
The Company expects to determine its 1997 New York State and New
York City tax liability based on entire net income. The Company
has provided for New York State and New York City taxes based on
entire net income for the year ended December 31, 1996 and based
on assets for the year ended December 31, 1995.
10. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
RETIREMENT PLAN
The Company has a qualified, non-contributory defined benefit
pension plan covering substantially all of its eligible
employees. The Company's policy is to fund pension costs in
accordance with the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, and to provide the plan
with sufficient assets with which to pay pension benefits to plan
participants. 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. Based on an evaluation of
the Retirement Plan in 1996, the Bank concluded that future
benefit accruals under the Retirement Plan would cease or
"freeze" effective July 1, 1996. The Bank recognized a
curtailment gain of approximately $266,000 as of July 1, 1996.
The Bank made a cash contribution of $352,000 to the plan in
1997.
The following is a reconciliation of the funded status of the
Plan and the amount of accrued pension cost as determined by the
Plan's actuary in accordance with SFAS No. 87, based upon
actuarial information as of December 31, 1997 and July 1, 1996,
respectively:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 8,287 7,800
Non-vested 232 356
----- -----
Accumulated benefit obligation 8,519 8,156
===== =====
Projected benefit obligation for service rendered to date 8,519 8,156
Estimated plan assets, at fair value 8,819 7,832
----- -----
Excess (deficiency) of plan assets over (under) projected benefit obligation 300 (324)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions (4) -
----- -----
Prepaid (accrued) pension cost $ 296 (324)
===== =====
</TABLE>
The amount of accrued pension cost recognized in the Company's
consolidated statements of financial condition at December 31,
1996 was $101,000.
The components of net pension expense, exclusive of the
aforementioned 1996 curtailment gain, for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ - 211 338
Interest cost on projected benefit obligation 557 597 626
Expected return on plan assets (746) (714) (652)
Net amortization and deferral - 2 (20)
--- --- ---
Net pension expense (benefit) $(189) 96 292
=== === ===
</TABLE>
Assumptions used to develop the actuarial present value of
benefit obligations at December 31 were:
1997 1996 1995
Discount rate 6.75% 7.00% 8.25%
Expected long-term rate of return 9.00 9.00 9.00
Rate of increase in compensation levels N/A 5.00 6.00
THRIFT INCENTIVE SAVINGS PLAN
The Bank maintains a 401(k) thrift incentive savings plan which
provides for employee contributions on a pre-tax basis up to a
maximum of 16% of total compensation, with matching contributions
to be made by the Bank equal to 50% of employee contributions,
not to exceed employee contributions greater than 6% of total
compensation. During the year ended December 31, 1995, the Bank
elected not to match employee contributions. In connection with
the Retirement Plan freeze, the Bank resumed matching employee
contributions which totaled $199,000 and $120,000 for the year
ended December 31, 1997 and the period from July 1, 1996 through
December 31, 1996, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1996, the Bank implemented a non-qualified defined benefit
supplemental executive retirement plan ("SERP") for the President
and Chief Executive Officer. The SERP is an unfunded plan. During
1997 and 1996, the Bank accrued $50,000 and $132,000,
respectively, for the SERP. At January 1, 1997 and 1996, the
accumulated benefit obligation was $245,000 and $80,000,
respectively. At January 1, 1997 and 1996, the projected benefit
obligation of the plan was $1,233,000 and $890,000, respectively.
The Bank also maintains a non-qualified defined benefit SERP for
the Chairman of the Board. The SERP is an unfunded plan. The SERP
provides for an annual retirement benefit of $120,000 for 10
years after retirement which occurred in 1995. The SERP also
provides for a lump sum benefit of $1.2 million payable to the
estate of the Chairman of the Board in the event of his death
prior to retirement, or in the event of a hostile change in
control after retirement but prior to the payment of the entire
benefit; any unpaid benefit shall be paid in a lump sum. The
Company had accrued the entire $1.2 million liability under the
unfunded plan through December 31, 1995.
POST-RETIREMENT LIFE INSURANCE BENEFITS
The Company provides life insurance coverage to retirees under
two separate insurance plans. The first plan provides life
insurance coverage equal to one-half of annual pay at retirement,
subject to a maximum of $10,000 and a minimum of $2,000. The
second plan provides life insurance coverage equal to two times
annual pay reduced by 10% per year for each of the first five
years following retirement.
The following table sets forth the components of post-retirement
life insurance benefits expense for the years ended December 31:
1997 1996 1995
Service cost $ 55 29 18
Interest cost 77 59 46
Amortization of transition obligation
(from adoption of SFAS No. 106)
being amortized over 20 years 25 25 25
Net amortization and deferral 24 9 -
--- --- ---
Net post-retirement benefits expense $ 181 122 89
=== === ===
Assumptions used to develop the accumulated
post-retirement benefit obligation were:
Discount rate 6.75% 7.50% 8.25%
Rate of increase in compensation levels 4.50 5.00 6.00
At December 31, 1997 and 1996, the accumulated post-retirement
benefit obligation totaled $1,268,000 and $824,000, respectively.
The accrued post-retirement benefit liability at those dates was
$516,000 and $360,000, respectively.
11. STOCK PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Bank established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the Conversion.
The ESOP borrowed $3.5 million from an unrelated third party
lender and purchased 694,312 common shares issued in the
Conversion. The Bank is expected to make scheduled cash
contributions to the ESOP sufficient to service the amount
borrowed over a period not to exceed 10 years. The unpaid balance
of the ESOP loan is included in borrowed funds and the
unamortized balance of unearned compensation is shown as
unallocated common stock held by the ESOP reflected as a
reduction of stockholders' equity. As of December 31, 1997, total
contributions to the ESOP which were used to fund principal and
interest payments on the ESOP debt totaled approximately
$2,526,000. At December 31, 1997, the loan had an outstanding
balance of $1,782,000 and an interest rate of 8.70%. The loan, as
amended on December 29, 1995, is payable in thirty-two equal
quarterly installments beginning December 1995 and ending
September 2003. The loan bears interest at a floating rate based
on the federal funds rate plus 250 basis points. Dividends
declared on common stock held by the ESOP which have been
allocated to the account of a participant are allocated to the
account of such participant. Dividends declared on common stock
held by the ESOP and not allocated to the account of a
participant are used to repay the ESOP loan. The Company recorded
$1,184,000, $983,000 and $1,246,000 of ESOP expense for the years
ended December 31, 1997, 1996 and 1995, respectively. For the
years ended December 31, 1997, 1996 and 1995, ESOP expense was
based on the fair market value of the shares allocated in
accordance with the AICPA SOP 93-6 which was adopted on January
1, 1994. At December 31, 1997, there were 370,790 shares
remaining for future allocation, of which 64,980 shares will be
allocated for the 1997 year in the first quarter of 1998.
RECOGNITION AND RETENTION PLANS
The Bank has established several Recognition and Retention Plans
("RRPs") which purchased in the aggregate 297,562 shares of
common stock in the Conversion. The Bank contributed $1.5 million
to fund the purchase of the RRP shares. In 1995, the RRP for
officers and other key employees was amended to increase the
number of shares of common stock which may be granted by 19,836
shares and such shares were contributed to the RRP from treasury
stock. During 1996, the remaining previously unallocated shares
totaling 17,202 were awarded to directors and officers. In 1997,
the RRP for directors was amended to increase the number of
shares of common stock which may be granted by 9,916 shares and
such shares were contributed to the RRP from treasury stock. The
fair market value of these shares at the dates of the awards will
be amortized as compensation expense as participants become
vested. The unamortized cost, which is comparable to deferred
compensation, is reflected as a reduction of stockholders'
equity. For the years ended December 31, 1997, 1996 and 1995,
respectively, $168,000, $409,000 and $490,000 of expense has been
recognized.
STOCK OPTION AND INCENTIVE PLANS
In 1993, the Holding Company adopted stock option plans for the
benefit of directors (the "1993 Directors Plan") and for officers
and other key employees (the "1993 Stock Plan") of the Bank. The
number of shares of common stock reserved for issuance under the
stock option plans was equal to 10% of the total number of shares
of common stock issued pursuant to the Bank's Conversion to the
stock form of ownership. In 1995, the 1993 Stock Plan was amended
to increase the number of shares for which stock options may be
granted by 69,430 shares. All options awarded to employees vest
over a three year period beginning one year from the date of
grant. The option exercise price cannot be less than the fair
market value of the underlying common stock as of the date of the
option grant, and the maximum option term cannot exceed ten
years. The stock options awarded to directors become exercisable
one year from the date of grant. In 1996, the remaining 11,770
options were granted from the 1993 Stock Plan and the remaining
37,204 options were granted from the 1993 Directors Plan. In
1997, the 1993 Directors Plan was amended to increase the number
of shares for which stock options may be granted by 39,670
shares.
In 1996, the Holding Company adopted the 1996 Stock Incentive
Plan which provided 420,000 shares for the grant of options and
restricted stock awards. On April 24, 1996, an aggregate of 3,952
shares of restricted stock was granted to directors which vested
six months from the date of grant and an aggregate of 55,978
shares was granted to officers and employees on May 23, 1996,
which vest over a three year period beginning one year from the
date of grant. In addition, an aggregate of 232 shares was
granted to two new directors on October 1, 1996 which vested on
December 31, 1996. In 1997, an aggregate of 3,648 shares of
restricted stock was granted to directors which vested six months
from the date of grant and an aggregate of 5,340 shares was
granted to officers and employees which vest over a three year
period beginning one year from the date of grant. Such shares
were recorded as unearned compensation at their fair market value
on the date of the award (which is reflected as a reduction of
stockholders' equity), to be amortized to expense over the
vesting period. During 1997 and 1996, an aggregate of 34,100 and
321,700 options, respectively, were granted to directors and
officers under the 1996 Stock Incentive Plan, which vest over a
three year period beginning one year from the date of grant. In
1997, the 1996 Stock Incentive Plan was amended to increase the
number of shares for which options and restricted stock awards
may be granted by 41,998 shares.
The following table summarizes certain information regarding the
stock option plans:
<TABLE>
<CAPTION>
Number of shares of
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
<S> <C> <C> <C> <C>
Balance outstanding at December 31, 1994 293,886 378,088 260,358 5.14
Granted - 80,000 - 8.47
Forfeited - - - -
Exercised (41,650) (9,756) - 5.00
------- ------- ------- -----
Balance outstanding at December 31, 1995 252,236 448,332 260,358 5.42
Granted 194,340 38,900 149,204 12.92
Forfeited - - - -
Exercised (18,812) - - 5.00
------- ------- ------- -----
Balance outstanding at December 31, 1996 427,764 487,232 409,562 7.54
Granted 14,100 - 20,000 17.09
Forfeited - - (12,000) 12.14
Exercised (16,594) - (98,388) 6.61
------- ------- ------- -----
Balance outstanding at December 31, 1997 425,270 487,232 319,174 7.90
======= ======= ======= =====
Shares exercisable at December 31, 1997 254,830 434,630 223,705 6.34
======= ======= ======= =====
</TABLE>
The fair value of each share grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997,
1996 and 1995, respectively: dividend yield of 1.45% in 1997,
1.93% in 1996 and 1995; expected volatility of 26.95% in 1997 and
16.85% in 1996 and 1995; risk-free interest rates of 5.68% to
5.81% in 1997 and 5.89% to 6.38% in 1996 and 6.29% in 1995; and
expected lives of 3 years for the 1993 Stock Plan, 8 years for
the 1993 Directors Plan and 3 years for grants to officers and
employees under the 1996 Stock Incentive Plan and 8 years for
grants to directors under that plan.
Had compensation cost for the Company's three stock-based
compensation plans been determined consistent with SFAS No. 123
for awards made after January 1,1995, the Company's net income
and net income per common share would have been reduced to the
pro forma amounts indicated below for the years ended December
31:
<TABLE>
<CAPTION
(In thousands, except per share data) 1997 1996 1995
<C> <C> <C> <C>
Net income: As reported $11,083 9,425 8,544
Pro forma 10,557 9,135 8,364
Net income per common share:
Basic As reported $ 1.32 1.13 0.99
Pro forma 1.25 1.10 0.97
Diluted As reported $ 1.24 1.08 0.96
Pro forma 1.18 1.05 0.94
</TABLE>
12. EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share," which establishes new standards for
computing and presenting earnings per share (EPS). All earnings
per share amounts have been restated to conform to the new
requirements. Refer to Note 1, "Summary of Significant Accounting
Policies" " Net income (loss) per common share.
Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding. Diluted EPS includes the determinants of basic EPS
and, in addition, gives effect to dilutive potential common
shares that were outstanding during the period.
The computation of basic and diluted EPS for the years ended
December 31 are presented in the following table.
(Dollars in thousands, except
share data) 1997 1996 1995
Numerator for basic and diluted
earnings per share-net income $ 11,083 $ 9,425 $ 8,544
--------- --------- ---------
Denominator for basic earnings per
share-weighted average shares 8,420,321 8,310,178 8,627,536
Effect of dilutive options 493,437 378,502 295,104
--------- --------- ---------
Denominator for diluted earnings
per share " weighted-average
number of common shares and
dilutive potential common shares 8,913,758 8,688,680 8,922,640
--------- --------- ---------
Basic earnings per share $1.32 $1.13 $0.99
Diluted earnings per share $1.24 $1.08 $0.96
13. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS
At December 31, 1997, the Company was obligated under several
noncancelable operating leases on property used for office space
and banking purposes. Several of the leases contain escalation
clauses which provide for increased rentals, primarily based upon
increases in real estate taxes. Rent expense under these leases
was approximately $1,742,000 , $404,000 and $379,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The projected minimum rental payments under the terms of the
noncancelable leases at December 31, 1997 are as follows:
Years ending December 31, (In thousands)
1998 $ 2,419
1999 2,227
2000 2,032
2001 1,991
2002 962
Thereafter 65
-----
$ 9,696
=====
In September 1996, the Bank entered into an agreement to open
approximately 44 full-service bank branches in Pathmark
supermarkets throughout New York City, Long Island, Westchester
and Rockland counties by mid-1998. In September, 1997, the Bank
announced that it had entered into licensing agreements with
ShopRite Stores under which it may open as many as 12 in-store
supermarket branches in New Jersey and Connecticut. Thirty-two
supermarket branches have opened through December 31, 1997, and
the leases related thereto are reflected in the table above.
In December, 1997, the Bank purchased an office building in
Westbury, Long Island, New York for $7.3 million and entered into
a lease agreement and Payment-in-Lieu-of-Tax ("PILOT") agreement
with the Town of Hempstead Industrial Development Agency ("IDA").
Under the agreements, the Bank assigned the building to the IDA
and is subleasing it for $1 per year for a 10 year period and
will repurchase the building for $1 upon expiration of the lease
term in exchange for IDA financial assistance. The building will
be used for the Bank's headquarters, and occupancy is expected to
occur in mid 1998.
LOAN COMMITMENTS
The Company had outstanding commitments totaling $77.4 million to
originate loans at December 31, 1997 of which $24.1 million were
fixed-rate loans and $53.3 million were variable rate loans. For
fixed-rate loan commitments at December 31, 1997, the interest
rates on mortgage loans ranged from 6.25 % to 10.25 %. The
standard commitment term for these loans is 45 days. For other
consumer fixed-rate loan commitments, interest rates ranged from
9.00 % to 10.50 % with the standard term of the commitment of 30
days. Loan commitments are made at current rates and no material
difference exists between book and market values of such
commitments.
For commitments to originate loans, the Company's maximum
exposure to credit risk is represented by the contractual amount
of those instruments. Those commitments represent ultimate
exposure to credit risk only to the extent that they are
subsequently drawn upon by customers. The Company uses the same
credit policies and underwriting standards in making loan
commitments as it does for on-balance-sheet instruments. For loan
commitments, the Company would generally be exposed to interest
rate risk from the time a commitment is issued with a defined
contractual interest rate.
In connection with the securitization and sale of $48.6 million
of cooperative apartment loans in 1994, a letter of credit
totaling $6.8 million was established with the FHLB. The letter
of credit provides a level of protection of approximately 14% to
the buyer against losses on the cooperative apartment loans sold
behind a pool insurance policy the Bank purchased which provides
a level of protection of approximately 20%. The letter of credit
totalled $6.8 million at December 31, 1997.
INTEREST RATE CAPS
During the year ended December 31, 1995, the Company, in order to
hedge a portion of the borrowings to fund a $75 million leverage
transaction, purchased an interest rate cap on a $25.0 million
notional principal amount on which it will receive a payment,
based on the notional principal amount, equal to the three month
LIBOR rate in excess of 8% on any reset date for a three year
period. The premium paid for the cap, $133,000, which is carried
in other assets is being amortized to interest expense over the
term of the contract. As of December 31, 1997, 1996 and 1995,
three month LIBOR was 5.81%, 5.56% and 5.63%, respectively.
Interest expense on borrowed funds was increased by approximately
$44,000, $44,000 and $11,000 during the years ended December 31,
1997, 1996 and 1995, respectively, as a result of this agreement.
LITIGATION AND LOSS CONTINGENCY
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
1997, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 of unspecified damages. The Bank's ultimate
liability, if any, which might arise from the disposition of
these claims cannot presently be determined. Management believes
it has meritorious defenses against these actions and has and
will continue to defend its position. Accordingly, no provision
for any liability that may result upon adjudication has been
recognized in the accompanying consolidated financial statements.
The Company is involved in various legal actions arising in the
ordinary course of business, which in the aggregate, are believed
by management to be immaterial to the financial position of the
Company.
14. STOCKHOLDERS' EQUITY
At the time of its conversion to a stock savings bank, the Bank
established a liquidation account in an amount equal to its total
retained earnings as of June 30, 1993. The liquidation account
will be maintained for the benefit of eligible account holders
who continue to maintain their accounts at the Bank, after the
conversion. The liquidation account will be reduced annually to
the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder
will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The balance of the
liquidation account was approximately $17.7 million at December
31, 1997.
Subsequent to the conversion, the Bank may not declare or pay
cash dividends on or repurchase any of its shares of common
stock, if the effect would cause stockholders' equity to be
reduced below the amount required for the liquidation account,
applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory
requirements. Office of Thrift Supervision ("OTS") regulations
provide that an institution that exceeds all fully phased-in
capital requirements, before and after a proposed capital
distribution could, after prior notice but without prior approval
of the OTS, make capital distributions during the calendar year
up to 100% of net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year period. Any
additional capital distributions would require prior regulatory
approval. Unlike the Bank, the Company is not subject to these
regulatory restrictions on the payment of dividends to its
stockholders. However, the source of future dividends may depend
upon dividends from the Bank.
STOCK SPLIT
The Company declared a 2-for-1 common stock split which was
distributed on November 28, 1997 in the form of a stock dividend
to holders of record as of October 23, 1997.
TREASURY STOCK TRANSACTIONS
During the year ended December 31, 1996, the Company repurchased
451,074 shares under its third repurchase program that was
completed March 11, 1996. During the year ended December 31,
1995, the Company repurchased 151,140 shares under its second
repurchase program that was completed June 28, 1995.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are
required to maintain regulatory capital in the form of a
"tangible capital requirement," a "core capital requirement,"
and a "risk-based capital requirement."
The Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
As of December 31, 1997, the Bank has been categorized as "well
capitalized" by the OTS under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the
institution's category. The following table sets forth the
required ratios and amounts and the Bank's actual capital amounts
and ratios at December 31:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Ratio(3) Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
1997
Tangible Capital $125,573 6.42% $29,333 1.50% N/A N/A
Core Capital (1) 125,573 6.42 58,667 3.00 $97,778 5.00%
Risk-based Capital (2) 136,860 14.04 77,964 8.00 97,455 10.00
1996
Tangible Capital $ 97,201 6.14% $ 23,743 1.50% N/A N/A
Core Capital (1) 97,201 6.14 47,487 3.00 $79,144 5.00%
Risk-based Capital (2) 106,555 13.22 64,479 8.00 80,599 10.00
</TABLE>
(1) Under the OTS's prompt corrective action regulations, the
core capital requirement was effectively increased to 4.00% since
OTS regulations stipulate that as of that date an institution
with less than 4.00% core capital will be deemed to be classified
as "undercapitalized."
(2) The OTS adopted a final regulation which incorporates an
interest rate risk component into its existing risk-based
capital standard. The regulation requires certain institutions
with more than a "normal level" of interest rate risk to maintain
capital in addition to the 8.0% risk-based capital requirement.
The Bank does not anticipate that its risk-based capital
requirement will be materially affected as a result of the new
regulation.
(3) For tangible and core capital, the ratio is to adjusted
total assets. For risk-based capital, the ratio is to total risk-
weighted assets.
STOCKHOLDER RIGHTS PLAN
On January 26, 1996, the Board of Directors of the Holding
Company adopted a Stockholder Rights Plan (the "Rights Plan").
Under the Rights Plan, which expires in February, 2006, the Board
declared a dividend of one right on each outstanding share of the
Holding Company's common stock, which was paid on February 5,
1996 to stockholders of record on that date (the "Rights"). Until
it is announced that a person or group has acquired 10% or more
of the outstanding common stock of the Holding Company (an
"Acquiring Person") or has commenced a tender offer that could
result in their owning 10% or more of such common stock, the
Rights are initially redeemable for $.01 each, are evidenced
solely by the Holding Company's common stock certificates,
automatically trade with the Holding Company's common stock and
are not exercisable. Following any such announcement, separate
Rights would be distributed, with each Right entitling its owner
to purchase participating preferred stock of the Holding Company
having economic and voting terms similar to those of one share of
the Holding Company's common stock for an exercise price of $45.
Upon announcement that any person or group has become an
Acquiring Person and unless the Board acts to redeem the Rights,
then twenty business days thereafter (the "Flip-in Date"), each
Right (other than Rights beneficially owned by any Acquiring
Person or transferee thereof, which become void) will entitle the
holder to purchase, for the $45 exercise price, a number of
shares of the Holding Company's common stock having a market
value of $90. In addition, if after an Acquiring Person gains
control of the Board, the Holding Company is involved in a merger
or sells more than 50% of its assets or assets generating more
than 50% of its operating income or cash flow, or has entered
into an agreement to do any of the foregoing (or an Acquiring
Person is to receive different treatment than all other
stockholders), each Right will entitle its holder to purchase,
for the $45 exercise price, a number of shares of common stock of
the Acquiring Person having a market value of $90. If any person
or group acquires more than 50% of the outstanding common stock
of the Holding Company, the Board may, at its option, exchange
one share of such common stock for each Right. The Rights may
also be redeemed by the Board for $0.01 per Right prior to the
Flip-in Date.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments" requires the Company to disclose estimated fair
values for substantially all of its financial instruments. The
fair value of a financial instrument is the amount at which the
asset or obligation could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation
sale. Fair value estimates are made at a specific point in time
based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the entire holdings of a particular financial instrument. Because
no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet
financial instruments, without attempting to estimate the value
of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair
value estimates and have not been considered in many of the
estimates.
The following table summarizes the carrying values and estimated
fair values of the Company's on-balance-sheet financial
instruments at December 31:
<TABLE>
<CAPTION>
1997 1996
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 40,306 40,306 35,717 35,717
Securities available for sale 499,380 499,380 370,105 370,105
Debt securities held to maturity 66,404 66,372 97,307 96,324
FHLB-NY stock 12,885 12,885 9,890 9,890
Mortgage-backed securities held to maturity 163,057 163,326 197,940 195,682
Loans, net 1,138,253 1,152,100 836,882 850,513
Accrued interest receivable 12,429 12,429 12,172 12,172
Financial Liabilities:
Deposits 1,365,012 1,368,782 1,137,788 1,138,385
Borrowed funds 466,794 467,565 326,433 326,341
Mortgagors' escrow balances 3,234 3,234 4,621 4,621
Due to broker 10,000 10,000 1,000 1,000
Accrued interest payable 1,645 1,645 1,002 1,002
</TABLE>
The methods and significant assumptions used to estimate fair
values for different categories of financial instruments are as
follows:
Cash and cash equivalents - The estimated fair values of cash and
cash equivalents are assumed to equal the carrying values as
these financial instruments are either due on demand or mature
within 90 days.
Securities available for sale, Debt Securities and Mortgage-
Backed Securities Held to Maturity - Estimated fair value for
substantially all of the Company's bonds, notes and equity
securities, both available for sale and held to maturity are
based on market quotes as provided by an independent pricing
service. For MBSs, the Company obtains bids from broker dealers
to estimate fair value. For those occasional securities for which
a market price cannot be obtained, market prices of comparable
securities are used.
FHLB-NY stock - The estimated fair value of the Company's
investment in FHLB-NY stock is deemed to be equal to its carrying
value which represents the price at which it may be redeemed.
Residential loans - Residential loans include one-to four-family
mortgages and individual cooperative apartment loans. Estimated
fair value is based on discounted cash flow analysis. The
residential loan portfolio is segmented by loan type (fixed
conventional, adjustable products, etc.) with weighted average
coupon rate, remaining term, and other pertinent information for
each segment. A discount rate is determined based on the U.S.
Treasury yield curve plus a pricing spread. Expected principal
prepayments, consistent with empirical evidence and management's
future expectations, are used to modify the future cash flows.
For potential problem loans, the present value result is
separately adjusted downward consistent with management's
assumptions in evaluating the adequacy of the allowance for loan
losses.
Commercial real estate and other loans - Estimated fair value is
based on discounted cash flow analysis which take into account
the contractual coupon rate and maturity date of each loan. A
discount rate is determined based on the U.S. Treasury yield
curve plus a pricing spread. For potential problem loans, the
present value result is separately adjusted downward consistent
with management's assumptions regarding the value of any
collateral underlying the loans.
Deposits - Certificates of deposit are valued by performing a
discounted cash flow analysis of the remaining contractual
maturities of outstanding certificates. The discount rates used
are wholesale secondary market rates as of the valuation date.
For all other deposits, fair value is deemed to be equivalent to
the amount payable on demand as of the valuation date.
Borrowed funds - Borrowings are fair valued based on rates
available to the Company in either public or private markets for
debt with similar terms and remaining maturities.
Accrued interest receivable, accrued interest payable,
mortgagors' escrow balances and due to broker - The fair values
are estimated to equal the carrying values of short-term
receivables and payables, including accrued
interest, mortgage escrow funds and due to broker.
Off-balance sheet financial instruments - The fair value of the
interest rate cap was obtained from dealer quotes and represents
the cost of terminating the agreement. The estimated fair value
of open off-balance sheet financial instruments results in an
unrealized loss of $31,000 and $62,000 at December 31, 1997 and
1996, respectively.
The estimated fair value of commitments to extend credit is
estimated using the fees charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair
value also considers the difference between current levels of
interest rates and the committed interest rates. The fair value
of commitments to purchase debt securities and MBSs is based on
the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The estimated fair value of
these off-balance sheet financial instruments resulted in no
unrealized gain or loss at December 31, 1997 and 1996.
16. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of the Holding Company (parent
company only) are as follows:
Parent Company Condensed Statements of Financial Condition
<TABLE>
<CAPTION
December 31,
(In thousands) 1997 1996
<S> <C> <C>
Assets:
Cash $ 656 38
Money market investments 4,561 1,869
Securities available for sale 4,123 -
Accrued interest receivable 42 2
Accrued income taxes receivable 3,781 359
Investment in net assets of Bank 128,522 97,789
Investment in net assets of Haven Capital Trust I 790 -
------- -------
Total assets 142,475 100,057
======= =======
Liabilities:
Junior subordinated debt issued to Haven
Capital Trust I 25,774 -
Other liabilities 3,836 673
------- -------
Total liabilities 29,610 673
------- -------
Stockholders' equity:
Common stock 100 100
Additional paid-in capital 50,065 48,794
Retained earnings, substantially restricted 73,567 65,092
Unrealized gain (loss) on securities available
for sale, net of tax effect 1,671 (840)
Treasury stock, at cost (10,246) (11,049)
Unallocated common stock held by ESOP (1,529) (1,854)
Unearned common stock held by RRPs (364) (267)
Unearned compensation (399) (592)
------- -------
Total stockholders' equity 112,865 99,384
------- -------
Total liabilities and stockholders' equity $142,475 100,057
======= =======
Parent Company Only Condensed Statements of Operations
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
<C> <C> <C> <C>
Dividend from Bank $ - 2,000 -
Dividend from Trust 72 - -
Interest income 514 178 571
Interest expense (2,389) - -
Other operating expenses (935) (961) (788)
------ ----- -----
(Loss) income before income tax expense
(benefit) and equity in undistributed
net income of Bank (2,738) 1,217 (217)
Income tax (benefit) expense (1,277) (360) (100)
------ ----- -----
Net (loss) income before equity in
undistributed net income of Bank (1,461) 1,577 (117)
Equity in undistributed net income of Bank 12,544 7,848 8,661
------ ----- -----
Net income $11,083 9,425 8,544
====== ===== =====
</TABLE>
Parent Company Only Condensed Statements of Cash Flows
<TABLE>
<CAPTION
Years Ended December 31,
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $11,083 9,425 8,544
Less equity in undistributed net income of the Bank (12,544) (7,848) (8,661)
(Increase) decrease in accrued interest receivable (40) 23 8
(Increase) decrease in accrued income tax receivable (3,422) (175) 774
Increase (decrease) in other liabilities 3,189 219 (841)
------ ------ ------
Net cash provided by (used in) operating activities (1,734) 1,644 (176)
------ ------ ------
Investing activities:
Purchases of securities available for sale (4,095) - -
Additional investment in the Bank (14,007) - -
------ ------ ------
Net cash used in investing activities (18,102) - -
------ ------ ------
Financing activities:
Proceeds from issuance of debt 24,984 - -
Purchase of treasury stock - (5,516) (1,360)
Payment of common stock dividends (2,598) (2,475) (454)
Exercise of stock options 760 95 257
------ ------ ------
Net cash provided by (used in) financing activities 23,146 (7,896) (1,557)
------ ------ ------
Net increase (decrease) in cash 3,310 (6,252) (1,733)
Cash at beginning of year 1,907 8,159 9,892
------ ------ ------
Cash at end of year $ 5,217 1,907 8,159
====== ====== ======
</TABLE>
17. QUARTERLY FINANCIAL DATA (Unaudited)
The following table is a summary of financial data by quarter for
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
(Dollars in thousands, 1st 2nd 3rd 4th 1st 2nd 3rd 4th
except for share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 28,797 31,616 32,575 33,318 25,905 27,013 27,963 28,372
Interest expense 16,372 18,234 19,345 20,449 14,566 15,001 15,972 15,829
------- ------- ------- ------- ------- ------- ------- -------
Net interest income before
provision for loan losses 12,425 13,382 13,230 12,869 11,339 12,012 11,991 12,543
Provision for loan losses 700 750 700 600 650 1,125 700 650
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 11,725 12,632 12,530 12,269 10,689 10,887 11,291 11,893
Non-interest income 2,327 2,827 3,211 5,547 2,153 2,784 2,251 2,366
Non-interest expense 9,069 11,538 12,014 13,226 7,445 8,015 14,024 8,971
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax expense (benefit) 4,983 3,921 3,727 4,590 5,397 5,656 (482) 5,288
Income tax expense (benefit) 1,678 1,621 1,276 1,563 2,539 2,630 (559) 1,824
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 3,305 2,300 2,451 3,027 2,858 3,026 77 3,464
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share:
Basic $ 0.40 0.28 0.29 0.36 0.34 0.37 0.01 0.42
Diluted $ 0.38 0.26 0.27 0.34 0.33 0.35 0.01 0.40
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares outstanding: Basic 8,301,766 8,357,213 8,445,829 8,382,509 8,408,464 8,199,713 8,254,862 8,276,541
Diluted 8,770,901 8,816,488 8,960,366 8,973,295 8,764,808 8,587,078 8,669,118 8,690,553
</TABLE>
Independent Auditors' report
The Board of Directors
Haven Bancorp, Inc.:
We have audited the accompanying consolidated statements of
financial condition of Haven Bancorp, Inc. (the "Company") as of
December 31, 1997 and 1996, 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
December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the 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 the Company at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
January 22, 1998
Jericho, New York
Directors and officers and Directory
Directors
Haven Bancorp, Inc.
and CFS Bank
George S. Worgul
Chairman of the Board
Philip S. Messina
Chief Executive Officer, President
Robert L. Koop
President, Haven Chevrolet
Robert M. Sprotte
President, Schmelz Bros., Inc.
President, RDR Realty Corp.
President, Three Rams Realty
Joseph A. Ruggiere
President, Ohlert-Ruggiere, Inc.
Michael J. Fitzpatrick
C.P.A., Financial Consultant
Retired, Vice President, National Thrift Director,
E.F. Hutton & Co.
William J. Jennings II
Managing Director, Salomon Smith Barney, Inc.
Michael J. Levine
President, Norse Realty Group, Inc. & Affiliates
Partner, Levine & Schmutter, CPAs
Msgr. Thomas J. Hartman
President and Chief Executive Officer of Radio and Television for
the Diocese of Rockville Centre for Telicare Television Studios
Executive Officers
Haven Bancorp, Inc.
and CFS Bank
Philip S. Messina
Chief Executive Officer, President
Gerard H. McGuirk
Executive Vice President, Chief Lending Officer
Thomas J. Seery
Executive Vice President, Operations
Catherine Califano
Senior Vice President, Chief Financial Officer
Joseph W. Rennhack
Senior Vice President, Secretary
DIRECTORY
Administrative Headquarters
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
(718) 850-2500
Stockholder Information
Corporate Offices
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
Annual Meeting
The annual meeting of stockholders will be held on Wednesday,
April 22, 1998 at 9:00 A.M., at the Holiday Inn Crowne Plaza,
104-04 Ditmars Blvd., East Elmhurst, New York. A notice of the
meeting, a proxy statement and a proxy form are included with
this mailing to stockholders of record
as of March 4, 1998.
Common Stock Information
Haven Bancorp common stock is traded on the Nasdaq National
Market under the symbol HAVN. The table below shows the reported
high and low sales prices of the common stock during the periods
indicated in 1997 and 1996. Such prices reflect the 2-for-1 stock
split effective November 1997.
1997 1996
High Low High Low
First Quarter 18 3/16 13 7/8 12 5/8 11 1/8
Second Quarter 19 1/8 15 1/4 14 3/8 11 3/16
Third Quarter 21 7/8 17 13/16 14 11/16 12 5/8
Fourth Quarter 23 19 1/8 14 3/4 12 3/4
As of March 4, 1998, the Company had approximately 428
stockholders of record, not including the number of persons or
entities holding stock in nominee or street name through various
brokers and banks. At December 31, 1997, there were 8,784,700
shares of common stock outstanding.
Transfer Agent and Registrar
Inquiries regarding stockholder administration and
services should be directed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
** World Wide Web Site: http://www.chasemellon.com
Independent Auditors
KPMG Peat Marwick LLP
1 Jericho Plaza
Jericho, NY 11753
Legal Counsel
Thacher Proffitt & Wood
Two World Trade Center
New York, NY 10048
Investor Relations
Inquiries regarding Haven Bancorp, Inc.
should be directed to:
Catherine Califano
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
(718) 850-1203
Annual Report on Form 10-K
A copy of the annual report on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange
Commission, is available to stockholders (excluding exhibits) at
no charge, upon written requests to:
Investor Relations
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
** World Wide Web Site: http://www.cfsb.com
Exhibit 23.0
Consent of Independent Certified Public Accountants
The Board of Directors
Haven Bancorp, Inc.:
We consent to incorporation by reference in the registration
statements (No. 333-79740, No. 333-85056 and No. 333-20823) on Form
S-8 of Haven Bancorp, Inc. of our report dated January 22, 1998
relating to the consolidated statements of financial condition of
Haven Bancorp, Inc. as of December 31, 1997 and 1996, 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 December 31, 1997, which report is incorporated by
reference in the 1997 Annual Report on Form 10-K of Haven Bancorp,
Inc.
Jericho, New York
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1997 and
the Consolidated Statement of Operations for the 12 months Ended December
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 35,745
<INT-BEARING-DEPOSITS> 1,309,564
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 499,380
<INVESTMENTS-CARRYING> 229,461
<INVESTMENTS-MARKET> 229,698
<LOANS> 1,150,781
<ALLOWANCE> 12,528
<TOTAL-ASSETS> 1,974,890
<DEPOSITS> 1,365,012
<SHORT-TERM> 380,028
<LIABILITIES-OTHER> 30,219
<LONG-TERM> 86,766
0
0
<COMMON> 100
<OTHER-SE> 112,765
<TOTAL-LIABILITIES-AND-EQUITY> 1,974,890
<INTEREST-LOAN> 78,486
<INTEREST-INVEST> 47,820
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 126,306
<INTEREST-DEPOSIT> 51,600
<INTEREST-EXPENSE> 74,400
<INTEREST-INCOME-NET> 51,906
<LOAN-LOSSES> 2,750
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 45,847
<INCOME-PRETAX> 17,221
<INCOME-PRE-EXTRAORDINARY> 17,221
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,083
<EPS-PRIMARY> 1.32<F1>
<EPS-DILUTED> 1.24<F1>
<YIELD-ACTUAL> 3.06
<LOANS-NON> 10,396
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,136
<LOANS-PROBLEM> 22,734
<ALLOWANCE-OPEN> 10,704
<CHARGE-OFFS> 1,686
<RECOVERIES> 760
<ALLOWANCE-CLOSE> 12,528
<ALLOWANCE-DOMESTIC> 12,528
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1 1996 1995
EPS:
Basic 1.13 0.99
Diluted 1.08 0.96
Per share amendments reflect the 2-for-1 stock split effective November
1997.
</FN>
</TABLE>
<PAGE>
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
- - ---- Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
X Definitive Proxy Statement
- - ----
X Definitive Additional Materials
- - ----
- - ---- Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Haven Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
- - ----
- - ---- 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:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
- - ---- 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 offsetting 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 Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
HAVEN BANCORP, INC.
93-22 Jamaica Avenue
Woodhaven, New York 11421
1-888-237-2265
March 18, 1998
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders (the "Annual Meeting") of Haven Bancorp, Inc. (the
"Company"), the holding company for CFS Bank, formerly Columbia
Federal Savings Bank (the "Bank"), which will be held on April 22,
1998, at 9:00 a.m., at the Holiday Inn Crowne Plaza, 104-04 Ditmars
Blvd., East Elmhurst, New York.
The attached notice of the Annual Meeting and proxy statement
describe the formal business to be transacted at the meeting.
Directors and officers of the Company, as well as a representative
of KPMG Peat Marwick LLP, the Company's independent auditors, will
be present at the meeting to respond to any questions our
stockholders may have.
The Board of Directors of the Company has determined that a
favorable vote on the matters to be considered at the Annual
Meeting is in the best interests of the Company and its
stockholders. For the reasons set forth in the proxy statement, the
Board unanimously recommends a vote "FOR" each matter to be
considered.
Please sign and return the enclosed proxy card promptly. Your
cooperation is appreciated since a majority of the Common Stock
must be represented, either in person or by proxy, to constitute a
quorum for the conduct of business. If you are a stockholder whose
shares are not registered in your own name, you will need
additional documentation from your recordholder to attend and to
vote personally at the Annual Meeting. Examples of such
documentation would include a broker's statement, letter or other
document that will confirm your ownership of shares of the Company.
On behalf of the Board of Directors and all of the employees of the
Company and the Bank, we wish to thank you for your continued
support. We appreciate your interest.
Sincerely yours,
George S. Worgul Philip S. Messina
Chairman of the Board President and Chief
Executive Officer
<PAGE>
HAVEN BANCORP, INC.
93-22 Jamaica Avenue
Woodhaven, New York 11421
1-888-237-2265
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On April 22, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Haven Bancorp, Inc. (the "Company") will be
held on April 22, 1998, at 9:00 a.m., at the Holiday Inn Crowne
Plaza, 104-04 Ditmars Blvd., East Elmhurst, New York.
The Annual Meeting is for the purpose of considering and voting
upon the following matters:
1. The election of three directors for terms of three years each
or until their successors are elected and qualified;
2. The approval of the amendment to the Haven Bancorp, Inc. 1996
Stock Incentive Plan to increase the number of shares available for
issuance thereunder;
3. The approval of the amendment to the Certificate of
Incorporation of the Company to increase the number of shares of
common stock the Company is authorized to issue;
4. The ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998; and
5. Such other matters as may properly come before the Annual
Meeting or any adjournments thereof. The Company is not aware of
any such business.
The Board of Directors has established March 4, 1998 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 recordholders of the common stock of the Company as of the
close of business on that date will be entitled to vote at the
Annual Meeting or any adjournments thereof. In the event there are
not sufficient votes for a quorum or to approve or ratify any of
the foregoing proposals at the time of the Annual Meeting, the
Annual Meeting may be adjourned in order to permit further
solicitation of proxies by the Company. A list of stockholders
entitled to vote at the Annual Meeting will be available at CFS
Bank, 93-22 Jamaica Avenue, Woodhaven, New York, for a period of
ten days prior to the Annual Meeting and will also be available for
inspection at the Annual Meeting.
By Order of the Board of Directors,
Joseph W. Rennhack
Secretary
Woodhaven, New York
March 18, 1998
<PAGE>
HAVEN BANCORP, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 22, 1998
GENERAL
This proxy statement is being furnished to stockholders of Haven
Bancorp, Inc. (the "Company") in connection with the solicitation
by the Board of Directors of the Company (the "Board of Directors")
of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on April 22, 1998, at 9:00 a.m., at
the Holiday Inn Crowne Plaza, 104-04 Ditmars Blvd., East Elmhurst,
New York, and at any adjournments thereof. The 1997 Annual Report
to Stockholders, including the consolidated financial statements
for the fiscal year ended December 31, 1997, accompanies this proxy
statement, which is first being mailed to recordholders on or about
March 18, 1998.
Regardless of the number of shares of common stock of the Company
("Common Stock") owned, it is important that recordholders of a
majority of the shares be represented by proxy or be present in
person at the Annual Meeting. Stockholders are requested to vote by
completing the enclosed proxy card and returning it signed and
dated in the enclosed postage-paid envelope. Stockholders are urged
to indicate their vote in the spaces provided on the proxy card.
Proxies solicited by the Board of Directors of the Company will be
voted in accordance with the directions given therein. Where no
instructions are indicated, signed proxies will be voted FOR the
election of each of the nominees for director named in this proxy,
FOR the approval of the amendment to the Haven Bancorp, Inc. 1996
Stock Incentive Plan to increase the number of shares authorized
for issuance thereunder, FOR the approval of the amendment to the
Certificate of Incorporation of the Company to increase the number
of shares of Common Stock the Company is authorized to issue and
FOR the ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998.
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.
RECORD DATE AND VOTING SECURITIES
The securities which may be voted at the Annual Meeting consist of
shares of Common Stock of the Company, with each share entitling
its owner to one vote on all matters to be voted on at the Annual
Meeting except as described below. There is no cumulative voting
for the election of directors.
<PAGE>
On October 23, 1997, the Board of Directors of the Company declared
a 2-for-1 stock split (the "Stock Split") effected as a 100% stock
dividend distributed on November 28, 1997 to holders of record as
of October 31, 1997. All stock information in this proxy statement
reflects this Stock Split.
The close of business on March 4, 1998 has been fixed by the Board
of Directors as the record date (the "Record Date") for the
determination of stockholders of record entitled to notice of and
to vote at the Annual Meeting and any adjournments thereof. The
total number of shares of Common Stock outstanding on the Record
Date was 8,835,588 shares.
As provided in the Company's Certificate of Incorporation,
recordholders of Common Stock who beneficially own in excess of 10%
of the outstanding shares of Common Stock (the "Limit") are not
entitled to any vote with respect to the shares held in excess of
the Limit. A person or entity is deemed to beneficially own shares
owned by an affiliate of, as well as persons acting in concert
with, such person or entity. The Company's Certificate of
Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit,
including determining whether persons or entities are acting in
concert and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit supply
information to the Company to enable the Board to implement and
apply the Limit.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to
vote at the meeting (after subtracting any shares in excess of the
Limit pursuant to the Company's Certificate of Incorporation) is
necessary to constitute a quorum at the Annual Meeting.
Abstentions are considered in determining the presence of a quorum.
In the event there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Annual Meeting,
the Annual Meeting may be adjourned in order to permit the further
solicitation of proxies.
VOTE REQUIRED
As to the election of directors, the proxy card being provided by
the Board of Directors enables a stockholder of record to vote
"FOR" the election of the nominees proposed by the Board, or to
"WITHHOLD AUTHORITY" to vote for one or more of the nominees being
proposed. Under Delaware law and the Company's Bylaws, directors
are elected by a plurality of votes cast, without regard to either
(i) broker non-votes or (ii) proxies as to which authority to vote
for one or more of the nominees being proposed is withheld.
As to the approval of the amendment to the Haven Bancorp, Inc. 1996
Stock Incentive Plan (the "Stock Incentive Plan"), the proxy card
enables a stockholder, by checking the appropriate box, to: (i)
vote "FOR" the item; (ii) vote "AGAINST" the item; or (iii)
"ABSTAIN" from voting on such item. Under the Company's Certificate
of Incorporation and Bylaws, unless otherwise required by law, the
<PAGE>
approval of the amendment to the 1996 Stock Incentive Plan shall be
determined by a majority of the votes cast. Accordingly, shares as
to which the "ABSTAIN" box has been selected on the proxy card will
be counted as votes cast and will have the effect of a vote against
such proposal. Shares underlying broker non-votes will not be
counted as votes cast and will have no effect on the vote for such
proposal.
As to the approval of the amendment to the Certificate of
Incorporation of the Company, the proxy card enables a stockholder,
by checking the appropriate box, to: (i) vote "FOR" the item; (ii)
vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on such
item. Under the Company's Certificate of Incorporation and Bylaws
and as required by Delaware law, the approval of the amendment of
the Certificate of Incorporation of the Company shall be determined
by a majority of the outstanding stock entitled to vote.
Accordingly, shares as to which the "ABSTAIN" box has been selected
on the proxy card will have the effect of a vote against such
proposal. Shares underlying broker non-votes will also be counted
as a vote against such proposal.
As to the ratification of KPMG Peat Marwick LLP as independent
auditors of the Company, the proxy card enables a stockholder, by
checking the appropriate box, to: (i) vote "FOR" the item; (ii)
vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on such
item. Under the Company's Certificate of Incorporation and Bylaws,
unless otherwise required by law, the ratification of independent
auditors of the Company shall be determined by a majority of the
votes cast. Accordingly, shares as to which the "ABSTAIN" box has
been selected on the proxy card will be counted as votes cast and
will have the effect of a vote against such proposal. Shares
underlying broker non-votes will not be counted as votes cast and
will have no effect on the vote for such proposal.
Proxies solicited hereby will be returned to the Company's transfer
agent, and will be tabulated by inspectors of election designated
by the Board of Directors, who will not be employed by, or be a
director of, the Company or any of its affiliates.
REVOCABILITY OF PROXIES
A proxy may be revoked at any time prior to its exercise by filing
a written notice of revocation with the Secretary of the Company,
delivering to the Company a duly executed proxy bearing a later
date or attending the Annual Meeting and voting in person if a
written revocation is filed with the Secretary of the Annual
Meeting prior to the voting of such proxy. A stockholder whose
shares are not registered in his or her own name will need
additional documentation from the recordholder to vote personally
at the Annual Meeting. Examples of such documentation would
include a broker's statement, letter or other document that will
confirm such ownership of shares of Common Stock of the Company.
<PAGE>
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the form enclosed herewith
will be borne by the Company. In addition to the solicitation of
proxies by mail, Morrow & Co., Inc., a proxy solicitation firm,
will assist the Company in soliciting proxies for the Annual
Meeting and will be paid a fee estimated to be $5,000 plus
out-of-pocket expenses. Proxies may also be solicited personally or
by telephone or telegraph by directors, officers and regular
employees of the Company and its wholly owned subsidiary, CFS Bank,
formerly Columbia Federal Savings Bank (the "Bank"), without
additional compensation. The Company will also request persons,
firms and corporations holding shares in their names, or in the
name of their nominees, which are beneficially owned by others to
send proxy material to, and obtain proxies from, such beneficial
owners and will reimburse such holders for their reasonable
expenses in doing so.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those
persons or groups believed by management to be beneficial owners of
more than 5% of the Company's outstanding shares of Common Stock as
of the Record Date based upon certain reports regarding such
ownership filed with the Company and with the Securities and
Exchange Commission (the "SEC"), in accordance with Sections 13(d)
or 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") by such persons or groups. Other than those listed
below, the Company is not aware of any person or group that owns
more than 5% of the Company's Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
Title of Class of beneficial Owner Beneficial Ownership Class(1)
- - -------------- ------------------- -------------------- ----------
<S> <C> <C> <C>
Common Stock Columbia Federal Savings Bank 650,348(2) 7.4%
Employee Stock Ownership Plan
and Trust (the "ESOP"), 93-22
Jamaica Avenue, Woodhaven, NY
11421
</TABLE>
(1) As of the Record Date there were 8,835,588 shares of Common
Stock outstanding.
(2) Shares of Common Stock were acquired by the ESOP in connection
with the conversion of CFS Bank from mutual to stock form (the
"Conversion"). A Committee of the Board of Directors has been
appointed to administer the ESOP (the "ESOP Committee"). An
unrelated third party has been appointed as the corporate trustee
for the ESOP (the "ESOP Trustee"). The ESOP Committee may instruct
the ESOP Trustee regarding investment of funds contributed to the
ESOP. The ESOP Trustee must vote all allocated shares held in the
ESOP in accordance with the instructions of the participating
employees. As of the Record Date, 279,558 shares of Common Stock
in the ESOP have been allocated to participating employees. Under
the ESOP, unallocated shares held in the suspense account will be
<PAGE>
voted by the ESOP Trustee in a manner calculated to most accurately
reflect the instructions received from participants regarding the
allocated stock so long as such vote is in accordance with the
provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1.
ELECTION OF DIRECTORS
Pursuant to its Bylaws, the number of directors of the Company is
currently set at nine (9) unless otherwise designated by the Board
of Directors. Each of the nine members of the Board of Directors
of the Company also currently serves as a director of the Bank.
Directors are elected for staggered terms of three years each, with
a term of office of one of the three classes of directors expiring
each year. Directors serve until their successors are elected and
qualified.
The three nominees proposed for election at the Annual Meeting are
Messrs. Sprotte, Fitzpatrick and Jennings. All nominees named are
currently directors of the Company and the Bank. No person being
nominated as a director is being proposed for election pursuant to
any agreement or understanding between any person and the Company.
In the event that any such nominee is unable to serve or declines
to serve for any reason, it is intended that proxies will vote for
the election of the balance of those nominees named and for such
other persons as may be designated by the present Board of
Directors. The Board of Directors has no reason to believe that any
of the persons named will be unable or unwilling to serve. Unless
authority to vote for the directors is withheld, it is intended
that the shares represented by the enclosed proxy card, if executed
and returned, will be voted FOR the election of all nominees
proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
NOMINEES NAMED IN THIS PROXY STATEMENT.
INFORMATION WITH RESPECT TO THE NOMINEES, CONTINUING DIRECTORS AND
CERTAIN EXECUTIVE OFFICERS
The following table sets forth, as of the Record Date, the names of
the nominees, continuing directors and "named executive officers,"
as defined below, as well as their ages; a brief description of
their recent business experience, including present occupations and
employment; certain directorships held by each; the year in which
each became a director of the Bank and the year in which their term
(or in the case of nominees, their proposed term) as director of
the Company expires. This table also sets forth the amount of
Common Stock and the percent thereof beneficially owned by each
nominee, continuing director and "named executive officer" and all
directors and executive officers as a group as of the Record Date.
All shares of Common Stock reported as beneficially owned have been
adjusted in the following table and in tables throughout this proxy
statement to reflect the Stock Split.
<PAGE>
<TABLE>
<CAPTION>
Shares of Ownership
Name and Principal Expiration Common Stock as Percent
Occupation at Present Director of Term as Beneficially of
and for Past Five Years Age Since(1) Director Owned(2) Class(3)
- - ----------------------- --- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Nominees
Robert M. Sprotte 61 1974 2001 96,771(6)(7) 1.1%
President of Schmelz Bros., Inc., a
plumbing contractor; President of RDR
Realty Corp., a real estate holding
company; President of Three Rams Realty
Michael J. Fitzpatrick 59 1988 2001 68,771(6)(7) *
CPA, Retired, former Vice President-
National Thrift Director at E.F. Hutton
& Company, Inc., a national securities
firm, Director of Legal Aid Society
of Suffolk County
William J. Jennings II(4) 52 1996 2001 38,267(6)(7) *
Managing Director ! Chief of Staff to
Chairman of Salomon Smith Barney, Inc.,
a brokerage firm
Continuing Directors
George S. Worgul(5) 70 1983 1999 265,756(6)(7)(8) 2.9%
Chairman of the Board and Retired (9)(10)
President of the Company and the Bank
Robert L. Koop 75 1968 1999 78,771(6)(7) *
President of Haven Chevrolet
Michael J. Levine 53 1996 1999 35,267(6)(7) *
President of Norse Realty Group, Inc.
and Affiliates, a real estate owner
and developer, Partner in Levine and
Schmutter Certified Public Accountants
Philip S. Messina 54 1986 2000 260,154(8)(9) 2.9%
President and Chief Executive Officer (10)(11)
of the Company and the Bank; Director
and Chairman of the Board of CFSB
Funding, Inc., Columbia Resources, Inc.,
CFS Investments, Inc. and Columbia
Preferred Capital Corporation, all
subsidiaries of the Bank
Joseph A. Ruggiere 69 1979 2000 154,971(6)(7) 1.7%
President of Ohlert-Ruggiere, Inc., a
financial service company
Msgr. Thomas J. Hartman 51 1997 2000 11,349(6)(7) *
President and Chief Executive Officer
of Radio and Television for the Diocese
of Rockville Centre for Telicare Television
Studios, a cable television station
Named Executive Officers
Joseph W. Rennhack 56 -- -- 149,098(8)(9) 1.7%
Senior Vice President-Secretary of the (10)(11)
Company and the Bank; President and
Director of CFSB Funding, Inc.; Director
of Columbia Resources, Inc.; Administrative
Trustee of Haven Capital Trust I, Secretary
of Columbia Preferred Capital Corporation
Thomas J. Seery 53 -- -- 87,360(8)(9) *
Executive Vice President-Operations of the (10)(11)
Company and Bank; Director of CFS
Investments, Inc.
Catherine Califano 39 -- -- 73,420(8)(9)(11) *
Senior Vice President - Chief Financial
Officer of the Company and the Bank;
Director of Columbia Resources; Director
of CFSB Funding, Inc; former Vice
President-Controller of the Company
and the Bank; former Senior Vice
President-Chief Financial Officer of
Home Savings Bank, Brooklyn, New York;
Administrative Trustee of Haven Capital
Trust I, Vice President and Director of
Columbia Preferred Capital Corporation
Gerard H. McGuirk 55 -- -- 71,218(8)(9) *
Executive Vice President - Chief Lending (10)(11)
Officer of the Company and the Bank;
President and Director of Columbia Resources,
Inc.; former Group Head of Real Estate
Workouts for Fleet Bank, N.Y., President
and Director of Columbia Preferred Capital
Corporation
All directors and executive officers of
the Company as a group (13 persons) -- -- -- 1,393,173 14.4%
(6)(7)(8)(9)
(10)(11)
</TABLE>
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as director of the Company's
predecessor, the Bank.
(2) Each person or relative of such person whose shares are
included herein, exercises sole or shared voting or dispositive
power as to the shares reported.
(3) Percentages with respect to each person or group have been
calculated on the basis of 8,835,588 shares of Common Stock
outstanding as of the Record Date and include the number of shares
of Common Stock which each such person or group of persons has the
right to acquire within 60 days of the Record Date.
(4) Mr. Jennings' wife is the first cousin of Mr. Messina.
(5) Mr. Worgul retired as President of the Company and the Bank on
June 30, 1994.
(6) Includes 4,134, 4,134 and 4,132 shares of restricted stock
awarded to each of Messrs. Levine, Jennings and Msgr. Hartman under
the Columbia Federal Savings Bank Recognition and Retention Plan
for Outside Directors ("DRP"), as to which each individual has sole
voting power but no investment power. Also includes 263 shares of
restricted stock awarded to each of Messrs. Ruggiere, Fitzpatrick,
Sprotte, Worgul, Koop, Levine, Jennings and Msgr. Hartman under the
1996 Stock Incentive Plan, as to which each individual has sole
voting power but no investment power.
(7) Includes 37,194 shares subject to options granted to each of
Messrs. Koop, Sprotte, Ruggiere and Fitzpatrick along with 18,602
shares subject to options granted to each of Messrs. Levine and
Jennings under the Haven Bancorp, Inc. 1993 Stock Option Plan for
Outside Directors ("Directors' Stock Option Plan") which are
currently exercisable. Also includes 8,000 shares subject to
options granted to each of Messrs. Worgul, Koop, Sprotte, Ruggiere
and Fitzpatrick, 2,666 shares subject to options granted to each of
Messrs. Levine and Jennings, also 6,666 shares subject to options
granted to Msgr. Hartman pursuant to the 1996 Stock Incentive Plan,
which may be acquired within 60 days of the Record Date. Does not
include 4,000 shares subject to options granted to each of Messrs.
Worgul, Koop, Sprotte, Ruggiere and Fitzpatrick, 5,334, 5,334 and
13,334 shares subject to options granted to each of Messrs. Levine,
Jennings and Msgr. Hartman under the 1996 Stock Incentive Plan
which are not currently exercisable.
(8) Includes 198,374, 169,364, 109,250, 67,096, 53,534 and 53,534
shares subject to options granted to Messrs. Worgul, Messina,
<PAGE>
Rennhack, Seery and McGuirk and to Ms. Califano, respectively,
pursuant to the Haven Bancorp, Inc. 1993 Incentive Stock Option
Plan ("Incentive Option Plan") and the Haven Bancorp, Inc. 1996
Stock Incentive Plan ("1996 Stock Incentive Plan") which may be
acquired within 60 days of the Record Date. Does not include
3,170, 1,170, 1,170, 2,658 and 2,658 shares subject to options
granted to Messrs. Messina, Rennhack, Seery, and McGuirk and Ms.
Califano under the 1993 Incentive Option Plan which are not
currently exercisable. Also not included are 38,000 options
granted to Mr. Messina and 14,000 options granted to each of
Messrs. Rennhack, Seery and McGuirk and Ms. Califano under the 1996
Stock Incentive Plan which are not currently exercisable.
(9) The figures shown include shares held in trust pursuant to the
ESOP that were owned as of December 31, 1997 to individual accounts
as follows: Mr. Worgul, 2,266 shares; Mr. Messina, 8,556 shares;
Mr. Rennhack, 8,224 shares; Mr. Seery, 6,482 shares; Mr. McGuirk,
3,996; shares and Ms. Califano, 5,590 shares. Such persons have
sole voting power but no investment power, except in limited
circumstances, as to such shares. The figures shown do not include
370,790 shares held in trust pursuant to the ESOP that have not
been allocated to any individual's account and as to which the
members of the Company's ESOP Committee (consisting of Messrs.
Ruggiere, Sprotte and Koop) may be deemed to share investment power
and as to which the named executive officers may be deemed to share
voting power, thereby causing each such member or executive officer
to be deemed a beneficial owner of such shares. Each of the
members of the ESOP Committee and the executive officers disclaims
beneficial ownership of such shares.
(10) The figures shown include shares held in the Employer Stock
Fund of the Bank's Employee 401(k) Thrift Incentive Savings Plan
("Employee Thrift Savings Plan") as to which each person identified
has shared voting and investment power as follows: Mr. Worgul,
25,958 shares; Mr. Messina, 27,714 shares; Mr. Rennhack, 8,306
shares; Mr. Seery, 7,268 shares; and Mr. McGuirk, 762 shares. The
figures shown do not include 27,440 shares held in the Employer
Stock Fund of the Employee Thrift Savings Plan as to which the
named executive officers have shared voting power and investment
power. Each of the executive officers disclaims beneficial
ownership of such shares.
(11) Includes 3,202, 4,960, 2,480, 4,000 and 4,000 shares awarded
to Messrs. Messina, Rennhack, Seery and McGuirk and to Ms.
Califano, respectively, under the Columbia Federal Savings Bank
Recognition and Retention Plan for Officers and Employees ("MRP")
as to which each has sole voting power but no investment power.
Also includes 7,998 shares of restricted stock awarded to Mr.
Messina and 4,000 shares of restricted stock awarded to each of
Messrs. Rennhack, Seery and McGuirk and to Ms. Califano,
respectively, under the Haven Bancorp, Inc. 1996 Stock Incentive
Plan ("1996 Stock Incentive Plan").
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors conducts its business through meetings of
the Board and through activities of its committees. The Board of
Directors meets monthly and may have additional meetings as needed.
During fiscal 1997, the Board of Directors of the Company held 12
<PAGE>
regular board meetings and one special meeting. All of the
directors of the Company attended at least 75% in the aggregate of
the total number of the Company's board meetings held and committee
meetings on which such director served during fiscal 1997. The
Board of Directors of the Company maintains committees, the nature
and composition of which are described below:
The Audit Committee of the Company and the Bank for fiscal 1997
consisted of Messrs. Fitzpatrick, Ruggiere, Levine and Msgr.
Hartman. Msgr. Hartman was appointed to the Committee to fill a
vacancy created by the resignation of Mr. Cashill from the
directorate in February 1997. This Committee met four times in
fiscal 1997 and recommends an independent audit firm to be
submitted for stockholder approval at the Company's Annual Meeting,
approves internal audit schedules and reviews internal audit
reports.
The Company's Nominating Committee for the 1998 Annual Meeting
consists of Messrs. Ruggiere, Koop and Msgr. Hartman. The
Committee considers and recommends the nominees for directors to
stand for election at the Company's Annual Meeting. The Company's
Certificate of Incorporation and Bylaws also provide for
stockholder nominations of directors. These provisions require such
nominations to be made pursuant to timely notice in writing to the
Secretary of the Company. The stockholder's notice of nomination
must contain all information relating to the nominee which is
required to be disclosed by the Company's Bylaws and by the
Exchange Act. The Nominating Committee met once in preparation for
the 1998 Annual Meeting.
The Compensation Committee for the Company and Bank consists of
Messrs. Sprotte, Koop, Worgul and Jennings who are responsible for
the 1998 Compensation Committee Report on Executive Compensation.
The Compensation Committee is responsible for determining executive
compensation. The Compensation Committee met twice in 1997.
DIRECTORS' COMPENSATION
Directors' Fees. In 1997, Directors who were not employees of the
Company or the Bank received a retainer of $18,000 a year, one
third of which was paid in the form of restricted stock granted
pursuant to the 1996 Stock Incentive Plan, and a fee of $1,000 for
each Board meeting attended. The Chairman's annual retainer was
$30,000. One third of these fees were paid by the Company.
Committee members received a fee of $1,500 for each regular and
special meeting attended. The Chairman of each Committee received
an additional retainer of $1,500 per year. Directors are also
eligible for coverage under the Company's health and dental
insurance plans in the same manner as employees.
Directors' Stock Option Plan. Under the Directors' Stock Option
Plan, each outside director who was not an officer of the Company
or the Bank at the time of the Bank's Conversion was granted
options to purchase 37,194 shares of Common Stock at an exercise
price of $5.00 per share on the date of grant, September 23, 1993.
Shares of Common Stock granted and the exercise price under this
<PAGE>
and all other stock option plans of the Company reflect the Stock
Split effected on November 28, 1997. To the extent options for
shares are available for grant under the Directors' Stock Option
Plan, each subsequently appointed or elected outside director will
be granted options as of the date on which such director is
qualified and first begins to serve as an outside director.
Pursuant to the Directors' Stock Option Plan, effective October 24,
1996, Messrs. Levine and Jennings were each granted options to
purchase 18,602 shares of common stock at an exercise price of
$13.41 per share, the fair market value on the date of grant. All
options granted under the Directors' Stock Option Plan are
exercisable one year from the date of grant. Upon death, disability
or retirement of the participant or upon a change in control of the
Company or the Bank, all options previously granted would
automatically become exercisable.
Haven Bancorp, Inc. 1996 Stock Incentive Plan. The Company's
stockholders approved the 1996 Stock Incentive Plan at the Annual
Meeting held April 24, 1996. On such date, each eligible outside
director was granted a non-qualified stock option to purchase
12,000 shares of Common Stock at an exercise price of $12.14 per
share. To the extent options for shares are available for grant
under the 1996 Stock Incentive Plan, each subsequently appointed or
elected outside director will be granted options as of the date on
which such outside director is qualified and first begins to serve
as an outside director. Effective October 24, 1996, Messrs. Levine
and Jennings were each granted non-qualified stock options to
purchase 8,000 shares of Common Stock at an exercise price of
$13.41 per share. Effective March 25, 1997, Msgr. Hartman was
granted non-qualified stock options to purchase 20,000 shares of
Common Stock at an exercise price of $17.28, the fair market value
on the date of grant. All options granted under the 1996 Stock
Incentive Plan are exercisable in three equal installments
beginning one year from the date of grant. Upon death, disability
or retirement of the participant or upon a change in control of the
Company or the Bank, all options previously granted would
automatically become exercisable.
Pursuant to the 1996 Stock Incentive Plan, effective as of January
1, 1996 and as of the first business day of each of the first four
calendar years beginning after the January 1, 1996 ("Grant Date"),
each eligible outside director will be granted a number of shares
of restricted stock in lieu of receiving one-third of the annual
retainer that would otherwise be paid in cash to such eligible
outside director for the calendar year in which the Grant Date
occurs. The number of shares of restricted stock to be granted to
an eligible outside director on each Grant Date shall be equal to
the dollar value of one-third of the eligible outside director's
annual retainer for the calendar year in which the Grant Date
occurs, divided by the fair market value of a share on the
effective date of the grant, disregarding any fractional shares
resulting from such calculation. Effective January 1, 1996, each
eligible outside director was granted 494 shares in lieu of cash.
Messrs. Levine and Jennings were subsequently granted 116 shares on
October 24, 1996. Effective January 1, 1997, each eligible outside
director was granted 420 shares, in lieu of cash, representing one-
<PAGE>
third of such director's annual retainer for 1997. Msgr. Hartman,
after his election to the Board of Directors, was granted 288
shares in lieu of cash equal to one-third of his portion of the
annual retainer for 1997 pro rated for his commencement of service
on March 25, 1997. In addition, effective January 1, 1998 each
eligible outside director was granted 263 shares, in lieu of cash,
representing one-third of such director's annual retainer for 1998.
Directors' Recognition and Retention Plan. Under the DRP, each of
the six outside directors at the time of the Conversion received
awards of 12,398 shares. On October 24, 1996, Messrs. Levine and
Jennings were each awarded 6,200 shares. On March 25, 1997, Msgr.
Hartman was awarded 4,132 shares. Awards to directors vest in three
equal annual installments commencing on the first anniversary of
the effective date of the award. Awards will be 100% vested upon
termination of employment or service as a director due to death,
disability or retirement of the director or following a change in
the control of the Bank or the Company. In the event that before
reaching normal retirement a director terminates service with the
Bank or the Company, the director's non-vested awards will be
forfeited. When shares become vested and are actually distributed
in accordance with the DRP, the recipients will also receive
amounts equal to any accrued dividends with respect thereto. Prior
to vesting, recipients of awards may direct the voting of the
shares allocated to them. Shares not subject to an award will be
voted by the trustees of the DRP in proportion to the directions
provided with respect to shares subject to an award.
Consultation and Retirement Plan for Non-Employee Directors. Under
the Company's Consultation and Retirement Plan for Non-Employee
Directors (the "Directors Retirement Plan"), a director who is not
an employee or officer of the Company is a participant in the
Directors Retirement Plan. Any participant who has served as a
director for at least 60 months, has attained age 55 and, after
retirement, executes a Consulting Agreement to provide continuing
service to the Bank and Company, will be eligible to receive
benefits under the Directors Retirement Plan. The annual retirement
benefit will be an amount equal to two thirds of the sum, measured
as of the date of retirement, of (i) the amount of retainer fees
paid to directors, (ii) the aggregate of the annual Board of
Directors committee fees paid to the director and (iii) the
aggregate of the twelve regular meeting fees of the Board of
Directors.
EXECUTIVE COMPENSATION
The report of the Compensation Committee and the stock performance
graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), except to the extent that the Company
specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
Compensation Committee Report on Executive Compensation. Under
<PAGE>
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 such other
executive officers include the use of tables and a report
explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment
of this requirement, the joint Compensation Committee of the
Company and Bank (the "Compensation Committee"), at the direction
of the Board of Directors, has prepared the following report for
inclusion in the proxy statement. The members of the 1997
Compensation Committee were Messrs. Sprotte, Koop, Worgul, and
Jennings.
The Compensation Committee of the Board of Directors of the Bank is
responsible for establishing the compensation levels and benefits
of executive officers of the Bank, who also serve as executive
officers of the Company, and for reviewing recommendations of
management for compensation and benefits for other officers of the
Bank. The Compensation Committee establishes compensation on a
calendar year basis. The Compensation Committee was responsible
for compensation decisions in 1997.
Compensation of the President and Other Executive Officers. The
compensation of the President and other executive officers consists
of salary, bonus, stock options, restricted stock awards, pension
and fringe benefits. During 1992, the Board of Directors on behalf
of the Compensation Committee engaged the services of KPMG Peat
Marwick LLP to review the Bank's compensation practices (the
"Salary Review Program"). The focus of such program was to develop
a salary management program for officer positions and develop a
management incentive program for executive and senior officers.
The Salary Review Program established competitive salary ranges for
executive officers developed by reviewing market data as of July 1,
1992. Subsequent thereto, the ranges were updated annually through
discussions with KPMG Peat Marwick LLP to reflect remuneration data
with respect to thrift institutions of comparable size in the New
York metropolitan area. Base salary levels are generally within a
range consistent with and competitive with that of other
institutions that are similar to the Bank in asset size, function
and geographical markets. The institutions used to compare
salaries are not necessarily the same as those which make up the
peer group used in the Stock Performance Graph. Executive
compensation is based upon consideration of an individual's
performance and contribution to the viability of the Company and
the performance of the Company as a whole. On March 1, 1998, Mr.
Messina's salary as President and Chief Executive Officer was
increased from $475,000 to $600,000 by the Compensation Committee.
The Compensation Committee reasoned that such amount would
remunerate Mr. Messina within the range in the Company's Salary
Review Program, and within the market average base salary range of
area public thrifts with assets greater than $1 billion and less
than $5 billion. The Compensation Committee authorized the payment
of incentive awards to executive management of the Company under a
management incentive program implemented during 1995. The program
<PAGE>
provides for use of key financial factors and pre-defined levels of
achievement established by the Compensation Committee as the basis
for determining incentive awards. In setting executive incentives,
for the President and Chief Executive Officer, the Compensation
Committee considered net income, return on assets, return on equity
and asset quality as each factor relates to overall industry
performance. At December 31, 1997, those measures were: Net Income
$11,083,000; Return on Assets 0.62%; Return on Equity 10.41%; Non-
performing Assets to Total Assets 0.66%. For the fiscal year ended
December 31, 1997, the Company experienced strong core earnings.
These are the primary factors, although not the exclusive ones
considered, on which the Compensation Committee bases executive
compensation. The Compensation Committee at its discretion may
consider the weight of each of the identified factors and may
increase or decrease the achievement levels for any one year.
Based upon the growth of the Company due to the supermarket branch
expansion program of the Bank combined with other events, such as
the formation of a Real Estate Investment Trust as a subsidiary of
the Bank, the renovation of the Company's new headquarters and the
change in the Bank's name necessitated by opening supermarket
branches in New Jersey and Connecticut, the Compensation Committee
decided to award incentive compensation payments based on the
overall achievements of the Company during the 1997 year. The
members reasoned that the short term negative impact upon 1997
operation costs attributed to the activities of the Company
described above, is expected to provide long-term accretive
benefits to the Company's stockholders. Therefore, Mr. Messina
was awarded an incentive payment of $125,000 for the 1997 year.
During the second quarter of 1996, the Board of Directors engaged
the services of KPMG Peat Marwick's Performance and Compensation
Management Division to evaluate, update and recommend changes to
the Company's compensation program. The 1996 Executive
Compensation Review Report contained a study of the Company's
compensation practices compared to a peer group of financial
institutions in the New York geographic area that are of similar
size and nature of business. This report focused upon base
salaries, annual incentives, total cash compensation, long term
incentives and total compensation. In addition, the study
addressed the financial performance of the Company compared to its
peers, provided an analysis of stock granted to executives at
Conversion and conveyed KPMG Peat Marwick LLP's prospective
recommendations for cash compensation, annual incentives and long
term grants. This study was used by the Committee during 1997 to
evaluate and establish executive compensation levels.
Stock options and stock awards are compensation plans maintained by
the Company and serve as a long-term incentive by linking executive
compensation with the interests of the Company's stockholders.
Stock based compensation is designed to retain employees and build
loyalty while promoting stockholder value. Stock options and
restricted stock awards were granted to Mr. Messina as well as to
other officers at the time of the Bank's Conversion to a publicly
held company on September 23, 1993. The Compensation Committee
based such grants to executive officers on practices of other
financial institutions as verified by external surveys as well as
<PAGE>
the executives' level of responsibilities, seniority and past
contribution to the Bank. The restricted stock awards granted to
Mr. Messina vested over three years at 33 1/3% per year; vesting
commenced on September 23, 1994, one year from the date of grant.
The stock options and restricted stock awards granted to other
executive officers were based on similar data and factors as those
used in determining appropriate levels of stock options and
restricted stock awards to be granted to Mr. Messina. The
restricted stock granted to other executive officers vests over a
five year period at 20% per year. For some officers, vesting
commenced on September 23, 1994 and for other officers vesting
commenced February 23, 1996, in each case, one year from date of
grant.
The Board of Directors, having thoroughly reviewed the
recommendation of KPMG Peat Marwick LLP with respect to
compensation matters, granted stock options and restricted stock
awards to Mr. Messina as well as to other officers at a meeting
held on May 23, 1996. The restricted stock awards and stock
options granted vest over three years at 33 1/3% per year; vesting
commenced on May 23, 1997, one year from date of grant.
The grants and awards for the President and Chief Executive Officer
along with the grants and awards for other executive officers are
reflected in the Summary Compensation Table.
Compensation Committee:
Robert M. Sprotte Robert L. Koop
George S. Worgul William J. Jennings II
Board of Directors:
Michael J. Fitzpatrick Msgr. Thomas J. Hartman George S. Worgul
Robert M. Sprotte Philip S. Messina Robert L. Koop
William J. Jennings II Joseph A. Ruggiere Michael J. Levine
Stock Performance Graph. The following graph shows a comparison of
cumulative total stockholder return on the Company's Common Stock,
based on the market price of the Common Stock assuming reinvestment
of dividends, with the cumulative total return of companies in The
Nasdaq Stock Market and in the SNL Thrift Index for the period
beginning on September 23, 1993, the day the Company's Common Stock
began trading, through December 31, 1997.
Comparison of Cumulative Total Return Among Haven Bancorp, Inc.
Common Stock, Nasdaq U.S. Index and SNL Thrift Index
September 23, 1993 - December 31, 1997
<TABLE>
<CAPTION>
09/23/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Haven Bancorp, Inc. 100.00 128.76 132.50 238.30 294.76 470.88
NASDAQ (US) 100.00 103.81 101.47 143.51 176.50 216.60
Thrifts (All) 100.00 100.90 99.71 155.29 202.33 344.28
</TABLE>
<PAGE>
Notes:
A. The lines represent index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
C. If the interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 09/23/93.
Summary Compensation Table. The following table sets forth the
compensation paid by the Company and/or Bank for services during
the years ended December 31, 1997, 1996 and 1995, to the Chief
Executive Officer and the four other highest paid executive
officers of the Company and/or the Bank who each received total
salary and bonus in excess of $100,000 (the "Named Executive
Officers") in 1997.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
---------------------------- ----------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($(2) ($)(2) ($)(3)(4) (#)(5) ($)(6) ($)(7)
- - ------------------ ---- ------ ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip S. Messina 1997 450,481 125,000 2,999 -- -- -- 32,317
President and CEO 1996 369,230 131,250 1,800 240,450 30,877 -- 33,296
1995 293,077 75,000 -- -- -- -- 23,335
Joseph W. Rennhack 1997 170,154 40,000 1,500 -- -- -- 32,214
Senior Vice President 1996 161,865 40,000 900 85,875 11,377 -- 35,536
and Secretary 1995 151,962 22,950 -- -- -- -- 22,911
Thomas J. Seery 1997 151,607 40,000 1,500 -- -- -- 29,022
Executive Vice President- 1996 134,654 33,750 900 85,875 11,377 -- 26,397
Operations 1995 116,615 20,060 -- -- -- -- 17,386
Gerard H. McGuirk 1997 164,823 40,000 1,500 -- -- -- 30,901
Executive Vice President- 1996 154,952 38,750 900 85,875 11,377 -- 31,238
Chief Lending Officer 1995 135,337 23,375 -- 118,125 20,000 -- 1,932
Catherine Califano 1997 159,519 40,000 1,500 -- -- -- 31 271
Senior Vice President- 1996 150,721 37,500 900 85,875 11,377 -- 29,342
Chief Financial Officer 1995 132,740 20,625 -- 118,125 20,000 -- 11,036
</TABLE>
(1) Bonus shown for the years 1995 through 1997 consists of
payments pursuant to Bank's Executive Incentive Compensation Plan.
(2) For 1995 there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the
year; (b) payments of above-market preferential earnings on
deferred compensation; (c) the payment reimbursements or (d)
preferential discounts on stock. Amounts listed for 1996 and 1997
are dividends received on restricted stock granted under the 1996
Stock Incentive Plan which are distributed when paid, even if prior
to the vesting of restricted stock.
(3) Pursuant to the MRP, an award of 4,802 shares of restricted
stock was made to Mr. Messina on May 23, 1996, which award vests in
three equal annual installments commencing on May 23, 1997. In
addition, awards of 10,000 shares of restricted stock were made
<PAGE>
pursuant to the MRP to each of Mr. McGuirk and Ms. Califano on
February 23, 1995, which awards vest in five equal annual
installments commencing on February 23, 1996. When shares become
vested and are distributed, the recipient also receives an amount
equal to accumulated dividends and earnings thereon (if any). The
dollar amounts in the table for 1996 are based upon the closing
market price of $14.3125 per share of Common Stock on December 31,
1996, as reported on the Nasdaq National Market System and the
dollar amounts in the table for 1995 are based upon the closing
market price of $11.8125 per share of Common Stock on December 29,
1995, as reported on the Nasdaq National Market System.
(4) Pursuant to the 1996 Stock Incentive Plan, Mr. Messina was
granted an award of 11,998 shares of restricted stock and each of
Messrs. Rennhack, Seery, and McGuirk and Ms. Califano were granted
awards of 6,000 shares of restricted stock on May 23, 1996, which
vest in three annual installments commencing May 23, 1997. The
dollar amounts in the table for 1996 are based upon the closing
market price of $14.3125 per share of Common Stock on December 31,
1996, as reported on the Nasdaq National Market System.
(5) Includes options awarded under the Company's Incentive Option
Plan and the 1996 Stock Incentive Plan. For a discussion of the
terms of the grants and vesting of options, see footnote
accompanying Fiscal Year End Option/SAR Values Table.
(6) The Company does not maintain long-term incentive plans, and
therefore, there were no payments under such plans for fiscal 1997,
1996 or 1995.
(7) Amounts represent life insurance premiums paid by the Bank
with respect to Messrs. Messina, Rennhack, Seery and McGuirk and
Ms. Califano. Amounts for 1997 include the dollar value of an
allocation of Common Stock made to the named executive officer's
account under the ESOP during 1997, with respect to the plan year
ending December 31, 1996. Based on the closing market price of the
Common Stock on December 31, 1996 of $14.3125 per share, the market
value of such allocation was $26,067, $25,964, $23,169, $24,651 and
$25,146 with respect to Messrs. Messina, Rennhack, Seery, and
McGuirk and Ms. Califano. The allocations to be made under the ESOP
for the plan year ending December 31, 1997 have not yet been
determined. The Bank made no matching contributions to the
Employee Thrift Savings Plan on behalf of the named executive
officers in 1995. Matching contributions resumed for the Employee
Thrift Savings Plan on July 1, 1996. The matching contributions
for 1996 for Messrs. Messina, Rennhack, Seery, McGuirk and Ms.
Califano were $1,260, $2,386, $1,065, $2,364 and $2,441. The
matching contributions for 1997 for Messrs. Messina, Rennhack,
Seery, McGuirk and Ms. Califano were $4,750, $4,750, $4,475,
$4,750 and $4,750.
Employment Agreement. The Company entered into an employment
agreement with Mr. Messina, effective as of September 21, 1995,
which was amended as of May 28, 1997 ("Company Employment
Agreement"). In addition, the Bank entered into an employment
agreement with Mr. Messina, effective as of May 28, 1997 ("Bank
Employment Agreement"). The Company Employment Agreement and the
Bank Employment Agreement (collectively, the "Employment
Agreements") are intended to clarify the terms of Mr. Messina's
employment and to ensure the Company and the Bank of his continued
<PAGE>
availability with a minimum of personal distraction in the event of
a proposed or threatened change in control of the Company or the
Bank. The continued success of the Company and the Bank depends to
a significant degree on Mr. Messina's skills and competence.
The Company Employment Agreement provides for a five-year term, and
beginning on the second anniversary of its effective date,
automatically extends for one day each day, such that the term is
always three years, until either the Board of Directors or Mr.
Messina provides written notice to the other party of an intention
not to extend the term of the employment agreement, at which time
the remaining term of the agreement will be fixed at three years
from the date of written notice. The Bank Employment Agreement
provides for an initial term of three years, beginning on the date
of the agreement. On or about September 23, 1997 and on each
anniversary of such date thereafter, the Bank's Board of Directors
shall review the terms of this agreement and the performance of the
executive and may, in the absence of the executive's objection,
approve an extension of the employment agreement to the third
anniversary of such date. Accordingly, at a meeting held in
September 1997, the Board of Directors extended the employment
agreement to September 23, 2000. The Employment Agreements
provide that Mr. Messina will receive an aggregate base salary from
the Company and the Bank at an initial annual rate of $475,000,
which will be reviewed annually by the Boards of Directors.
In addition to base salary, the Employment Agreements provide for,
among other things, disability pay, participation in stock plans
and other employee benefit plans, fringe benefits applicable to
executive personnel and supplemental retirement benefits to
compensate the executive for the benefits that he cannot receive
under the Company's and the Bank's tax-qualified employee benefit
plans due to the limitations imposed on such plans by the Internal
Revenue Code of 1986 (the "Code"). The Employment Agreements also
provide that the Company and the Bank will indemnify Mr. Messina
during the term of the Employment Agreements and for a period of
six years thereafter against any costs, liabilities, losses and
exposures for acts and omissions in connection with his service as
an officer or director, to the fullest extent allowable under
federal and Delaware law.
The Employment Agreements provide for termination of the executive
by the Company or the Bank for cause at any time. Under the
Company Employment Agreement, in the event the Company chooses to
terminate the executive's employment for reasons other than for
cause or for disability, or in the event of the executive's
resignation from the Company following: (i) a failure to re-elect
or re-appoint the executive to his current offices; (ii) a material
change in the executive's functions, duties or responsibilities;
(iii) a relocation of his principal place of employment; (iv) a
material reduction in his compensation, benefits or perquisites; or
(v) a "Change in Control" as defined in the agreement, the
executive or, in the event of his death, his estate, would be
entitled to a payment equal to the salary payable or due during the
remaining term of the employment agreement, the other cash
compensation and benefits that would have been accrued or received
<PAGE>
by the executive if he had remained employed by the Company during
the remaining unexpired term of the employment agreement and
continued life, health, dental, accident and disability insurance
coverage for the remaining unexpired term of the employment
agreement. In the event that the executive's termination occurs
following a Change in Control, the insurance coverage described
above shall be provided for the executive's lifetime and he shall
also be entitled to receive continued fringe benefits and
perquisites for the remaining unexpired term of the employment
agreement and a payment equal to the difference between the value
of his normal and supplemental retirement benefits and an unreduced
early retirement benefit commencing at age 55. Payments made to
Mr. Messina under the Company Employment Agreement upon a change in
control may result in an "excess parachute payment" as defined
under Section 280G of the Code, which may result in the imposition
of an excise tax on Mr. Messina and a denial of a deduction for
such excess amounts for the Company. Under the Company Employment
Agreement, the Company would indemnify Mr. Messina for any such
excise taxes, and any additional income, employment and excise
taxes imposed as a result of such indemnification. The estimated
value of Mr. Messina's Company Employment Agreement in the event of
his termination of employment following a Change in Control is
approximately $4,966,000 based upon certain assumptions regarding
the timing and structure of such a transaction.
Under the Bank Employment Agreement, in the event the Bank chooses
to terminate the executive's employment for reasons other than for
cause or disability, or in the event of the executive's resignation
from the Bank following (i) a failure to re-elect or re-appoint the
executive to his current offices; (ii) a material change in the
executive's functions, duties or responsibilities; (iii) a
relocation of his principal place of employment; (iv) a material
reduction in his compensation, benefits or perquisites; or (v) a
Change in Control followed by the executive's demotion, loss of
title or significant authority or responsibility, relocation or
exclusion from compensation or benefit programs, the executive, or,
in the event of his death, his estate, would be entitled to the
same type of severance payments and benefits provided for under the
Company Employment Agreement, but not in excess of three times his
average annual compensation for the preceding five calendar years.
The Company Employment Agreement provides that the Company
guarantees the payment of any benefits and compensation due to Mr.
Messina under the Bank Employment Agreement and that amounts
payable under the Company Employment Agreement will be reduced to
avoid duplication of amounts payable under the Bank Employment
Agreement.
Change in Control Agreements. For similar reasons as with the
Company and Bank Employment Agreements with Mr. Messina, the Bank
and the Company have entered into change in control agreements with
Messrs. Rennhack, Seery and McGuirk and Ms. Califano. Each change
in control agreement with the Bank provides for a two-year term,
and commencing on the first anniversary of the date of the
agreement and continuing on each anniversary thereafter, the
agreement may be extended by the Board of Directors of the Bank for
<PAGE>
an additional year such that the remaining term of the Bank's
change in control agreement shall be two years. Each change in
control agreement with the Company provides for a three-year term
which automatically extends for one day each day, such that the
term will always be three years, until either the Board of
Directors of the Company or the executive provides written notice
of an intention not to extend the term of the agreement. Each
change in control agreement provides that at any time following a
"Change in Control" (as defined in the agreements) of the Company
or the Bank, if the Company or the Bank terminates the employee's
employment for any reason other than cause or, in the case of the
Bank's change in control agreements, if the employee voluntarily
resigns following demotion, loss of title, office or significant
authority, a reduction in compensation, or a relocation of the
employee's principal place of employment and, in the case of the
Company's change in control agreements, if the employee resigns
without regard as to whether a change in status, compensation or
working conditions or location has occurred, then the employee or,
in the event of death, the employee's beneficiary would be entitled
to receive a payment equal to the salary, bonus and benefits, and
perquisites in the case of the Company's agreements, that the
employee would have accrued or received if employment continued for
the remaining unexpired term of the agreement. The change in
control agreements with the Company provide that the Company would
indemnify the executive for any excise taxes imposed on "excess
parachute payments" deemed made to the executive under Section 280G
of the Code and for any additional income, employment and excise
taxes imposed as a result of such indemnification. Payments to be
made under the Company's change in control agreement with an
executive will be offset by any payments to be made under the
Bank's change in control agreement with such executive. Payments
to the executive under the Bank's change in control agreement are
guaranteed by the Company if payments or benefits are not paid by
the Bank. The estimated value of the change in control agreements
in the event of the executives' termination of employment following
a Change in Control is approximately $1,229,000, $1,277,000,
$1,290,000, and $1,268,000 for Messrs. Rennhack, Seery and McGuirk
and Ms. Califano, respectively, based upon certain assumptions
regarding the timing and structure of such a transaction.
Incentive Stock Option Plan and 1996 Stock Incentive Plan. The
Company maintains the Incentive Stock Option Plan and the 1996
Stock Incentive Plan, which provide discretionary awards to
officers and key employees as determined by a committee of
disinterested directors who administer the plans. For a
description of the 1996 Stock Incentive Plan and the proposed
amendment to the 1996 Stock Incentive Plan, see "Proposal 2 -
Approval of the Amendment to the Haven Bancorp, Inc. 1996 Stock
Incentive Plan."
The following table provides certain information with respect to
the number of shares of Common Stock represented by outstanding
options held by the Named Executive Officers as of December 31,
1997. Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any
such existing stock options and the year-end price of the Common
<PAGE>
Stock.
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs Money Options/SARs at Fiscal
at Fiscal Year End (#) Year End ($)(1)
------------------------- ----------------------------
Shares Acquired Value
on Exercise Realized
Name (#) $ Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip S. Messina -- -- 169,364 41,170 2,796,625 385,969
Joseph W. Rennhack -- -- 109,250 15,170 1,850,255 142,219
Thomas J. Seery -- -- 67,096 15,170 1,112,560 142,219
Gerard H. McGuirk -- -- 53,534 16,658 736,425 168,259
Catherine Califano -- -- 53,534 16,658 736,425 168,259
</TABLE>
(1) Messrs. Messina, Rennhack, Seery and McGuirk and Ms. Califano
have 148,780, 101,666, 59,512, 7,438 and 7,438 options with an
exercise price of $5.00. In addition Mr. McGuirk and Ms. Califano
have 40,000 options with an exercise price of $8.47. Messrs.
Messina, Rennhack, Seery and McGuirk and Ms. Califano also have
61,754, 22,754, 22,754, 22,754, and 22,754 options with an exercise
price of $13.125. As of December 31, 1997 the closing price of the
common stock was $22.50.
Defined Benefit Plan. The Bank maintains the CFS Bank Retirement
Income Plan, a non-contributory defined benefit pension plan
("Retirement Plan").
Retirement Plan Table. The following table indicates the annual
retirement benefit that would be payable as of December 31, 1997
under the Retirement Plan upon retirement at age 65 to a
participant electing to receive his retirement benefit in the
standard form of benefit (single life annuity), assuming various
specified levels of average annual compensation and various
specified years of credited service.
<TABLE>
<CAPTION>
Average 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Annual of Credited of Credited of Credited of Credited of Credited of Credited
Compensation Service Service Service Service Service Service(1)
------------ ----------- ----------- ----------- ----------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C>
$125,000 24,345 36,518 48,690 60,863 73,036 73,036
150,000 29,595 44,393 59,190 73,988 88,786 88,786
160,000 31,695 47,543 63,390 79,238 95,086 95,086
175,000(2) 34,845 52,268 69,690 87,113 104,536 104,536
200,000(2) 40,095 60,143 80,190 100,238 120,286 120,286
300,000(2) 61,095 91,643 122,190 152,738 183,286(3) 183,286(3)
400,000(2) 82,095 123,143 164,190 205,238(3) 246,286(3) 246,286(3)
500,000(2) 103,095 154,643 206,190(3) 257,738(3) 309,286(3) 309,286(3)
</TABLE>
(1) Maximum amount of service credited for purposes of the
Retirement Plan is 30 years.
(2) The annual retirement benefits shown in the table reflect a
deduction for Social Security benefits and are not subject to
further deduction. The compensation covered by the Retirement Plan
<PAGE>
is total annual compensation (as reflected in the Summary
Compensation Table) including all compensation reported by the Bank
for federal income tax purposes. The benefits shown corresponding
to these compensation ranges are hypothetical benefits based upon
the Retirement Plan's normal retirement benefit formula. Under
Section 401(a)(17) of the Code, for plan years beginning in 1994
through 1996, a participant's compensation in excess of $150,000
(as adjusted to reflect cost-of-living increases) was disregarded
for purposes of determining average annual earnings. This
limitation was increased to $160,000 for plan years beginning in
1997. The amounts shown in the table include the supplemental
retirement benefits payable to Mr. Messina under his employment
agreement to compensate for the limitation on includible
compensation.
(3) These are hypothetical benefits based upon the Retirement
Plan's normal retirement benefit formula. The maximum annual
benefit permitted under Section 415 of the Code in 1996 is $120,000
and is $125,000 for 1997, or if higher, a member's current accrued
benefit as of December 31, 1982 (but not more than $136,425). The
$125,000 ceiling will be adjusted to reflect cost of living
increases in 1998 and succeeding years in accordance with Section
415 of the Code. The amounts shown in the table reflect the
supplemental retirement benefits payable to Mr. Messina under his
employment agreement to compensate for the limitation on annual
benefits.
The following table sets forth the years of credited service (i.e.,
benefit service) as of June 30, 1996 for each of the Named
Executive Officers.
Credited Service(1)
Years Months
----- ------
Philip S. Messina 32 2
Joseph W. Rennhack 28 5
Thomas J. Seery 21 11
Gerard H. McGuirk 2 11
Catherine Califano 3 1
(1) The Retirement Plan was frozen effective as of June 30, 1996
for a period of three years, at which time the status of the Plan
will be evaluated for reactivation.
Supplemental Executive Retirement Agreement. The Bank has entered
into an agreement to provide supplemental retirement benefits for
Mr. Worgul ("Executive"). The agreement is unfunded. As of
December 31, 1996, the Company has accrued the entire $1.2 million
liability under the unfunded agreement. All obligations arising
under the agreement are payable from the general assets of the
Bank. However, the Bank is responsible for the payment of premiums
on an insurance policy which would reimburse the Bank for the
payments due under the agreement in the event of the Executive's
death. The agreement provides for an annual retirement benefit of
$120,000 for 10 years after retirement upon reaching the normal
retirement age contained in the Retirement Plan. In the event of
<PAGE>
a change in ownership of the Bank after retirement but prior to the
payment of the entire benefit or in the event of the Executive's
death after retirement, any unpaid benefit shall be paid in a lump
sum to the Executive or the Executive's estate, respectively.
Transactions With Certain Related Persons. The federal banking
laws require that all loans or extensions of credit to executive
officers and directors must be made on substantially the same
terms, including interest rates and collateral, and follow
substantially the same credit underwriting procedures as those
prevailing at the time for comparable transactions with the other
persons and must not involve more than the normal risk of repayment
or present other unfavorable features. The Bank made a residential
mortgage loan on the home of Gerard H. McGuirk during 1997. The
loan was underwritten on substantially the same terms as those
prevailing at the time for a comparable transaction with employees
of the Bank. The Bank's personnel policy provides for an employee
discount of 1% on primary residential properties, which is
available to all full time employees completing one year of
service. Mr. McGuirk qualified for such employee discount.
Michael J. Levine, a director since 1996, has an equity interest in
a number of companies that had commercial real estate loans
outstanding with the Bank in 1997, which loans were made prior to
the time Mr. Levine became a director. The Board of Directors at
a meeting held December 17, 1997 approved extending the maturity of
one of the existing loans in which Mr. Levine has an equity
interest. The loan was extended for ten years at market interest
rates, with no additional funds advanced. The largest aggregate
outstanding balance of these loans in 1997 was approximately $27.8
million. Three such loans totalling approximately $8.5 million
were paid in full in 1997. At December 31, 1997 the aggregate
balance outstanding for all loans in which Mr. Levine has an equity
interest was approximately $19.2 million. Management expects all
but the recently extended loan to be paid in full by mid-year 1998.
A loan with an outstanding balance of $3 million was satisfied in
February 1998. The loans to such entities were made in the
ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and management
believes that such loans do not involve more than the normal risk
of collectibility or present other unfavorable features.
In addition, Mr. Levine and his wife have a 30% interest in a
company, which they acquired in February 1996, that owns a building
formerly occupied as a branch office of the Bank. The Bank closed
the office May 1997, subletting the space. The lease payments on
such property for 1997 was approximately $56,000.
Joseph A. Ruggiere, a director since 1979, is President of Ohlert-
Ruggiere, Inc. During 1997, Ohlert-Ruggiere was paid approximately
$73,000 in agency commissions for the sale of property, casualty
and liability insurance, and for services provided as a travel
agent. The Bank believes that these transactions were on terms
substantially similar to those available from non- affiliated
agents.
<PAGE>
William J. Jennings II, a director since 1996, is managing director
of Salomon Smith Barney, Inc., an investment banking firm that
performed services for the Company in 1997 in connection with
normal business transactions.
PROPOSAL 2.
AMENDMENT TO THE HAVEN BANCORP, INC.
1996 STOCK INCENTIVE PLAN
GENERAL INFORMATION IN CONNECTION WITH THE AMENDMENT TO THE 1996
STOCK INCENTIVE PLAN
Effective as of February 18, 1998, the Company has adopted, subject
to the approval by shareholders of the Company, an amendment
("Amendment") to the Haven Bancorp, Inc. 1996 Stock Incentive Plan
("Plan") to increase the number shares of Common Stock of the
Company ("Shares") that are available for issuance pursuant to the
Plan. The Plan was originally adopted by the Company and approved
by shareholders effective as of January 1, 1996. The Plan provides
for the grant of options to purchase Shares ("Options"), stock
appreciation rights ("SARs") and restricted stock awards ("Awards")
to certain officers, employees and outside directors. The
Amendment will not take effect, and no Options, SARs or Awards
grants relating to the additional number of Shares to be available
under the Plan thereunder will be effective, prior to the date of
shareholder approval ("Effective Date") of the Amendment. The Plan
is not subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The principal provisions of the Plan
and the Amendment are summarized below.
PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company
and its shareholders by providing current directors, officers and
employees of the Company and its affiliates with an incentive to
achieve corporate objectives, by attracting and retaining
directors, officers and employees of outstanding competence through
the award of equity interests in the Company, and by providing a
means for the payment of compensation earned under the Columbia
Federal Savings Bank Executive Incentive Compensation Plan in the
form of Options and Awards.
DESCRIPTION OF THE PLAN
Administration. The Compensation Committee of the Board of
Directors (or any successor committee) or such other committee as
the Board may designate ("Committee"), administers the Plan. Such
Committee is comprised of at least two directors of the Company,
and all directors on the Committee are "disinterested directors"
(as that term is defined under Section 16(b) of the Exchange Act
and the rules and regulations promulgated thereunder) who are not
currently and have not at any time during the immediately preceding
one-year period been an employee of the Company, the Bank or any
affiliates. The Committee determines, within the limitations of
the Plan, the officers and employees to whom Options or Awards will
<PAGE>
be granted, the number of shares subject to each Option or Award,
the terms of such Options and Awards (including provisions
regarding exercisability and acceleration of exercisability) and
the procedures by which the Options and Awards shall be exercised.
Options and Awards granted to directors under the Plan are by
automatic formula grant, and the Committee has no discretion over
such grants. Subject to certain specific limitations and
restrictions set forth in the Plan, the Committee has full and
final authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations, if any, relating to the Plan and to
make all determinations necessary or advisable for the
administration of the Plan. The costs and expenses of
administering the Plan will be borne by the Company and not charged
to any grant of an Option or Award nor to any participating
director, officer or employee.
Stock Subject to the Plan Under the Amendment. Under the Plan as
originally adopted, the Company reserved 210,000 Shares for current
and future issuance of Options and Awards. Pursuant to the Stock
Split, this number increased to 420,000. Under the Amendment, if
approved, an additional 400,000 Shares will be available for
issuance pursuant to Option and Awards. As of December 31, 1997,
the fair market value of a Share was $22.50 (as reported by the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ")). All Shares available under the Plan may be
authorized and unissued shares or shares previously issued and
reacquired by the Company. Any Shares subject to grants under the
Plan which expire or are terminated, forfeited or cancelled without
having been exercised or vested in full, shall again be available
for purposes of the Plan. The exercise of a SAR shall not be
treated as an exercise of the related Option.
Eligibility. Any employee of the Company and its affiliates who is
selected by the Committee is eligible to participate in the Plan as
an "Eligible Individual." Members of the Board or the board of
directors of the Bank who are not employees or officers of the
Company or Bank are eligible to participate in the Plan as an
"Eligible Director." As of January 1, 1998, the number of Eligible
Individuals and Eligible Directors was 29 and 8, respectively.
Terms and Conditions of Options. The Committee may, in its
discretion, grant Options to Eligible Individuals. The Committee
determines the number of Shares subject to an Option granted to an
Eligible Individual and the Exercise Price and Exercise Period
during which the Option may be exercised at the time of the grant,
and may establish a vesting schedule or other terms and conditions
applicable to the Option, in its discretion. The Exercise Period
will not exceed ten years from the date of the grant. On the
effective date of the adoption of the Plan, each Eligible Director
who was an Eligible Director on such date was granted a NQSO to
purchase 12,000 Shares. Such Options have an Exercise Price equal
to the fair market value of a Share on the date of grant and an
Exercise Period commencing with the earliest of: (a) the first
anniversary of the date the Option was granted, (b) the date of the
Eligible Director's Retirement (as defined in the Plan), and (c)
the date of a Change of Control of the Company (as defined in the
<PAGE>
Plan). The Exercise Period applicable to an Eligible Director's
Option will expire on the earliest of (i) the last day of the
one-year period commencing on the date he ceases to be an Eligible
Director, other than due to a termination for cause, (ii) the date
he ceases to be an Eligible Director due to a termination for
cause, and (iii) the last day of the ten-year period commencing on
the date the Option was granted. In the event an Eligible Director
ceases to be an Eligible Director prior to the commencement of the
Exercise Period, his Option will be forfeited.
Unless otherwise designated, Options granted under the Plan are
non-qualified stock options ("NQSOs"). All or part of an Option
granted under the Plan to an Eligible Individual may, at the
election of the Committee, be designated as an incentive stock
option ("ISO"), and the Exercise Price of such Option designated to
be an ISO will not be less than 100% of the Fair Market Value (as
defined in the Plan) of the Shares at grant; provided, however,
that if an ISO is granted to an employee who on the date of grant
is the owner of stock (determined under the ownership attribution
rules of Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of stock of the
Company or any affiliate, the Exercise Price of the ISO will not be
less than 110% of the Fair Market Value of the Shares on the date
of the grant, and the ISO will not have a term in excess of five
years from the date of the grant. In the event that all or any
portion of an Option designated as an ISO cannot be exercised as an
ISO in accordance with Section 422 of the Code, such Option or
portion thereof shall be treated as a NQSO.
Upon the exercise of an Option, the Exercise Price must be paid in
full. Payment may be made in cash or in such other consideration
as the Committee deems appropriate, including, but not limited to,
Shares already owned by the option holder or Shares to be acquired
by the option holder upon exercise of the Option, provided that the
delivery of Shares concurrently with the exercise of an Option does
not violate Section 16(b) of the Exchange Act, or any rules or
regulations promulgated thereunder.
Terms and Conditions of Stock Appreciation Rights. The Committee
may also grant SARs to Eligible Individuals which may or may not
relate to Options granted to the recipient, at any time, and
generally with such terms and conditions as the Committee may
determine in its discretion. An Eligible Director who has been
granted an Option pursuant to the Plan has also been granted an SAR
relating to all of the Shares subject to the Option, with same
Exercise Price and Exercise Period as the related Option, except as
provided below. In order to avoid adverse accounting treatment,
all SARs granted under the Plan may not become exercisable prior to
a Change of Control. In addition, all such SARs will contain such
conditions upon exercise (including, without limitation, conditions
limiting the time of exercise to be specified periods) as may be
required to satisfy applicable regulatory requirements, including
without limitation, Section 16(b) of the Exchange Act and the rules
and regulations promulgated thereunder. Upon exercise of a SAR,
the Eligible Individual will be entitled to receive an amount equal
to (a) the excess of the Change of Control Consideration (as
<PAGE>
defined in the Plan) over the Exercise Price per Share specified in
the SAR, multiplied by (b) the number of Shares with respect to
which the SAR is being exercised. Change of Control Consideration
is defined in the Plan as the greater of (i) the highest price per
Share paid by any person who initiated or sought to effect the
Change in Control during the one-year period ending on the date of
the Change in Control and (ii) the average Fair Market Value of a
Share over the last 10 trading days preceding the date of the
exercise of the SAR.
Dividend Equivalent Rights. The Committee, may, in its discretion,
also grant DERs relating to Options or SARs granted to Eligible
Individuals. Such DERs may provide for the current or deferred
payment of the cash or stock dividends that would have been paid on
Shares subject to an Option or SAR had they been outstanding, or
may provide for other methods of reflecting dividends paid on
outstanding Shares.
Terms and Conditions of Restricted Stock Awards. The Committee
may, in its discretion, grant Awards of restricted stock to
Eligible Individuals. The Committee determines the number of
Shares subject to an Award and the vesting schedule applicable to
an Award granted to an Eligible Individual at the time of grant,
and may establish other terms and conditions applicable to the
Award, in its discretion. On the effective date of the Plan and on
the first business day of each of the next four calendar years to
begin after such date, each Eligible Director is automatically
granted an Award of restricted stock in lieu of one-third of the
annual cash retainer such Eligible Director would otherwise receive
for the calendar year in which the Award is made. The number of
Shares subject to an Award made to an Eligible Director will be
determined by dividing the dollar value of one-third of the
Eligible Director's annual retainer by the Fair Market Value of a
Share on the date of the grant, disregarding any fractional Shares.
Awards granted to Eligible Directors will become vested six months
after the date of grant.
A stock certificate or stock certificates evidencing the Shares
granted pursuant to an Award are registered on Company's books in
the name of the recipient as of the date the Award is granted and
bear a legend restricting the transferability of such certificate
or certificates until vesting and referring to the terms,
conditions and other restrictions, including forfeiture, applicable
to such Shares. The Company retains physical possession or custody
of such certificates until such time as such Shares become vested.
Subsequent to the date Shares subject to an Award have been granted
and prior to the date such Shares have become vested and are
distributed, the Award recipient is entitled to vote the Shares and
to receive cash dividends declared and paid with respect to such
Shares. Any stock dividends declared and paid with respect to such
Shares are evidenced by a stock certificate or certificates
registered in the name of the Award recipient, retained in the
possession or custody of the Company, and made subject to the same
restrictions, terms and conditions as the Shares to which they
pertain. Such stock dividends become vested and are distributed at
the same time as the Shares to which they pertain. As soon as
<PAGE>
practicable following the vesting date of Shares subject to an
Award, the Company issues the Award recipient a stock certificate
evidencing his ownership of the Shares.
TERMINATION OR AMENDMENT OF THE PLAN
Unless sooner terminated, the Plan will terminate automatically on
the day preceding the tenth anniversary of the date the Plan was
adopted. The Board may suspend or terminate the Plan in whole or
in part at any time prior to such date by giving written notice of
such suspension or termination to the Committee. In the event of
any suspension or termination of the Plan, all Options, Awards,
SARs and DERs theretofore granted under the Plan that are effective
on the date of such suspension or termination of the Plan will
remain effective under the terms of the agreements granting such
Options, Awards, SARs and DERs.
The Board may amend or revise the Plan in whole or in part at any
time; provided, however, that if the amendment or revision (1)
materially increases the benefits accruing under the Plan, (2)
materially increases the number of Shares which may be issued under
the Plan or (3) materially modifies the requirements as to
eligibility for Options, Awards, SARs or DERs under the Plan, such
amendment or revision will be subject to approval by the
shareholders of the Company. Subject to these above provisions,
the Board will also have broad authority to amend the Plan to take
into account changes in applicable securities and tax laws and
accounting rules, as well as other developments.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws,
regulations and policies affecting the Company and recipients of
Options, SARs and Awards that may be granted under the Plan. Any
descriptions of the provisions of any law, regulation or policy
contained herein are qualified in their entirety by reference to
the particular law, regulation or policy. Any change in applicable
law or regulation or in the policies of various taxing authorities
may have a material effect on the discussion contained herein. The
Plan does not constitute a qualified Plan under section 401(a) of
the Code.
With respect to the Options which may be granted under the Plan,
there are no federal income tax consequences for the Company or the
option holder at the date of the grant, provided that the Option is
not considered to have an ascertainable fair market value. Options
granted under the Plan would generally not be considered to have an
ascertainable fair market value. Upon exercise of an NQSO, the
difference between the fair market value of the Shares on the date
of exercise and the option price will be taxable as compensation
income to the option holder under sections 61 and 83 of the Code,
and the Company would be entitled to a deduction for federal income
tax purposes of the same amount. Upon a subsequent sale or
exchange of stock acquired pursuant to the exercise of an Option,
the option holder would have taxable gain or loss, measured by the
<PAGE>
difference between the amount realized on the disposition and the
tax basis of such shares. In the event that the Company grants an
ISO, the option holder generally will not recognize taxable income
either at the date of the grant or the date of exercise. At the
date of disposition of the underlying Shares, the such option
holder will recognize income at the capital gain rate on the
difference between the disposition proceeds and the Exercise Price
of the ISO. The Company is not normally entitled to a deduction
with respect to an ISO, unless the option holder makes a
"disqualifying disposition," whereupon the Company would receive a
deduction under section 162 of the Code in the year in which the
disqualifying disposition occurs.
In the case of SARs, upon exercise of a SAR, the SAR holder would
have to include the amount paid to him upon exercise in his gross
income for federal income tax purposes in the year in which payment
is made, and the Company would be entitled to a deduction for
federal income tax purposes of the amount paid.
In the case of Awards, when Shares subject to Awards become vested
in accordance with the Plan, the recipients will recognize income
equal to the fair market value of the Shares at that time, and the
Company will ordinarily receive an expense deduction in the amount
of income recognized by the recipient.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Options,
SARs and Awards that may be granted under the Plan. State and
local tax consequences may also be significant. Participants are
advised to consult with their tax advisor as to the tax
consequences of the Plan.
NO CURRENT NEW PLAN BENEFITS
The Amendment is intended to increase the number of Shares
available for future grants by the Committee, or pursuant to the
formulas applicable to directors, of Options and Awards pursuant to
the Plan. It is anticipated that such grants will be made to
officers and employees by the Committee, in its discretion or to
directors pursuant to the formulas currently in effect under the
Plan. No such grants have been made to date. Therefore the
benefits or amounts to be received by directors, officers or
employees as a result of the Amendment are not determinable at this
time.
The approval of the amendment to the Haven Bancorp, Inc. 1996 Stock
Incentive Plan shall be determined by a majority of the votes cast.
Accordingly, abstentions will be counted as votes cast and will
have the effect of a vote against such proposal. Shares underlying
broker non-votes will not be counted as votes cast and will have no
effect on the vote for such proposal.
Unless marked to the contrary, the shares represented by the
enclosed Proxy, if executed and returned, will be voted FOR the
amendment to the Haven Bancorp, Inc. 1996 Stock Incentive Plan.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
1996 STOCK INCENTIVE PLAN.
PROPOSAL 3.
AMENDMENT OF THE CERTIFICATE
OF INCORPORATION OF HAVEN BANCORP, INC.
By resolution dated February 18, 1998, the Board of Directors
declared it advisable and in the best interests of the Company to
amend the Company's Certificate of Incorporation to increase the
number of shares of stock that the Company has the authority to
issue to an aggregate of 32,000,000 (thirty-two million) shares, of
which 30,000,000 (thirty million) shares would be Common Stock and
2,000,000 (two million) shares would be Preferred Stock, and
directed that the Certificate of Incorporation be submitted to a
vote of the stockholders at the Annual Meeting. If the proposal is
adopted, Article FOURTH, Section A of the Certificate of
Incorporation will be hereby amended to read as follows:
"FOURTH: A. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is thirty-two
million (32,000,000) consisting of:
1. Two million (2,000,000) shares of Preferred Stock, par value
one cent ($0.01) per share (the "Preferred Stock"); and
2. Thirty million (30,000,000) shares of Common Stock par value
one cent ($0.01) per share (the "Common Stock")."
The Certificate of Incorporation currently authorizes the issuance
of up to 12,500,000 shares, consisting of 10,500,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock. As of
December 31, 1997, the Company had 8,784,000 shares of Common Stock
outstanding due to the Stock Split declared on October 23, 1997 and
distributed on November 28, 1997 to holders of record as of October
31, 1997. No shares of Preferred Stock are outstanding. Because
of the Stock Split, the Company has nearly exhausted its existing
authorized Common Stock.
The Board of Directors believes that it is in the best interest of
the Company and its stockholders to increase the number of
authorized shares of Common Stock in order to have additional
shares available for issuance to meet various business needs as
they may arise and to enhance the Company's flexibility in
connection with possible future actions. These business needs and
actions may include stock dividends, stock splits, employee benefit
programs, corporate business combinations, funding of business
acquisitions, and other corporate purposes. The authorization of
additional shares of Common Stock pursuant to this proposal will
have no dilutive effect upon the proportionate voting power of the
present shareholders of the Company. However, to the extent that
shares are subsequently issued in connection with any corporate
action to persons other than the present shareholders, such
issuance could have a dilutive effect on the earnings per share and
voting powers of present shareholders. The Company would expect
that the dilutive effect on earnings per share would be relatively
<PAGE>
short-term in duration. In addition, although the issuance of
shares of Common Stock in certain instances may have the effect of
forestalling a takeover, the Board does not intend or view the
increase in authorized Common Stock as an anti-takeover measure.
The Company is not aware of any proposed or contemplated
transaction of this type, and this amendment to the Certificate of
Incorporation is not being recommended in response to any specific
effort of which the Company is aware to obtain control of the
Company. Although the Board periodically considers transactions
such as those listed above, it currently does not have plans to
issue any significant amount of such Common Stock, except as
reserved for issuance under the Company's stock option plans and
its stockholder rights plan.
The authorized shares of Common Stock and Preferred Stock in excess
of those currently issued will be available for issuance at such
times and for such purposes as the Board of Directors may deem
advisable without further action by the Company's stockholders,
except as may be required by applicable laws or regulations.
Adoption of the amendment to the Certificate of Incorporation
requires the affirmative vote of the holders of at least a majority
of the issued and outstanding shares of Common Stock entitled to
vote. Abstentions from voting on this amendment and broker non-
votes will have the effect as a vote against this proposal.
Unless marked to the contrary, the shares represented by the
enclosed Proxy, if executed and returned, will be voted FOR the
approval of the amendment to the Certificate of Incorporation of
the Company.
In connection with this proposal, the Company recommends that each
stockholder consider the financial statements of the Company as set
forth in the Company's 1997 Annual Report to Stockholders, a copy
of which is being furnished to each stockholder together with this
proxy statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 4.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended
December 31, 1997 were KPMG Peat Marwick LLP. The Company's Board
of Directors has reappointed KPMG Peat Marwick LLP to continue as
independent auditors for the Bank and the Company for the year
ending December 31, 1998, subject to ratification of such
appointment by the stockholders.
A representative of KPMG Peat Marwick LLP will be present at the
Annual Meeting, will be given an opportunity to make a statement if
so desired and will be available to respond to appropriate
questions from stockholders present at the Annual Meeting.
<PAGE>
Ratification of KPMG Peat Marwick LLP as independent auditors of
the Company requires the affirmative vote of a majority of the
votes cast. Abstentions will have the effect as a vote against
this proposal while broker non-votes will have no effect on the
vote for this proposal.
Unless marked to the contrary, the shares represented by the
enclosed Proxy, if executed and returned, will be voted FOR
ratification of the appointment of KPMG Peat Marwick LLP as the
independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF
THE COMPANY.
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement and proxy
relating to the Annual Meeting of Stockholders to be held in 1999,
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, not later than November 17, 1998. Any such proposal will
be subject to 17 C.F.R. Section 240.14a-8 of the Rules and Regulations
under the Exchange Act.
NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for
a stockholder to properly bring business before an Annual Meeting.
The stockholder must give written advance notice to the Secretary
of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the
event less than one hundred (100) days notice or prior public
disclosure of the date of the Annual Meeting is given or made to
stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day
following the date on which the Company's notice to stockholders of
the Annual Meeting date was mailed or such public disclosure was
made. The advance notice by stockholders must include the
stockholder's name and address, as they appear on the Company's
record of stockholders, a brief description of the proposed
business, the reason for conducting such business at the Annual
Meeting, the class and number of shares of the Company's capital
stock that are beneficially owned by such stockholder and any
material interest of such stockholder in the proposed business. In
the case of nominations to the Board of Directors, 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.
<PAGE>
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING
The Board of Directors knows of no business which will be presented
for consideration at the Annual Meeting other than as stated in the
Notice of Annual Meeting of Stockholders. If, however, other
matters are properly brought before the Annual Meeting, it is the
intention of the persons named in the accompanying proxy to vote
the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you
are urged to return your proxy card promptly. If you are present at
the Annual Meeting and wish to vote your shares in person, your
proxy may be revoked in writing and you may vote your shares at the
Annual Meeting.
A copy of the Form 10-K (without exhibits) for the year ended
December 31, 1997, as filed with the Securities and Exchange
Commission, will be furnished without charge to stockholders of
record upon written request to Haven Bancorp, Inc., Mr. Joseph W.
Rennhack, Senior Vice President and Secretary, 93-22 Jamaica Ave.,
Woodhaven, New York 11421.
By Order of the Board of Directors,
Joseph W. Rennhack
Secretary
Woodhaven, New York
March 18, 1998
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 CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
