<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1997
------------------
LONG ISLAND BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3198508
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
201 OLD COUNTRY ROAD, MELVILLE, NEW YORK 11747-2724
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 547-2000
--------------
(Registrant's telephone number, including area code)
0-23526
-------
(Commission File Number)
______________
(Securities registered pursuant to Section 12(b) of the Act)
COMMON STOCK $.01 PAR VALUE
--------------------------------------------------
(Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES X NO
--- ---
The aggregate market value of voting stock held by non-affiliates of the
registrant as of October 31, 1997: Common Stock par value $.01 per share,
$988,122,367.
This figure is based on the closing price on the Nasdaq National Market for
a share of the registrant's common stock on October 31, 1997, which was $44.50
as reported in the Wall Street Journal on November 3, 1997. The number of
shares of the registrant's Common Stock outstanding as of October 31, 1997 was
24,024,095 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on February 17, 1998 and the Annual Report to
Stockholders for fiscal 1997 are incorporated herein by reference - Parts II and
III.
<PAGE>
CROSS REFERENCE INDEX
PART I
PAGE
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 39
Item 4. Submission of Matters to a Vote of Security Holders. . . . 40
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . 40
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . 40
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 40
Item 8. Financial Statements and Supplementary Data. . . . . . . . 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . 41
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . 41
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 41
Item 13. Certain Relationships and Related Transactions . . . . . . 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 43
2
<PAGE>
PART 1
ITEM 1. BUSINESS
General
Long Island Bancorp, Inc. ("Holding Company") was incorporated in the State of
Delaware in December 1993 at the direction of the Board of Directors of The Long
Island Savings Bank, FSB ("Bank") for the purpose of becoming a holding company
to own all of the outstanding capital stock of the Bank upon its conversion from
a mutual to a stock form of organization. The mutual-to-stock conversion was
completed on April 14, 1994. In connection with the conversion the Holding
Company issued 26,040,214 shares of common stock ("Common Stock") at a price of
$11.50 per share to the Bank's depositors and its tax-qualified employee stock
benefit plans, and an additional 776,250 shares to the Bank's Management
Recognition and Retention Plans ("MRP's"). The Holding Company realized net
proceeds of $264.2 million from the sale of its Common Stock and utilized
approximately $164.0 million to purchase 100% of the issued and outstanding
shares of the Bank's common stock.
The primary business of the Holding Company is the operation of its wholly owned
subsidiary, the Bank. In addition, the Bank and the Holding Company
(collectively "the Company") invest its funds in U.S. government and federal
agency securities, investment grade preferred stock and federal funds. In the
future, the Holding Company may acquire or organize other operating
subsidiaries, including other financial institutions.
The information presented in the financial statements and in this Form 10-K
reflect the financial condition and results of operations of the Company on a
consolidated basis. At September 30, 1997, the Company had total assets of $5.9
billion.
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, from time to time depending on market
conditions, the Bank will invest in mortgage-backed and asset-backed securities
to supplement its lending portfolio. The Bank also invests, to a lesser extent,
in multi-family residential mortgage loans, commercial loans, consumer loans,
small business loans and other marketable securities. Revenues are derived
principally from interest on real estate and other loans, mortgage-backed and
other debt securities, and dividends on investment securities. Primary sources
of funds are deposits, borrowings and principal and interest payments on loans
and mortgage-backed securities.
Market Area and Competition
The Bank historically has operated as a consumer-oriented community institution
primarily engaged in attracting deposits from the general public and investing
such deposits and other available funds in mortgage loans secured by one-to-four
family dwellings and mortgage-backed securities. At September 30, 1997 the Bank
conducted its business through 35 full service banking offices and 22 regional
lending centers. Based on data published by the Federal Deposit Insurance
Corporation ("FDIC") as of June 1996 (the latest available data) the Bank is the
fourth largest institution in terms of deposits in Suffolk County with a 7.4%
market share, in Queens County, the Bank is ranked sixth with a 3.4% market
share and in Nassau County, the Bank is ranked tenth with a 3.5% market share.
Management considers the Bank's reputation and quality customer service as its
major competitive advantages in attracting and retaining customers in its market
areas. In this respect, the Bank has performed extensive market research
studies which are designed to identify the specific products and services
required to serve each local community. In order to better serve its customers,
the Bank has installed automated teller machines ("ATMs") in a majority of its
offices and other locations and has enhanced its computer technologies to
facilitate, among other things, the integration of the Bank's efforts to deliver
insurance and securities products, traditional deposit products and all lending
products.
When ranked against all Metropolitan Statistical Areas in the nation, based on
FDIC published data as of June 1996, the Queens, Nassau, and Suffolk market area
served by the Bank is the fifth largest banking market in the United States
based on combined bank deposits. This market ranks among the top 5% in per
capita income and has the third highest population density. The high population
density in these areas allows the Bank to serve a large number of customers with
an efficient network of branches. Management believes that its branch offices
generally are located in communities that can be characterized as stable,
consisting of residential neighborhoods of predominantly one-to-four family
residences.
3
<PAGE>
During the last four years, unemployment and real estate values have been
relatively stable in New York, New Jersey and Connecticut ("New York
metropolitan area") which has had a corresponding impact on the Bank's asset
quality. In order to mitigate the Bank's potential exposure to a concentration
of credit risk in the New York metropolitan area, the Bank has extended its
lending operations into Georgia, Maryland, Pennsylvania, Virginia and North and
South Carolina. The following table sets forth the geographic distribution of
the Company's gross real estate loan portfolio, excluding home equity loans, at
September 30:
<TABLE>
<CAPTION>
% of % of % of
State 1997 Total 1996 Total 1995 Total
- ---------------------------------------- ------------ --------- ------------ --------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Connecticut ........................... $ 241,677 6.98% $ 135,704 4.58% $ 51,679 2.67%
Georgia ............................... 155,344 4.48 120,070 4.06 77,820 4.01
Maryland .............................. 353,872 10.22 226,599 7.65 65,643 3.39
New Jersey ............................ 275,621 7.95 167,406 5.66 93,165 4.81
New York .............................. 1,354,981 39.10 1,370,521 46.30 1,349,780 69.62
Pennsylvania .......................... 118,948 3.43 65,184 2.20 19,968 1.03
Virginia .............................. 299,909 8.65 180,732 6.11 80,477 4.15
Other states .......................... 665,049 19.19 693,984 23.44 200,381 10.32
---------- ------ ---------- ------ ---------- ------
Total gross real estate loans ...... $3,465,401 100.00% $2,960,200 100.00% $1,938,913 100.00%
---------- ------ ---------- ------ ---------- ------
---------- ------ ---------- ------ ---------- ------
</TABLE>
The New York 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 comes principally from savings and loan
associations, savings banks, commercial banks, mortgage banking companies and
insurance companies. The Bank's most direct competition for deposits has
historically come from savings and loan associations, savings banks and
commercial banks. In addition, the Bank faces increasing competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies that offer short-term money market funds, corporate and government
securities funds, mutual funds and annuities.
Lending Activities
LOAN PORTFOLIO COMPOSITION. Gross loans receivable, including loans held for
sale, comprised 61.85% of total assets at September 30, 1997. The Company's real
estate loan portfolio consists primarily of conventional first mortgage loans
secured by owner occupied one-to-four family residences and co-operative
apartment loans and, to a lesser extent, multi-family residences, second
mortgage loans, commercial real estate and construction and land loans. At
September 30, 1997, the Company had total real estate loans outstanding on one-
to-four family properties of $3.4 billion, or 91.66% of the Company's total
gross loans receivable, including $105.6 million, or 2.88%, of co-operative
apartment loans, $20.2 million, or 0.55%, of home equity loans and $4.0 million,
or 0.11%, of second mortgages. At that date, multi-family residential mortgage
loans totaled $45.3 million, or 1.24% of total gross loans receivable. The
remainder of the Company's real estate loans, which totaled $77.6 million, or
2.12% of total gross loans receivable at September 30, 1997, included $66.3
million of commercial real estate loans, or 1.81% of total gross loans
receivable, and $11.4 million of construction and land loans, or 0.31% of total
gross loans receivable. These amounts include $157.4 million of real estate
loans held for sale in the secondary market. Commercial and other loans, which
consisted principally of secured and unsecured lines of credit and other
consumer loans, totaled $182.9 million, or 5.00% of total gross loans receivable
at September 30, 1997. These amounts include $0.3 million of student loans held
for sale in the secondary market.
4
<PAGE>
The following table sets forth at September 30, 1997, the amount of all loans
due after September 30, 1998 and whether such loans have fixed or adjustable
rates.
<TABLE>
<CAPTION>
Due after September 30, 1998
-----------------------------------------
Adjustable Fixed
Rate Rate Total
----------- ------------ -----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One-to-four family (1).................. $2,776,525 $298,775 $3,075,300
Co-operative apartments (1)............. 78,785 26,647 105,432
Multi-family............................ 20,616 23,934 44,550
Commercial real estate.................. 41,552 22,859 64,411
Second mortgages........................ 3,930 44 3,974
Construction and land loans............. 4,053 --- 4,053
---------- -------- ----------
Total real estate loans............. 2,925,461 372,259 3,297,720
---------- -------- ----------
Commercial and other loans (2):
Commercial loans........................ 2,550 2,408 4,958
Property improvement.................... --- 7 7
Other consumer loans (3)................ 5,362 96,391 101,753
---------- -------- ----------
Total commercial and other loans.... 7,912 98,806 106,718
---------- -------- ----------
Total gross loans............................ $2,933,373 $471,065 $3,404,438
========== ======== ==========
</TABLE>
(1) Excludes $157.4 million of real estate loans held for sale.
(2) Excludes lines of credit that are payable on demand and are therefore
considered to be due within one year.
(3) Excludes student loans.
5
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- --------------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
---------- ----------- ---------- ----------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans (1):
One-to-four family..................... $3,232,856 88.12% $2,728,199 87.15% $1,687,952 80.94%
Home equity ........................... 20,171 0.55 18,564 0.59 18,115 0.87
Co-operative apartment ................ 105,599 2.88 114,609 3.66 128,423 6.16
Multi-family .......................... 45,324 1.24 34,883 1.12 35,708 1.71
Commercial real estate................. 66,266 1.81 69,625 2.22 72,393 3.47
Second mortgages ...................... 3,986 0.11 5,154 0.17 6,563 0.31
Construction .......................... 8,960 0.24 4,509 0.14 3,070 0.15
Land .................................. 2,410 0.07 3,221 0.10 4,804 0.23
---------- ------ ---------- ------ ---------- ------
Total real estate loans ................. 3,485,572 95.02 2,978,764 95.15 1,957,028 93.84
Commercial and other loans:
Commercial loans....................... 6,850 0.19 8,206 0.26 9,330 0.45
Property improvement .................. 7,087 0.19 9,028 0.29 11,131 0.53
Student (2)............................ 8,483 0.23 7,084 0.23 3,324 0.16
Loans on deposit accounts.............. 2,251 0.06 2,475 0.08 2,649 0.13
Lines of credit ....................... 57,350 1.56 55,292 1.77 59,746 2.86
Other consumer loans .................. 100,882 2.75 69,575 2.22 42,284 2.03
---------- ------ ---------- ------ ---------- ------
Total commercial and other loans ........ 182,903 4.98 151,660 4.85 128,464 6.16
---------- ------ ---------- ------ ---------- ------
Total loans receivable, gross ........... 3,668,475 100.00% 3,130,424 100.00% 2,085,492 100.00%
------ ------ ------
------ ------ ------
Purchase accounting discounts,
net ................................. (1,842) (2,727) (4,151)
Unearned premiums, discounts
and deferred loan costs (fees), net.. 8,959 5,021 (2,870)
---------- ---------- ----------
Loans receivable, net ................... 3,675,592 3,132,718 2,078,471
Allowance for possible loan
losses .............................. (33,881) (33,912) (34,358)
Allowance for market valuation
for loans held for sale in the
secondary market .................... --- --- ---
---------- ---------- ----------
Total loans receivable, net ............. $3,641,711 $3,098,806 $2,044,113
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
---------------------------------------------------------
1994 1993
---------------------------- ---------------------------
Percent Percent
of of
Amount Total Amount Total
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate loans (1):
One-to-four family..................... $1,236,778 73.35% $1,453,790 74.26%
Home equity ........................... 21,225 1.26 27,381 1.40
Co-operative apartment ................ 144,814 8.59 157,659 8.05
Multi-family .......................... 46,053 2.73 53,846 2.75
Commercial real estate................. 76,295 4.52 80,047 4.09
Second mortgages ...................... 7,894 0.47 10,565 0.54
Construction .......................... 2,392 0.14 8,153 0.42
Land .................................. 6,673 0.40 9,535 0.49
---------- ----- ---------- -------
Total real estate loans ................. 1,542,124 91.46 1,800,976 92.00
Commercial and other loans:
Commercial loans....................... 12,456 0.74 17,013 0.87
Property improvement .................. 13,335 0.79 17,104 0.87
Student (2)............................ 15,429 0.92 12,533 0.64
Loans on deposit accounts.............. 2,924 0.17 3,393 0.17
Lines of credit ....................... 63,102 3.74 67,258 3.44
Other consumer loans .................. 36,808 2.18 39,376 2.01
---------- ----- ---------- -------
Total commercial and other loans ........ 144,054 8.54 156,677 8.00
---------- ------ ---------- -------
Total loans receivable, gross ........... 1,686,178 100.00% 1,957,653 100.00%
------ ------
------ ------
Purchase accounting discounts,
net ................................. (5,994) (8,167)
Unearned premiums, discounts
and deferred loan costs (fees), net.. (5,667) (6,687)
---------- ----------
Loans receivable, net ................... 1,674,517 1,942,799
Allowance for possible loan
losses .............................. (35,713) (33,951)
Allowance for market valuation
for loans held for sale in the
secondary market .................... (28) ---
---------- ----------
Total loans receivable, net ............. $1,638,776 $1,908,848
---------- ----------
---------- ----------
</TABLE>
(1) These amounts include $157.4 million, $57.9 million, $49.3 million, $8.0
million and $38.4 million of real estate loans held for sale in the
secondary market at September 30, 1997, 1996, 1995, 1994 and 1993,
respectively. At September 30, 1993, this amount includes $110.0 million
of non-performing real estate loans included in the bulk sale of certain
loans and real estate owned ("Bulk Sale") of which $102.6 million were
one-to-four family loans, $3.8 million were commercial real estate loans,
$3.5 million were co-operative apartment loans and $0.1 million were land
loans.
(2) Includes $0.3 million, $0.1 million and $30,000 of student loans held for
sale in the secondary market at September 30, 1997,1996, and 1995,
respectively.
6
<PAGE>
The following table shows the contractual maturity of the Company's loan
portfolio at September 30, 1997. The table does not include prepayments or
scheduled principal amortization.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------------------------------------------------------
REAL ESTATE LOANS
---------------------------------------------------------------------
ONE TO CO-OP COMMERCIAL
FOUR HOME APT. SECOND MULTI- REAL
FAMILY (1) EQUITY LOANS (1) MORTGAGES FAMILY ESTATE
------------- ---------- --------- --------- ---------- --------
(IN THOUSANDS)
Amounts due:
<S> <C> <C> <C> <C> <C> <C>
Within one year.......................................... $ 353 $ 20,171 $ 5 $ 12 $ 774 $ 1,855
After one year:
One to three years...................................... 1,714 --- 209 51 3,035 9,860
Three to five years..................................... 14,914 --- 735 82 7,034 13,181
Five to 10 years........................................ 40,743 --- 2,463 2,386 12,880 20,344
Ten to 20 years......................................... 447,839 --- 54,786 1,343 18,718 20,056
Over 20 years........................................... 2,570,090 --- 47,239 112 2,883 970
----------- --------------------- --------- ----------- --------
Total due after one year............................... 3,075,300 --- 105,432 3,974 44,550 64,411
----------- ---------- ---------- --------- ----------- --------
Total amounts due...................................... $3,075,653 $ 20,171 $ 105,437 $ 3,986 $ 45,324 $66,266
=========== ========== ========== ========= =========== ========
Purchase accounting
discounts, net..........................................
Unearned discounts, premiums
and deferred loan fees, net.............................
Allowance for possible loan
losses..................................................
Loans receivable, net....................................
<CAPTION>
TOTAL
LAND COMMERCIAL OTHER LOANS
CONSTRUCTION LOANS LOANS LOANS (2) RECEIVABLE
------------ --------- ---------- ---------- ------------
Amounts due:
<S>
Within one year.......................................... $ 4,907 $ 2,410 $ 1,892 $ 65,810 $ 98,189
After one year:
One to three years...................................... 384 --- 3,865 28,437 47,555
Three to five years..................................... 3,669 --- --- 27,020 66,635
Five to 10 years........................................ --- --- --- 23,066 101,882
Ten to 20 years......................................... --- --- --- 6,276 549,018
Over 20 years........................................... --- --- 1,093 16,961 2,639,348
----------- --------- ---------- ---------- -------------
Total due after one year............................... 4,053 --- 4,958 101,760 3,404,438
----------- --------- ---------- ---------- -------------
Total amounts due...................................... $ 8,960 $ 2,410 $ 6,850 $ 167,570 3,502,627
=========== ========= ========== ==========
Purchase accounting
discounts, net.......................................... (1,842)
Unearned discounts, premiums
and deferred loan fees, net............................. 8,959
Allowance for possible loan
losses.................................................. (33,881)
-------------
Loans receivable, net.................................... $ 3,475,863
=============
</TABLE>
(1) Excludes $157.4 million of real estate loans held for sale.
(2) Excludes $8.5 million of student loans held for investment and sale.
7
<PAGE>
The following table sets forth the Company's loan originations and loan
purchases, sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans, net at beginning of period: $ 2,978,764 $ 1,957,028 $ 1,542,124
Originated:
One-to-four family (1).................. 2,159,671 1,395,388 640,164
Co-operative apartment.................. 5,899 3,072 3,143
Multi-family............................ 15,785 10,106 358
Commercial real estate.................. 10,111 9,915 9,528
Construction............................ 12,277 7,218 2,692
Land.................................... --- --- 1,000
Purchases(2)................................. 362,329 949,437 397,776
--------------- --------------- ----------------
Total real estate loans originated and
purchased...................... 2,566,072 2,375,136 1,054,661
Transfers to real estate owned............... (9,599) (10,001) (10,312)
Write-offs................................... (2,877) (3,869) (4,608)
Principal repayments......................... (615,959) (331,680) (202,509)
Sales of loans............................... (749,940) (649,064) (278,649)
Securitized loans............................ (680,889) (358,786) (143,679)
--------------- --------------- ----------------
At end of period(3).......................... $ 3,485,572 $ 2,978,764 $ 1,957,028
=============== =============== ================
Commercial and other loans, net:
At beginning of period....................... $ 151,660 $ 128,464 $ 144,054
Commercial and other loans originated........ 84,106 89,827 63,540
Purchases ................................... 18,190 --- ---
Write-offs................................... (4,039) (4,330) (5,015)
Principal repayments......................... (62,200) (59,416) (53,596)
Commercial and other loans sold.............. (4,814) (2,885) (20,519)
--------------- --------------- ----------------
At end of period(4).......................... $ 182,903 $ 151,660 $ 128,464
=============== =============== ================
</TABLE>
(1) Includes home equity loan advances for the fiscal years ended September 30,
1997, 1996, and 1995 in the amounts of $9.6 million, $6.6 million and $2.2
million, respectively.
(2) Composed predominantly of one-to-four family loans.
(3) Includes $157.4 million, $57.9 million, and $49.3 million of real estate
loans held for sale in the secondary market at September 30, 1997, 1996 and
1995, respectively.
(4) Includes $0.3 million, $0.1 million and $30,000 in student loans held for
sale in the secondary market at September 30, 1997, 1996 and 1995,
respectively.
ONE-TO-FOUR FAMILY MORTGAGE LENDING. The Bank offers both fixed rate and
adjustable rate mortgage ("ARM") loans primarily secured by one-to-four family,
owner occupied residences. Prior to 1995, the majority of such loans were
secured by properties located in Queens, Nassau and Suffolk counties. During
fiscal 1995 and 1996, the Bank expanded its retail production offices into the
states of Pennsylvania, Delaware, Maryland, North Carolina, Virginia and
Georgia, while continuing to originate loans through its New York, New Jersey
and Connecticut offices. Loan originations are generally obtained from
existing or past customers, members of local communities, mortgage bankers,
mortgage brokers, real estate agents and attorney referrals. The Bank also
operates a national correspondent lending program to purchase, from mortgage
bankers, loans secured by owner occupied one-to-four family residences. The
program is designed to expand the Bank's mortgage portfolio and reduce the risks
associated with geographic concentrations. The Bank also accepts loan
application information through its telemarketing operations. Generally, the
Bank's underwriting guidelines conform to Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") guidelines.
8
<PAGE>
The Bank generally originates one-to-four family residential mortgage loans in
amounts up to 80% of the lower of the appraised value or selling price of the
property securing the loan. One-to-four family mortgage loans are also
originated with loan-to-value ratios of up to 100% of the appraised value of the
mortgaged property; however, private mortgage insurance is required whenever
loan-to-value ratios exceed 80% of the appraised value of the property securing
the loan. The majority of the loans originated conform to FNMA and FHLMC loan
limits for one-to-four family residences, however, loans may be originated for
amounts up to $1.5 million.
During the 1986 to 1989 period, the Bank originated a significant number of
one-to-four family mortgage loans without verification of the borrower's
financial condition or employer verification of the borrower's level of income
if the borrower's financial condition and stated income was considered
reasonable for the employment position held ("low documentation loans"). The
Bank has experienced higher delinquency and default rates on such loans, as
compared to fully underwritten one-to-four family loans, and in recognition
thereof, discontinued the origination of low documentation loans in 1990. From
time to time, on a selective basis, the Bank originates loans that involve
limited verification of the borrower's level of income or financial condition
("limited documentation loans"). All such limited documentation loans are
intended to conform to secondary market investor guidelines.
The Bank offers fixed rate one-to-four family residential, condominium and
co-operative unit loans up to the FNMA and FHLMC limits. In addition, fixed
rate loans in principal amounts above the FNMA and FHLMC limits are offered in
amounts conforming to the limits permitted by various investors to whom the
loans are intended to be sold. Interest rates charged on fixed rate loans are
competitively priced based on market conditions and the Bank's cost of funds.
The terms of these loans are a maximum of 30 years. Origination fees are
generally charged; however, the Bank offers loans with higher or lower fees
depending on the interest rates to be charged.
The Bank originates most fixed rate loans for immediate sale to FNMA, FHLMC or
other investors. There is approximately a one month delay between funding and
the sale of the loans. The total real estate loans held for sale aggregated
$157.4 million at September 30, 1997. The Bank arranges for the sale of such
loans at the time the loan application is received through best effort and
mandatory delivery commitments and, on a regular basis, determines whether it is
best to retain or sell the servicing rights. For the year ended September 30,
1997, the Bank sold real estate loans totaling $749.9 million, 47.84% of which
were sold on a servicing released basis in order to take advantage of market
prices for loan servicing.
The Bank offers a variety of ARM loans with maximum loan terms of up to 40
years, except for co-operative apartment loans which have a maximum loan term of
30 years. These loans adjust periodically and are indexed to a specific
Treasury Bill rate, plus a margin. These loans typically carry an initial
interest rate below the fully-indexed rate for the loan. The Bank qualifies
borrowers at the second year rate with a minimum qualification interest rate
equal to the then applicable FNMA standard on one year ARM loans. All other ARM
loans are underwritten at the initial start rate. The initial discounted rate
is determined by the Bank in accordance with market and competitive factors.
Generally, the ARM loans adjust by a maximum of 2% for each rate adjustment
period with a lifetime cap of 5% - 6% over the initial rate. Accordingly, if
interest rates and the resulting cost of funds increase in a rapidly increasing
interest rate environment, it is possible for the interest rate increase to
exceed the cap levels on these loans and negatively impact net interest income.
Origination fees and points of up to 3% may be charged for 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. However, this potential risk is
lessened by the Bank's policy of originating ARM loans with annual and lifetime
interest rate caps that limits the increase of a borrower's monthly payment.
The Bank has correspondent loan agreements with select mortgage bankers who
originate loans throughout the United States. The Bank purchased 647 loans
amounting to $134.8 million of residential one-to-four family conforming and
jumbo loans through its correspondent mortgage originators in the fiscal year
ended September 30, 1997. Such loans are underwritten to the Bank's standards.
These loans are primarily from outside the Bank's core franchise area. The
strategy of utilizing correspondent mortgage originators is to develop and
maintain multiple distribution channels, to increase geographic diversity and to
improve the stability of interest income.
SECOND MORTGAGE LOANS. As of September 30, 1997, the balance of such loans is
predominantly one-to-four family loans, and was $4.0 million, or 0.11% of total
gross loans. This category has been steadily decreasing since September 30,
1992, when such loan balances were $14.0 million, or 0.49% of total loans.
HOME EQUITY LOANS. Home equity lines of credit are included in the Bank's
portfolio of real estate loans. These loans are offered as prime rate indexed
loans on which interest only is due for an initial term of ten years and
thereafter principal and
9
<PAGE>
interest payments sufficient to liquidate the loan are required for the
remaining term, not to exceed 15 years. These loans are made on one-to-four
family residential and condominium units, generally owner-occupied and subject
to an 80% combined loan-to-value ratio including prior liens or up to 90% if
private mortgage insurance is obtained. They are granted in amounts from
$50,000 to $300,000 with an aggregate maximum of $1,000,000. The underwriting
standards for home equity loans are generally the same as those for one-to-four
family mortgages. At September 30,1997, the Company had $20.2 million of home
equity loans, or 0.55% of total gross loans.
MULTI-FAMILY LENDING. The Bank originates multi-family loans with contractual
terms of up to 25 years with interim rate adjustments. These loans are
generally secured by apartment or co-operative buildings and mixed-use (business
and residential) properties, located in the Bank's primary market area and are
originated 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 type
and location of the property, the net income generated by the real estate to
support the debt service, the financial resources of the borrower, the
borrower's experience in owning or managing similar property, the marketability
of the property and the credit history of the borrowing entity. The Bank
generally requires a debt service coverage ratio of at least 1.15x and may
require personal guarantees from borrowers depending upon the loan-to-value
ratio for the loan and the type of project. As of September 30, 1997, $45.3
million, or 1.24% of the Company's total gross loan portfolio consisted of
multi-family residential loans. At September 30, 1997, the Company's largest
multi-family loan had an outstanding balance of $3.7 million and was secured by
an 11 story apartment and office complex.
COMMERCIAL REAL ESTATE LENDING. The Bank originates commercial real estate
loans secured by properties such as retail stores, office buildings and
industrial buildings located in the Bank's primary market area. The Bank's
commercial real estate loans are generally made in amounts up to 75% of the
appraised value of the property. 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 1.15x and may require personal guarantees from the
borrowers or the principals of the borrowing entity. At September 30, 1997, the
Company's commercial real estate loan portfolio totaled $66.3 million, or 1.81%
of the Company's total gross loan portfolio. At September 30, 1997, the
Company's largest commercial real estate loan relationship had an aggregate
outstanding balance of $14.2 million, including $2.6 million of unsecured
commercial debt, and was secured primarily by various commercial real estate
properties which are occupied by retail establishments.
CONSTRUCTION AND LAND LENDING. The Bank's construction loans primarily have
been made to finance the construction of one-to-four family residential
properties and, to a lesser extent multi-family and commercial properties.
Construction and land development loans may be made in amounts up to 75% of the
value as completed. The Bank generally requires personal guarantees of the
borrowers and an indication that the borrower has sufficient equity in the
project. Construction loans generally are made with adjustable rates with
varying terms. Loan proceeds are disbursed in increments as construction
progresses and as inspections warrant. As of September 30, 1997, the Company
had $11.4 million, or 0.31% of its total gross loan portfolio invested in
construction and land loans. At September 30, 1997, the Company's largest
construction and/or land loans relationship had an aggregate outstanding balance
of $4.8 million and was secured by the underlying land and subsequent
improvements.
COMMERCIAL AND OTHER LOANS. The Bank offers a wide variety of other secured and
unsecured loans. As of September 30, 1997 commercial and other loans totaled
$182.9 million or 4.98% of the Company's total gross loan portfolio. The Bank
has de-emphasized its commercial loan portfolio since 1990, which has resulted
in a reduction in the balance of these loans to $6.9 million at September 30,
1997 from $17.0 million at September 30, 1993. The largest component of other
loans is the Bank's line of credit products, including unsecured fixed rate and
prime rate based revolving credit lines, which are granted up to a maximum
amount of $25,000, a fixed rate overdraft checking line product, and a junior
home equity line of credit product for amounts from $10,000 to $50,000. The
terms for this product are similar to the home equity product, except that these
loans are subject to a 100% combined loan-to-value ratio. The Bank's tax
advantage installment loan product carries a fixed rate, is available for
amounts from $5,000 to $100,000 and is payable in terms of three to fifteen
years. Those loans that exceed $25,000 are subject to an 80% combined
loan-to-value ratio or higher if involved in private mortgage insurance or an
alternative lending program. Loans that do not fit the bank's approval criteria
are referred to Third Party Investors. Any loans approved by investors are
underwritten and closed by the bank and subsequently sold to the investors. At
September 30, 1997, balances of these credit line products totaled $57.4
million, or 1.56% of total gross loans. Property improvement loans are made up
to a maximum loan amount of $10,000 on an unsecured basis. The Bank also
purchases and originates new and used automobile loans, personal loans, passbook
savings loans and government-guaranteed student loans. The Bank is no longer
involved in the financing of auto leases. The underwriting standards employed by
the Bank for other
10
<PAGE>
loans include a determination of the applicants' payment history on other debts
and an assessment of the borrower's ability to meet payments on all of the
borrower's obligations. In addition to the credit worthiness of the applicant,
the underwriting process also includes a comparison of the value of the
security, if any, to the proposed loan amount. The Bank offers a Visa and
Mastercard credit card program on an agent bank basis to generate fee income.
The associated credit card receivables are assets of the credit card issuing
bank. The level of delinquencies in the Bank's other loan portfolio has
generally been within industry standards; however, there can be no assurance
that delinquencies will not increase in the future.
LOAN APPROVAL PROCEDURES AND AUTHORITY. All one-to-four family ARM loans under
$650,000 may be approved by designated mortgage department personnel. In
certain cases where loan amounts exceed predetermined levels and/or
loan-to-value ratios, loans must be approved by two or more authorized
individuals. Loans over $650,000 require approval by the Loan Committee of the
Board of Directors ("Loan Committee"). When loan approval is required before
the next regularly scheduled Loan Committee meeting ("interim Loan Committee
approval"), approval must be obtained from four predetermined designated
individuals. Loans reported to the Loan Committee will consist of any loan
approved as a result of the interim Loan Committee approval process plus loans
randomly selected by the internal audit department meeting particular criteria.
All one-to-four family fixed rate mortgage loans may be approved by a designated
underwriter up to the loan maximum as set forth by the investor guidelines.
All ARM loans and fixed rate mortgage loans greater than $350,000 made to
Directors, principal shareholders and related interests must be approved by the
Board of Directors. All loans made to Senior Vice Presidents and above must be
approved by the Board of Directors.
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
obtained. An appraisal of the real estate intended to secure the proposed loan,
if applicable, is required which is performed by either staff appraisers of the
Bank or by independent appraisers designated and approved by the Bank. The
Board of Directors annually approves the independent appraisers used by the Bank
and approves the Bank's appraisal policy. It is the Bank's policy to require
borrowers to obtain title insurance and hazard insurance on all real estate
first mortgage loans prior to closing. Hazard insurance is not required on
equity loans under $25,000 and title insurance is not required on equity loans
under $50,000. 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.
The above lending procedures also apply to commercial real estate and
multi-family loans with the exception of certain approval levels. Loans under
$100,000 may be approved by an approved officer and loans between $100,000 and
$300,000 must be approved by two approved officers. Loans over $300,000 must be
reported to the Loan Committee and loans over $350,000 must be approved by the
Loan Committee.
LOAN CONCENTRATIONS. As a result of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), 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 September 30, 1997, there were no borrowers who had loans, which when
aggregated in accordance with the applicable regulatory requirements, that
involved aggregate extensions of credit from the Bank exceeding its FIRREA
loans-to-one borrower limit of $73.1 million.
LOAN SERVICING. As part of its efforts to increase non-interest income, the
Company has placed additional emphasis on increasing its loan servicing
portfolio. At September 30, 1997 and 1996 loans aggregating $4.5 billion and
$3.7 billion, respectively, were being serviced for others. Management intends
to continue to emphasize loan servicing to generate revenues and believes that
the growth of the servicing portfolio will increase the level of loan servicing
fee income in future years. In this respect, during 1997 and 1996, the Bank
purchased mortgage servicing rights ("MSR's") in the amount of $4.1 million and
$15.2 million, respectively and in accordance with generally accepted accounting
principles, originated MSR's in the amount of $15.4 million and $6.0 million,
respectively.
11
<PAGE>
NON-PERFORMING ASSETS
Loans are considered non-performing if they are in foreclosure and/or are 90 or
more days delinquent (excluding those restructured loans that have been returned
to performing status after developing a satisfactory payment history, generally
six months). Loans, other than education loans, accrue interest until considered
doubtful of collection by management, but in no case beyond 90 days delinquent.
Consumer loans (other than education loans) are generally written off upon
becoming 120 days delinquent in the case of installment loans and 180 days in
the case of revolving credit lines. Delinquent interest on education loans
continues to accrue, however, since these loans are backed by a government
agency guarantee and all interest and principal is ultimately expected to be
received. Once management reaches a decision to place a loan on non-accrual
status, all delinquent previously accrued interest on such loan is reversed
against previously recorded income.
The Bank begins collection procedures with respect to mortgage loans by sending
a late notice when the loan is 15 days past due, and by the 17th day of
delinquency the matter is referred to the collection department for follow-up.
During the next 60 days, a series of collection letters are sent and staff
collectors attempt to make phone contact with the borrower. Formal written
demand for the arrears is then made. The Bank usually authorizes commencement of
a foreclosure action between 90 and 120 days after the default if the loan is
not brought current or has not entered into a mutually satisfactory
reinstatement arrangement with the borrower. The same collection procedures are
used for delinquent home equity loans.
The Bank's consumer loan collection procedures call for sending late notices by
the 15th day and then again on the 20th day of delinquency. The loan is referred
to the collection department by the 20th day if not brought current. Legal
action on installment loans is usually commenced if payments are not received
after the loan has been delinquent for 120 days. Delinquent revolving credit
accounts involve similar procedures, except that legal action is usually
commenced after 180 days.
The level of non-performing residential property loans is also affected by the
Bank's loan restructuring activities. Where borrowers have encountered hardship,
but are able to demonstrate to the Bank's satisfaction an ability and
willingness to resume regular monthly payments, the Bank seeks to provide them
with an opportunity to restructure their loans. Where successful, these
restructurings avoid the cost of completing the foreclosure process, as well as
any losses on acquisition of the properties and the costs of maintaining and
disposing of real estate owned.
The Bank returns restructured residential loans that have complied with the
terms of their restructure agreement for a satisfactory period (generally six
months) to performing status. At September 30, 1997, restructured residential
loans included in performing and non-performing loans were $9.1 million and
$10.9 million, respectively.
During December 1993, in an effort to accelerate resolution of certain of its
problem assets, the Company entered into a contract for the bulk sale of certain
loans and real estate owned ("Bulk Sale"). The sale of the loans was completed
by December 31, 1993 and the sale of real estate owned was completed in the
second quarter of fiscal 1994. At September 30, 1993 the book value of the
loans anticipated to be sold was approximately $142.0 million, of which
approximately $110.0 million were then non-performing and approximately $32.0
million were then performing. At that date, the net book value of the real
estate owned anticipated to be sold was approximately $14.0 million.
The following table sets forth information regarding the components of
non-performing assets at September 30 for the years indicated. Restructured
loans that have not yet demonstrated a sufficient payment history to warrant a
return to performing status are included with non-performing loans.
12
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------------------- ------------- -----------
(DOLLARS IN THOUSANDS)
Non-performing loans (1):
Residential:
<S> <C> <C> <C> <C> <C>
One-to-four family.......................... $ 37,621 $ 39,573 $ 39,661 $ 33,359 $ 107,441
Co-operative apartments..................... 1,207 602 1,572 1,811 4,208
Home equity................................. 1,478 3,489 4,915 6,577 13,857
Second mortgage............................. 172 190 226 471 1,002
Multi-family................................ 246 896 1,512 1,123 430
---------- ---------- ----------- ----------- -----------
Total residential........................ 40,724 44,750 47,886 43,341 126,938
Non-residential:
Commercial real estate...................... 2,923 4,336 4,093 4,459 8,301
Construction................................ 453 453 453 861 5,092
Land........................................ 585 675 836 1,847 2,659
---------- ---------- ----------- ----------- -----------
Total real estate loans(2)..................... 44,685 50,214 53,268 50,508 142,990
Other loans.................................... 2,389 2,952 2,408 3,528 2,326
---------- ---------- ----------- ----------- -----------
Total non-performing loans..................... 47,074 53,166 55,676 54,036 145,316
Real estate owned, net...................... 6,643 8,155 8,893 7,187 25,812
---------- ---------- ----------- ----------- -----------
Total non-performing assets.................... $ 53,717 $ 61,321 $ 64,569 $ 61,223 $ 171,128 (3)
========== ========== =========== =========== ===========
Total non-performing loans to gross loans...... 1.28% 1.70% 2.67% 3.20% 7.42%(3)
Total non-performing assets to total assets.... 0.91 1.14 1.32 1.36 4.29 (3)
</TABLE>
(1) All non-performing loans are in non-accrual status. There are no loans 90
days or more past due and still accruing interest (other than education
loans which are guaranteed).
(2) Includes $10.9 million, $11.4 million, $14.8 million, $15.8 million and
$25.0 million of restructured real estate loans that have not yet complied
with the terms of their restructure agreement for a satisfactory period
(generally six months) as of September 30, 1997, 1996, 1995, 1994 and 1993,
respectively.
(3) After giving effect to the consummation of the Bulk Sale, the total
non-performing assets would have been $77.1 million and the Company's ratio
of non-performing loans to total gross loans would have been 3.26% at
September 30, 1993. The ratio of non-performing assets to total assets
would have been 1.93% at September 30, 1993.
The principal amount of non-performing real estate loans, excluding
restructured loans, aggregated approximately $33.8 million, $38.8 million and
$38.5 million at September 30, 1997, 1996 and 1995, respectively. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $2.1 million, $2.9 million and
$2.7 million for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively. No interest income was recorded for these loans during the fiscal
years ended September 30, 1997, 1996 and 1995. The principal amount of
non-performing commercial loans, excluding restructured loans, aggregated
approximately $1.2 million, $0.8 million and $0.8 million at September 30, 1997,
1996 and 1995, respectively.
The principal amount of restructured real estate loans that have not
complied with the terms of their restructure agreement for a satisfactory period
(generally six months) aggregated approximately $10.9 million, $11.4 million and
$14.8 million at September 30, 1997, 1996 and 1995, respectively. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $140,000, $300,000 and $300,000
for the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
Interest income recorded for these loans amounted to $50,000, $100,000 and
$100,000, for fiscal years 1997, 1996 and 1995. Restructured loans that have
complied with the terms of their restructure agreements for a satisfactory
period (generally six months) and returned to performing status aggregated $9.1
million, $11.8 million and $12.1 million as of September 30, 1997, 1996, 1995,
respectively.
The principal amount of restructured commercial loans aggregated $0.3
million, $0.5 million and $0.9 million at September 30, 1997, 1996 and 1995,
respectively. Interest income that would have been recorded if the loans had
been performing in accordance with their original terms aggregated $40,000,
$43,000 and $49,000 for fiscal years ended September 30, 1997, 1996 and 1995,
respectively. Interest income recorded for these loans amounted to $26,000,
$29,000 and $40,000 for the fiscal years ended September 30, 1997, 1996 and
1995, respectively.
Although there are indications that the New York metropolitan real estate
market has stabilized, there can be no assurance that economic conditions will
not decline and therefore lead to an increase in the level of non-performing
assets. Any such developments could further adversely affect the Company's
operations by requiring additional provisions for possible loan
13
<PAGE>
losses, as well as through decreased interest income and increased non-interest
expenses resulting from the allocation of resources to the management of
non-performing assets and from increased real estate owned expenses.
NON-PERFORMING RESIDENTIAL PROPERTY LOANS
At September 30, 1997, non-performing residential property loans were $40.7
million (including $8.6 million in loans that have been restructured and which
may be returned to performing status if they develop a satisfactory payment
history). The September 30, 1997 level of non-performing residential property
loans represents a decrease of $4.0 million from September 30, 1996. This
decrease reflects the movement of non-performing loans through the foreclosure
process, the decrease in the amount of loans that became non-performing and, to
a lesser extent, non-performing loans that were satisfied or reinstated and the
effect of returning restructured loans that have demonstrated a satisfactory
payment history to performing status.
The volume of loans delinquent less than 90 days that are not in
non-performing status may, to some degree, be a leading indicator of future
levels of non-performing loans. Residential property loan delinquencies (net of
those already in non-performing status) were as follows:
AT SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
(IN THOUSANDS)
60-89 Days.................... $13,848 $10,030 $10,415
30-59 Days.................... 87,856 73,225 51,558
NON-PERFORMING COMMERCIAL REAL ESTATE LOANS
At September 30, 1997 the level of non-performing commercial real estate
loans was $2.9 million, a decrease of $1.4 million from the September 30, 1996
level of $4.3 million. The Company's commercial real estate loan portfolio,
like the residential property loan portfolio, reflects indications of a
stabilizing real estate market in the New York metropolitan area. However, it is
possible that the Company may experience some future increases in the level of
non-performing commercial real estate loans. The largest non-performing
commercial real estate loan had an outstanding principal balance of $1.6 million
at September 30, 1997 and was secured by a retail shopping center.
When feasible, the Bank seeks to work with delinquent commercial real
estate borrowers in an attempt to restructure loans to provide for a resumption
of regular monthly payments. These arrangements, which are individually
negotiated based on the borrower's ability to maintain such payments generally
provide for interest rates that are lower than those initially contracted for,
and in some instances include a reduction in the principal amount of the loan,
which reduction must be written off by the Bank. In each instance the Bank
evaluates the costs associated with a particular restructuring arrangement and
may enter into such an agreement if it believes it is economically beneficial to
the Bank.
14
<PAGE>
INVESTMENT IN REAL ESTATE AND PREMISES
The following table summarizes the investment in real estate and premises
at September 30:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
(IN THOUSANDS)
REO:
<S> <C> <C>
One-to-four family........................................ $ 4,294 $ 5,835
Condo/co-op............................................... 1,955 1,990
Commercial................................................ 394 330
-------------- -------------
6,643 8,155
DIRECT INVESTMENT:
Land...................................................... 2,460 2,525
-------------- -------------
Total Investment in Real Estate and Premises $ 9,103 $ 10,680
============== =============
</TABLE>
At September 30, 1997, the largest single investment in real estate was a
direct investment in a vacant parcel of land with a book value of $2.5 million.
CLASSIFIED ASSETS
Federal regulations and the Bank's Classification of Assets Policy provide
for the classification of loans and other assets considered to be of lesser
quality as "substandard," "doubtful" or "loss" assets. An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the Bank will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
doubtful have all of the weaknesses inherent in those classified substandard
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as loss are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not currently expose the Bank to sufficient risk to warrant
classification in one of the aforementioned categories but possess certain
weaknesses are required to be designated "special mention" by management. An
internal loan review function, which was created to review and rate the quality
of loans and other assets, reports to the Loan Committee on a quarterly basis.
The following table sets forth the Bank's classified assets (other than
"loss" classifications) and assets designated as special mention. Assets
classified as "loss" were charged-off.
AT SEPTEMBER 30, 1997
---------------------
(DOLLARS IN THOUSANDS)
---------------------
PERCENT OF TOTAL
----------------
AMOUNT ASSETS
------ ------
Classified assets:
Substandard, including real estate owned..$ 64,983
Doubtful.................................. 1,515
--------
Total classified......................... 66,498 1.12%
Special mention............................ 17,396
--------
Total...................................... $83,894 1.41%
-------
-------
15
<PAGE>
LOANS SOLD WITH RECOURSE
Some residential property loans sold by the Company have been sold with
recourse. The majority of these loans were sold to FNMA and FHLMC. At September
30, 1997, loans sold with recourse aggregated $487.1 million, but the maximum
exposure under the Company's recourse obligations was $134.1 million. Included
in loans sold with recourse at September 30, 1997 were loans delinquent 90 or
more days with an aggregate outstanding balance of $3.2 million. Although the
Company does not believe that its recourse obligations subject it to risk of
material loss in the future, the Company has established recourse reserves which
at September 30, 1997 aggregated approximately $0.6 million.
Recourse as discussed herein means that the Company is obligated to remit
to the investor the amount of contractual principal and interest due (less a
servicing fee), regardless of whether these payments are actually received from
the borrower. On completion of foreclosure, the entire balance of the loan must
be remitted to the investor, regardless of whether the sale of the real estate
owned property yields that amount. For loans sold to FNMA, it has been the
Bank's practice to repurchase from FNMA any loans sold with recourse that become
more than 90 days delinquent. By repurchasing these delinquent loans prior to
foreclosure, the Bank derives the benefit of substantial savings between the
interest rate that must be paid monthly to FNMA even if not received and the
Bank's own interest cost to fund the purchase of these loans; additionally,
repurchases permit the Bank to provide eligible borrowers with more flexible
workout options. During fiscal 1997, the Bank repurchased from FNMA residential
property loans sold with recourse totaling $1.8 million.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company maintains a valuation allowance for possible loan losses. The
allowance for possible loan losses is established and maintained through a
provision for possible loan losses at a level deemed appropriate by management
to provide adequately for known and inherent risks in the portfolio. The
determination of the amount of the allowance for possible loan losses includes
estimates that are susceptible to significant changes due to changes in
appraised values of collateral and general economic conditions. In connection
with the determination of the allowance, management obtains independent
appraisals for significant properties. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary. The Bank's Classification of Assets Committee oversees the
valuation allowance process.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies may require the Bank to recognize additions to the
allowance.
Management's evaluation of the risks inherent in its loan portfolio and the
general economy includes a review of all loans on which full collectibility may
not be reasonably assured considering, among other matters, the estimated fair
value of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance. Other factors considered by management include
the size and risk exposure of each segment of the loan portfolio, present
indicators such as delinquency rates and the borrowers' current financial
condition and the potential for losses in future periods. In evaluating the
adequacy of the allowance for possible loan losses management recognizes the
risks associated with each type of loan and the current outstanding balance. The
primary risk element considered by management with respect to each consumer and
one-to-four family mortgage loan is any current delinquency on the loan. The
primary risk elements considered with respect to commercial real estate and
multi-family loans are the financial condition of the borrower, the sufficiency
of collateral (including changes in the appraised values of collateral) and the
record of payment. A subjective review of all substantial non-performing loans,
other problem loans and overall delinquency is made prior to the end of each
calendar quarter to determine the adequacy of the allowance for possible loan
losses. Additionally, current year charge-offs, charge-off trends, new loan
production and current balance by particular loan categories are factored into
the determination of allowance levels.
When real estate loans are foreclosed the loan balance is compared to the
fair value of the property. If the net carrying value of the loan at the time of
foreclosure exceeds the fair value of the property, the difference is charged to
the allowance for possible loan losses and the fair value of the property
becomes the book value of the real estate owned. The real estate owned is
subsequently carried at the lower of book value or fair value with any further
adjustments reflected as a charge against earnings.
16
<PAGE>
The following table sets forth the Company's allowance for possible loan
losses at or for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ------------------------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period......................... $ 33,912 $ 34,358 $ 35,713 $ 33,951 $ 32,157
Provision for possible loan losses..................... 6,000 6,200 6,470 11,955 47,288
Charge-offs:
Real estate loans................................ 2,877 3,869 4,608 5,852 39,508 (1)
Commercial loans................................. --- 562 917 1,551 1,054
Other loans...................................... 4,039 3,768 4,098 4,308 6,236
----------- ------------ ----------- ------------ -----------
Total charge-offs........................... 6,916 8,199 9,623 11,711 46,798
Recoveries:
Real estate loans................................ 161 691 1,006 482 685
Commercial loans................................. 263 319 141 577 67
Other loans...................................... 461 543 651 459 552
----------- ------------ ----------- ------------ -----------
Total recoveries............................ 885 1,553 1,798 1,518 1,304
----------- ------------ ----------- ------------ -----------
Net charge-offs........................................ 6,031 6,646 7,825 10,193 45,494
----------- ------------ ----------- ------------ -----------
Balance at end of period............................... $ 33,881 $ 33,912 $ 34,358 $ 35,713 $ 33,951
=========== ============ =========== ============ ===========
Ratio of net loan charge-offs during the
period to average loans, net, out-
standing during the
period........................................... 0.17% 0.27% 0.42% 0.59% 1.79%
Ratio of allowance for possible loan
losses to gross loans receivable at
the end of the
period........................................... 0.92 1.08 1.65 2.12 1.73 (2)
Ratio of allowance for possible loan
losses to non-performing loans
at the end of the
period........................................... 71.97 63.79 61.71 66.09 23.36 (3)
</TABLE>
__________
(1) Includes $32.0 million in charge-offs related to the Bulk Sale.
(2) Giving effect to the consummation of the Bulk Sale, the ratio of allowance
for possible loan losses to gross loans receivable at September 30, 1993
would have been 1.84%.
(3) Giving effect to the consummation of the Bulk Sale, the ratio of allowance
for possible loan losses to non-performing loans at September 30, 1993
would have been 56.29%.
The provision for possible loan losses declined to $6.0 million for the
year ended September 30, 1997 from $6.2 million for the year ended September 30,
1996. This reduction reflects the declining level of non-performing loans and
the eighth consecutive year of lower net charge-offs.
17
<PAGE>
The following table sets forth the Company's allocation of its allowance
for possible loan losses to the total amount of loans in each of the categories
listed below:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------
1997 1996 1995
---------------------- ------------------------ -------------------------
LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS (1) AMOUNT LOANS (1) AMOUNT LOANS (1)
---------- ----------- ------------ ----------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans ............ $20,510 94.97 % $20,226 95.16 % $20,554 $93.84 %
Commercial loans ............. 3,894 0.18 3,631 0.26 3,874 0.45
Other loans................... 9,477 4.85 10,055 4.58 9,930 5.71
---------- --------- ------------ --------- ---------- -------------
Total allowance
for possible loan
losses .................. $33,881 100.00 % $33,912 100.00 % $34,358 100.00 %
========== ========= ============ ========= ========== ============
<CAPTION>
--------------------------------------------
1994 1993
--------------------- ----------------------
LOANS IN LOANS IN
CATEGORY CATEGORY
TO TOTAL TO TOTAL
AMOUNT LOANS (1) AMOUNT LOANS (1)
----------- ---------- ---------- -----------
<C> <C> <C> <C>
Real estate loans ............ $22,881 91.46 % $24,951 92.00 %
Commercial loans ............. 4,250 0.74 3,874 0.87
Other loans................... 8,582 7.80 5,126 7.13
--------- ---------- -------- ---------
Total allowance
for possible loan
losses .................. $35,713 100.00 % $33,951 100.00 %
========= ========== ========= =========
</TABLE>
(1) Gross loans used to calculate percentage.
INVESTMENT ACTIVITIES
INVESTMENT POLICIES. The investment policy of the Company, which is
established by senior management and approved by the Board of Directors, is
based upon its asset/liability management goals and emphasizes high credit
quality and diversified investments while seeking to optimize net interest
income within acceptable limits of liquidity, safety and soundness. The
Company's investment activities are overseen by the Investment Committee of the
Board of Directors, which meets quarterly.
The Company's investment goal has been to invest available funds in
short-term, highly liquid instruments that are adjustable rate or that generally
do not exceed an average life of five years, or that meet specific requirements
of the Company's asset/liability goals. The policy is designed to provide and
maintain liquidity to meet day-to-day, cyclical and long-term changes in the
Company's asset/liability structure.
The Company's investment policy permits it to invest in, among other
instruments, U.S. government obligations, securities of various
government-sponsored agencies, including mortgage-backed securities
issued/guaranteed by FNMA, FHLMC and Government National Mortgage Association
("GNMA"), certificates of deposit of insured banks and savings associations,
bankers acceptances, federal funds, asset-backed securities, private issuer
investment grade mortgage-backed securities, investment grade preferred stock,
investment grade corporate debt securities and commercial paper.
The Company's investment policy permits purchases of privately issued
securities only if they are rated in one of the three highest categories by a
nationally recognized rating agency and does not permit purchases of securities
of below investment grade quality. In addition, the Company's investment policy
prohibits investment in certain types of mortgage derivative securities that
management considers high risk. The Company generally purchases only short-term
classes of collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). At September 30, 1997, the Company held no
securities issued by any one entity with a total carrying value in excess of 10%
of the Company's net worth at that date, except for obligations of the U.S.
government and government-sponsored agencies and certain mortgage-backed
securities which are fully collateralized by mortgages held by single purpose
entities.
Thrift Bulletin Number 52 ("TB-52"), the Office of Thrift Supervision
("OTS") Policy Statement on securities portfolio policies and unsuitable
investment practices requires that institutions classify mortgage derivative
products acquired, including certain tranches of REMICs and CMOs, as "high-risk
mortgage securities" if such products exhibit greater price volatility than a
benchmark fixed-rate 30-year mortgage-backed pass-through security. Institutions
may only hold high-risk mortgage securities to reduce interest-rate risk in
accordance with safe and sound practices and must also follow certain prudent
safeguards in the purchase and retention of such securities.
The Company's investment policy also permits it to invest in certain
derivative financial instruments. These instruments consist of interest rate
caps, floors, collars and swaps and are generally used to hedge against interest
rate exposure.
MORTGAGE-BACKED SECURITIES. The Company invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand.
At
18
<PAGE>
September 30, 1997, the net carrying value of mortgage-backed securities totaled
approximately $1.8 billion, or 30.87% of total assets, which equaled their
estimated fair value as substantially all mortgage-backed securities are
classified as available-for-sale. Mortgage-backed securities in the Company's
held-to-maturity portfolio are carried at amortized cost. The mortgage-backed
securities portfolio includes REMICs and CMOs, with a net carrying value at
September 30, 1997 of $76.7 million. A CMO is a special type of pass-through
debt security in which the stream of principal and interest payments on the
underlying mortgages or mortgage-backed securities 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.
At September 30, 1997, substantially all of the Company's mortgage-backed
securities portfolio was directly insured or guaranteed by FNMA, FHLMC or GNMA.
FNMA, FHLMC and GNMA provide the certificate holder a guarantee of timely
payments of scheduled principal and interest, whether or not they have been
collected. Those securities not insured or guaranteed by FNMA , FHLMC or GNMA
are either privately insured or have senior subordinated structures, and are
rated AAA by one of the nationally recognized bond rating agencies. The
Company's mortgage-backed securities portfolio had a weighted average yield of
6.76% at September 30, 1997. At September 30, 1997, $1.5 billion or 84.29%, of
total mortgage-backed securities had adjustable rates and $284.0 million, or
15.71%, of total mortgage-backed securities had fixed rates, based on amortized
cost.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used more easily to
collateralize obligations of the Bank. In general, mortgage-backed securities
issued or guaranteed by FNMA and FHLMC and certain AAA-rated mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to the risk weight assigned to non-securitized whole loans of
50%.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value of such
securities. In contrast to mortgage-backed securities in which cash flow is
received (and, hence, prepayment risk is shared) pro rata by all securities
holders, the cash flows from the mortgages or mortgage-backed securities
underlying REMICs or CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranch of a REMIC or CMO may therefore carry
prepayment risk that differs from that of both the underlying collateral and
other tranches.
ASSET-BACKED SECURITIES. The Company invests in asset-backed securities.
At September 30, 1997 the Company's total asset-backed securities portfolio of
$11.8 million, or 0.20% of total assets, was classified as available-for-sale.
These securities are rated AAA by one of the nationally recognized bond rating
agencies, carry a fixed rate, and are primarily secured by automobile loans.
PREFERRED AND COMMON STOCK. The Company invests in preferred and common
stock. At September 30, 1997, all preferred and common stock was classified as
available-for-sale and totaled $30.0 million, or 0.51% of total assets. These
securities are investment grade and carry an A1P1 commercial paper rating as
determined by one of the nationally recognized bond rating agencies.
19
<PAGE>
SECURITIES PORTFOLIO
The table below sets forth certain information regarding the amortized cost
and fair value of the Company's debt and equity securities portfolio at the
dates indicated. Securities held-to-maturity are recorded at amortized cost.
Securities available-for-sale are recorded at estimated fair value. The 1996
balances reflect the reassessment of the Company's portfolio in accordance with
the Special Report on SFAS 115 which resulted in debt securities in the amount
of $78.6 million previously classified as held-to-maturity to be classified as
available-for-sale.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------- ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
------------ ------------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
SECURITIES HELD-TO-MATURITY:
Debt securities:
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency obligations.... $ --- $ --- $ --- $ --- $ 2,593 $ 2,593
U.S. government and agency obligations --- ---
pledged as collateral ................ --- --- --- --- 7,393 7,398
Asset-backed securities .................. --- --- --- --- 45,853 45,880
------------ ------------- ------------ ------------ ----------- ------------
Total debt securities held-to-maturity........ $ --- $ --- $ --- $ --- $ 55,839 $ 55,871
============ ============= ============ ============ =========== ============
SECURITIES AVAILABLE-FOR- SALE:
Debt securities:
U.S. government and agency obligations.... $ 14,007 $ 14,016 $ 13,385 $ 13,382 $ 63,852 $ 63,665
U.S. government and agency obligations
pledged as collateral................. 82,686 82,063 88,021 86,105 --- ---
Commercial Paper.......................... 700 700 --- --- --- ---
Asset-backed securities................... 11,797 11,753 40,561 40,369 129,391 128,989
------------ ------------- ------------ ------------ ----------- ------------
Total debt securities................. 109,190 108,532 141,967 139,856 193,243 192,654
Equity securities:
Preferred and common stock ............... 30,058 30,046 40,038 40,038 40,038 40,038
Investment in mutual funds................ --- --- 779 756 729 716
------------ ------------- ------------ ------------ ----------- ------------
Total equity securities............... 30,058 30,046 40,817 40,794 40,767 40,754
------------ ------------- ------------ ------------ ----------- ------------
Total debt and equity securities available-
for-sale.................................. $ 139,248 $ 138,578 $ 182,784 $ 180,650 $ 234,010 $ 233,408
============ ============= ============ ============ =========== ============
FHLB - New York stock......................... $ 48,724 $ 48,724 $ 40,754 $ 40,754 $ 35,132 $ 35,132
============ ============= ============ ============ =========== ============
Federal funds sold............................ $ --- $ --- $ 33,480 $ 33,480 $ 10,100 $ 10,100
============ ============= ============ ============ =========== ============
</TABLE>
20
<PAGE>
The table below sets forth certain information regarding the amortized cost
and fair values of the Company's mortgage-backed securities portfolio at the
dates indicated. Mortgage-backed securities held-to-maturity are recorded at
amortized cost. Mortgage-backed securities available-for-sale are recorded at
estimated fair value. The 1996 balances reflect the reassessment of the
Company's portfolio in accordance with the Special Report on SFAS 115 which
resulted in mortgage-backed securities in the amount of $1.2 billion previously
classified as held-to-maturity to be classified as available-for-sale.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
------------- -------------- --------------- -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES HELD-TO-
MATURITY:
FNMA pass-through certificates.. $ --- $--- $ --- $ --- $ 353,324 $ 356,706
FHLMC pass-through certificates. --- --- --- --- 362,646 362,237
Real estate mortgage investment
conduit....................... 16,144 14,109 17,017 15,041 17,693 17,693
Other pass-through certificates. 6,079 6,079 6,079 6,079 62,082 61,929
GNMA, FHLMC and FNMA securities
pledged as collateral....... --- --- --- --- 540,354 540,449
------------- -------------- --------------- -------------- ------------ ------------
Gross mortgage-backed securities 22,223 20,188 23,096 21,120 1,336,099 1,339,014
Unamortized premiums (unearned
discounts), net............. --- --- --- --- 1,804 ---
------------- -------------- --------------- -------------- ------------ ------------
Mortgage-backed securities held-
to-maturity, net............ $ 22,223 $ 20,188 $ 23,096 $ 21,120 $ 1,337,903 $ 1,339,014
============= ============== =============== ============== ============ ============
MORTGAGE-BACKED SECURITIES AVAILABLE-
FOR-SALE:
FNMA pass-through certificates.. $ 297,087 $ 301,307 $ 483,480 $ 485,696 $ 274,501 $ 279,776
GNMA pass-through certificates.. 251,362 253,577 3,582 3,632 --- ---
FHLMC pass-through certificates. 189,565 190,447 367,480 369,337 497,438 506,371
Other pass-through certificates. 49,736 49,508 78,101 77,884 9,892 9,620
GNMA, FHLMC and FNMA securities
pledged as collateral........ 994,012 1,013,632 767,263 780,557 140,072 143,080
------------- -------------- --------------- -------------- ------------ ------------
Gross mortgage-backed securities 1,781,762 1,808,471 1,699,906 1,717,106 921,903 938,847
Unamortized premiums (unearned
discounts), net............. 3,238 --- 3,270 --- 4,120 ---
------------- -------------- --------------- -------------- ------------ ------------
Mortgage-backed securities
available-for-sale, net............. $ 1,785,000 $ 1,808,471 $ 1,703,176 $ 1,717,106 $ 926,023 $ 938,847
============= ============== =============== ============== ============ ============
</TABLE>
21
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities of the Company's mortgage-backed
and debt and equity securities as of September 30, 1997.
<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS
---------------------- --------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD
--------- ------- ---------- ------- --------- -------
(DOLLARS IN THOUSANDS)
DEBT AND EQUITY SECURITIES
AVAILABLE-FOR-SALE:
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities
and obligations................... $ 16,822 5.63 % $ 4,999 5.88 % $ 74,872 6.04 %
Commercial Paper..................... 700 5.07 --- --- --- ---
Asset-backed securities.............. 1,517 5.24 6,514 4.82 --- ---
---------- ------ -------- ------ ---------- ------
Total debt and equity
securities available-for-sale..... $ 19,039 5.58 % $ 11,513 5.28 % $ 74,872 6.04 %
========== ====== ========= ====== ========== ======
MORTGAGE-BACKED SECURITIES
HELD-TO-MATURITY.................. $ --- --- % $ 16,144 10.00 % $ --- --- %
========== ====== ========= ====== ========== ======
MORTGAGE-BACKED SECURITIES
AVAILABLE-FOR-SALE................ $ 22,745 5.05 % $174,889 5.83 % $ --- --- %
========== ====== ========= ====== ========== ======
FHLB-New York stock..................
Preferred and common stock ..........
<CAPTION>
MORE THAN TEN YEARS TOTAL SECURITIES
-------------------- -----------------------------------------------
WEIGHTED WEIGHTED ESTIMATED WEIGHTED
AMORTIZED AVERAGE AVERAGE AMORTIZED FAIR AVERAGE
COST YIELD LIFE (1) COST VALUE YIELD
------------ ------- ------- ----------- --------- ----------
DEBT AND EQUITY SECURITIES
AVAILABLE-FOR-SALE:
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities
and obligations................... $ --- --- % 50.79 $ 96,693 $ 96,079 5.96
Commercial Paper..................... --- --- 9.34 700 700 5.07
Asset-backed securities.............. 3,766 4.90 55.83 11,797 11,753 4.90
------------- ======= -------- ----------- ----------- ------
Total debt and equity
securities available-for-sale..... $ 3,766 4.90 % 51.07 $ 109,190 $ 108,532 5.84 %
============= ======= ======== =========== =========== ======
MORTGAGE-BACKED SECURITIES
HELD-TO-MATURITY.................. $ 6,079 10.00 % 106.72 $ 22,223 $ 20,188 10.00 %
============= ======= ======== =========== =========== ======
MORTGAGE-BACKED SECURITIES
AVAILABLE-FOR-SALE................ $ 1,587,366 6.85 % 344.31 $1,785,000 $1,808,471 6.72 %
============= ======= ======== =========== =========== ======
FHLB-New York stock.................. $ 48,724 $ 48,724 7.00 %
=========== =========== ======
Preferred and common stock .......... $ 30,058 $ 30,046 4.19 %
=========== =========== ======
</TABLE>
(1) This calculation is in months.
22
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, repayments and maturities on loans and mortgage-backed
securities, redemptions of debt and equity securities and borrowings are the
primary source of the Company'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 savings,
demand and NOW, money market, statement savings and certificate accounts. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and competition. The
Bank's deposits are obtained primarily from the areas in which its branch
offices are located. The Bank relies 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. Since
1990, when market rates decreased, the Bank has not attempted to retain
certificate accounts by keeping its rates above those offered by competitors.
Despite this strategy, certificate accounts increased to 56.74% of total
deposits at September 30, 1997 from 53.92% of total deposits at September 30,
1996. Management believes that this increase is attributable to the rise in
interest rates that occurred during fiscal 1997 and 1996 and the return of funds
to certificate accounts that had been temporarily invested in short term liquid
accounts. Management monitors the Bank's certificate accounts and, based on
historical experience, believes it will retain a large portion of the funds held
in such accounts upon maturity.
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Management believes that the use of year
end balances instead of average balances does not result in any material
difference in the information presented.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------
1997 1996
----------------------------------- ---------------------------------------
WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE
OF TOTAL NOMINAL OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------------ ---------- --------- ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts..................... $ 608,618 16.31 % 2.76 % $ 669,241 18.42 % 2.76 %
Demand and NOW accounts............... 261,324 7.01 0.97 227,747 6.27 1.30
------------- --------- ------------- -------
Total.............................. 869,942 23.32 896,988 24.69
Money market accounts................. 109,874 2.95 2.75 130,442 3.59 2.75
Statement savings accounts............ 633,868 16.99 3.23 646,789 17.80 3.24
Certificate accounts:
Jumbo within 1 year................ 127,825 3.43 5.52 110,565 3.04 5.41
Other within 1 year................ 1,233,602 33.07 5.56 1,250,270 34.42 5.41
One to three years................. 596,603 15.99 6.21 314,327 8.65 5.68
Three or more years.............. 158,789 4.25 6.02 283,629 7.81 6.42
------------- --------- -------------- --------
Total.............................. 2,116,819 56.74 1,958,791 53.92
------------- --------- -------------- --------
Total deposits........................ $ 3,730,503 100.00 % $ 3,633,010 100.00 %
============= ========= ============== ========
<CAPTION>
-------------------------------------
1995
-------------------------------------
WEIGHTED
PERCENT AVERAGE
OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE
------------ ------------ ----------
<C> <C> <C>
Passbook accounts.................................... $ 730,060 20.43 % 2.76 %
Demand and NOW accounts.............................. 223,232 6.25 1.29
------------- ---------
Total............................................. 953,292 26.68
Money market accounts................................ 154,938 4.33 2.75
Statement savings accounts........................... 624,707 17.48 3.24
Certificate accounts:
Jumbo within 1 year............................... 86,698 2.43 5.62
Other within 1 year............................... 1,075,725 30.10 5.53
One to three years................................ 423,644 11.86 6.13
Three or more years............................... 254,525 7.12 6.50
------------- ---------
Total............................................. 1,840,592 51.51
-----------------------
Total deposits....................................... $ 3,573,529 100.00 %
=======================
</TABLE>
23
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at September 30, 1997, 1996 and 1995 and the
periods to maturity of the certificate accounts outstanding at September 30,
1997:
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM SEPTEMBER 30, 1997
-------------------------------------------------------
ONE TO
AT SEPTEMBER 30, WITHIN THREE
------------------------------
1997 1996 1995 ONE YEAR YEARS THEREAFTER TOTAL
------ ------- ------ -------------- ----------- --------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate
accounts:
4.99% or less.... $ 52,907 $ 292,547 $ 160,797 $ 50,257 $ 2,650 $ -- $ 52,907
5.00%-5.99%...... 1,509,192 1,160,668 897,341 1,205,707 248,720 54,765 1,509,192
6.00%-6.99%...... 457,324 393,757 650,183 103,707 252,715 100,902 457,324
7.00% or greater. 97,396 111,819 132,271 1,756 92,517 3,123 97,396
---------- ---------- ----------- ---------- ----------- -------- ----------
$2,116,819 $1,958,791 $ 1,840,592 $1,361,427 $ 596,602 $158,790 $2,116,819
---------- ---------- ----------- ---------- ----------- -------- ----------
---------- ---------- ----------- ---------- ----------- -------- ----------
</TABLE>
The following table presents the deposit activity of the Bank for the periods
indicated.
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Opening balance...................$3,633,010 $3,573,529 $3,567,815
Net withdrawals................... (60,199) (96,367) (133,966)
Interest credited................. 157,692 155,848 139,680
---------- --------- ----------
Ending balance....................$3,730,503 $3,633,010 $3,573,529
---------- ---------- ----------
---------- ---------- ----------
The following table presents time deposits at September 30, 1997 over
$100,000:
MATURITY PERIOD AMOUNT
- --------------- ------
(In thousands)
Three months or less......................................... $ 44,633
Over three through six months................................ 37,064
Over six through 12 months................................... 46,128
Over 12 months............................................... 69,922
-------------
Total................................................... $197,747
-------------
-------------
BORROWINGS
Although deposits are the Bank's primary source of funds, the Bank often
uses borrowings as an alternative and sometimes a less costly source of funds.
The Bank's primary source of borrowing is sales of securities under agreements
to repurchase ("reverse-repurchase agreements"), generally from 30 days up to 54
months, 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 as well as to take advantage of
investment opportunities that may exist in the market which enable the Bank to
earn a positive interest rate spread. At September 30, 1997, the Bank had
reverse-repurchase agreements outstanding of $1.0 billion.
Additionally, the Company's investment policy enables the Company to enter into
certain interest rate contracts to hedge interest rates on certain assets and
liabilities. During fiscal 1997, the Bank issued a medium-term note in the
amount of $300.0 million due June 2002 and simultaneously entered into an
interest rate swap agreement (See Note 12 of notes to Consolidated Financial
Statements). The medium-term note is part of a $1.0 billion medium-term note
program the Bank established in 1997 in which notes can be issued bearing
interest at either a fixed or floating rate and have maturities ranging from
nine months to 30 years from their respective dates. At September 30, 1997, the
Bank has the ability to issue up to an additional $700.0 million under this
program.
24
<PAGE>
During fiscal 1996, the Bank issued a Funding note in the amount of $181.4
million which is collateralized by a pool of adjustable rate residential
mortgage loans. Payments of principal and interest on the Funding note are paid
monthly based on the scheduled payments due on the underlying loans. The
scheduled final maturity of the Funding note is June 2001. The interest on the
Funding note changes monthly and bears interest at a rate of 50 basis points
over the one month London Interbank Offered Rate ("LIBOR").
The following table sets forth certain information regarding borrowed funds
for the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
FHLB-NY note payable:
<S> <C> <C> <C>
Average balance outstanding.................................... $ 84,648 $ 2,461 $ 875
Maximum amount outstanding at any month-end during the
year................................................... 200,000 --- 30,000
Balance outstanding at end of year............................. 33,120 --- 10,000
Weighted average interest rate during the year................. 5.96% 5.73% 6.32%
Weighted average interest rate at end of year.................. 6.63 --- 6.63
Reverse-repurchase agreements and short-term loans payable:
Average balance outstanding.................................... $1,025,079 $675,104 $510,111
Maximum amount outstanding at any month-end during the
year................................................... 1,126,400 805,942 743,952
Balance outstanding at end of year............................. 1,013,400 800,000 623,675
Weighted average interest rate during the year................. 5.74% 5.69% 5.53%
Weighted average interest rate at end of year.................. 5.73 5.52 5.69
Funding note:
Average balance outstanding.................................... $ 168,845 $ 46,883 ---
Maximum amount outstanding at any month-end during the year.... 177,111 181,370 ---
Balance outstanding at end of year............................. 155,540 178,023 ---
Weighted average interest rate during the year................. 6.07% 6.11% ---
Weighted average interest rate at end of year.................. 6.00 6.00 ---
Medium-term note:
Average balance outstanding.................................... 90,411 --- ---
Maximum amount outstanding at any month-end during the year.... 300,000 --- ---
Balance outstanding at end of year............................. 300,000 --- ---
Weighted average interest rate during the year................. 7.12% (a) --- ---
Weighted average interest rate at end of year.................. 7.00 --- ---
Total borrowings:
Average balance outstanding ................................... $1,368,982 $724,448 $510,986
Maximum amount outstanding at any month-end during the
year................................................... 1,514,762 981,119 743,952
Balance outstanding at end of year............................. 1,502,060 978,023 633,675
Weighted average interest rate during the year................. 5.82% 5.71% 5.53%
Weighted average interest rate at end of year.................. 6.03 5.61 5.70
</TABLE>
(a) Weighted Average Interest Rate during the year reflecting the rate swap was
6.06%.
PURCHASE ACCOUNTING
In 1983, with the assistance of the Federal Savings and Loan Insurance
Corporation ("FSLIC") as set forth in an assistance agreement ("Assistance
Agreement"), the Bank acquired, as a wholly-owned subsidiary, The Long Island
Savings Bank of Centereach FSB ("Centereach"). The Bank and Centereach reported
to the Federal Home Loan Bank Board of New York ("FHLB-NY"), forerunner of the
OTS, as two separate entities. In 1986, with FSLIC assistance, the Bank
acquired Flushing Federal Savings and Loan Association ("Flushing Federal") by
merger.
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<PAGE>
The FSLIC-assisted supervisory acquisitions of Centereach and Flushing
Federal were accounted for using the purchase method of accounting and resulted
in goodwill of $656.8 million. The goodwill constituted an intangible asset on
Centereach's and the Bank's balance sheets, and was included in determining
regulatory capital. As a result of FIRREA, however, each bank was required to
deduct "non-qualifying" goodwill from all measures of regulatory capital and
phase out "qualifying supervisory goodwill" from core (and therefore also from
risk-based) capital by December 31, 1994.
To bring Centereach into capital compliance and avoid possible regulatory
sanctions against Centereach on September 3, 1993, with the OTS's approval,
Centereach and the Bank sold $836.3 million in deposits from ten branch
locations and reduced their asset size by a similar amount. Concurrent with the
sale of these deposits, the Bank was merged into Centereach ("Merger") and
Centereach's name was changed to The Long Island Savings Bank, FSB. The
Company, in connection with the Merger, reviewed its accounting policies and
practices and decided to revise its past practices relating to the amortization
of goodwill. The $625.4 million in goodwill on Centereach's books, as a result
of "pushdown" accounting related to the Centereach acquisition, was originally
to be amortized over 40 years in accordance with Accounting Principles Board
Opinion No. 17 ("APB 17"), "Intangible Assets." In fiscal 1993 the Company
decided to amortize all of this goodwill at a constant rate over the average
lives of acquired long-term interest-earning assets (after adjustment for
estimated prepayments of assets subject to prepayment), in accordance with
Statement of Financial Accounting Standards No. 72 ("SFAS 72"), "Accounting for
Certain Acquisitions of Banking or Thrift Institutions." The principal effect
of the retroactive adoption of SFAS 72 was to reallocate the amortization of the
goodwill so that a greater proportion of such goodwill was amortized in earlier
years. This resulted in the additional amortization of $323.5 million of
goodwill against fiscal 1993 earnings as a cumulative effect of a change in
accounting principle effective October 1, 1992. In addition, the balance of the
Centereach unamortized goodwill, $59.2 million, was written off in September
1993 as a charge to current earnings.
The unamortized balance of goodwill recorded in connection with the 1986
acquisition of Flushing Federal of $11.6 million was also written off in
September 1993 as a charge to current earnings.
The November 1994 acquisitions of Entrust Financial Corporation ("Entrust")
and Developer's Mortgage Corporation ("Developers") and the August 1996
acquisition of First Home were accounted for using the purchase method of
accounting and resulted in goodwill to be charged to earnings on a straight line
basis over 15 years. As of September 30, 1997 the unamortized balance of
goodwill related to these acquisitions was $5.1 million.
The following table sets forth the net effect on income of purchase
accounting adjustments for the fiscal years ended September 30:
<TABLE>
<CAPTION>
RECOGNITION OF
DISCOUNT
AMORTIZATION PURCHASE ACCOUNTING (PREMIUM) DUE NET EFFECT
FISCAL YEAR OF GOODWILL DISCOUNTS, NET TO ASSET SALES ON INCOME
- ----------- ----------- ------------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995.................... $(211) $ 1,492 $ 56 $ 1,337
1996.................... (284) 1,081 (1,308) (511)
1997.................... (458) 652 ---- 194
</TABLE>
26
<PAGE>
The following table sets forth the scheduled amortization of remaining
purchase accounting discounts (premiums) for the fiscal years ending September
30:
PURCHASE
ACCOUNTING
FOR THE FISCAL DISCOUNTS/
YEAR ENDING (PREMIUMS)
- ----------- ----------
(IN THOUSANDS)
1998................................................. $ 224
1999................................................. 173
2000-2004............................................ (299)
2005 -2009........................................... (1,065)
2010 thereafter...................................... (855)
-----
$(1,822)
--------
--------
OTHER FEE BASED PRODUCTS
In 1990, the Bank organized the Long Island Savings Agency ("LISA") as a
wholly-owned service corporation to offer non-traditional, fee-based products to
its customers. LISA was formed to engage in the business of selling single
premium deferred annuity products and was expanded in 1993 to offer a broader
range of financial products and services including an expanded line of annuities
and other investment products by marketing a line of mutual funds with a variety
of investment objectives. The insurance products and mutual funds sold are
products of unrelated insurance and securities firms from which LISA earns
commissions. During the fiscal years ended September 30, 1997, 1996 and 1995,
LISA generated gross fee income of $2.5 million, $1.6 million and $0.8 million,
respectively.
SUBSIDIARY ACTIVITIES
The Bank currently has 18 wholly-owned subsidiaries. These subsidiaries
have been primarily created to (a) take title to foreclosed properties, (b) take
title to land held for investment, (c) develop or own investment properties, (d)
act as holding companies, (e) sell insurance and securities products and (f)
facilitate borrowings.
(a) Foreclosed Property Subsidiaries. Longrich Investors, Inc., Oldfield
Realty, Inc., Syosset N.J. Realty, Inc. and Syosset Connecticut Realty, Inc.
were all formed for the sole purpose of holding title to foreclosed property.
Two subsidiaries take title to properties located in New York and one each in
New Jersey and Connecticut. Such properties are included in investment in real
estate and premises in the Consolidated Statements of Financial Condition.
(b) Subsidiaries Holding Land for Investment. Christa Realty, Inc., Kyle
Development, Inc. and 63 Ocean Realty Corp. were primarily formed to take title
to undeveloped land held for investment purposes. Such properties are included
in Investment in real estate and premises in the Consolidated Statements of
Financial Condition.
(c) Real Estate Development/Rental Subsidiaries. Longpond Investors Inc.
and Longco Investors Inc. were created primarily to serve as joint venture
partners where the joint venture built and now operates rental real estate.
Suffco Development Corp. was formed for the same purpose except that the
projects are sold upon completion. Suffco Development Corp. also serves as
document custodian to facilitate operations with FNMA. 3366 Park Avenue Corp.
owns an office building that contains branch facilities and operates the
property.
(d) Holding Company Subsidiaries. Mortgage Headquarters Inc. was formed
primarily for the purpose of serving as a holding company for lower tier
subsidiary operations. In addition, Mortgage Headquarters Inc. serves as a
joint venture partner where the joint venture originates mortgage loans.
(e) Insurance Products and Mutual Funds Subsidiary. LISA was formed to
market insurance products and mutual funds. The insurance products and mutual
funds sold are products of unrelated insurance and securities firms from which
LISA earns commissions.
(f) Financing Subsidiaries. 201 Old Country Road Inc. was formed to serve
as a special purpose subsidiary which currently holds mortgage loans that serve
as collateral for the Funding note previously described. Starline Development
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<PAGE>
Corp. was formed as a real estate investment trust for the purpose of acquiring,
holding and managing real estate mortgage assets.
(g) Other Subsidiaries. All other subsidiaries of the Bank are currently
inactive.
SAVINGS BANK LIFE INSURANCE
As an issuing bank, the Bank offers Savings Bank Life Insurance ("SBLI") to its
customers up to the legal maximum of $50,000 per insured individual and, as a
trustee bank, offers an additional $500,000 in group coverage per insured under
SBLI's Financial Institution Group Life Insurance policy. During April 1996,
approximately 8,800 life insurance policies were transferred from East River
Savings Bank at no cost to the Company. As of September 30, 1997, the SBLI
Department had approximately 15,637 policies in effect. The SBLI Department's
activities are segregated from the Bank and, while they do not materially affect
the Bank's earnings, management believes that offering SBLI is beneficial to the
Bank's relationship with its depositors and the general public.
PERSONNEL
As of September 30, 1997, the Bank had 1,376 full-time employees and 94
part-time employees. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good.
TAXATION
FEDERAL TAXATION
GENERAL. The Holding Company and the Bank report their income on a consolidated
basis, using a calendar year and the accrual method of accounting and are
currently subject to federal income taxation in the same manner as other
corporations. Prior to January 1, 1996, the Bank was entitled to establish a
reserve for bad debts under Section 593 ("IRC 593") of the Internal Revenue Code
of 1986, as amended ("Code"). IRC 593 was repealed in August 1996 as part of
the Small Business Job Protection Act of 1996. 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 Holding Company or the Bank. The
Bank is currently under exam by both the Internal Revenue Service and New York
State Department of Taxation and Finance, however, no material tax deficiencies
are anticipated.
BAD DEBT DEDUCTION. The Bank is required to use the specific charge-off method
for calculating its bad debt deduction effective the first tax year after
December 31, 1995. The specific charge-off method under the Code Section 166(a)
permits a taxpayer to deduct any debt (or portion thereof) that becomes wholly
(or partially) worthless during the tax year.
As part of the repeal of IRC 593, the Bank is required to recapture (that is,
include in taxable income) its post-1987 additions to its bad debt reserves
whether the additions were computed using a percentage based on the Bank's
actual loss experience ("experience method"), or a percentage equal to 8% of the
Bank's taxable income, computed with certain modifications, without regard to
the Bank's actual loss experience, and reduced by the amount of any addition
permitted to the reserve for non-qualifying loans. The recapture is to be
determined under Code Section 481(a) and will be added into taxable income
ratably over a six year period beginning with the first tax year after 1995.
The amount to be recaptured is approximately $2.7 million and will not have a
material impact on the Company. The Bank may postpone the recapture of the
post-1987 excess reserves for up to two years if the Bank meets certain
residential loan requirements. The residential loan requirements provide for
deferral during 1996 and 1997 if the principal amount of residential loans
originated by the Bank during each year is not less than its base amount. The
base amount is defined as the average of the principal amounts of residential
loans originated by the Bank during the six most recent tax years beginning
before January 1, 1996. Residential loans are defined as loans secured by
residential real property, church property and certain mobile homes, but only to
the extent that the loan is made to the owner of the property to acquire,
construct or improve the property. By this definition, mortgage refinancing and
home equity loans are not considered residential loans, except to the extent
that the loan proceeds are used to acquire or improve qualified residential
property. Recapture was deferred for calendar year 1996.
DISTRIBUTIONS. To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Bank makes "non-dividend distributions"
to stockholders that are considered to result in distributions from the excess
tax bad debt reserve or the supplemental reserve for losses on
28
<PAGE>
loans ("Excess Distributions"), then 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.
The amount of additional taxable income created from an Excess Distribution is
an amount that when reduced by the tax attributable to the income is equal to
the amount of the distribution. Thus, if certain portions of the Bank's
accumulated bad debt reserve are used for any purpose other than to absorb
qualified bad debt losses, such as for the payment of dividends or other
distributions with respect to the Bank's capital stock (including distributions
upon redemption or liquidation), approximately one and one-half times the amount
so used would be includible in gross income for federal income tax purposes,
assuming a 35% corporate income tax rate (exclusive of state taxes). The Bank
does not intend to pay dividends that would result in a recapture of any portion
of its bad debt reserves.
The recapture of the pre-1988 reserves also applies if the taxpayer fails to
qualify as a bank as defined by Code Section 581. A bank is defined as a bank
or trust company incorporated and doing business under the laws of the United
States (including laws relating to the District of Columbia) or any State, a
substantial part of the business of which consists of receiving deposits and
making loans and discounts, or of exercising fiduciary powers similar to those
permitted to national banks under authority of the Comptroller of the Currency,
and which is subject by law to supervision and examinations by State,
Territorial or Federal Authority having supervision over banking institutions.
The Bank intends to continue to qualify as a bank under Code Section 581.
The pre-1988 reserves and supplemental reserves will be treated as tax
attributes to which Code Section 381 applies. In the case of mergers,
acquisitions, spin-offs and other reorganizations of a thrift, the surviving
institution will inherit the pre-1988 reserves and the accumulated earnings and
profits of the former thrift. As stated above, the pre-1988 reserves will be
restored into income in the case of any distribution in redemption of the stock
of the surviving institution or any partial or complete liquidation following a
merger.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Holding 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 Holding Company will not file a consolidated tax return. The
deduction is increased to 80% if the Holding Company owns more than 20% of the
stock of a non-affiliate corporation distributing a dividend.
STATE AND LOCAL TAXATION
NEW YORK STATE TAXATION. The Company is subject to New York State franchise
taxes on net income (federal taxable income with adjustments) or one of several
alternative bases, whichever results in the highest tax. The Company will file
a combined tax return in the same manner as other corporations with some
exceptions, including the Bank's reserve for bad debts as discussed below.
Generally, the Holding Company would not be required to pay New York State tax
on dividends and interest received from the Bank or on gains realized on the
sale of Bank stock.
New York State passed legislation that incorporated the provisions of IRC 593
into New York Sate tax law. The impact of this legislation enabled the Bank to
defer the recapture of the New York State tax bad debt reserves that would have
occurred as a result of the federal repeal of IRC 593. The legislation also
enabled the Bank to continue to utilize the reserve method for computing its bad
debt deduction. The following discussion of the reserve for bad debts is
intended only as a summary and does not purport to be a comprehensive
description of the New York State tax rules applicable to the Bank or the
Holding Company.
BAD DEBT DEDUCTION. Savings institutions such as the Bank which meet certain
definition tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") are permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income. The
Bank will be a qualifying thrift only if, among other requirements, at least 60%
of its assets are assets described in Section 1453(h)(1) of the New York State
Tax Law. These assets generally include cash, obligations of the United States
or an agency or instrumentality thereof, certain obligations of a state or
political subdivision thereof, residential real estate loans and related loans,
loans secured by savings accounts, student loans and property used by the Bank
in the conduct of its
29
<PAGE>
business. If the Bank failed to meet the 60% test in any taxable year or
otherwise failed to be a qualifying thrift, the Bank would be considered a
"large bank" (based on its current assets) and as such it would not be permitted
to deduct additions to a bad debt reserve. In addition, the Bank would be
required to recapture all or a portion of its bad debt reserves, which may be
spread over a period of years. The Bank presently satisfies the 60% test.
Although there can be no assurance that the Bank will satisfy the 60% test in
the future, management believes that this level of qualifying assets can be
maintained by the Bank. The Bank's deduction for additions to its bad debt
reserve with respect to qualifying loans may be computed using the experience
method or a percentage equal to 32% of the Bank's taxable income, computed with
certain modifications, without regard to the Bank's actual loss experience, and
reduced by the amount of any addition permitted to the reserve for
non-qualifying loans ("NYS percentage of taxable income method"). Use of the
NYS percentage of taxable income method of calculating the addition to the bad
debt reserve may have the effect of reducing the marginal rate of tax on the
Bank's income derived from qualifying loans to a rate as low as 7.2%, exclusive
of any alternative tax, as compared to the generally applicable maximum
corporate New York State income tax rate of 10.53%. The Bank's deduction with
respect to non-qualifying loans must be computed under the experience method
which is based on the qualifying thrift's actual loss experience. Under the
experience method, the amount of a reasonable addition, in general, equals the
amount necessary to increase the balance of the bad debt reserve at the close of
the taxable year to the greater of (i) the amount that bears the same ratio to
loans outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bears to the sum
of the loans outstanding at the close of those six years, or (ii) the balance of
the bad debt reserve at the close of the base year (assuming that the loans
outstanding have not declined since then). Any deduction for the addition to the
reserve for non-qualifying loans reduces the taxable addition to the reserve for
qualifying real property loans calculated under the NYS percentage of taxable
income method. Each year the Bank reviews the most favorable way to calculate
the deduction attributable to an addition to the bad debt reserve.
The amount of the addition to the reserve for losses on qualifying real property
loans under the NYS percentage of taxable income method cannot exceed the amount
necessary to increase the balance of the reserve for losses on qualifying real
property loans at the close of the taxable year to 6% of the balance of the
qualifying real property loans outstanding at the end of the taxable year. Also,
if the qualifying thrift uses the NYS percentage of taxable income method, then
the qualifying thrift's aggregate addition to its reserve for losses on
qualifying real property loans cannot, when added to the addition to the reserve
for losses on non-qualifying loans, exceed the amount by which (i) 12% of the
amount that the total deposits or withdrawable accounts of depositors of the
qualifying thrift at the close of the taxable year exceeded (ii) the sum of the
qualifying thrift's surplus, undivided profits and reserves at the beginning of
such year. The Bank's balance of its reserve for losses on qualifying real
property loans, for New York State tax purposes, was approximately $118 million
at December 31, 1996.
NEW YORK CITY AND OTHER STATES. The Company is required to file tax returns in
New York City and ten other states and jurisdictions where it maintains mortgage
lending offices. New York City has followed New York State and enacted
legislation which would prevent the recapture of federal bad debt reserves from
being subject to New York City tax. The New York City tax rate is 9.0% of the
net income allocable to New York City. The Company's tax rates in the other ten
states in which it conducts business vary from 6.0% to 11.25% on allocable net
income for the specific jurisdiction. In addition, the Holding Company is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
30
<PAGE>
REGULATION
GENERAL
Set forth below is a brief description of certain laws and regulations which
relate to the regulation of the Holding Company and the Bank. The description is
not complete and is qualified in its entirety by reference to applicable laws
and regulations.
The Holding Company, as a savings and loan holding company, is required to file
certain reports and otherwise comply with the rules and regulations of the OTS.
The Company is also required to comply with the rules and regulations of the
Securities and Exchange Commission ("SEC") under the federal securities laws.
The Bank is a federally chartered savings bank, the deposits of which are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC. Accordingly, the Bank is subject to broad regulation
and oversight by regulators, the OTS and the FDIC. The Bank is also subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("FRB"). The OTS periodically examines the Holding Company and the Bank
for compliance with various regulatory requirements. The FDIC also has the
authority to conduct special examinations of the Bank. The Bank must file
periodic reports with the OTS describing its activities and financial condition.
Certain regulatory requirements applicable to the Holding Company and the Bank
are discussed below or elsewhere herein.
HOLDING COMPANY REGULATION
The Holding Company is a unitary savings and loan holding company within the
meaning of the Home Owners Loan Act as amended ("HOLA"). As such, the Holding
Company is required to register with the OTS and is subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Holding 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.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring another savings institution
or holding company thereof, without prior written approval of the OTS; acquiring
or retaining, with certain exceptions, more than 5% of a non-subsidiary savings
institution, 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 federally insured. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
As a unitary savings and loan holding company, the Company generally will not be
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to meet the QTL test. See
"--Federal Regulation of Savings Association-Qualified Thrift Lender Test" for a
discussion of the QTL requirements. Upon any non-supervisory acquisition by the
Holding Company of another savings and loan association or savings bank that
meets the QTL test and is deemed to be a savings institution by the OTS, the
Holding 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 generally limits the activities of a multiple savings and loan
holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. Under
New York law, reciprocal interstate acquisitions are authorized for savings and
loan holding companies and savings institutions. Certain states do not authorize
interstate acquisitions under any circumstances; however, federal law
authorizing acquisitions in supervisory cases preempts such state law.
Federal law generally provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire "control,"
as that term is defined in OTS regulations, of a federally-insured savings
institution without giving at least 60 days written notice to the OTS and
providing the OTS an opportunity to disapprove the proposed acquisition. Such
acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition
31
<PAGE>
would substantially lessen competition; (ii) the financial condition of the
acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
There is, as of the date of this report proposed legislation pending in Congress
that, if passed and enacted, would eliminate the thrift charter and require the
Bank to convert to a bank charter and the Holding company to convert to a bank
holding company. In such an event, the Bank will be regulated by the Office of
the Comptroller of the Currency and the Holding Company would be regulated by
the FRB. It is possible that Congress could modify the thrift, unitary holding
company, and/or bank charters, and/or create one or more new unified charters.
It is also possible that Congress will take no action with respect to the
thrift charter. Management does not believe that any regulatory change to the
charters of the Bank or the Holding Company would have a material, adverse
effect on the Bank or the Holding Company, although there can be no assurance
that this would not be the case.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
The activities of savings institutions are governed by "HOLA" and, in certain
respects, the Federal Deposit Insurance Act ("FDIA"). The HOLA and the FDIA
were amended by FIRREA and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). FDICIA, among other things, requires that federal
banking regulators intervene promptly when a depository institution experiences
financial difficulties. FDICIA also requires the establishment of a risk-based
deposit insurance assessment system and the imposition of numerous additional
safety and soundness operational standards and restrictions. FIRREA and FDICIA
contain provisions affecting numerous aspects of the operations and regulations
of federally-insured savings and loan associations and empower the OTS and the
FDIC, among other agencies, to promulgate regulations implementing their
provisions.
The investment and lending authority of the Bank is restricted by federal laws
and regulations. Savings associations are restricted as to the amount that may
be invested in nonresidential real property loans and may not invest in
non-investment grade debt securities, nor may they generally make equity
investments, other than investments in service corporation subsidiaries.
Transactions between the Bank and its affiliates are limited to certain
percentages of the Bank's capital and certain other restrictions. The OTS may
impose additional restrictions on transactions with affiliates if necessary to
protect the safety and soundness of savings associations and has adopted
regulations against insider abuse.
LOANS-TO-ONE BORROWER LIMITS. Savings associations, such as the Bank, generally
are subject to the same loans-to-one borrower limits that apply to national
banks. With certain exceptions, loans and extensions of credit outstanding at
one time to one borrower (including certain related entities of the borrower)
may not exceed 15% of the unimpaired capital and surplus of the savings
association, plus an additional 10% of unimpaired capital and surplus for loans
fully secured by certain readily marketable collateral. At September 30, 1997,
the maximum amount the Bank could lend to one borrower was approximately $73.1
million, and at that date the Bank had no lending relationships which exceeded
such loans-to-one borrower limitation.
INSURANCE OF ACCOUNTS. FIRREA established two separate deposit insurance funds
that are not to be commingled. The two funds are the Bank Insurance Fund
("BIF") to insure banks and the SAIF to insure savings associations. The
deposits of the Bank are insured up to $100,000 per depositor (as defined by law
and regulation) by the SAIF, which is administered by the FDIC and backed by the
full faith and credit of the United States government. The FDIC is authorized
to conduct examinations of, and to require reporting by, insured institutions,
such as the Bank. It may prohibit any insured institution from engaging in any
activity the FDIC determines by regulation or order to pose a serious threat to
the insurance fund. The FDIC also has the authority to initiate enforcement
actions where the OTS has failed or declined to take such action after receiving
a request to do so from the FDIC.
FDICIA eliminated limitations on increases in federal deposit insurance premiums
and authorized the FDIC to increase the assessment rates to the extent necessary
to protect the SAIF and the BIF. FDICIA also directs the FDIC to implement a
risk-based deposit insurance assessment system. Pursuant to this requirement,
the FDIC adopted a risk-based assessment system, effective January 1, 1994,
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums currently ranging from zero to 0.27%
of deposits, based upon their level of capital and supervisory evaluation.
Under the system, institutions classified as well capitalized (i.e., those with
a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to
risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a total
risk-based capital
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ratio of at least 10% and considered financially sound with no material
weaknesses) would pay the lowest premium while institutions that are less than
adequately capitalized (i.e., those with core and Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than 8% and
considered of substantial supervisory concern) would pay a higher premium. Risk
classification of all insured institutions is determined by the FDIC
periodically. As of the date of this Report, the FDIC has informed the Bank that
its annual assessment for deposit insurance is 0.06%.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order or any condition imposed by a written
agreement with the FDIC. It also may suspend deposit insurance temporarily
during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If insurance of accounts is terminated, the
accounts at the institution at the time of the termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances pursuant to which the FDIC would seek to impose sanctions on the
Bank or which could result in termination of the Bank's deposit insurance.
On September 30, 1996, as part of an omnibus appropriations bill, the Deposit
Insurance Funds Act of 1996 ("Act") was enacted. The Act required i) SAIF
institutions to pay a one-time special assessment, ii) BIF institutions to
include in their deposit insurance premiums beginning January 1, 1997 a portion
of the interest due on the Finance Corporation ("FICO") bonds, and iii) BIF
institutions to pay their full pro rata share of the FICO payments starting the
earlier of January 1, 2000 or the date at which no savings institution continues
to exist. The FDIC has estimated that beginning January 1, 1997, thrifts will
pay a rate of 6.4 cents per $100 of deposits (a 72.2% reduction from the current
assessment of 23 cents) and banks will pay 1.3 cents per $100 deposits to fund
FICO bond interest payments until the earlier of January 1, 2000 or the date at
which the last savings association continues to exist. At that time the
payments will be shared on a pro-rata basis. Pursuant to these provisions of
the Act, the Bank paid a special SAIF premium assessment totaling $18.7 million
on November 27, 1996. The Bank also anticipates that, commencing on January 1,
1997 and through December 31, 1999, its annual SAIF assessment will drop to $2.4
million and in the year 2000 will drop to approximately $0.5 million. The Bank
paid $3.9 million in SAIF assessments in fiscal 1997 and received a refund of
$.4 million from prior year payments in accordance with the Act.
LIQUIDITY REQUIREMENTS. All savings associations are required to maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state and federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a certain percentage of the sum of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement, which is currently 4%,
may be changed from time to time by the OTS (between 4.0% and 10.0%) depending
upon economic conditions and savings flows of all savings associations.
Short-term liquid assets currently must constitute at least 1.0% of a savings
association's average daily balance of net withdrawable deposit accounts and
current borrowings. Monetary penalties may be imposed upon savings associations
for violations of liquidity requirements. The Bank's liquidity and short-term
liquidity ratios for September 30, 1997 were 8.05% and 4.09%, respectively,
which exceeds the applicable requirements.
ACCOUNTING REQUIREMENTS. FIRREA requires the OTS to establish accounting
standards to be applicable to all savings associations except to the extent
otherwise specified in the capital standards. Such standards must incorporate
generally accepted accounting principals ("GAAP") to the same degree as is
prescribed by the Federal banking agencies for banks or may be more stringent
than such requirements.
QUALIFIED THRIFT LENDER TEST. All savings associations, including the Bank, are
required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations. Under FDICIA, a savings association has been
required to have at least 65.0% of its portfolio assets (which consist of total
assets less intangibles, properties used to conduct the savings association's
business and liquid assets not exceeding 20.0% of total assets) in "qualified
thrift investments" (primarily residential mortgage loans and related
investments, including certain mortgage-backed and mortgage-related securities)
on a monthly average basis in nine of every 12 months. A savings association
that fails the QTL test must either convert to a bank charter or operate under
certain restrictions. If the savings association does not convert to a bank
charter, it generally will be prohibited from: (i) making an investment or
engaging in any new activity not permissible for a national bank, (ii) paying
dividends not permissible under national bank regulations, (iii) obtaining
advances from any Federal Home Loan Bank ("FHLB"), and (iv) establishing any new
branch office in a location not permissible for a national bank in the
association's home state. One year following the association's failure to meet
the QTL test, any holding company parent of the association must register and be
subject to supervision as a bank holding company. In addition, beginning three
years after the
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association fails the QTL test, the association would be prohibited from
refinancing any investment or engaging in any activity not permissible for a
national bank and would have to repay any outstanding advances from a FHLB as
promptly as possible. On September 30, 1996, as part of the omnibus
appropriations bill, Congress enacted the Economic Growth and Paperwork
Reduction Act of 1996 ("Regulatory Paperwork Reduction Act"), modifying and
expanding investment authority under the QTL test. Prior to the enactment of
the Regulatory Paperwork Reduction Act, commercial, corporate, business, or
agricultural loans were limited in the aggregate to 10% of a thrift's assets and
education loans were limited to 5% of a thrift's assets. Further, in order to
qualify for favorable tax treatment, federal savings associations also had to
meet a different asset test under the Code (the "domestic building and loan
association test"). The amendments permit federal thrifts to invest in, sell,
or otherwise deal in education and credit card loans without limitation and
raise from 10 to 20 percent of total assets the aggregate amount of commercial,
corporate, business, or agricultural loans or investments that may be made by a
thrift, subject to a requirement that amounts in excess of 10% of total assets
be used only for small business loans. In addition, the legislation defines
"qualified thrift investment" to include, without limit, education, small
business, and credit card loans; and removes the 10% limit on personal, family,
or household loans for purposes of the QTL test. The legislation also provides
that a thrift meets the QTL test if it qualifies as a domestic building and loan
association under the Code. As of September 30, 1997, the Bank maintained
104.37% of its "portfolio assets" (which, as defined in the OTS regulations,
exclude liquidity items and office properties) in qualified thrift investments
and met the QTL test. At September 30, 1997, 96.34% of the Bank's total assets
were invested in qualified thrift investments.
TRANSACTIONS WITH RELATED PARTIES. Transactions between savings institutions
and any "affiliate" are governed by Sections 23A and 23B of the Federal Reserve
Act ("FRA"). An affiliate of a savings institution is any company or entity
which controls, is controlled by or is under common control with the savings
institution, including any holding company parent of the association and its
non-savings institution subsidiaries. Generally, Sections 23A and 23B (i) limit
the extent to which the savings institution or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10.0% of
such institution's capital stock and surplus, and contain an aggregate limit on
all such transactions with all affiliates to an amount equal to 20.0% of such
capital stock and surplus, and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. Each loan or extension of
credit to an affiliate by a savings association must be secured by collateral
with a market value ranging from 100% to 130% (depending on the type of
collateral) of the amount of credit extended. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no savings institution may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies under Section 4(c)
of the Bank Holding Company Act, or (ii) purchase or invest in any stocks,
bonds, debentures, notes or similar obligations of any affiliates, except for
affiliates which are subsidiaries of the savings institution.
In addition, loans to directors, executive officers and to greater than 10.0%
stockholders of a savings institution or the company that controls the savings
institution, and certain affiliated interests of such insiders, are governed by
Sections 22(g) and 22(h) of the FRA, and Regulation O promulgated thereunder.
Such loans, together with all other outstanding loans to such person and
affiliated interests, may not exceed the institution's loans-to-one borrower
limit. Loans to directors, executive officers and principal stockholders must
also be made on terms substantially the same as offered in comparable
transactions to other persons, except for extensions of credit made pursuant to
a benefit or compensation program that is widely available to all employees of
the institution and does not give preference to insiders over other employees,
with prior board approval required for certain loans. In addition, the
aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes limitations on all
capital distributions by savings associations, which include cash dividends,
stock redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other distributions charged to the capital account of a
savings association. Generally, the applicable regulation permits specified
levels of capital distributions by associations meeting at least their minimum
capital requirements, so long as such associations provide the OTS with at least
30 days advance notice and receive no objection to the distribution from the
OTS.
The regulation establishes three tiers of savings associations, based primarily
on an association's capital level. Generally, Tier 1 associations, which are
savings associations that before and after the proposed distribution meet or
exceed their fully phased-in capital requirements and have not been informed by
the OTS that they are in need of more than normal supervision, may make capital
distributions during any calendar year equal to the higher of (i) 100.0% of net
income for the
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calendar year-to-date plus 50.0% of its "surplus capital ratio" at the beginning
of the calendar year or (ii) 75.0% of net income over the most recent four
quarter period. The "surplus capital ratio" is defined to mean the percentage
by which the association's ratio of total capital to assets exceeds the ratio of
its fully phased-in capital requirement to assets, and "fully phased-in capital
requirement" is defined to mean an association's capital requirement under the
statutory and regulatory standards applicable on December 31, 1994, as modified
to reflect any applicable individual minimum capital requirements imposed upon
an association. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its
fully-phased in requirement or the OTS notified it that it was in need of more
than normal supervision, the Bank's ability to make capital distributions would
be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any association, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice. Furthermore, under FDICIA, the Bank would be
prohibited from making any capital distributions if, after the distribution, the
Bank would have: (i) a total risk-based capital ratio of less than 8.0%, (ii) a
Tier 1 risk-based capital ratio of less than 4.0% or (iii) a leverage ratio of
less than 4.0% (3.0% in the event that the Bank is assigned a Composite Rating
of 1 under the CAMEL rating system, the highest OTS examination rating for
savings institutions). As of September 30, 1997, the Bank qualified as a Tier 1
institution for purposes of this regulation.
Tier 2 institutions are those in compliance with their current, but not their
fully phased-in, capital requirements. Tier 2 institutions may make
distributions of up to 75% of their net income for the most recent four-quarter
period. Tier 1 and Tier 2 institutions may seek OTS approval to pay dividends
beyond these amounts.
Tier 3 institutions have capital levels below their current required minimum
levels and may not make any capital distributions without the prior written
approval of the OTS.
In order to make distributions under these safe harbors, Tier 1 and Tier 2
associations must submit 30 days written notice to the OTS prior to making the
distribution. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. In addition, a Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be treated
as a Tier 2 or Tier 3 association as a result of such a determination.
FEDERAL HOME LOAN BANK ("FHLB") SYSTEM. The Bank is a member of the Federal
Home Loan Bank Board of New York ("FHLB-NY"), which is one of 12 regional FHLBs
governed and regulated by the Federal Housing Finance Board. Each FHLB serves as
a source of liquidity for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by its Board of Directors. At September 30,
1997, the Bank had $33.1 million in outstanding advances from the FHLB-NY.
As a member, the Bank is required to purchase and maintain stock in the FHLB-NY
in an amount equal to the greater of 1.0% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year or 5.0% of total advances. At September 30, 1997, the Bank had
$48.7 million in FHLB stock, which was in compliance with this requirement. For
the fiscal year ended September 30, 1997, dividends received from the FHLB-NY by
the Bank totaled $3.0 million.
ASSESSMENTS. Savings institutions are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed based upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. The assessments
paid by the Bank in fiscal 1997 totaled $0.8 million.
BRANCHING. OTS rules permit federally chartered savings associations to branch
nationwide to the extent allowed by federal statute. The OTS authority preempts
any state law purporting to regulate branching by federal savings associations.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. An
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unsatisfactory rating may be used as a basis for denial of an application by the
OTS. The CRA also requires all institutions to make public disclosure of their
CRA ratings. Federal banking agencies, including the OTS, have recently revised
their CRA regulations and their methodology for determining an institution's
compliance with the CRA. The Bank received a CRA Rating of Outstanding in its
most recent CRA examination, which was conducted prior to the effective date of
the amended OTS regulations.
BROKERED DEPOSITS. The FDIC has promulgated regulations implementing the FDICIA
limitations on brokered deposits. Under the regulations, well-capitalized
institutions are not subject to brokered deposit limitations, while adequately
capitalized institutions are able to accept, renew or roll over brokered
deposits only (i) with a waiver from the FDIC and (ii) subject to the limitation
that they do not pay an effective yield on any such deposit which exceeds by
more than (a) 75 basis points the effective yield paid on deposits of comparable
size and maturity in such institution's normal market area for deposits accepted
in its normal market area or (b) 120 basis points for retail deposits and 130
basis points for wholesale deposits accepted outside the institution's normal
market area, respectively, from the current yield on comparable maturity U.S.
Treasury obligations. Undercapitalized institutions are not permitted to accept
brokered deposits and may not solicit deposits by offering an effective yield
that exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in the institution's normal market area
or in the market area in which such deposits are being solicited. Pursuant to
the regulation, the Bank, as a well-capitalized institution, may accept brokered
deposits. The Bank, however, had no brokered deposits outstanding as of
September 30, 1997.
REGULATORY CAPITAL REQUIREMENTS
GENERAL. Federally insured savings associations, such as the Bank, are required
to maintain minimum levels of regulatory capital. Pursuant to FIRREA, the OTS
established capital standards applicable to all Federal savings associations.
These standards generally must be no less stringent than the capital
requirements applicable to national banks. The OTS also is authorized to impose
capital requirements in excess of these standards on individual associations on
a case-by-case basis.
Any savings association that fails any of the capital requirements is subject to
possible enforcement actions by the OTS or the FDIC. Such actions could include
a capital directive, a cease and desist order, civil monetary penalties, the
establishment of restrictions on an association's operations and the appointment
of a conservator or receiver. The OTS' capital regulation provides that such
actions, through enforcement proceedings or otherwise, may require one or more
of a variety of corrective actions.
The capital regulations create three capital requirements: a tangible capital
requirement, a leverage or core capital requirement and a risk-based capital
requirement. At September 30, 1997, the Bank was in compliance with all three
capital requirements. These three capital standards are described below.
TANGIBLE CAPITAL REQUIREMENT. Under current OTS regulations, each savings
association must maintain tangible capital equal to at least 1.50% of its
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related earnings plus mortgage
servicing rights up to 50% of the amount of tangible capital as described. At
September 30, 1997, the Bank had recorded mortgage servicing rights of $41.8
million. The Bank's tangible capital was $453.5 million or 7.72% at September
30, 1997.
In calculating adjusted total assets, adjustments are made to total assets to
give effect to the exclusion of certain assets from capital and to appropriately
account for the investments in and assets of both includible and non-includible
subsidiaries.
CORE CAPITAL REQUIREMENT. Each savings association must maintain core capital
equal to at least 3.0% of its adjusted total assets. Core capital includes
common stockholders' equity (including retained income but excluding net
unrealized gains or losses on securities available-for-sale), non-cumulative
perpetual preferred stock and related surplus, minority interest in the equity
accounts of fully consolidated subsidiaries and a percentage of qualifying
intangible assets. The Bank's core capital was $453.5 million or 7.72% at
September 30, 1997.
RISK-BASED REQUIREMENT. The risk-based capital standard adopted by the OTS
requires savings associations to maintain a minimum ratio of total capital to
risk-weighted assets of 8.0%. Total capital consists of core capital, defined
above, and supplementary capital. Supplementary capital consists of certain
capital instruments that do not qualify as core capital, and general valuation
loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital
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may be used to satisfy the risk-based requirement only in an amount equal to the
amount of core capital. In determining the risk-based capital ratios, total
assets, including certain off-balance sheet items, are multiplied by a risk
weight assigned by OTS to certain categories of assets. The risk weights
assigned by the OTS for significant categories of assets are (i) 0.0% for cash
and securities issued by the Federal government or unconditionally backed by the
full faith and credit of the Federal government; (ii) 20.0% for securities
(other than equity securities) issued by Federal government sponsored agencies
and mortgage-backed securities issued by, or fully guaranteed as to principal
and interest by, FNMA or FHLMC, except for those classes with residual
characteristics or stripped mortgage-related securities; (iii) 50.0% for
prudently underwritten permanent one-to-four family first lien mortgage loans
not more than 90 days delinquent and having a loan-to-value ratio of not more
than 80.0% at origination unless insured to such ratio by private mortgage
insurance by an insurer approved by FNMA or FHLMC and certain qualifying
multi-family mortgage loans; and (iv) 100.0% for all other loans and
investments, including consumer loans, commercial loans, and one-to-four family
residential real estate loans more than 90 days delinquent, and all repossessed
assets or assets more than 90 days past due.
On August 31, 1993, the OTS issued a final rule incorporating an interest rate
risk ("IRR") component into its risk-based capital rules, but deferred full
implementation of the IRR component until an appeals process for affected
institutions had been adopted. Under the rule, an institution with a greater
than "normal" level of IRR will be subject to a deduction of its IRR component
from total capital for purposes of calculating the risk-based capital
requirement. As a result, such an institution may be required to maintain
additional capital in order to comply with the risk-based capital requirement.
An institution with a greater than "normal" IRR is defined as an institution
that would suffer a loss of net portfolio value exceeding 2.0% of the estimated
market value of its assets in the event of a 200 basis point increase or
decrease (with certain minor exceptions) in interest rates. The IRR component
will be calculated, on a quarterly basis, as one-half of the difference between
an institution's measured IRR and 2.0%, multiplied by the market value of its
assets. The rule also authorizes the director of the OTS, or his designee, to
waive or defer an institution's IRR component on a case-by-case basis. On
August 21, 1995, the OTS issued procedures that allow eligible thrifts (i) to
request an adjustment to their IRR component, as calculated by OTS, or (ii)
calculate their IRR exposure using their own computer models. At the same time,
the OTS deferred until further notice application of its IRR rule requiring
thrifts with above normal IRR exposure to adjust their regulatory capital
requirements. The OTS continues to monitor the IRR of individual institutions
and retains the right to impose minimum capital on individual institutions.
Based on the Bank's IRR profile and the level of interest rates at September 30,
1997, as well as the Bank's level of risk-based capital at September 30, 1997
which was $487.4 million or 16.24%, management believes that the Bank does not
have a greater than normal level of IRR as measured under the OTS rule and will
not be required to increase its capital as a result of the rule.
FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. At September 30, 1997,
the Bank was in compliance with these requirements.
The balances maintained to meet the reserve requirements imposed by the FRB may
be used to satisfy liquidity requirements imposed by the OTS. Because required
reserves must be maintained in the form of vault cash or a non-interest-bearing
account at a FRB, the effect of this reserve requirement is to reduce an
association's earning assets. The amount of funds necessary to satisfy this
requirement has not had a material effect on the Bank's operations.
As a creditor and a financial institution, the Bank is also subject to
additional regulations promulgated by the FRB, including, without limitation,
regulations implementing requirements of the Truth in Savings Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act and the
Truth-in-Lending Act.
FINANCIAL REPORTING. Depository institutions whose accounts are insured by the
FDIC ("insured institutions") are required to submit independently audited
annual reports to the FDIC and the appropriate agency (and state supervisor when
applicable). These publicly available reports must include (i) annual financial
statements prepared in accordance with GAAP and such other disclosure
requirements as required by the FDIC or the appropriate agency and (ii) a
report, signed by the chief executive officer and the chief financial officer or
chief accounting officer of the institution which contains statements about the
adequacy of internal controls and compliance with designated laws and
regulations, and an attestation by independent auditors related to the former.
Insured institutions are required to monitor the above activities through an
independent audit committee which, in the case of institutions with assets over
$500 million, has access to independent legal counsel.
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SAFETY AND SOUNDNESS GUIDELINES
Under FDICIA, as amended by the Riegle Community Development and Regulatory
Improvement Act of 1994 ("CDRI Act"), each federal banking agency is required to
establish safety and soundness standards for institutions under its authority.
On July 10, 1995, the federal banking agencies, including the OTS, jointly
released Interagency Guidelines Establishing Standards For Safety and Soundness
and published a final rule establishing deadlines for submission and review of
safety and soundness compliance plans. The guidelines, among other things,
require savings associations to maintain internal controls, information systems
and internal audit systems that are appropriate to the size, nature and scope of
the association's business. The guidelines also establish certain standards for
loan documentation, credit underwriting, interest rate exposure, and asset
growth. Savings associations are required to maintain safeguards to prevent the
payment of compensation, fees and benefits that are excessive or that could lead
to material financial loss. The OTS may determine that a savings association is
not in compliance with the safety and soundness guidelines and, upon doing so,
may require the association to submit an acceptable plan to achieve compliance
with the guidelines. A savings association must submit an acceptable compliance
plan to the OTS within 30 days of receipt or request for such a plan. Failure
to submit or implement a compliance plan may subject the association to
regulatory actions. Management believes that the Bank currently meets the
standards adopted in the interagency guidelines and does not believe that
implementation of the regulatory standards will materially affect the Bank's
operations.
Additionally, under FDICIA, as amended by the CDRI Act, federal banking agencies
are required to establish standards relating to asset quality and earnings that
the agencies determine to be appropriate. On August 27, 1996, the federal
banking agencies, including the OTS, adopted guidelines relating to asset
quality and earnings. Under the proposed guidelines, a savings association
would be required to maintain systems, consistent with its size and the nature
and scope of its operations, to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
insure that earnings are sufficient to maintain adequate capital and reserves.
Management believes that the asset quality and earnings guidelines, as adopted
by the banking agencies, would not have a material effect on the Bank's
operations.
PROMPT CORRECTIVE REGULATORY ACTION. Under Section 38 of the FDIA, as added by
FDICIA, each appropriate agency and the FDIC is required to take prompt
corrective action to resolve the problems of insured depository institutions
that do not meet minimum capital ratios. Such action must be accomplished at
the least possible long-term cost to the appropriate deposit insurance fund.
The federal banking agencies, including the OTS, have adopted substantially
similar regulations to implement Section 38 of the FDIA. Under these
regulations, an institution shall be deemed to be (i) "well capitalized" if it
has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and
is not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is
less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Section 38
of the FDIA and the regulations promulgated thereunder also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). At September 30, 1997, the Bank met the criteria
to be considered a "well capitalized" institution.
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FEDERAL SECURITIES LAWS
The Holding Company's common stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"). The
Holding Company is subject to the information, proxy, solicitation, insider
trading restrictions and other requirements under the Exchange Act.
ITEM 2. PROPERTIES
The Bank conducts its business through its office in Melville, N.Y., 35
full service branch offices, and 22 regional lending centers. Six of the Bank's
offices are located in Queens County of New York City, 10 are located in Nassau
County-Long Island, and 19 are located in Suffolk County-Long Island. Six of
the Bank's regional lending centers are located in Virginia; 3 each in Georgia
and New York; 5 in Maryland; 2 in North Carolina, and 1 each in New Jersey,
Pennsylvania and South Carolina. The Bank believes that the current facilities
are adequate to meet the present and immediately foreseeable needs of the Bank.
ITEM 3. LEGAL PROCEEDINGS.
On March 24, 1994, the Bank received notice that it had been named as a
defendant in a class action lawsuit filed in the United States District Court
for the Eastern District of New York against James J. Conway, Jr., former
chairman and chief executive officer of the Bank who resigned from the Bank in
June 1992, his former law firm, certain predecessor firms of that law firm,
certain partners of that law firm and the Bank. The lawsuit is entitled RONNIE
WEIL ALSO KNOWN AS RONNIE MOORE, FOR HERSELF AND ON BEHALF OF ALL OTHER PERSONS
WHO ATTAINED MORTGAGE LOANS FROM THE LONG ISLAND SAVINGS BANK, FSB DURING THE
PERIOD JANUARY 1, 1983 THROUGH DECEMBER 31, 1992 AGAINST THE LONG ISLAND SAVINGS
BANK, FSB. The complaint alleges that the defendants caused mortgage loan
commitments to be issued to mortgage loan borrowers, and submitted legal
invoices to the borrowers at the closing of mortgage loans, which falsely
represented the true legal fees charged for representing the Bank in connection
with the mortgage loans and failed to advise that a part of the listed legal fee
would be paid to Mr. Conway, thereby defrauding the borrowers. The complaint
does not specify the amount of damages sought.
On or about June 9, 1994, the Bank was served with an Amended Summons and
Amended Complaint adding the Bank's directors as individual defendants. On or
about July 29, 1994, the Bank and the individual director defendants served on
plaintiffs a motion to dismiss the Amended Complaint. On or about August 29,
1994, the plaintiffs served papers in response to the motion. The remaining
schedule on the motion has been held in abeyance pending certain discovery.
Management believes that the likelihood is remote that this case will have a
material adverse impact on the Company's consolidated financial position.
On August 15, 1989 the Bank and its former wholly owned subsidiary, The Long
Island Savings Bank of Centereach, FSB ("Centereach"), filed suit against the
United States seeking damages and/or other appropriate relief on the grounds,
among others, that the government had breached the terms of the 1983 assistance
agreement between the Bank and the Federal Savings and Loan Insurance
Corporation pursuant to which the Bank acquired Centereach ("Assistance
Agreement"). The Assistance Agreement, among other things, provided for the
inclusion of supervisory goodwill as an asset on Centereach's balance sheet to
be included in capital and amortized over 40 years for regulatory purposes.
The suit is pending before Chief Judge Loren Smith in the United States Court of
Federal Claims and is entitled THE LONG ISLAND SAVINGS BANK, FSB ET AL. VS THE
UNITED STATES. (The case had been stayed pending disposition by the United
States Supreme Court of three related supervisory goodwill cases (the WINSTAR
cases). On July 1, 1996 the Supreme Court ruled in the WINSTAR cases the
government had breached its contracts with the WINSTAR parties and was liable in
damages for those breaches. Therefore, the stay applicable to the WINSTAR-
related cases, including the Bank's case, was lifted.
On November 1, 1996, the Bank filed a motion for summary judgment on liability.
On January 27, 1997 the government filed a response opposing the Bank's motion
and cross-moving for summary judgment. No decision has been rendered on the
Bank's motion or the government's cross-motion. Discovery has begun.
In its complaint, the Bank did not specify the amount of damages it was seeking
from the United States. There have been no decisions determining damages in the
WINSTAR cases or any of the WINSTAR-related cases. The Bank is unable to
predict the outcome of its claim against the United States and the amount of
damages that may be awarded to the Bank, if any, in the
39
<PAGE>
event that judgment is rendered in the Bank's favor. Consequently, no
assurances can be given as to the results of this claim or the timing of any
proceedings in relation thereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Long Island Bancorp, Inc. common stock is traded on the Nasdaq National Market
and quoted under the symbol "LISB".
Information regarding Long Island Bancorp, Inc. common stock and its price for
the 1997 fiscal year appears on page 63 of the 1997 Annual Report under the
caption "Market Price of Common Stock" and its incorporated herein by this
reference.
As of September 30, 1997, Long Island Bancorp, Inc. had approximately 3,180
stockholders of record, not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.
On December 22, 1994, Long Island Bancorp, Inc. adopted a dividend policy to pay
an annual dividend, payable in equal quarterly installments, should the earnings
of the Company warrant. Dividends of fifteen cents per Common Share have been
paid in fiscal 1997 to shareholders as follows:
Declaration Date Record Date Payment Date
- --------------------- -------------------- ----------------------
December 19, 1996 January 15, 1997 February 14, 1997
March 25, 1997 April 14, 1997 May 14, 1997
June 24, 1997 July 16, 1997 August 14, 1997
September 23, 1997 October 15, 1997 November 14, 1997
Long Island Bancorp, Inc. initiated its first, second, third and fourth stock
repurchase programs on March 9, 1995, September 9, 1995, April 15, 1996 and
April 21, 1997, respectively, as authorized by the OTS. As of September 30,
1997, Long Island Bancorp, Inc. repurchased 3,230,054 shares, or 13.45% of the
outstanding common stock, at an aggregate cost of $83.9 million under the four
stock repurchase plans.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding selected financial data appears on page 10 of the 1997
Annual Report and is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding management's discussion and analysis of financial
condition and results of operations appears on pages 15 through 28 of the 1997
Annual Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and is incorporated herein by
this reference.
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding the financial statements and the Independent Auditors'
Report appears on pages 29 through 62 of the 1997 Annual Report and is
incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and executive officers of the Registrant
appears on pages 6 through 10 of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held February 17, 1998 under the captions "Board
Nominees, Directors and Executive Officers," "Biographical Information -
Directors and Board Nominees" and "- Executive Officers Who Are Not Directors"
and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears on pages 15 through 18 of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 17, 1998 and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners appears on
page 3 of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held February 17, 1998 under the caption "Stock Ownership of Certain
Beneficial Owners" and is incorporated herein by this reference.
Information regarding security ownership of management appears on pages 4 and 5
of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held February 17, 1998 under the caption "Stock Ownership of Management" and is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions appears on
pages 11 and 12 of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on February 17, 1998 under the caption "Transactions
with Certain Related Persons" and is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following financial statements are included in the Company's Annual Report
to Shareholders for the year ended September 30, 1997 and are incorporated by
this reference:
- - Consolidated Statements of Financial Condition at September 30, 1997 and
1996
- - Consolidated Statements of Operations for each of the years in the three
year period ended September 30, 1997
- - Consolidated Statements of Changes in Stockholders' Equity for each of the
years in the three year period ended September 30, 1997
- - Consolidated Statements of Cash Flows for each of the years in the three
year period ended September 30, 1997
- - Notes to Consolidated Financial Statements
- - Independent Auditors' Report
41
<PAGE>
The remaining information appearing in the Annual Report to Stockholders is not
deemed to be filed as a part of this report, except as expressly provided
herein.
2. FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
Notes thereto.
(B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF FISCAL 1997
Press release dated July 22, 1997 in connection with the earnings for the third
quarter of fiscal year 1997.
Press release dated September 23, 1997 announced the declaration of the
Company's twelfth consecutive quarterly dividend.
(C) EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K
EXHIBIT
NUMBER
- -------
3.1 Restated Certificate of Incorporation of Long Island Bancorp, Inc. (1)
3.2 Restated By-Laws of Long Island Bancorp, Inc. (1)
10.1 Employment Agreements between Long Island Bancorp, Inc. and Certain
Officers
10.2 Employment Agreements or Other Arrangements between The Long Island
Savings Bank, FSB and Certain Officers
10.3 The Long Island Savings Bank, FSB Management Recognition and
Retention Plans for Non-Employee Directors (2)
10.4 The Long Island Savings Bank, FSB Management Recognition and Retention
Plan for Executive Officers (2)
10.5 Long Island Bancorp, Inc. 1994 Stock Incentive Plan (2)
10.6 Long Island Bancorp, Inc. 1994 Non-Employee Directors Stock Option
Program (2)
10.7 Form of The Long Island Savings Bank, FSB Employee Stock Ownership
Plan and Trust (1)
10.8 Long Island Bancorp Inc. Non-Employee Director Retirement Benefit Plan (3)
10.9 ESOP Loan Documents (1)
10.10 Amendment to The Long Island Savings Bank, FSB 401 (k) Savings Plan (4)
10.11 Amendments to Retirement Plan of The Long Island Savings Bank, FSB in
Retirement System for Savings Institutions(4)
10.12 Form of The Long Island Bancorp, Inc. Non-Employee Directors Stock
Compensation Plan
10.13 The Long Island Savings Bank, FSB Deferred Pension Plan (1)
10.14 Amendments to the ESOP (4)
10.15 Separation agreement with President of the Bank and Holding Company(4)
10.16 Separation agreement with Chief Lending Officer of the Bank and
Holding Company
11.0 Statement Re: Computation of Per Share Earnings
13.0 1997 Annual Report to Shareholders
21 Subsidiaries of Registrant
27 Financial Data Schedule
99.0 Proxy Statement for the Annual Meeting of Stockholders to be held on
February 17, 1998
(1) Incorporated by reference to Exhibits filed with the Registration
Statement on Form S-1, Registration No. 33-73694
(2) Incorporated by reference to Exhibits filed with the Proxy Statement
for the Special Meeting of Stockholders held August 3, 1994.
(3) Incorporated by reference to Exhibits filed with Form 10-K for the
fiscal year ended September 30, 1994.
(4) Incorporated by reference to Exhibits filed with Form 10-K for the
fiscal year ended September 30, 1996.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of The Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LONG ISLAND BANCORP, INC. Dated: December 18, 1997
- -------------------------
(Registrant)
/s/ John J. Conefry, Jr.
- ------------------------
John J. Conefry, Jr.
Chairman and Chief Executive Officer
43
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ John J. Conefry, Jr. Chairman, Chief Executive Officer December 18, 1997
- ------------------------ and Director -----------------
John J. Conefry, Jr.
/s/ Lawrence W. Peters President, Chief December 18, 1997
- ---------------------- Operating Officer and Director -----------------
Lawrence W. Peters
/s/ Mark Fuster
- ----------------------- December 18, 1997
Mark Fuster Chief Financial Officer -----------------
/s/ Bruce M. Barnet December 18, 1997
- ----------------------- -----------------
Bruce M. Barnet Executive Vice President
and Director
/s/ Clarence M. Buxton December 18, 1997
- ----------------------- -----------------
Clarence M. Buxton Director
/s/ Edwin M. Canuso December 18, 1997
- ----------------------- -----------------
Edwin M. Canuso Director
/s/ Richard F. Chapdelaine December 18, 1997
- -------------------------- -----------------
Richard F. Chapdelaine Director
/s/ Brian Conway December 18, 1997
- ----------------------- -----------------
Brian Conway Director
/s/ Robert J. Conway December 18, 1997
- ------------------------ -----------------
Robert J. Conway Director
/s/ Frederick DeMatteis December 18, 1997
- ------------------------ -----------------
Frederick DeMatteis Director
/s/ George R. Irwin December 18, 1997
- ------------------------ -----------------
George R. Irwin Director
/s/ Herbert J. McCooey December 18, 1997
- ------------------------ -----------------
Herbert J. McCooey Director
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Robert S. Swanson, Jr. December 18, 1997
- ------------------------ -----------------
Robert S. Swanson, Jr. Director
/s/ James B. Tormey December 18, 1997
- ------------------------ -----------------
James B. Tormey Director
/s/ Leo J. Waters December 18, 1997
- ------------------------ -----------------
Leo J. Waters Director
/s/ Donald D. Wenk December 18, 1997
- ------------------------ -----------------
Donald D. Wenk Director
</TABLE>
45
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of March 1,
1997, is made by and between Long Island Bancorp, Inc., a Delaware corporation,
having its principal offices at 201 Old Country Road, Melville, New York 11747
(the "Corporation"), and Mr. Lawrence W. Peters, residing at 143 Cabot Road,
Massapequa, New York 11758 (the "Executive").
RECITALS
1. The Corporation desires to employ the Executive as President and
Chief Operating Officer of the Corporation, and to enter into an employment
agreement embodying the terms of such relationship.
2. The Executive is willing to be employed as President and Chief
Operating Officer of the Corporation on the terms set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Corporation and the Executive hereby agree as follows.
1. DEFINITIONS.
1.1 "AFFILIATE" means any person or entity of any kind effectively
controlling, effectively controlled by or effectively under common control with
the Corporation, including, without limitation, The Long Island Savings Bank,
FSB (the "Bank").
1.2 "BOARD" means the board of directors of the Corporation.
1.3 "CAUSE" means termination due to the Executive's (a) personal
dishonesty, (b) incompetence, (c) willful misconduct, (d) breach of fiduciary
duty involving personal profit, (e) intentional failure to perform stated
duties, (f) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease-and-desist order, or (g)
material breach of any provision of this Agreement.
<PAGE>
2
1.4 "CHANGE IN CONTROL" means, after the date of the Agreement, (a)
a change in control of the Corporation and/or the Bank of a nature that would be
required to be reported in response to Item 1 of the 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, as amended (the "Exchange Act"); (b) a change
in control of the Bank within the meaning of 12 U.S.C. ss. 1817(i), the Change
in Bank Control Act, and 12 C.F.R. ss. 574.4 of the Acquisition of Control of
Savings Association regulations of the Office of Thrift Supervision; (c)
individuals who constitute the Board as of the date of this Agreement (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 of
this Agreement whose election was approved by a vote of at least three-quarters
of the directors then comprising the Incumbent Board, or whose nomination for
election by the Corporation's shareholders was approved by the Corporation's
nominating committee then serving under the Board, shall be, for purposes of
this clause (c), considered as though he or she was a member of the Incumbent
Board (but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents); (d) approval by the shareholders of the Bank and/or the
Corporation, as the case may be, of a reorganization, merger or consolidation,
or the consummation of any such reorganization, merger or consolidation, other
than a reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Bank and/or the Corporation, as the case may be,
beneficially own, directly or indirectly, immediately after such reorganization,
merger or consolidation more than 80% of the Voting Interest of the corporation
or other entity resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Voting Interest in
the Bank and/or the Corporation, as the case may be; (e) approval by the
shareholders of the Bank and/or the Corporation, as the case may be, of (i) a
complete liquidation or dissolution of the Bank and/or the Corporation, or (ii)
the sale or other disposition of all or substantially all of the assets of the
Bank and/or the Corporation or the occurrence of any such liquidation,
dissolution, sale or other disposition, other than, in any case, to a
Subsidiary, directly or indirectly, of the Corporation or any Affiliate; and/or
(f) the solicitation of proxies from shareholders of the Corporation by someone
other than the current management of the Corporation and without the approval of
the
<PAGE>
3
Board, seeking shareholder approval of a plan of reorganization, merger or
consolidation of the Bank and/or the Corporation with one or more corporations
as a result of which the shareholders' interests in the Bank and/or the
Corporation, as the case may be, are actually exchanged for or converted into
securities not issued by the Bank or the Corporation, as the case may be. No
failure on the part of the Executive to exercise any rights upon the occurrence
of a Change in Control shall be deemed a waiver of or otherwise impair the
rights of the Executive in respect of any subsequent events or circumstances
constituting a Change in Control
1.5 "CODE" means the Internal Revenue Code of 1986, as amended, and
as in effect from time to time, and/or any successor code thereto.
1.6 "DATE OF TERMINATION" means the date specified in the Notice of
Termination (as defined in Section 6.8 of this Agreement); PROVIDED, HOWEVER,
that if, within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party in writing
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction, including all
appeals, unless the time for appeal therefrom has expired and no appeal has been
perfected; PROVIDED, FURTHER, HOWEVER, that the Date of Termination shall (a) in
no case be later than the date on which the Term of Employment expires, and (b)
be extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
1.7 "GOOD REASON" means, and shall be deemed to exist if, without
the written consent of the Executive, (a) there occurs any reduction of Base
Salary, minimum bonus as per section 5.2, or material reduction in other
benefits or any material change by the Corporation to the Executive's function,
duties, or responsibilities in effect on the date hereof and/or as set forth in
Section 4.1 of this Agreement, which change would cause the Executive's position
with the Corporation to become one of lesser responsibility, importance, or
scope from the position and attributes thereof in effect on the date hereof
and/or as set forth in Section 4.1 of this Agreement (and any such material
change shall be deemed a continuing breach of this Agreement), (b) there occurs
any material breach of this Agreement by the Corporation, (c) a Change in
Control occurs, or (d) the Corporation, if and after a Suspension for Disability
(as defined in Section 6.2(a)) occurs and after a Change in Control occurs,
<PAGE>
4
fills the Executive's position (in the manner set forth in Section 6.2(b) of
this Agreement).
1.8 "PARENT" means any corporation which has a direct or indirect
legal or beneficial ownership interest in the Corporation, but only if any such
corporation owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities of the
Corporation.
1.9 "SUBSIDIARY" means any corporation (other than the Corporation)
in which the Corporation or any Parent has a direct or indirect legal or
beneficial ownership interest, but only if the Corporation or the Parent, as the
case may be, owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities in any
such corporation.
1.10 "VOTING INTEREST" means securities of any class or classes or
other ownership interests having general voting power under ordinary
circumstances to elect members of a board of directors or trustees of any
entity.
2. EMPLOYMENT.
2.1 GENERAL. Subject to the terms and provisions set forth in this
Agreement, the Corporation, during the Term of Employment, agrees to continue to
employ the Executive as President and Chief Operating Officer of the Corporation
and the Executive hereby accepts such continued employment.
2.2 OTS SUSPENSION. 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 (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. ss.ss. 1818(e)(3) and (g)(1)), the Corporation's
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Corporation may in its discretion (i) pay the Executive all or
part of the compensation withheld while its contract obligations were suspended,
and (ii) reinstate (in whole or in part) any of its obligations which were
suspended.
3. TERM OF EMPLOYMENT.
3.1 TERM. The term of employment under this Agreement shall commence
as of March 1, 1997 (the "Commencement Date") and, unless extended as provided
below or earlier terminated by the Corporation or the Executive under Section 6
of this Agreement,
<PAGE>
5
shall continue December 31, 1998 (the "Term of Employment").
The Term of Employment may be extended upon written agreement of both parties.
3.2 OTS REMOVAL. Notwithstanding anything to the contrary in this
Agreement, 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 (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.ss.
1818(e)(4) or (g)(1)), all obligations of the Corporation under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
Corporation and/or the Executive, if any, shall not be affected.
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS AND DUTIES. During the Term of Employment, the
Executive shall be employed and shall serve as President and Chief Operating
Officer of the Corporation. In such position(s), the Executive shall have the
duties, responsibilities and authority as determined and designated from time to
time by the Board. The Executive shall serve under the direction and supervision
of the Corporation's chief executive officer and shall report only to such chief
executive officer. Notwithstanding the above, the Executive shall not be
required to perform any duties and responsibilities (a) which would result in a
non-compliance with or violation of any applicable law, regulation, regulatory
bulletin, and/or any other regulatory requirement or (b) on a regular basis in
any locations outside the counties of Nassau, Suffolk or the City of New York
unless agreed upon by the Executive.
4.2 ATTENTION TO DUTIES AND RESPONSIBILITIES. During the Term of
Employment, the Executive shall, except for periods of absence occasioned by
illness, vacation in accordance with Section 5.6, and reasonable leaves of
absence in accordance with the practices of the Corporation and the Bank as of
the date of this Agreement, devote substantially all of his business time to the
business and affairs of the Corporation and the Bank and the Executive shall use
his best efforts, business skills, ability and fidelity to perform faithfully
and efficiently the duties and responsibilities contemplated by this Agreement;
PROVIDED, HOWEVER, that the Executive shall be allowed, to the extent such
activities do not present a conflict or substantially interfere with the
performance by the Executive of his duties and responsibilities hereunder, (a)
to manage the Executive's personal affairs, and (b)(i) to serve on boards or
committees of civic or charitable organizations or trade associations, and (ii)
after obtaining the consent of the Board, as evidenced by a written resolution
of the Board and under the terms and conditions specified in any such
resolution, to serve on the
<PAGE>
6
boards of directors or trustees of companies or other organizations and
associations; PROVIDED, FURTHER, HOWEVER, that all offices or positions which
the Executive currently holds or has held prior to the date of this Agreement
and those set forth on Exhibit "A", annexed hereto are designated as currently
consented to positions.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary of $375,000 per annum ("Base Salary") payable in
accordance with the Corporation's normal payroll practices.
5.2 ANNUAL BONUS. During the Term of Employment, the Executive shall
be entitled to an annual bonus payment in an amount not less than $125,000, such
payment to be made no later than January 31st of the year following the year in
which such payment is earned; PROVIDED, HOWEVER, that the annual bonus paid to
the Executive following a Change in Control shall not be less than the highest
annual bonus paid during the Term of Employment. No other compensation or
additional benefits provided for in this Agreement shall be deemed a substitute
for the Executive's right, to receive such bonuses.
5.3 INCENTIVE, RETIREMENT, AND SAVINGS PLANS. During the Term of
Employment, the Executive shall participate in all incentive, pension,
retirement, savings and other employee benefit plans and programs, if any,
maintained from time to time by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.4 WELFARE BENEFIT PLANS. During the Term of Employment, the
Executive, the Executive's spouse, if any, and their eligible dependents, if
any, shall participate in and be covered by all the welfare benefit plans and
programs, if any, maintained by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.5 EXPENSE REIMBURSEMENT. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses, including reasonable business travel expenses, incurred by the
Executive in performing his duties and responsibilities hereunder in accordance
with the policies and procedures of the Corporation as in effect at the time the
expense was incurred, as the same may be changed from time to time.
<PAGE>
7
5.6 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to five weeks paid vacation each calendar year at
such times which do not materially interfere with the performance of the
Executive's duties hereunder. In addition, during the Term of Employment, the
Executive shall be eligible to benefit from such fringe benefits and
perquisites, if any, including automobile usage, in accordance with the policies
of the Corporation and as in effect and provided from time to time to senior
executives of the Corporation and/or the Bank
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH. In the event of the Executive's death
during the Term of Employment, the Term of Employment shall thereupon end and
his estate or other legal representative, as the case may be, shall, subject to
Sections 2.2, 3.2, 6.10, and 6.11 of this Agreement, only be entitled to:
(a)(i)(A) Base Salary continuation at two-thirds (2/3) of the rate
in effect (as provided in Section 5.1 of this Agreement) on the Date of
Termination for a three-month period commencing on such Date of
Termination, or (B), if the Board so determines in its sole discretion and
in lieu of such three-month salary continuation described above in (A), a
lump sum payment equal in amount to the present value of such Base Salary
continuation (reasonably determined using a discount rate equal to the
most recent quote available for the three-month United States Treasury
Bill rate on the Date of Termination) payable within thirty business days
after the Date of Termination, and (ii) a pro-rata annual bonus for the
fiscal year in which such termination occurs, such pro-rata bonus amount
to be (I) pro-rated based on the number of calendar days transpired during
the fiscal year of the Corporation (prior to the Date of Termination) in
which such termination occurs over 365, (II) subject to Section 5.2,
determined in good faith by the Board (but in its sole discretion), and
(III) if any such bonus is payable, paid on or about the same date that
the annual bonus amounts payable in respect of such fiscal year, if any,
to the senior executives of the Corporation and/or the Bank are actually
paid to them;
(b) any Base Salary accrued to the Date of Termination or any bonus
actually awarded, but not yet paid as of the Date of Termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
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8
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion
of any vacation days available through the end (but not beyond) of the
calendar year of the Corporation in which such termination occurs;
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and
programs, if any, of the Corporation or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.2 SUSPENSION FOR DISABILITY.
(a) If, during the Term of Employment, the Executive shall have been
absent from his duties hereunder on a full-time basis due to physical or mental
illness for six (6) consecutive months, the Corporation may give thirty (30)
days written notice of potential suspension. If the Executive shall not have
returned to the full-time performance of his duties within such 30-day period,
the Corporation may suspend the Executive's employment for "Disability" (a
"Suspension for Disability").
(b) If a Suspension for Disability occurs during the Term of
Employment, the Corporation will pay the Executive a bi-weekly payment equal to
two-thirds (2/3) of the Executive's bi-weekly rate of Base Salary on the
effective date of the Suspension for Disability. These payments shall commence
on the effective date of the Executive's Suspension for Disability and will end
on the earlier of (i) the date the Executive returns to full-time employment
hereunder; (ii) the Executive's equivalent full-time employment by another
employer; (iii) the Executive's death; or (iv) the expiration or earlier end of
the Term of Employment (the "Term of Suspension"). After a Suspension for
Disability occurs, the Corporation shall be free to fill the Executive's
position(s), but such action by the Corporation, shall constitute Good Reason if
it occurs after a Change in Control. Upon the Executive being able to return to
full-time employment hereunder before the expiration of the Term of Employment,
the Executive shall be offered an equivalent available position and otherwise be
subject to the provisions of this Agreement. The disability payments hereunder
will be in addition to any benefit payable from any qualified or nonqualified
retirement plans or programs maintained by the Corporation and/or the Bank but
will be reduced by payments received by the Executive on account of such
disability under any long-term disability plan maintained for the Corporation's
and/or the Bank's employees.
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9
(c) During the Term of Suspension, the Corporation will cause to be
continued life and health coverage and such other benefits substantially
identical to the coverage and benefits maintained by the Corporation and/or the
Bank for the Executive prior to the occurrence of any Suspension for Disability.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation (except as otherwise provided in Section 6.2(b) above), accrued
benefits or pension granted or accruing to the Executive during the Term of
Suspension. Nothing in this Section 6.2 shall abrogate or limit other provisions
of this Agreement granting rights to the Executive or the Executive's spouse or
the Executive's estate following death, retirement or termination, if
applicable.
6.3 TERMINATION BY THE BOARD FOR CAUSE. The Board may terminate the
Executive's employment hereunder for Cause, as provided below. If the Board
terminates the Executive's employment hereunder for Cause, the Term of
Employment (if not already expired) shall thereupon end as set forth below and
the Executive shall, subject to Sections 2.2, 3.2, 6.10, and 6.11 of this
Agreement, only be entitled to:
(a) Base Salary up to and including the Date of Termination;
(b) any bonus actually awarded, but not yet paid as of the Date of
Termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and, to the extent not prohibited
by applicable law, regulation, regulatory bulletin, and/or any other
regulatory requirement, as the same exists or may hereafter be promulgated
or amended, the unused, unaccrued portion of any vacation days available
through the end (but not beyond) of the calendar year of the Corporation
in which such termination occurs;
(e) to the extent not prohibited by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, as the same
exists or may hereafter be promulgated or amended, any other compensation
and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs, if any, of the
Corporation or any Subsidiary; and
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10
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
In each case, in determining Cause the alleged acts or omissions of the
Executive shall be measured against standards generally prevailing in the
savings institution industry and the ultimate existence of Cause must be
confirmed by not less than 51% of the Incumbent Board (as constituted in
accordance with Section 1.4(c) of this Agreement) at a meeting called for such
purpose prior to any termination therefor; PROVIDED, HOWEVER, that it shall be
the Corporation's burden to prove the alleged facts and omissions and the
prevailing nature of the standards the Corporation shall have alleged are
violated by such acts and/or omissions of the Executive. In the event of such a
confirmation by 51% or more of the Incumbent Board, the Corporation shall notify
the Executive that the Corporation intends to terminate the Executive's
employment for Cause under this Section 6.3 (the "Confirmation Notice"). The
Confirmation Notice shall specify the act, or acts, upon the basis of which the
Incumbent Board has confirmed the existence of Cause and the Confirmation Notice
must be delivered to the Executive within fourteen (14) days after the Incumbent
Board so confirms the existence of Cause. If the Executive notifies the
Corporation in writing (the "Opportunity Notice") within thirty (30) days after
the Executive has received the Confirmation Notice, the Executive (together with
counsel) shall be provided one opportunity to meet with the Incumbent Board (or
a sufficient quorum thereof) to discuss such act or acts. Such opportunity to
meet with the Incumbent Board shall be fixed and shall occur on a date selected
by the Incumbent Board, such date being not less than ten (10) nor more than
thirty (30) days after the Corporation receives the Opportunity Notice from the
Executive; PROVIDED, HOWEVER, that the Corporation may in good faith select a
later date if, and only if, such later date is necessary to convene a sufficient
quorum of the Incumbent Board to act in respect of the Executive's Opportunity
Notice. Such meeting shall take place at the principal offices of the
Corporation or such other location as agreed to by the Executive and the
Corporation. During the period commencing on the date the Corporation receives
the Opportunity Notice and ending on the date next succeeding the date on which
such meeting between the Incumbent Board (or a sufficient quorum thereof) and
the Executive is scheduled to occur, and not withstanding anything to the
contrary in this Agreement, the Executive shall be suspended from employment
with the Corporation (with pay, to the extent not prohibited by applicable law,
regulation, regulatory bulletin, and/or any other regulatory requirement, as the
same exists or may hereafter be promulgated or amended) and the Incumbent Board
may, during such suspension period, reasonably limit the Executive's access to
the principal offices of the Corporation or any of its assets. If the Incumbent
Board properly sets the date of such meeting and if the Incumbent Board (or a
sufficient quorum thereof) attends such meeting and in good faith does not
rescind its confirmation of Cause at such meeting or if the
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11
Executive fails to attend such meeting for any reason, the Executive's
employment by the Corporation shall, immediately upon the closing of such
meeting and the delivery to the Executive of the Notice of Termination, be
terminated for Cause under this Section 6.3. If the Executive does not respond
in writing to the Confirmation Notice in the manner and within the time period
specified in this Section 6.3, the Executive's employment with the Corporation
shall, upon the thirty-first day after the receipt by the Executive of the
Confirmation Notice, be terminated for Cause under this Section 6.3. In the
event of any dispute hereunder, the Executive shall be entitled, to the extent
not prohibited by applicable law, regulation, regulatory bulletin, and/or any
other regulatory requirement, as the same exists or may hereafter be promulgated
or amended, until the earlier to occur of (i) the Date of Termination, (ii) the
expiration of the current stated Term of Employment, or (iii) the resolution of
such dispute to (A) be paid bi-weekly his then Base Salary, and (B) continue to
receive all other benefits; and there shall be no reduction whatsoever of any
amounts subsequently paid to the Executive upon resolution of such dispute as a
result of, or in respect to, such interim payments or coverage. The procedure
set forth in this Section 6.3 to determine the existence of Cause shall at all
times be subject to the requirements of applicable law, regulation, regulatory
bulletin or other regulatory requirements.
6.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The Corporation
may terminate the Executive's employment hereunder at any time without Cause.
The Executive may terminate his employment hereunder for Good Reason at any time
by delivery of written notice to the Corporation within the six-month period
commencing after the occurrence of the Good Reason effective forty-five (45)
days after such written notice is delivered. If the Corporation terminates the
Executive's employment hereunder without Cause (other than due to Retirement,
death, Disability or the normal expiration of the full Term of Employment), or
if the Executive terminates his employment hereunder for Good Reason, the Term
of Employment shall thereupon end (if not already expired) and the Executive
shall, subject to Sections 2.2, 3.2, 6.10, and 6.11 of this Agreement, only be
entitled to:
(a) as liquidated damages, a cash lump sum equal to the greater of
$500,000 or the sum of the Base Salary and annual bonus payments that
would have accrued from the Date of Termination through the remaining Term
of Employment but for the Termination;
(b) any Base Salary accrued to the Date of Termination or any bonus
actually awarded, but not yet paid as of the Date of Termination;
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12
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion
of any vacation days available through the end (but not beyond) of the
calendar year of the Corporation in which such termination occurs;
(e) continuation of the welfare benefits of the Executive, at the
level in effect (as provided for by Section 5.4 of this Agreement) on, and
at the same out-of-pocket cost to the Executive as of, the Date of
Termination for the longer of one year or the time period commencing on
the Date of Termination and continuing through the remaining Term of
Employment as if the same had not ended (or, if such continuation is not
permitted by applicable law or if the Board so determines in its sole
discretion, the Corporation shall provide the economic equivalent in lieu
thereof);
(f) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs, if any, of the Corporation or any Subsidiary; and
(g) any rights to indemnification in accordance with Section 11 of
this Agreement.
In the event of any dispute hereunder, the Executive shall be entitled until the
earlier to occur of (i) the Date of Termination, (ii) the expiration of the
current stated Term of Employment, or (iii) the resolution of such dispute to
(A) be paid bi-weekly his then Base Salary, and (B) continue to receive all
other benefits; and there shall be no reduction whatsoever of any amounts
subsequently paid to the Executive upon resolution of such dispute as a result
of, or in respect to, such interim payments or coverage.
6.5 VOLUNTARY TERMINATION. During the Term of Employment, the
Executive may effect, upon thirty (30) days prior written notice to the
Corporation, a Voluntary Termination of his employment hereunder and thereupon
the Term of Employment (if not already expired) shall end. A "Voluntary
Termination" shall mean a termination of employment by the Executive on his own
initiative other than (a) a termination due to death or Disability, (b) a
termination for Good Reason, (c) a termination as a result of the normal
expiration of the full Term of Employment. A Voluntary Termination shall,
subject to Sections 2.2, 3.2, 6.10, and 6.11 of this Agreement, entitle the
Executive only to all of the payments and benefits which the Executive
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13
would be entitled to in the event of a termination of his employment by the
Corporation for Cause.
6.6 NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment or to mitigate damages and there shall be no offset
against any amounts
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14
due the Executive under this Agreement for any reason, including, without
limitation, on account of any remuneration attributable to any subsequent
employment that the Executive may obtain. Any amounts due under this Section 6
are in the nature of severance payments, or liquidated damages, or both, and are
not in the nature of a penalty.
6.7 NOTICE OF TERMINATION. Any termination of the Executive's
employment under this Section 6 requiring advance written notice shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 12.3 of this Agreement (the "Notice of Termination").
The Notice of Termination, in the case of a termination by the Corporation for
Cause, or a termination by the Executive for Good Reason, shall (a) indicate the
specific termination provision in this Agreement relied upon, and (b) set forth
in reasonable detail the dates, facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
6.7.1 MISCELLANEOUS. Any termination under this section 6
shall not effect Executive's position as a member of the Board of Directors of
the Corporation.
6.8 CERTAIN FURTHER PAYMENTS BY THE CORPORATION.
6.8.1 TAX REIMBURSEMENT PAYMENT. Anything in this Agreement to
the contrary notwithstanding, in the event that any amount of benefit or other
entitlement paid, payable, or to be paid, or distributed, distributable, or to
be distributed to or with respect to the Executive by the Corporation, the Bank,
any Subsidiary, any Parent, any other Affiliate, or any other party or entity
(collectively, the "Covered Payments"), is or becomes, at any time, as a result
of (a) any Internal Revenue Service claims or assertions, or (b) Section 6.8.2
below or otherwise, subject to the excise tax imposed by or under Section 4999
of the Code (or any similar tax that may hereafter be imposed), and/or any
interest or penalties with respect to such excise tax (such excise tax, together
with such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), the Corporation shall pay to the Executive at the time
specified in Section 6.8.5 below an additional amount (the "Tax Reimbursement
Payment") such that after payment by the Executive of all taxes (including,
without limitation, any interest or penalties imposed with respect to such
taxes), including, without limitation, any Excise Tax, imposed on or
attributable to the Tax Reimbursement Payment provided by this Agreement, the
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(a) the amount of the Excise Tax imposed upon the Covered Payments, and (b) an
amount equal to the product of (i) any deductions disallowed for
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15
federal, state or local income tax purposes because of the inclusion of the Tax
Reimbursement Payment in the Executive's adjusted gross income, and (ii) the
highest applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made.
6.8.2 DETERMINING EXCISE TAX. Except as otherwise provided in
Section 6.8.1(a), for purposes of determining whether any of the Covered
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments
in excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the "Accountants")
or legal counsel reasonably acceptable to the Executive, deliver timely,
upon the Executive's request, a written opinion, reasonably satisfactory
to the Executive's legal counsel, to the Executive that the Executive has
a reasonable basis to claim that the Covered Payments (in whole or in
part) (i) do not constitute "parachute payments", (ii) represent
reasonable compensation for services actually rendered (within the meaning
of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.8.3 APPLICABLE TAX RATES AND DEDUCTIONS. For purposes of
determining the amount of the Tax Reimbursement Payment, the Executive shall be
deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which
the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
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6.8.4 SUBSEQUENT EVENTS. If, pursuant to a written opinion,
reasonably satisfactory to the Executive, of the
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17
Accountants (or legal counsel reasonably acceptable to the Executive) delivered
and addressed to the Executive, the Excise Tax is subsequently determined on a
reasonable basis and in good faith (other than as a result of a tax contest) to
be less than the amount taken into account hereunder in calculating any Tax
Reimbursement Payment made, the Executive shall repay to the Corporation the
portion of any prior Tax Reimbursement Payment that would not have been paid if
such redetermined Excise Tax had been applied in calculating such Tax
Reimbursement Payment, plus interest on the amount of such repayment at the
mid-term discount rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the immediately foregoing sentence, if any portion of the Tax
Reimbursement Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not be required
until an actual refund or credit of such portion has been made to or obtained by
the Executive from such tax authority, and any interest payable to the
Corporation shall not exceed the interest received or credited to the Executive
by any such tax authority. The Executive shall be fully indemnified by the
Corporation for any out-of-pocket costs, expenses or fees attributable to the
filing of any refund or other claim. The Executive and the Corporation shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if any good faith claim for refund or credit
from such tax authority made by the Executive is denied.
Notwithstanding the immediately preceding paragraph, if, in the
written opinion of the Executive's tax advisors delivered to the Accountants and
the Corporation, the Excise Tax is later determined to exceed the amount taken
into account by the Accountants or legal counsel, as the case may be, hereunder
at the time any Tax Reimbursement Payment is made by reason of (i) manifest
error, (ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.8.5 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel addressed, delivered and reasonably
satisfactory to the Executive that it is more likely than not that the Executive
would succeed in disputing such claim, assertion or determination of such tax
authority, the Executive shall, at the sole expense of the Corporation, make a
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18
good faith effort to contest such claim, assertion or determination of such tax
authority in all relevant administrative proceedings (excluding any appeals
thereof); PROVIDED, HOWEVER, that if the Executive determines in good faith that
the continued contest of any such claim, assertion or determination with such
tax authority would have an adverse impact on his overall tax position (which
good faith determination shall take into account the magnitude of the amounts
involved), then, upon receipt of notice by the Corporation from the Executive to
that effect, the Executive shall, without foregoing any right to receive any Tax
Reimbursement Payment described in this Section 6.8, have no further obligation
to pursue any such contest with any such tax authority. The Executive may, as a
condition to pursuing or commencing any contest described in this Section 6.8.4
in any proceedings (which proceedings shall be in a forum chosen at the sole
discretion of the Executive), require the Corporation to advance any amount of
tax required to be paid in order to pursue such contest. In conducting any
contest described in this Section 6.8.4, the Executive shall use his best
efforts to keep the Corporation advised and will permit the Corporation to
prepare and suggest appropriate responses and actions that may be reasonably
made or taken by the Executive. Notwithstanding the above, the decisions as to
such responses or actions shall be solely that of the Executive and the
Executive shall have the sole right to control the proceeding. The Corporation
shall bear all expenses of any proceeding relating to any contest described in
this Section 6.8.4, whether incurred by the Corporation or the Executive,
including, without limitation, all fees and disbursements of attorneys,
accountants and expert witnesses and any additional interest or penalties
applicable. Nothing contained in this Agreement shall under any circumstances
give the Corporation any right to examine the tax returns or any other records
of the Executive.
6.8.5 DATE OF PAYMENT. A Tax Reimbursement Payment, as
provided for in this Section 6.8, shall be paid to the Executive not later than
10 business days following the payment of any Covered Payments which are
"parachute payments" under Section 6.8.2 above; PROVIDED, HOWEVER, that any
additional Tax Reimbursement Payment payable to the Executive under Section
6.8.4 of this Agreement shall be paid to the Executive not later than 15
business days following the actual receipt by the Accountants and the
Corporation of the written opinion of the Executive's tax advisors, as provided
for therein.
6.9 PAYMENT. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled to under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made, to the extent practicable, within five (5) business days following the
Date of Termination.
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6.10 CORPORATION REGULATORY LIMITATIONS. Any payments made to the
Executive pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. ss. 1828(k) and any regulations
promulgated thereunder.
6.11 OTHER REQUIRED PROVISIONS.
6.11.1 If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act), all obligations under this
Agreement shall terminate as of the date of default, but this Section 6.11.1
shall not affect the vested rights of the Corporation and/or the Executive, if
any.
6.11.2 All obligations under this Agreement shall be
terminated, except to the extent determined that continuation of this Agreement
is necessary for the continued operation of the Bank, (i) by the director, or
his or her designee, at the time the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation enters into an agreement to provide assistance
to or on behalf of the Bank under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act; or (ii) by the director, or his designee, at
the time the director, or his or her designee, approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by such director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
actions.
6.12 POST-TERMINATION OBLIGATIONS. During the Term of Employment and
for one (1) full year after the expiration or termination thereof, the Executive
shall, upon reasonable notice, use his reasonable best efforts to cooperate with
the Corporation and/or the Bank by providing such information and assistance to
the Corporation and/or the Bank as may reasonably be required by the Corporation
and/or the Bank at the Corporation's expense in connection with any litigation
not commenced by or involving the Executive in which the Corporation and/or the
Bank or any of their Subsidiaries or Affiliates is, or may become, a party.
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7. NON-EXCLUSIVITY OF RIGHTS; NON-EXTENSION SEVERANCE.
7.1 OTHER BENEFITS. Except as is otherwise specifically provided in
this Agreement, the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Corporation and/or the Bank, and for which the Executive may be eligible and
qualify, shall not be prevented or limited, and the Executive's rights under any
future agreements with the Corporation and/or the Bank and/or any Affiliate
thereof, including, without limitation, any stock option agreements shall not be
limited or prejudiced. This Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind elsewhere provided.
Except as otherwise specifically provided in this Agreement, no provision of
this Agreement shall be interpreted to mean or result in the Executive receiving
fewer benefits than those available to him without reference to this Agreement.
8. RESOLUTION OF DISPUTES.
8.1 With the exception of proceedings for equitable relief brought
pursuant to this Section or Section 9.2 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement may, at the
Executive's option, be settled exclusively by arbitration in Melville, Long
Island in accordance with the rules of the American Arbitration Association then
in effect and at the Corporation's expense. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, HOWEVER, that the
Executive shall be entitled to seek specific performance in court 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. If a claim for
any payments or benefits under this Agreement or any other provision of this
Agreement is disputed by the Corporation and the Executive, the Executive shall,
to the extent and at such time or times as is not prohibited by applicable law,
regulation, regulatory bulletin, and/or any other regulatory requirement, as the
same exists or may be hereafter promulgated or amended, be reimbursed for all
reasonable attorney's fees and expenses incurred by the Executive in pursuing
such claim.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. The Executive will not, during or after the
Term of Employment, disclose any confidential information relating to the
business activities of the Corporation or any Affiliate thereof which has not
been previously disclosed by any person to any person, firm, corporation, bank
or other entity for any reason or purpose
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whatsoever. Notwithstanding the foregoing, the Executive may disclose any
knowledge or other information relating to banking, financial and/or economic
principles, concepts or ideas which are based on experience and which are not
derived from the business plans and activities of the Corporation, and may
disclose such confidential information in connection with legal and/or
regulatory proceedings (which shall include, but not limited to, formal or
informal exams, investigations or inquiries conducted by the Office of Thrift
Supervision).
9.2 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that
the Corporation will have no adequate remedy at law, and would be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 9 of this Agreement. The Executive agrees that the Corporation
shall be entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 9, and to specific performance of each of the
terms of such Section in addition to any other legal or equitable remedies that
the Corporation may have. The Executive further agrees that he shall not, in any
equity proceeding relating to the enforcement of the terms of this Section 9,
raise the defense that the Corporation has an adequate remedy at law.
9.3 SPECIAL SEVERABILITY. The terms and provisions of this Section 9
are intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the validity
nor the enforceability of any other provision of this Agreement shall thereby be
affected.
10. SUCCESSORS.
10.1 THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or pursuant to a
qualified domestic relations order. This Agreement shall inure to the benefit of
and be enforceable by the Executive's heirs, beneficiaries and/or legal
representatives.
10.2 THE CORPORATION. This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors and assigns; PROVIDED,
HOWEVER, that no assignment of this Agreement may be made without the written
consent of the Executive.
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11. INDEMNIFICATION.
11.1 The Executive (and his heirs, executors and administrators)
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by applicable law, regulation, regulatory bulletin, and/or any other
regulatory requirement, as the same exists or may hereafter be promulgated or
amended, against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by the Executive as a
consequence of the Executive being or having been made a party to, or being or
having been involved, in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the Executive is or was a trustee, director or officer of the
Corporation or is or was serving at the request of the Corporation as a trustee,
director or officer of another corporation (including, but not limited to, a
subsidiary or an Affiliate of the Corporation), and such indemnification shall
continue after the Executive shall cease to be an officer, director or trustee.
The right to indemnification conferred hereby shall be a contract right and
shall also include, to the extent permitted by applicable regulation, the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of the final disposition upon receipt by the Corporation
of an undertaking by or on behalf of the Executive to repay such amount or a
portion thereof, if it shall ultimately be determined that the Executive is not
entitled to be indemnified by the Corporation pursuant hereto or as otherwise
authorized by law but such repayment by the Executive shall only be in an amount
ultimately determined to exceed the amount to which the Executive was entitled
to be indemnified.
12. MISCELLANEOUS.
12.1 APPLICABLE LAW. This Agreement shall, to the extent not
superseded by federal law, be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
12.2 AMENDMENTS/WAIVER. This Agreement may not be amended, waived,
or modified otherwise than by a written agreement executed by the parties to
this Agreement or their respective successors and legal representatives. No
waiver by any party to this Agreement of any breach of any term, provision
<PAGE>
23
or condition of this Agreement by the other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same time, or any prior or
subsequent time.
12.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when received by hand-delivery to the
other party, by facsimile transmission, by overnight courier, or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Lawrence W. Peters
143 Cabot Road
Massapequa, New York 11758
If to the Corporation: Long Island Bancorp. Inc.
201 Old Country Road
Melville, New York 11747
Attn: Corporate Secretary
<PAGE>
24
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4 WITHHOLDING. The Corporation may withhold from any amounts
payable under this Agreement such taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
12.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
12.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties to this Agreement concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
12.8 REPRESENTATION. The Executive represents and warrants that the
performance of the Executive's duties and obligations under this Agreement will
not violate any agreement between the Executive and any other person, firm,
partnership, corporation, or organization.
12.9 SURVIVORSHIP. The respective rights and obligations of the
parties to this Agreement, including, without limitation, any rights of the
Executive and the Corporation under Section 11 of this Agreement, shall survive
any termination of this Agreement or the Executive's employment hereunder for
any reason to the extent necessary to the intended preservation of such rights
and obligations.
<PAGE>
25
12.10 EFFECT OF PAYMENTS UNDER BANK AGREEMENT. Notwithstanding any
provision herein to the contrary, to the extent that payments, entitlements and
benefits are paid to or received by the Executive under the Employment Agreement
dated March 1, 1997, between the Executive and the Bank, the amount of any such
payments, entitlements and benefits actually made by the Bank shall reduce, to
the extent so made, the same payment, entitlement or benefit due to the
Executive under the provisions of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Corporation has caused this Agreement to be executed in its name on
its behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
LONG ISLAND BANCORP, INC.
By: _____________________________
John J. Conefry, Jr.
Chief Executive Officer
---------------------------------
Lawrence W. Peters
<PAGE>
EXHIBIT 99.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of August 4,
1997, is made by and between Long Island Bancorp, Inc., a Delaware corporation,
having its principal offices at 201 Old Country Road, Melville, New York 11747
(the "Corporation"), and Ms. Karen M. Cullen, residing at 20 East Ninth Street,
New York, New York 10003 (the "Executive").
RECITALS
1. The Corporation desires to employ the Executive as an Executive
Vice President and the General Counsel of the Corporation, and to enter into an
employment agreement embodying the terms of such relationship.
2. The Executive is willing to be employed as an Executive Vice
President and the General Counsel of the Corporation on the terms set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Corporation and the Executive hereby agree as follows.
1. DEFINITIONS.
1.1 "AFFILIATE" means any person or entity of any kind effectively
controlling, effectively controlled by or effectively under common control with
the Corporation, including, without limitation, The Long Island Savings Bank,
FSB (the "Bank").
1.2 "BOARD" means the board of directors of the Corporation.
1.3 "CAUSE" means termination due to the Executive's (a) personal
dishonesty, (b) incompetence, (c) willful misconduct, (d) breach of fiduciary
duty involving personal profit, (e) intentional failure to perform stated
duties, (f) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease-and-desist order, or (g)
material breach of any provision of this Agreement.
<PAGE>
1.4 "CHANGE IN CONTROL" means, after the date of this Agreement, (a)
a change in control of the Corporation and/or the Bank of a nature that would be
required to be reported in response to Item 1 of the 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, as amended (the "Exchange Act"); (b) a change
in control of the Bank within the meaning of 12 U.S.C. ss. 1817(i), the Change
in Bank Control Act, and 12 C.F.R.
ss. 574.4 of the Acquisition of Control of Savings Association regulations of
the Office of Thrift Supervision; (c) individuals who constitute the Board as of
the date of this Agreement (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 of this Agreement whose election was approved by
a vote of at least three-quarters of the directors then comprising the Incumbent
Board, or whose nomination for election by the Corporation's shareholders was
approved by the Corporation's nominating committee then serving under the Board,
shall be, for purposes of this clause (c), considered as though he or she was a
member of the Incumbent Board (but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents); (d) approval by the shareholders of the
Bank and/or the Corporation, as the case may be, of a reorganization, merger or
consolidation, or the consummation of any such reorganization, merger or
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Voting Interest in the Bank and/or the Corporation, as the
case may be, beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation more than 80% of the Voting Interest of
the corporation or other entity resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Bank and/or the Corporation, as the case may be; (e)
approval by the shareholders of the Bank and/or the Corporation, as the case may
be, of (i) a complete liquidation or dissolution of the Bank and/or the
Corporation, or (ii) the sale or other disposition of all or substantially all
of the assets of the Bank and/or the Corporation or the occurrence of any such
liquidation, dissolution, sale or other disposition, other than, in any case, to
a Subsidiary, directly or indirectly, of the Corporation or any Affiliate;
and/or (f) the solicitation of proxies from shareholders of the Corporation by
someone other than the current management of the Corporation and without the
approval of the Board, seeking shareholder approval of a plan of reorganization,
merger or consolidation of the Bank and/or the Corporation with one or more
corporations as a result of which the shareholders' interests in the Bank and/or
the Corporation, as the case may be, are actually exchanged for or converted
into securities not issued by the Bank or the Corporation, as the case may be.
No failure on the part of the Executive to exercise any
<PAGE>
rights upon the occurrence of a Change in Control shall be deemed a waiver of or
otherwise impair the rights of the Executive in respect of any subsequent events
or circumstances constituting a Change in Control.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended, and
as in effect from time to time, and/or any successor code thereto.
1.6 "GOOD REASON" means, and shall be deemed to exist if, without
the written consent of the Executive, (a) the Corporation fails to appoint or
reappoint the Executive as an Executive Vice President and the General Counsel
of the Corporation, (b) there occurs any reduction of Base Salary or material
reduction in other benefits or any material change by the Corporation to the
Executive's function, duties, or responsibilities in effect on the date hereof
and/or as set forth in Section 4.1 of this Agreement, which change would cause
the Executive's position with the Corporation to become one of lesser
responsibility, importance, or scope from the position and attributes thereof in
effect on the date hereof and/or as set forth in Section 4.1 of this Agreement
(and any such material change shall be deemed a continuing breach of this
Agreement), (c) there occurs any material breach of this Agreement by the
Corporation, (d) a Change in Control occurs, or (e) the Corporation, if and
after a Suspension for Disability (as defined in Section 6.2(a)) occurs and
after a Change in Control occurs, fills the Executive's position (in the manner
set forth in Section 6.2(b) of this Agreement).
1.7 "PARENT" means any corporation which has a direct or indirect
legal or beneficial ownership interest in the Corporation, but only if any such
corporation owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities of the
Corporation.
1.8 "SUBSIDIARY" means any corporation (other than the Corporation)
in which the Corporation or any Parent has a direct or indirect legal or
beneficial ownership interest, but only if the Corporation or the Parent, as the
case may be, owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities in any
such corporation.
1.9 "RETIREMENT" means the termination of the Executive's employment
with the Corporation for any reason by the Executive at any time after the
Executive attains age 65.
1.10 "VOTING INTEREST" means securities of any class or classes or
other ownership interests having general voting power under ordinary
circumstances to elect members of a board of directors or trustees of any
entity.
<PAGE>
2. EMPLOYMENT.
2.1 GENERAL. Subject to the terms and provisions set forth in this
Agreement, the Corporation, during the Term of Employment, agrees to employ the
Executive as an Executive Vice President and the General Counsel of the
Corporation and the Executive hereby accepts such employment.
2.2 OTS SUSPENSION. 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 (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. ss.ss. 1818(e)(3) and (g)(1)), the Corporation's
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Corporation may in its discretion (i) pay the Executive all or
part of the compensation withheld while its contract obligations were suspended,
and (ii) reinstate (in whole or in part) any of its obligations which were
suspended.
3. TERM OF EMPLOYMENT.
3.1 TERM. The term of employment under this Agreement shall commence
as of August 4, 1997 (the "Commencement Date") and, unless extended as provided
below or earlier terminated by the Corporation or the Executive under Section 6
of this Agreement, shall continue until the third anniversary of the
Commencement Date (the "Term of Employment"). The Term of Employment shall
automatically be extended on each anniversary of the Commencement Date for an
additional one year period unless, not later than six months prior to the next
such anniversary, either party to this Agreement shall give written notice to
the other that she or it does not wish to extend or further extend the Term of
Employment beyond its then already automatically extended term, if any.
3.2 OTS REMOVAL. Notwithstanding anything to the contrary in this
Agreement, 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 (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.ss.
1818(e)(4) or (g)(1)), all obligations of the Corporation under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
Corporation and/or the Executive, if any, shall not be affected.
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS AND DUTIES. During the Term of Employment, the
Executive shall be employed and shall serve as an Executive Vice President and
the General Counsel of the Corporation. In such position(s), the Executive shall
have the duties, responsibilities and authority as determined and designated
from time to time by the Board. The Executive shall serve under the direction
and supervision of the Corporation's chief executive officer and shall report
only to such chief executive officer
<PAGE>
or his designees. Notwithstanding the above, the Executive shall not be required
to perform any duties and responsibilities (a) which would result in a
non-compliance with or violation of any applicable law, regulation, regulatory
bulletin, and/or any other regulatory requirement or (b) on a regular basis in
any locations outside the counties of Nassau, Suffolk or the City of New York
unless agreed upon by the Executive.
4.2 ATTENTION TO DUTIES AND RESPONSIBILITIES. During the Term of
Employment, the Executive shall, except for periods of absence occasioned by
illness, vacation in accordance with Section 5.6, and reasonable leaves of
absence in accordance with the practices of the Corporation and the Bank as of
the date of this Agreement, devote substantially all of her business time to the
business and affairs of the Corporation and the Bank and the Executive shall use
her best efforts, business skills, ability and fidelity to perform faithfully
and efficiently the duties and responsibilities contemplated by this Agreement;
provided, however, that the Executive shall be allowed, to the extent such
activities do not present a conflict or substantially interfere with the
performance by the Executive of her duties and responsibilities hereunder, (a)
to manage the Executive's personal affairs, and (b)(i) to serve on boards or
committees of civic or charitable organizations or trade associations, and (ii)
after obtaining the consent of the Board, as evidenced by a written resolution
of the Board and under the terms and conditions specified in any such
resolution, to serve on the boards of directors or trustees of companies or
other organizations and associations; provided, further, however, that all
offices or positions which the Executive currently holds or has held prior to
the date of this Agreement and those set forth on Exhibit "A", annexed hereto
are designated as currently consented to positions.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary of no less then $185,000 per annum ("Base Salary") payable
in accordance with the Corporation's normal payroll practices. Such Base Salary
shall be reviewed from time to time by the Board at its convenience, but no less
frequently than annually, for increase by the Board in its sole discretion. Such
Base Salary as so increased shall then constitute the Executive's "Base Salary"
for purposes of this Agreement.
5.2 ANNUAL BONUS. During the Term of Employment, the Executive shall
be entitled to participate in an equitable manner with other executive officers
of the Corporation in such discretionary bonus payments or awards as may be
authorized, declared, and paid by the Board to the Corporation's executive
employees; provided, however, that the annual bonus paid to the Executive
following a Change in Control shall not be less than the highest annual bonus
paid during the Term of Employment. No other compensation or additional benefits
provided for in this Agreement shall be deemed a substitute for the Executive's
right, if any, to receive such bonuses if, when and as declared by the Board.
<PAGE>
5.3 INCENTIVE, RETIREMENT, AND SAVINGS PLANS. During the Term of
Employment, the Executive shall participate in all incentive, pension,
retirement, savings and other employee benefit plans and programs, if any,
maintained from time to time by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.4 WELFARE BENEFIT PLANS. During the Term of Employment, the
Executive, the Executive's spouse, if any, and their eligible dependents, if
any, shall participate in and be covered by all the welfare benefit plans and
programs, if any, maintained by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.5 EXPENSE REIMBURSEMENT. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses, including reasonable business travel expenses, incurred by the
Executive in performing her duties and responsibilities hereunder in accordance
with the policies and procedures of the Corporation as in effect at the time the
expense was incurred, as the same may be changed from time to time.
5.6 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to five weeks paid vacation each calendar year at
such times which do not materially interfere with the performance of the
Executive's duties hereunder. In addition, during the Term of Employment, the
Executive shall be eligible to benefit from such fringe benefits and
perquisites, if any, in accordance with the policies of the Corporation and as
in effect and provided from time to time to senior executives of the Corporation
and/or the Bank. Notwithstanding the above, the Executive, during the Term of
Employment, shall retain, pursuant to current policy and practice of the
Corporation and/or the Bank, all privileges, if any, including club memberships
and automobile usage to which she is entitled on the date of this Agreement.
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH. In the event of the Executive's death
during the Term of Employment, the Term of Employment shall thereupon end and
her estate or other legal representative, as the case may be, shall, subject to
Sections 2.2, 3.2, 6.11, and 6.12 of this Agreement, only be entitled to:
(a)(i)(A) Base Salary continuation at two-thirds (2/3) of the rate
in effect (as provided in Section 5.1 of this Agreement) on the date of
termination for a three-month period commencing on such date of termination, or
(B), if the Board so determines in its sole discretion and in lieu of such
three-month salary continuation described above in (A), a lump sum payment equal
in amount to the present value of such Base Salary
<PAGE>
continuation (reasonably determined using a discount rate equal to the most
recent quote available for the three-month United States Treasury Bill rate on
the date of termination) payable within thirty business days after the date of
termination, and (ii) a pro-rata annual bonus for the fiscal year in which such
termination occurs, such pro-rata bonus amount to be (I) pro-rated based on the
number of calendar days transpired during the fiscal year of the Corporation
(prior to the date of termination) in which such termination occurs over 365,
(II) determined in good faith by the Board (but in its sole discretion), and
(III) if any such bonus is payable, paid on or about the same date that the
annual bonus amounts payable in respect of such fiscal year, if any, to the
senior executives of the Corporation and/or the Bank are actually paid to them;
(b) any Base Salary accrued to the date of termination or any bonus
actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Corporation in which such termination occurs;
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and programs,
if any, of the Corporation or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.2 SUSPENSION FOR DISABILITY.
(a) If, during the Term of Employment, the Executive shall have been
absent from her duties hereunder on a full-time basis due to physical or mental
illness for six (6) consecutive months, the Corporation may give thirty (30)
days written notice of potential suspension. If the Executive shall not have
returned to the full-time performance of her duties within such 30-day period,
the Corporation may suspend the Executive's employment for "Disability" (a
"Suspension for Disability").
(b) If a Suspension for Disability occurs during the Term of
Employment, the Corporation will pay the Executive a bi-weekly payment equal to
two-thirds (2/3) of the Executive's bi-weekly rate of Base Salary on the
effective date of the Suspension for Disability. These payments shall commence
on the effective date of the Executive's Suspension for Disability and will end
on the earlier of (i) the date the Executive returns to full-time employment
hereunder; (ii) the Executive's equivalent full-time employment by another
employer; (iii) the Executive's retirement; (iv) the Executive's death; or (v)
the expiration or earlier end of the Term of Employment (the
<PAGE>
"Term of Suspension"). After a Suspension for Disability occurs, the Corporation
shall be free to fill the Executive's position(s), but such action by the
Corporation, shall constitute Good Reason if it occurs after a Change in
Control. Upon the Executive being able to return to full-time employment
hereunder before the expiration of the Term of Employment, the Executive shall
be offered an equivalent available position and otherwise be subject to the
provisions of this Agreement. The disability payments hereunder will be in
addition to any benefit payable from any qualified or nonqualified retirement
plans or programs maintained by the Corporation and/or the Bank but will be
reduced by payments received by the Executive on account of such disability
under any long-term disability plan maintained for the Corporation's and/or the
Bank's employees.
(c) During the Term of Suspension, the Corporation will cause to be
continued life and health coverage and such other benefits substantially
identical to the coverage and benefits maintained by the Corporation and/or the
Bank for the Executive prior to the occurrence of any Suspension for Disability.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation (except as otherwise provided in Section 6.2(b) above), accrued
benefits or pension granted or accruing to the Executive during the Term of
Suspension. Nothing in this Section 6.2 shall abrogate or limit other provisions
of this Agreement granting rights to the Executive or the Executive's spouse or
the Executive's estate following death, retirement or termination, if
applicable.
6.3 TERMINATION FOR CAUSE. The Corporation may terminate the
Executive's employment hereunder for Cause, upon fifteen (15) days written
notice to the Executive. If the Corporation terminates the Executive's
employment hereunder for Cause, the Term of Employment (if not already expired)
shall thereupon end as set forth below and the Executive shall, subject to
Sections 2.2, 3.2, 6.11, and 6.12 of this Agreement, only be entitled to:
(a) Base Salary up to and including the date of termination;
(b) any bonus actually awarded, but not yet paid as of the date of
termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and, to the extent not prohibited by
applicable law, regulation, regulatory bulletin, and/or any other regulatory
requirement, as the same exists or may hereafter be promulgated or amended, the
unused, unaccrued portion of any vacation days available through the end (but
not beyond) of the calendar year of the Corporation in which such termination
occurs;
<PAGE>
(e) to the extent not prohibited by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, as the same exists
or may hereafter be promulgated or amended, any other compensation and benefits
as may be provided in accordance with the terms and provisions of any applicable
plans and programs, if any, of the Corporation or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The Corporation
may terminate the Executive's employment hereunder at any time without Cause.
The Executive may terminate her employment hereunder for Good Reason at any time
by delivery of written notice to the Corporation within the six-month period
commencing after the occurrence of the Good Reason effective forty-five (45)
days after such written notice is delivered. If the Corporation terminates the
Executive's employment hereunder without Cause (other than due to Retirement,
death, Disability or the normal expiration of the full Term of Employment), or
if the Executive terminates her employment hereunder for Good Reason, the Term
of Employment shall thereupon end (if not already expired) and the Executive
shall, subject to Sections 2.2, 3.2, 6.11, and 6.12 of this Agreement, only be
entitled to:
(a) as liquidated damages, a cash lump sum equal to three (3) times
the Executive's "Highest Annual Compensation" (as herein defined). For purposes
of this Agreement, "Highest Annual Compensation" shall mean the sum of (i) the
highest per annum rate of Base Salary, and (ii) the aggregate bonus amounts paid
to the Executive (or which would have been paid but for an election to defer
payment to a later period), in respect of any fiscal year of the Corporation at
any time during the Term of Employment;
(b) any Base Salary accrued to the date of termination or any bonus
actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Corporation in which such termination occurs;
<PAGE>
(e) continuation of the welfare benefits of the Executive, at the
level in effect (as provided for by Section 5.4 of this Agreement) on, and at
the same out-of-pocket cost to the Executive as of, the date of termination for
the three-year period commencing on the date of termination (or, if such
continuation is not permitted by applicable law or if the Board so determines in
its sole discretion, the Corporation shall provide the economic equivalent in
lieu thereof);
(f) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or programs, if
any, of the Corporation or any Subsidiary; and
(g) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.5 VOLUNTARY TERMINATION. During the Term of Employment, the
Executive may effect, upon thirty (30) days prior written notice to the
Corporation, a Voluntary Termination of her employment hereunder and thereupon
the Term of Employment (if not already expired) shall end. A "Voluntary
Termination" shall mean a termination of employment by the Executive on her own
initiative other than (a) a termination due to death or Disability, (b) a
termination for Good Reason, (c) a termination due to Retirement, or (d) a
termination as a result of the normal expiration of the full Term of Employment.
A Voluntary Termination shall, subject to Sections 2.2, 3.2, 6.11, and 6.12 of
this Agreement, entitle the Executive only to all of the payments and benefits
which the Executive would be entitled to in the event of a termination of her
employment by the Corporation for Cause.
6.6 TERMINATION DUE TO RETIREMENT. The Executive may terminate the
Executive's employment hereunder due to Retirement upon thirty (30) days prior
written notice to the Corporation. If, during the Term of Employment, the
Executive's employment is so terminated due to Retirement, the Term of
Employment shall thereupon end and the Executive shall, subject to Sections 2.2,
3.2, 6.11, and 6.12 of this Agreement, only be entitled to:
(a) Base Salary up to and including the date of termination;
(b) any bonus actually awarded, but not yet paid as of the date of
termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d)(i) continuation of the Executive's welfare benefits (as
described in Section 5.4 of this Agreement) at the level in effect on the date
of termination for the one-year period following the termination of the
Executive's employment due to Retirement (or, if such continuation is not
permitted by applicable law or if the Board so determines
<PAGE>
in its sole discretion, the Corporation shall provide the economic equivalent in
lieu thereof), and (ii) any other compensation and benefits as may be provided
in accordance with the terms and provisions of any applicable plans and
programs, if any, of the Corporation or any Subsidiary;
(e) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Corporation in which such termination occurs; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.7 NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment or to mitigate damages and there shall be no offset
against any amounts due the Executive under this Agreement for any reason,
including, without limitation, on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.8 NOTICE OF TERMINATION. Any termination of the Executive's
employment under this Section 6 requiring advance written notice shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 12.3 of this Agreement (the "Notice of Termination").
The Notice of Termination, in the case of a termination by the Corporation for
Cause, or a termination by the Executive for Good Reason, shall (a) indicate the
specific termination provision in this Agreement relied upon, and (b) set forth
in reasonable detail the dates, facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
6.9 CERTAIN FURTHER PAYMENTS BY THE CORPORATION.
6.9.1 TAX REIMBURSEMENT PAYMENT. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount of benefit or other
entitlement paid, payable, or to be paid, or distributed, distributable, or to
be distributed to or with respect to the Executive by the Corporation, the Bank,
any Subsidiary, any Parent, any other Affiliate, or any other party or entity
(collectively, the "Covered Payments"), is or becomes, at any time, as a result
of (a) any Internal Revenue Service claims or assertions, or (b) Section 6.9.2
below or otherwise, subject to the excise tax imposed by or under Section 4999
of the Code (or any similar tax that may hereafter be imposed), and/or any
interest or penalties with respect to such excise tax (such excise tax, together
with such
<PAGE>
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), the Corporation shall pay to the Executive at the time specified in
Section 6.9.5 below an additional amount (the "Tax Reimbursement Payment") such
that after payment by the Executive of all taxes (including, without limitation,
any interest or penalties imposed with respect to such taxes), including,
without limitation, any Excise Tax, imposed on or attributable to the Tax
Reimbursement Payment provided by this Agreement, the Executive retains an
amount of the Tax Reimbursement Payment equal to the sum of (a) the amount of
the Excise Tax imposed upon the Covered Payments, and (b) an amount equal to the
product of (i) any deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement Payment in the
Executive's adjusted gross income, and (ii) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made.
6.9.2 DETERMINING EXCISE TAX. Except as otherwise provided in
Section 6.9.1(a), for purposes of determining whether any of the Covered
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments in
excess of the Code Section 280G(b)(3) "base amount" shall be treated as subject
to the Excise Tax, unless, and except to the extent that, the Corporation's
independent certified public accountants (the "Accountants") or legal counsel
reasonably acceptable to the Executive, deliver timely, upon the Executive's
request, a written opinion, reasonably satisfactory to the Executive's legal
counsel, to the Executive that the Executive has a reasonable basis to claim
that the Covered Payments (in whole or in part) (i) do not constitute "parachute
payments", (ii) represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.9.3 APPLICABLE TAX RATES AND DEDUCTIONS. For purposes of
determining the amount of the Tax Reimbursement Payment, the Executive shall be
deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which the
Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax
<PAGE>
Reimbursement Payment in the Executive's adjusted gross income.
6.9.4 SUBSEQUENT EVENTS. If, pursuant to a written opinion,
reasonably satisfactory to the Executive, of the Accountants (or legal counsel
reasonably acceptable to the Executive) delivered and addressed to the
Executive, the Excise Tax is subsequently determined on a reasonable basis and
in good faith (other than as a result of a tax contest) to be less than the
amount taken into account hereunder in calculating any Tax Reimbursement Payment
made, the Executive shall repay to the Corporation the portion of any prior Tax
Reimbursement Payment that would not have been paid if such redetermined Excise
Tax had been applied in calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the mid-term discount rate provided
in Section 1274(b)(2)(B) of the Code. Notwithstanding the immediately foregoing
sentence, if any portion of the Tax Reimbursement Payment to be refunded to the
Corporation has been paid to any federal, state or local tax authority,
repayment thereof shall not be required until an actual refund or credit of such
portion has been made to or obtained by the Executive from such tax authority,
and any interest payable to the Corporation shall not exceed the interest
received or credited to the Executive by any such tax authority. The Executive
shall be fully indemnified by the Corporation for any out-of-pocket costs,
expenses or fees attributable to the filing of any refund or other claim. The
Executive and the Corporation shall mutually agree upon the course of action to
be pursued (and the method of allocating the expenses thereof) if any good faith
claim for refund or credit from such tax authority made by the Executive is
denied.
Notwithstanding the immediately preceding paragraph, if, in the
written opinion of the Executive's tax advisors delivered to the Accountants and
the Corporation, the Excise Tax is later determined to exceed the amount taken
into account by the Accountants or legal counsel, as the case may be, hereunder
at the time any Tax Reimbursement Payment is made by reason of (i) manifest
error, (ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9.5 below. With respect to this Section 6.9.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel addressed, delivered and reasonably
satisfactory to the Executive that it is more likely than not that the Executive
would succeed in disputing such claim, assertion or determination of such tax
authority, the Executive shall, at the sole expense of the Corporation, make a
good faith effort to contest such claim, assertion or determination of such tax
authority in all relevant administrative proceedings (excluding any appeals
thereof); provided, however, that if the Executive determines in good faith that
the continued contest of any such claim, assertion or determination with such
tax authority
<PAGE>
would have an adverse impact on her overall tax position (which good faith
determination shall take into account the magnitude of the amounts involved),
then, upon receipt of notice by the Corporation from the Executive to that
effect, the Executive shall, without foregoing any right to receive any Tax
Reimbursement Payment described in this Section 6.9, have no further obligation
to pursue any such contest with any such tax authority. The Executive may, as a
condition to pursuing or commencing any contest described in this Section 6.9.4
in any proceedings (which proceedings shall be in a forum chosen at the sole
discretion of the Executive), require the Corporation to advance any amount of
tax required to be paid in order to pursue such contest. In conducting any
contest described in this Section 6.9.4, the Executive shall use her best
efforts to keep the Corporation advised and will permit the Corporation to
prepare and suggest appropriate responses and actions that may be reasonably
made or taken by the Executive. Notwithstanding the above, the decisions as to
such responses or actions shall be solely that of the Executive and the
Executive shall have the sole right to control the proceeding. The Corporation
shall bear all expenses of any proceeding relating to any contest described in
this Section 6.9.4, whether incurred by the Corporation or the Executive,
including, without limitation, all fees and disbursements of attorneys,
accountants and expert witnesses and any additional interest or penalties
applicable. Nothing contained in this Agreement shall under any circumstances
give the Corporation any right to examine the tax returns or any other records
of the Executive.
6.9.5 DATE OF PAYMENT. A Tax Reimbursement Payment, as
provided for in this Section 6.9, shall be paid to the Executive not later than
10 business days following the payment of any Covered Payments which are
"parachute payments" under Section 6.9.2 above; provided, however, that any
additional Tax Reimbursement Payment payable to the Executive under Section
6.9.4 of this Agreement shall be paid to the Executive not later than 15
business days following the actual receipt by the Accountants and the
Corporation of the written opinion of the Executive's tax advisors, as provided
for therein.
6.10 PAYMENT. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled to under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made, to the extent practicable, within five (5) business days following the
date of termination.
6.11 CORPORATION REGULATORY LIMITATIONS. Any payments made to the
Executive pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. ss. 1828(k) and any regulations
promulgated thereunder.
6.12 OTHER REQUIRED PROVISIONS.
6.12.1 If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this Section 6.12.1 shall not affect
the vested rights of the Corporation and/or the Executive, if any.
<PAGE>
6.12.2 All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank, (i) by the director, or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the director, or his designee, at the
time the director, or his or her designee, approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by such director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
actions.
6.13 POST-TERMINATION OBLIGATIONS. During the Term of Employment and
for one (1) full year after the expiration or termination thereof, the Executive
shall, upon reasonable notice, use her reasonable best efforts to cooperate with
the Corporation and/or the Bank by providing such information and assistance to
the Corporation and/or the Bank as may reasonably be required by the Corporation
and/or the Bank at the Corporation's expense in connection with any litigation
not commenced by or involving the Executive in which the Corporation and/or the
Bank or any of their Subsidiaries or Affiliates is, or may become, a party.
7. NON-EXCLUSIVITY OF RIGHTS; NON-EXTENSION SEVERANCE.
7.1 OTHER BENEFITS. Except as is otherwise specifically provided in
this Agreement, the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Corporation and/or the Bank, and for which the Executive may be eligible and
qualify, shall not be prevented or limited, and the Executive's rights under any
future agreements with the Corporation and/or the Bank and/or any Affiliate
thereof, including, without limitation, any stock option agreements shall not be
limited or prejudiced. Subject to Section 7.2 below, this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. Except as otherwise specifically provided in this
Agreement, no provision of this Agreement shall be interpreted to mean or result
in the Executive receiving fewer benefits than those available to her without
reference to this Agreement.
7.2 NON-EXTENSION SEVERANCE. If (a)(i) the Executive's employment
hereunder is not terminated or suspended under Sections 6.1, 6.2, 6.3, 6.4, 6.5
or 6.6 of this Agreement prior to the expiration of the Term of Employment, or
(ii) any such termination or suspension of the Executive's employment is not
initiated prior to the expiration of the Term of Employment, (b) the Term of
Employment is not extended by the Corporation, and (c) the Executive's
employment with the Corporation terminates after the expiration of the Term of
Employment (other than for Cause), the Executive shall be entitled to receive,
in lieu of any severance payments or severance benefits under any other plan or
program maintained by the Corporation or any Affiliate, (1) Base Salary
continuation at the rate in effect (as provided in Section 5.1 of this
Agreement) as of the expiration of the Term of Employment, and (2) welfare
benefit continuation, at the
<PAGE>
level in effect (as provided for by Section 5.4 of this Agreement) on, and at
the same out-of-pocket cost to the Executive as of, the expiration of the Term
of Employment, in each case (1) and (2), for the period ending six (6) months
after the Executive's employment terminates. Notwithstanding the above, if the
Board determines in its sole discretion and in lieu only of such Base Salary
continuation in (1), a lump sum payment, equal to the present value of such Base
Salary continuation (reasonably determined using the discount rate specified in
Section 6.1(a)(1)), shall be paid to the Executive within thirty (30) days after
the date the Executive's employment terminates. Notwithstanding anything to the
contrary in this Section 7.2, if (x) there occurs a Change in Control during the
Term of Employment, (y) the Term of Employment is not extended by the
Corporation up to and/or through the second anniversary of any such Change of
Control, and (z) the Executive's employment with the Corporation is subsequently
terminated (other than for Cause), the Executive, in lieu of the Base Salary and
welfare benefits continuation under this Section 7.2, shall be entitled to
receive the payments and benefits set forth in Section 6.4 of this Agreement.
8. RESOLUTION OF DISPUTES. With the exception of proceedings for equitable
relief brought pursuant to this Section or Section 9.2 of this Agreement, any
dispute or controversy arising under or in connection with this Agreement may,
at the Executive's option, be settled exclusively by arbitration in Melville,
Long Island in accordance with the rules of the American Arbitration Association
then in effect and at the Corporation's expense. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. If a claim for any payments
or benefits under this Agreement or any other provision of this Agreement is
disputed by the Corporation and the Executive, the Executive shall, to the
extent and at such time or times as is not prohibited by applicable law,
regulation, regulatory bulletin, and/or any other regulatory requirement, as the
same exists or may be hereafter promulgated or amended, be reimbursed for all
reasonable attorney's fees and expenses incurred by the Executive in pursuing
such claim.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. The Executive will not, during or after the
Term of Employment, disclose any confidential information relating to the
business activities of the Corporation or any Affiliate thereof which has not
been previously disclosed by any person to any person, firm, corporation, bank
or other entity for any reason or purpose whatsoever. Notwithstanding the
foregoing, the Executive may disclose any knowledge or other information
relating to banking, financial and/or economic principles, concepts or ideas
which are based on experience and which are not derived from the business plans
and activities of the Corporation, and may disclose such confidential
information in connection with legal and/or regulatory proceedings (which shall
include, but not limited to, formal or informal exams, investigations or
inquiries conducted by the Office of Thrift Supervision).
9.2 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that
the Corporation will have no adequate remedy at law, and would be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 9 of
<PAGE>
this Agreement. The Executive agrees that the Corporation shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach of
this Section 9, and to specific performance of each of the terms of such Section
in addition to any other legal or equitable remedies that the Corporation may
have. The Executive further agrees that she shall not, in any equity proceeding
relating to the enforcement of the terms of this Section 9, raise the defense
that the Corporation has an adequate remedy at law.
9.3 SPECIAL SEVERABILITY. The terms and provisions of this Section 9
are intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the validity
nor the enforceability of any other provision of this Agreement shall thereby be
affected.
10. SUCCESSORS.
10.1 THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or pursuant to a
qualified domestic relations order. This Agreement shall inure to the benefit of
and be enforceable by the Executive's heirs, beneficiaries and/or legal
representatives.
10.2 THE CORPORATION. This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors and assigns; provided,
however, that no assignment of this Agreement may be made without the written
consent of the Executive.
11. INDEMNIFICATION. The Executive (and her heirs, executors and
administrators) shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by applicable law, regulation, regulatory bulletin,
and/or any other regulatory requirement, as the same exists or may hereafter be
promulgated or amended, against all expense, liability and loss (including,
without limitation, attorneys' fees, judgments, fines, excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive as a consequence of the Executive being or having been made a
party to, or being or having been involved, in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Executive is or was a trustee,
director or officer of the Corporation or is or was serving at the request of
the Corporation as a trustee, director or officer of another corporation
(including, but not limited to, a subsidiary or an Affiliate of the
Corporation), and such indemnification shall continue after the Executive shall
cease to be an officer, director or trustee. The right to indemnification
conferred hereby shall be a contract right and shall also include, to the extent
permitted by applicable regulation, the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of the final
disposition upon receipt by the Corporation of an undertaking by or on behalf of
the Executive to repay such amount or a portion thereof, if it shall ultimately
be determined that the
<PAGE>
Executive is not entitled to be indemnified by the Corporation pursuant hereto
or as otherwise authorized by law but such repayment by the Executive shall only
be in an amount ultimately determined to exceed the amount to which the
Executive was entitled to be indemnified.
12. MISCELLANEOUS.
12.1 APPLICABLE LAW. This Agreement shall, to the extent not
superseded by federal law, be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
12.2 AMENDMENTS/WAIVER. This Agreement may not be amended, waived,
or modified otherwise than by a written agreement executed by the parties to
this Agreement or their respective successors and legal representatives. No
waiver by any party to this Agreement of any breach of any term, provision or
condition of this Agreement by the other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same time, or any prior or
subsequent time.
12.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when received by hand-delivery to the
other party, by facsimile transmission, by overnight courier, or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Ms. Karen M. Cullen
20 East Ninth Street
New York, New York 10003
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
If to the Corporation: Long Island Bancorp. Inc.
201 Old Country Road
Melville, New York 11747
Attn: Corporate Secretary
<PAGE>
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4 WITHHOLDING. The Corporation may withhold from any amounts
payable under this Agreement such taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
12.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
12.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties to this Agreement concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
12.8 Representation. The Executive represents and warrants that the
performance of the Executive's duties and obligations under this Agreement will
not violate any agreement between the Executive and any other person, firm,
partnership, corporation, or organization.
12.9 SURVIVORSHIP. The respective rights and obligations of the
parties to this Agreement, including, without limitation, any rights of the
Executive and the Corporation under Section 11 of this Agreement, shall survive
any termination of this Agreement or the Executive's employment hereunder for
any reason to the extent necessary to the intended preservation of such rights
and obligations.
12.10 EFFECT OF PAYMENTS UNDER BANK AGREEMENT. Notwithstanding any
provision herein to the contrary, to the extent that payments, entitlements and
benefits are paid to or received by the Executive under the Employment Agreement
dated as of August 4, 1997, between the Executive and the Bank, the amount of
any such payments, entitlements and benefits actually made by the Bank shall
reduce, to the extent so made,
<PAGE>
the same payment, entitlement or benefit due to the Executive under the
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Corporation has caused this Agreement to be executed in its name on
its behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
LONG ISLAND BANCORP, INC.
By: _____________________________
Name:
Title:
---------------------------------
Karen M. Cullen
<PAGE>
EXHIBIT 10.2
1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of March 1,
1997, is made by and between The Long Island Savings Bank, FSB, a federal stock
savings bank organized under the laws of the United States, having its principal
offices at 201 Old Country Road, Melville, New York 11747 (the "Bank"), and Mr.
Lawrence W. Peters, residing at 143 Cabot Road, Massapequa, New York, 11758 (the
"Executive").
RECITALS
1. The Bank desires to employ the Executive as President and Chief
Operating Officer of the Bank, and to enter into an employment agreement
embodying the terms of such relationship.
2. The Executive is willing to be employed as President and Chief
Operating Officer of the Bank on the terms set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Bank and the Executive hereby agree as follows.
1. DEFINITIONS
1.1 "AFFILIATE" means any person or entity of any kind effectively
controlling, effectively controlled by or effectively under common control with
the Bank, including, without limitation, Long Island Bancorp, Inc. (the
"Corporation").
1.2 "BOARD" means the board of directors of the Bank.
1.3 "CAUSE" means termination due to the Executive's (a) personal
dishonesty, (b) incompetence, (c) willful misconduct, (d) breach of fiduciary
duty involving personal profit, (e) intentional failure to perform stated
duties, (f) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease-and-
<PAGE>
2
desist order, or (g) material breach of any provision of this Agreement.
<PAGE>
3
1.4 "CHANGE IN CONTROL" means, after the date of this Agreement, (a)
a change in control of the Corporation and/or the Bank of a nature that would be
required to be reported in response to Item 1 of the 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, as amended (the "Exchange Act"); (b) a change
in control of the Bank within the meaning of 12 U.S.C. ss. 1817(i), the Change
in Bank Control Act, and 12 C.F.R. ss. 574.4 of the Acquisition of Control of
Savings Association regulations of the Office of Thrift Supervision; (c)
individuals who constitute the Board as of the date of this Agreement (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 of
this Agreement whose election was approved by a vote of at least three-quarters
of the directors then comprising the Incumbent Board, or whose nomination for
election by the Bank's shareholders was approved by the Bank's nominating
committee then serving under the Board, shall be, for purposes of this clause
(c), considered as though he or she was a member of the Incumbent Board (but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents); (d) approval by the shareholders of the Corporation and/or the Bank,
as the case may be, of a reorganization, merger or consolidation, or the
consummation of any such reorganization, merger or consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Corporation and/or the Bank, as the case may be,
beneficially own, directly or indirectly, immediately after such reorganization,
merger or consolidation more than 80% of the Voting Interest of the corporation
or other entity resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Voting Interest in
the Corporation and/or the Bank, as the case may be; (e) approval by the
shareholders of the Corporation and/or the Bank, as the case may be, of (i) a
complete liquidation or dissolution of the Corporation and/or the Bank, or (ii)
the sale or other disposition of all or substantially all of the assets of the
Corporation and/or the Bank, or the occurrence of any such liquidation,
dissolution, sale or other disposition, other than, in any case, to a
Subsidiary, directly or indirectly, of the Corporation or any Affiliate; and/or
(f) the solicitation of proxies from shareholders of the Corporation by someone
other than the current management of the Bank and without the approval of the
Board, seeking shareholder approval of a plan of
<PAGE>
4
reorganization, merger or consolidation of the Corporation and/or the Bank with
one or more corporations as a result of which the shareholders' interests in the
Corporation and/or the Bank, as the case may be, are actually exchanged for or
converted into securities not issued by the Corporation and/or the Bank, as the
case may be. No failure on the part of the Executive to exercise any rights upon
the occurrence of a Change in Control shall be deemed a waiver of or otherwise
impair the rights of the Executive in respect of any subsequent events or
circumstances constituting a Change in Control.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended, and
as in effect from time to time, and/or any successor code thereto.
1.6 "DATE OF TERMINATION" means the date specified in the Notice of
Termination (as defined in Section 6.8 of this Agreement); PROVIDED, HOWEVER,
that if, within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party in writing
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction, including all
appeals, unless the time for appeal therefrom has expired and no appeal has been
perfected; PROVIDED, FURTHER, HOWEVER, that the Date of Termination shall (a) in
no case be later than the date on which the Term of Employment expires, and (b)
be extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
1.7 "EXCISE TAX" means any excise tax imposed under Section 4999 of
the Code and/or any successor section thereto.
1.8 "GOOD REASON" means, and shall be deemed to exist if, without
the written consent of the Executive, (a) there occurs any reduction of Base
Salary or material reduction in other benefits or any material change by the
Bank to the Executive's function, duties, or responsibilities in effect on the
date hereof and/or as set forth in Section 4.1 of this Agreement, which change
would cause the Executive's position with the Bank to become one of lesser
responsibility, importance, or scope from the position and attributes thereof in
effect on the date hereof and/or as set forth in Section 4.1 of this Agreement
(and any such material change shall be deemed a continuing breach of this
Agreement), (b) there occurs any material breach of this Agreement by the Bank,
(c) a Change in Control occurs, or (d) the Bank, if and after a Suspension for
Disability (as defined in Section 6.2(a)) occurs and after a Change in Control
occurs,
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5
fills the Executive's position (in the manner set forth in Section
6.2(b) of this Agreement).
1.9 "PARENT" means any corporation which has a direct or indirect
legal or beneficial ownership interest in the Bank, but only if any such
corporation owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities of the
Bank.
1.10 "SUBSIDIARY" means any corporation (other than the Bank) in
which the Bank or any Parent has a direct or indirect legal or beneficial
ownership interest, but only if the Bank or the Parent, as the case may be, owns
or controls, directly or indirectly, securities possessing at least 50% of the
total combined voting power of all classes of securities in any such
corporation.
1.11 "VOTING INTEREST" means securities of any class or classes or
other ownership interests having general voting power under ordinary
circumstances to elect members of a board of directors or trustees of any
entity.
2. EMPLOYMENT.
2.1 GENERAL. Subject to the terms and provisions set forth in this
Agreement, the Bank, during the Term of Employment, agrees to continue to employ
the Executive as President and Chief Operating Officer of the Bank and the
Executive hereby accepts such continued employment.
2.2 OTS SUSPENSION. 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 (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. ss.ss. 1818(e)(3) and (g)(1)), the Bank's obligations
under this Agreement 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 its contract obligations were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
3. TERM OF EMPLOYMENT
3.1 TERM. The term of employment under this Agreement shall commence
as of March 1, 1997 (the "Commencement Date") and, unless extended as provided
below or earlier terminated by the Bank or the Executive under Section 6 of this
Agreement, shall continue until December 31, 1998 (the "Term of Employment").
The
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6
Term of Employment may be extended upon written agreement of both parties.
3.2 OTS REMOVAL. Notwithstanding anything to the contrary in this
Agreement, 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 (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.ss.
1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested rights of the Bank
and/or the Executive, if any, shall not be affected.
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS AND DUTIES. During the Term of Employment, the
Executive shall be employed and shall serve as President and Chief Operating
Officer of the Bank. In such position(s), the Executive shall have the duties,
responsibilities and authority as determined and designated from time to time by
the Board. The Executive shall serve under the direction and supervision of the
Bank's Chief Executive Officer and shall report only to such Chief Executive
Officer. Notwithstanding the above, the Executive shall not be required to
perform any duties and responsibilities (a) which would result in a
non-compliance with or violation of any applicable law, regulation, regulatory
bulletin, and/or any other regulatory requirement or (b) on a regular basis in
any locations outside the counties of Nassau, Suffolk or the City of New York
unless agreed upon by the Executive.
4.2 ATTENTION TO DUTIES AND RESPONSIBILITIES. During the Term of
Employment, the Executive shall, except for periods of absence occasioned by
illness, vacation in accordance with Section 5.6, and reasonable leaves of
absence in accordance with the practices of the Bank and the Corporation as of
the date of this Agreement, devote substantially all of his business time to the
business and affairs of the Bank and the Corporation and the Executive shall use
his best efforts, business skills, ability and fidelity to perform faithfully
and efficiently the duties and responsibilities contemplated by this Agreement;
PROVIDED, HOWEVER, that the Executive shall be allowed, to the extent such
activities do not present a conflict or substantially interfere with the
performance by the Executive of his duties and responsibilities hereunder, (a)
to manage the Executive's personal affairs, and (b)(i) to serve on boards or
committees of civic or charitable organizations or trade associations, and (ii)
after obtaining the consent of the Board, as evidenced by a written resolution
of the Board and under the terms and conditions specified in any such
resolution, to serve on the
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7
boards of directors or trustees of companies or other organizations and
associations; PROVIDED, FURTHER, HOWEVER, that such offices or positions which
the Executive holds on the date of this Agreement and which are set forth on
Exhibit "A", annexed hereto are designated as currently consented to positions.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary of $325,000 per annum ("Base Salary") payable in
accordance with the Bank's normal payroll practices.
5.2 ANNUAL BONUS. During the Term of Employment, the Executive shall
be entitled to an annual bonus payment in an amount not less than $125,000;
PROVIDED, HOWEVER, that, to the extent not prohibited by applicable law,
regulation, regulatory bulletin, and/or any other regulatory requirement, as the
same exists or may hereafter be promulgated or amended, the annual bonus paid to
the Executive following a Change in Control shall not be less than the highest
annual bonus paid to the Executive during the Term of Employment. No other
compensation or additional benefits provided for in this Agreement shall be
deemed a substitute for the Executive's right, to receive such bonuses.
5.3 INCENTIVE, RETIREMENT, AND SAVINGS PLANS. During the Term of
Employment, the Executive shall participate in all incentive, pension,
retirement, savings and other employee benefit plans and programs, if any,
maintained from time to time by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.4 WELFARE BENEFIT PLANS. During the Term of Employment, the
Executive, the Executive's spouse, if any, and their eligible dependents, if
any, shall participate in and be covered by all the welfare benefit plans and
programs, if any, maintained by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.5 EXPENSE REIMBURSEMENT. During and in respect of the Term of
Employment, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses, including reasonable business travel expenses, incurred
by the Executive in performing his duties and responsibilities hereunder in
accordance with the policies and procedures of the Bank as in effect at the time
the expense was incurred, as the same may be changed from time to time.
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8
5.6 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to five weeks paid vacation each calendar year at
such times which do not materially interfere with the performance of the
Executive's duties hereunder. In addition, during the Term of Employment, the
Executive shall be eligible to benefit from such fringe benefits and
perquisites, if any, including automobile usage, in accordance with the policies
of the Bank and as in effect and provided from time to time to senior executives
of the Corporation and/or the Bank.
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH. In the event of the Executive's death
during the Term of Employment, the Term of Employment shall thereupon end and
his estate or other legal representative, as the case may be, shall, subject to
Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be entitled to:
(a)(i)(A) Base Salary continuation at two-thirds (2/3) of the rate
in effect (as provided in Section 5.1 of this Agreement) on the Date of
Termination for a three-month period commencing on such Date of
Termination, or (B), if the Board so determines in its sole discretion and
in lieu of such three-month salary continuation described above in (A), a
lump sum payment equal in amount to the present value of such Base Salary
continuation (reasonably determined using a discount rate equal to the
most recent quote available for the three-month United States Treasury
Bill rate on the Date of Termination) payable within thirty business days
after the Date of Termination, and (ii) a pro-rata annual bonus for the
fiscal year in which such termination occurs, such pro-rata bonus amount
to be (I) pro-rated based on the number of calendar days transpired during
the fiscal year of the Bank (prior to the Date of Termination) in which
such termination occurs over 365, (II) subject to Section 5.2, determined
in good faith by the Board (but in its sole discretion), and (III) if any
such bonus is payable, paid on or about the same date that the annual
bonus amounts payable in respect of such fiscal year, if any, to the
senior executives of the Corporation and/or the Bank are actually paid to
them;
(b) any Base Salary accrued to the Date of Termination or any bonus
actually awarded, but not yet paid as of the Date of Termination;
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9
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion
of any vacation days available through the end (but not beyond) of the
calendar year of the Bank in which such termination occurs;
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and
programs, if any, of the Bank or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.2 SUSPENSION FOR DISABILITY.
(a) If, during the Term of Employment, the Executive shall have been
absent from his duties hereunder on a full-time basis due to physical or mental
illness for six (6) consecutive months, the Bank may give thirty (30) days
written notice of potential suspension. If the Executive shall not have returned
to the full-time performance of his duties within such 30-day period, the Bank
may suspend the Executive's employment for "Disability" (a "Suspension for
Disability").
(b) If a Suspension for Disability occurs during the Term of
Employment, the Bank will pay the Executive a bi-weekly payment equal to
two-thirds (2/3) of the Executive's bi-weekly rate of Base Salary on the
effective date of the Suspension for Disability. These payments shall commence
on the effective date of the Executive's Suspension for Disability and will end
on the earlier of (i) the date the Executive returns to full-time employment
hereunder; (ii) the Executive's equivalent full-time employment by another
employer; (iii) the Executive's death; or (iv) the expiration or earlier end of
the Term of Employment (the "Term of Suspension"). After a Suspension for
Disability occurs, the Bank shall be free to fill the Executive's position, but
such action by the Bank, shall constitute Good Reason if it occurs after a
Change in Control. Upon the Executive being able to return to full-time
employment hereunder before the expiration or end of the Term of Employment, the
Executive shall be offered an equivalent available position and otherwise be
subject to the provisions of this Agreement. The disability payments hereunder
will be in addition to any benefit payable from any qualified or nonqualified
retirement plans or programs maintained by the Corporation and/or the Bank but
will be reduced by payments received by the Executive on account of such
disability under any
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10
long-term disability plan maintained for the Corporation's and/or the Bank's
employees.
(c) During the Term of Suspension, the Bank will cause to be
continued life and health coverage and such other benefits substantially
identical to the coverage and benefits maintained by the Bank for the Executive
prior to the occurrence of any Suspension for Disability.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation (except as otherwise provided in Section 6.2(b) above), accrued
benefits or pension granted or accruing to the Executive during the Term of
Suspension. Nothing in this Section 6.2 shall abrogate or limit other provisions
of this Agreement granting rights to the Executive or the Executive's spouse or
the Executive's estate following death, or termination, if applicable.
6.3 TERMINATION BY THE BOARD FOR CAUSE. The Board may terminate the
Executive's employment hereunder for Cause, as provided below. If the Board
terminates the Executive's employment hereunder for Cause, the Term of
Employment (if not already expired) shall thereupon end as set forth below and
the Executive shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this
Agreement, only be entitled to:
(a) Base Salary up to and including the Date of Termination;
(b) any bonus actually awarded, but not yet paid as of the Date of
Termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and, to the extent not prohibited
by applicable law, regulation, regulatory bulletin, and/or any other
regulatory requirement, as the same exists or may hereafter be promulgated
or amended, the unused, unaccrued portion of any vacation days available
through the end (but not beyond) of the calendar year of the Bank in which
such termination occurs;
(e) to the extent not prohibited by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, as the same
exists or may hereafter be promulgated or amended, any other compensation
and benefits as may be provided in accordance with the terms and
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11
provisions of any applicable plans and programs, if any, of the Bank or
any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
In each case, in determining Cause the alleged acts or omissions of the
Executive shall be measured against standards generally prevailing in the
savings institution industry and the ultimate existence of Cause must be
confirmed by not less than 51% of the Incumbent Board (as constituted in
accordance with Section 1.4(c) of this Agreement) at a meeting called for such
purpose prior to any termination therefor; PROVIDED, HOWEVER, that it shall be
the Bank's burden to prove the alleged facts and omissions and the prevailing
nature of the standards the Bank shall have alleged are violated by such acts
and/or omissions of the Executive. In the event of such a confirmation by 51% or
more of the Incumbent Board, the Bank shall notify the Executive that the Bank
intends to terminate the Executive's employment for Cause under this Section 6.3
(the "Confirmation Notice"). The Confirmation Notice shall specify the act, or
acts, upon the basis of which the Incumbent Board has confirmed the existence of
Cause and the Confirmation Notice must be delivered to the Executive within
fourteen (14) days after the Incumbent Board so confirms the existence of Cause.
If the Executive notifies the Bank in writing (the "Opportunity Notice") within
thirty (30) days after the Executive has received the Confirmation Notice, the
Executive (together with counsel) shall be provided one opportunity to meet with
the Incumbent Board (or a sufficient quorum thereof) to discuss such act or
acts. Such opportunity to meet with the Incumbent Board shall be fixed and shall
occur on a date selected by the Incumbent Board, such date being not less than
ten (10) nor more than thirty (30) days after the Bank receives the Opportunity
Notice from the Executive; PROVIDED, HOWEVER, that the Bank may in good faith
select a later date if, and only if, such later date is necessary to convene a
sufficient quorum of the Incumbent Board to act in respect of the Executive's
Opportunity Notice. Such meeting shall take place at the principal offices of
the Bank or such other location as agreed to by the Executive and the Bank.
During the period commencing on the date the Bank receives the Opportunity
Notice and ending on the date next succeeding the date on which such meeting
between the Incumbent Board (or a sufficient quorum thereof) and the Executive
is scheduled to occur, and not withstanding anything to the contrary in this
Agreement, the Executive shall be suspended from employment with the Bank (with
pay, to the extent not prohibited by applicable law, regulation, regulatory
bulletin, and/or any other regulatory requirement, as the same exists or may
hereafter be promulgated or amended) and the Incumbent Board may, during such
suspension period, reasonably limit the Executive's access to the principal
offices of the Bank or any of its assets. If the Incumbent Board properly sets
the date of
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12
such meeting and if the Incumbent Board (or a sufficient quorum thereof) attends
such meeting and in good faith does not rescind its confirmation of Cause at
such meeting or if the Executive fails to attend such meeting for any reason,
the Executive's employment by the Bank shall, immediately upon the closing of
such meeting and the delivery to the Executive of the Notice of Termination, be
terminated for Cause under this Section 6.3. If the Executive does not respond
in writing to the Confirmation Notice in the manner and within the time period
specified in this Section 6.3, the Executive's employment with the Bank shall,
upon the thirty-first day after the receipt by the Executive of the Confirmation
Notice, be terminated for Cause under this Section 6.3. In the event of any
dispute hereunder, the Executive shall be entitled, to the extent not prohibited
by applicable law, regulation, regulatory bulletin, and/or any other regulatory
requirement, as the same exists or may hereafter be promulgated or amended,
until the earlier to occur of (i) the Date of Termination, (ii) the expiration
of the current stated Term of Employment, or (iii) the resolution of such
dispute to (A) be paid bi-weekly his then Base Salary, and (B) continue to
receive all other benefits; and there shall be no reduction whatsoever of any
amounts subsequently paid to the Executive upon resolution of such dispute as a
result of, or in respect to, such interim payments or coverage. The procedure
set forth in this Section 6.3 to determine the existence of Cause shall at all
times be subject to the requirements of applicable law, regulation, regulatory
bulletin or other regulatory requirements.
6.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The Bank may
terminate the Executive's employment hereunder at any time without Cause. The
Executive may terminate his employment hereunder for Good Reason at any time by
delivery of written notice to the Bank within the six-month period commencing
after the occurrence of the Good Reason effective forty-five (45) days after
such written notice is delivered. If the Bank terminates the Executive's
employment hereunder without Cause (other than due to Retirement, death,
Disability or the normal expiration of the full Term of Employment), or if the
Executive terminates his employment hereunder for Good Reason, the Term of
Employment shall thereupon end (if not already expired) and the Executive shall,
subject to Sections 2.2, 3.2, 6.8, 6.10, and 6.11 of this Agreement, only be
entitled to:
(a) as liquidated damages, a cash lump sum equal to the sum of I)
the Base Salary that would have accrued from the Date of Termination
through the remaining Term of Employment but for the Termination and ii)
subject to Section 5.2, an annual bonus for the fiscal year in which the
Termination occurs;
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13
(b) any Base Salary accrued to the Date of Termination or any bonus
actually awarded, but not yet paid as of the Date of Termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the Date of Termination, but not yet paid as of the Date of
Termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion
of any vacation days available through the end (but not beyond) of the
calendar year of the Bank in which such termination occurs;
(e) continuation of the welfare benefits of the Executive, at the
level in effect (as provided for by Section 5.4 of this Agreement) on, and
at the same out-of-pocket cost to the Executive as of, the Date of
Termination for the three-year period commencing on the Date of
Termination (or, if such continuation is not permitted by applicable law
or if the Board so determines in its sole discretion, the Bank shall
provide the economic equivalent in lieu thereof);
(f) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs, if any, of the Bank or any Subsidiary; and
(g) any rights to indemnification in accordance with Section 11 of
this Agreement.
In the event of any dispute hereunder, the Executive shall be entitled until the
earlier to occur of (i) the Date of Termination, (ii) the expiration of the
current stated Term of Employment, or (iii) the resolution of such dispute to
(A) be paid bi-weekly his then Base Salary, and (B) continue to receive all
other benefits; and there shall be no reduction whatsoever of any amounts
subsequently paid to the Executive upon resolution of such dispute as a result
of, or in respect to, such interim payments or coverage.
6.5 VOLUNTARY TERMINATION. During the Term of Employment, the
Executive may effect, upon thirty (30) days prior written notice to the Bank, a
Voluntary Termination of his employment hereunder and thereupon the Term of
Employment (if not already expired) shall end. A "Voluntary Termination" shall
mean a termination of employment by the Executive on his own initiative other
than (a) a termination due to death or Disability, (b) a termination for Good
Reason, (c) a termination
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14
as a result of the normal expiration of the full Term of Employment. A Voluntary
Termination shall, subject to Sections 2.2, 3.2, 6.8, 6.10, and 6.11 of this
Agreement, entitle the Executive only to all of the payments and benefits which
the Executive would be entitled to in the event of a termination of his
employment by the Bank for Cause.
6.6 NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment or to mitigate damages and there shall be no offset
against any amounts due the Executive under this Agreement for any reason,
including, without limitation, on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.7 NOTICE OF TERMINATION. Any termination of the Executive's
employment under this Section 6 requiring advance written notice shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 12.3 of this Agreement (the "Notice of Termination").
The Notice of Termination, in the case of a termination by the Bank for Cause,
or a termination by the Executive for Good Reason, shall (a) indicate the
specific termination provision in this Agreement relied upon, and (b) set forth
in reasonable detail the dates, facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
6.8 CODE SECTION 280G REDUCTION. Notwithstanding any other
provisions of this Agreement or of any other agreement, contract, understanding,
plan or program entered into or maintained by the Bank, if any payment or
benefit received or to be received by the Executive in connection with a Change
in Control or the termination of the Executive's employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with (a)
the Bank or any Affiliate, Parent or Subsidiary of the Bank, (b) any person
whose actions result in a Change in Control, or (c) any person affiliated with
the Bank or any such person) (all such payments and/or benefits, including the
payments and benefits, if any, under this Section 6, being hereinafter referred
to as the "Total Payments") would subject the Executive to an Excise Tax, and if
such Total Payments less the Excise Tax is less than the maximum amount of Total
Payments which would otherwise be payable to the Executive without imposition of
an Excise Tax, then, to the extent necessary to eliminate the imposition of an
Excise Tax (and after taking into account any reduction in the Total Payments
provided
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15
by reason of Section 280G of the Code in such other plan, arrangement or
agreement), (i) the cash and non-cash payments and benefits payable under this
Agreement shall first be reduced (but not below zero), and (ii) all other cash
and non-cash payments and benefits shall next be reduced (but not below zero);
but only if, by reason of any such reduction, the Total Payments with any such
reduction shall exceed the Total Payments without any such reduction. For
purposes of this Section 6.8, (A) no portion of the Total Payments the receipt
or enjoyment of which the Executive shall have effectively waived in writing
prior to the Date of Termination shall be taken into account, (B) no portion of
the Total Payments shall be taken into account which in the opinion of tax
counsel selected in good faith by the Bank does not constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code, including
(without limitation) by reason of Section 280G(b)(4)(A) of the Code, (C) the
payments and/or benefits under this Agreement shall be reduced only to the
extent necessary so that the Total Payments (other than those referred to in
clauses (A) and (B) above) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4)(B) of
the Code or are otherwise not subject to disallowance as deductions, in the
opinion of the tax counsel referred to above in clause (B), and (D) the value of
any non-cash payment or benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Bank's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
Except as otherwise provided above, the foregoing calculations and
determinations shall be made in good faith by the Bank and the Executive. If no
agreement on the calculations is reached, then the Executive and the Bank will
agree to the selection of an accounting firm to make the calculations. If no
agreement can be reached regarding the selection of an accounting firm the Bank
will select a prominent national accounting firm which has no current or recent
business relationship with the Bank. The Bank shall pay all costs and expenses
incurred in connection with any such calculations or determinations. Any
calculations or determinations made in accordance with this Section 6.8 shall be
conclusive and binding on all parties.
6.9 PAYMENT. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled to under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made, to the extent practicable, within five (5) business days following the
Date of Termination.
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16
6.10 BANK REGULATORY LIMITATIONS.
6.10.1 Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. ss. 1828(k) and any regulations promulgated thereunder.
6.11 OTHER REQUIRED PROVISIONS.
6.11.1 If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this Section 6.11.1 shall not affect
the vested rights of the Bank and/or the Executive, if any.
6.11.2 All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank, (i) by the director, or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the director, or his designee, at the
time the director, or his or her designee, approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by such director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
actions.
6.12 POST-TERMINATION OBLIGATIONS. During the Term of Employment and
for one (1) full year after the expiration or termination thereof, the Executive
shall, upon reasonable notice, use his reasonable best efforts to cooperate with
the Corporation and/or the Bank by providing such information and assistance to
the Corporation and/or the Bank as may reasonably be required by the Corporation
and/or the Bank at the Bank's expense in connection with any litigation not
commenced by or involving the Executive in which the Corporation and/or the Bank
or any of their Subsidiaries or Affiliates is, or may become, a party.
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7. NON-EXCLUSIVITY OF RIGHTS; NON-EXTENSION SEVERANCE.
7.1 OTHER BENEFITS. Except as is otherwise specifically provided in
this Agreement, the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Bank, and for which the Executive may be eligible and qualify, shall not be
prevented or limited, and the Executive's rights under any future agreements
with the Corporation and/or the Bank and/or any Affiliate thereof, including,
without limitation, any stock option agreements shall not be limited or
prejudiced. This Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. Except as
otherwise specifically provided in this Agreement, no provision of this
Agreement shall be interpreted to mean or result in the Executive receiving
fewer benefits than those available to him without reference to this Agreement.
8. RESOLUTION OF DISPUTES. With the exception of proceedings for
equitable relief brought pursuant to this Section or Section 9.2 of this
Agreement, any dispute or controversy arising under or in connection with this
Agreement may, at the Executive's option, be settled exclusively by arbitration
in Melville, Long Island in accordance with the rules of the American
Arbitration Association then in effect and at the Bank's expense. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; PROVIDED,
HOWEVER, that the Executive shall be entitled to seek specific performance in
court 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. If a claim for any payments or benefits under this Agreement or any
other provision of this Agreement is disputed by the Bank and the Executive, the
Executive shall, to the extent and at such time or times as is not prohibited by
applicable law, regulation, regulatory bulletin, and/or any other regulatory
requirement, as the same exists or may be hereafter promulgated or amended, be
reimbursed for all reasonable attorney's fees and expenses incurred by the
Executive in pursuing such claim.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. The Executive will not, during or after the
Term of Employment, disclose any confidential information relating to the
business activities of the Bank or any Affiliate thereof which has not been
previously disclosed by any person to any person, firm, corporation, bank or
other entity for any reason or purpose whatsoever. Notwithstanding the
foregoing, the Executive may disclose any knowledge or other
<PAGE>
18
information relating to banking, financial and/or economic principles, concepts
or ideas which are based on experience and which are not derived from the
business plans and activities of the Bank, and may disclose such confidential
information in connection with legal and/or regulatory proceedings (which shall
include, but not be limited to, formal or informal exams, investigations or
inquiries conducted by the Office of Thrift Supervision).
9.2 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that
the Bank will have no adequate remedy at law, and would be irreparably harmed,
if the Executive breaches or threatens to breach any of the provisions of this
Section 9 of this Agreement. The Executive agrees that the Bank shall be
entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 9, and to specific performance of each of the
terms of such Section in addition to any other legal or equitable remedies that
the Bank may have. The Executive further agrees that he shall not, in any equity
proceeding relating to the enforcement of the terms of this Section 9, raise the
defense that the Bank has an adequate remedy at law.
9.3 SPECIAL SEVERABILITY. The terms and provisions of this Section 9
are intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the validity
nor the enforceability of any other provision of this Agreement shall thereby be
affected.
10. SUCCESSORS.
10.1 THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Bank, shall not be assignable
by the Executive, except that the Executive's rights to receive any compensation
or benefits under this Agreement may be transferred or disposed of pursuant to
testamentary disposition, intestate succession or pursuant to a qualified
domestic relations order. This Agreement shall inure to the benefit of and be
enforceable by the Executive's heirs, beneficiaries and/or legal
representatives.
10.2 THE BANK. This Agreement shall inure to the benefit of and be
binding upon the Bank and its successors and assigns; PROVIDED, HOWEVER, that no
assignment of this Agreement may be made without the written consent of the
Executive.
11. INDEMNIFICATION. The Executive (and his heirs, executors and
administrators) shall be indemnified and held harmless by the Bank to the
fullest extent permitted by
<PAGE>
19
applicable law, regulation, regulatory bulletin, and/or any other regulatory
requirement, as the same exists or may hereafter be promulgated or amended,
against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by the Executive as a
consequence of the Executive being or having been made a party to, or being or
having been involved, in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the Executive is or was a trustee, director or officer of the
Bank or is or was serving at the request of the Bank as a trustee, director or
officer of another corporation (including, but not limited to, a subsidiary or
an Affiliate of the Bank), and such indemnification shall continue after the
Executive shall cease to be an officer, director or trustee. The right to
indemnification conferred hereby shall be a contract right and shall also
include, to the extent permitted by applicable regulation, the right to be paid
by the Bank the expenses incurred in defending any such proceeding in advance of
the final disposition upon receipt by the Bank of an undertaking by or on behalf
of the Executive to repay such amount or a portion thereof, if it shall
ultimately be determined that the Executive is not entitled to be indemnified by
the Bank pursuant hereto or as otherwise authorized by law but such repayment by
the Executive shall only be in an amount ultimately determined to exceed the
amount to which the Executive was entitled to be indemnified.
12. MISCELLANEOUS.
12.1 APPLICABLE LAW. This Agreement shall, to the extent not
superseded by federal law, be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
12.2 AMENDMENTS/WAIVER. This Agreement may not be amended, waived,
or modified otherwise than by a written agreement executed by the parties to
this Agreement or their respective successors and legal representatives. No
waiver by any party to this Agreement of any breach of any term, provision or
condition of this Agreement by the other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same time, or any prior or
subsequent time.
<PAGE>
20
12.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when received by hand-delivery to the
other party, by facsimile transmission, by overnight courier, or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Lawrence W. Peters
143 Cabot Road
Massapequa, New York 11758
If to the Bank: The Long Island Savings Bank, FSB
201 Old Country Road
Melville, New York 11747
Attn: Corporate Secretary
<PAGE>
21
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4 WITHHOLDING. The Bank may withhold from any amounts payable
under this Agreement such taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
12.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
12.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties to this Agreement concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
12.8 REPRESENTATION. The Executive represents and warrants that the
performance of the Executive's duties and obligations under this Agreement will
not violate any agreement between the Executive and any other person, firm,
partnership, corporation, or organization.
12.9 SURVIVORSHIP. The respective rights and obligations of the
parties to this Agreement, including, without limitation, any rights of the
Executive and the Bank under Section 11 of this Agreement, shall survive any
termination of this Agreement or the Executive's employment hereunder for any
reason to the extent necessary to the intended preservation of such rights and
obligations.
12.10 EFFECT OF PAYMENTS UNDER CORPORATION AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent that
payments, entitlements and benefits are paid to or received by the Executive
under the Employment Agreement dated
<PAGE>
22
March 1, 1997, between the Executive and the Corporation, the amount of any such
payments, entitlements and benefits actually made by the Corporation shall
reduce, to the extent so made, the same payment, entitlement or benefit due to
the Executive under the provisions of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Bank has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
THE LONG ISLAND SAVINGS BANK, FSB
By: _____________________________
John J. Conefry, Jr.
Chief Executive Officer
---------------------------------
Lawrence W. Peters
<PAGE>
EXHIBIT 99.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of August 4,
1997, is made by and between The Long Island Savings Bank, FSB, a federal stock
savings bank organized under the laws of the United States, having its principal
offices at 201 Old Country Road, Melville, New York 11747 (the "Bank"), and Ms.
Karen M. Cullen, residing at 20 East Ninth Street, New York, New York 10003 (the
"Executive").
RECITALS
1. The Bank desires to employ the Executive as an Executive Vice
President and the General Counsel of the Bank, and to enter into an employment
agreement embodying the terms of such relationship.
2. The Executive is willing to be employed as an Executive Vice
President and the General Counsel of the Bank on the terms set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Bank and the Executive hereby agree as follows.
1. Definitions.
1.1 "AFFILIATE" means any person or entity of any kind effectively
controlling, effectively controlled by or effectively under common control with
the Bank, including, without limitation, Long Island Bancorp, Inc. (the
"Corporation").
1.2 "BOARD" means the board of directors of the Bank.
1.3 "CAUSE" means termination due to the Executive's (a) personal
dishonesty, (b) incompetence, (c) willful misconduct, (d) breach of fiduciary
duty involving personal profit, (e) intentional failure to perform stated
duties, (f) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease-and-desist order, or (g)
material breach of any provision of this Agreement.
1.4 "CHANGE IN CONTROL" means, after the date of this Agreement, (a)
a change in control of the Corporation and/or the Bank of a nature that would be
required to be reported in response to Item 1 of the 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, as
<PAGE>
amended (the "Exchange Act"); (b) a change in control of the Bank within the
meaning of 12 U.S.C. ss. 1817(i), the Change in Bank Control Act, and 12
C.F.R. ss. 574.4 of the Acquisition of Control of Savings Association
regulations of the Office of Thrift Supervision; (c) individuals who
constitute the Board as of the date of this Agreement (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 of this Agreement whose
election was approved by a vote of at least three-quarters of the directors
then comprising the Incumbent Board, or whose nomination for election by the
Bank's shareholders was approved by the Bank's nominating committee then
serving under the Board, shall be, for purposes of this clause (c),
considered as though she or he was a member of the Incumbent Board (but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents); (d) approval by the shareholders of the Corporation and/or the
Bank, as the case may be, of a reorganization, merger or consolidation, or
the consummation of any such reorganization, merger or consolidation, other
than a reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the beneficial
owners, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Corporation and/or the Bank, as the case may be,
beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation more than 80% of the Voting Interest
of the corporation or other entity resulting from such reorganization, merger
or consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation,
of the Voting Interest in the Corporation and/or the Bank, as the case may
be; (e) approval by the shareholders of the Corporation and/or the Bank, as
the case may be, of (i) a complete liquidation or dissolution of the
Corporation and/or the Bank, or (ii) the sale or other disposition of all or
substantially all of the assets of the Corporation and/or the Bank, or the
occurrence of any such liquidation, dissolution, sale or other disposition,
other than, in any case, to a Subsidiary, directly or indirectly, of the
Corporation or any Affiliate; and/or (f) the solicitation of proxies from
shareholders of the Corporation by someone other than the current management
of the Bank and without the approval of the Board, seeking shareholder
approval of a plan of reorganization, merger or consolidation of the
Corporation and/or the Bank with one or more corporations as a result of
which the shareholders' interests in the Corporation and/or the Bank, as the
case may be, are actually exchanged for or converted into securities not
issued by the Corporation and/or the Bank, as the case may be. No failure on
the part of the Executive to exercise any rights upon the occurrence of a
Change in Control shall be deemed a waiver of or otherwise impair the rights
of the Executive in respect of any subsequent events or circumstances
constituting a Change in Control.
<PAGE>
1.5 "CODE" means the Internal Revenue Code of 1986, as amended, and
as in effect from time to time, and/or any successor code thereto.
1.6 "EXCISE TAX" means any excise tax imposed under Section 4999 of
the Code and/or any successor section thereto.
1.7 "GOOD REASON" means, and shall be deemed to exist if, without
the written consent of the Executive, (a) the Bank fails to appoint or reappoint
the Executive as an Executive Vice President and the General Counsel of the
Bank, (b) there occurs any reduction of Base Salary or material reduction in
other benefits or any material change by the Bank to the Executive's function,
duties, or responsibilities in effect on the date hereof and/or as set forth in
Section 4.1 of this Agreement, which change would cause the Executive's position
with the Bank to become one of lesser responsibility, importance, or scope from
the position and attributes thereof in effect on the date hereof and/or as set
forth in Section 4.1 of this Agreement (and any such material change shall be
deemed a continuing breach of this Agreement), (c) there occurs any material
breach of this Agreement by the Bank, (d) a Change in Control occurs, or (e) the
Bank, if and after a Suspension for Disability (as defined in Section 6.2(a))
occurs and after a Change in Control occurs, fills the Executive's position (in
the manner set forth in Section 6.2(b) of this Agreement).
1.8 "PARENT" means any corporation which has a direct or indirect
legal or beneficial ownership interest in the Bank, but only if any such
corporation owns or controls, directly or indirectly, securities possessing at
least 50% of the total combined voting power of all classes of securities of the
Bank.
1.9 "SUBSIDIARY" means any corporation (other than the Bank) in
which the Bank or any Parent has a direct or indirect legal or beneficial
ownership interest, but only if the Bank or the Parent, as the case may be, owns
or controls, directly or indirectly, securities possessing at least 50% of the
total combined voting power of all classes of securities in any such
corporation.
1.10 "RETIREMENT" means the termination of the Executive's
employment with the Bank for any reason by the Executive at any time after the
Executive attains age 65.
1.11 "VOTING INTEREST" means securities of any class or classes or
other ownership interests having general voting power under ordinary
circumstances to elect members of a board of directors or trustees of any
entity.
2. EMPLOYMENT.
2.1 GENERAL. Subject to the terms and provisions set forth in this
Agreement, the Bank, during the Term of Employment, agrees to employ the
Executive as an Executive Vice President and the General Counsel of the Bank and
the Executive hereby accepts such continued employment.
<PAGE>
2.2 OTS SUSPENSION. 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 (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. ss.ss. 1818(e)(3) and (g)(1)), the Bank's obligations
under this Agreement 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 its contract obligations were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
3. TERM OF EMPLOYMENT.
3.1 TERM. The term of employment under this Agreement shall commence
as of August 4, 1997 (the "Commencement Date") and, unless extended as provided
below or earlier terminated by the Bank or the Executive under Section 6 of this
Agreement, shall continue until the third anniversary of the Commencement Date
(the "Term of Employment"). After adequate and explicit review of the terms of
this Agreement and the Executive's performance of her duties, the Board, in its
sole discretion, may approve, as of each anniversary of the date of this
Agreement, a one year extension of the then Term of Employment.
3.2 OTS REMOVAL. Notwithstanding anything to the contrary in this
Agreement, 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 (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.ss.
1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested rights of the Bank
and/or the Executive, if any, shall not be affected.
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS AND DUTIES. During the Term of Employment, the
Executive shall be employed and shall serve as an Executive Vice President and
the General Counsel of the Bank. In such position(s), the Executive shall have
the duties, responsibilities and authority as determined and designated from
time to time by the Board. The Executive shall serve under the direction and
supervision of the Bank's chief executive officer and shall report only to such
chief executive officer or his designees. Notwithstanding the above, the
Executive shall not be required to perform any duties and responsibilities (a)
which would result in a non-compliance with or violation of any applicable law,
regulation, regulatory bulletin, and/or any other regulatory requirement or (b)
on a regular basis in any locations outside the counties of Nassau, Suffolk or
the City of New York unless agreed upon by the Executive.
<PAGE>
4.2 ATTENTION TO DUTIES AND RESPONSIBILITIES. During the Term of
Employment, the Executive shall, except for periods of absence occasioned by
illness, vacation in accordance with Section 5.6, and reasonable leaves of
absence in accordance with the practices of the Bank and the Corporation as of
the date of this Agreement, devote substantially all of her business time to the
business and affairs of the Bank and the Corporation and the Executive shall use
her best efforts, business skills, ability and fidelity to perform faithfully
and efficiently the duties and responsibilities contemplated by this Agreement;
provided, however, that the Executive shall be allowed, to the extent such
activities do not present a conflict or substantially interfere with the
performance by the Executive of her duties and responsibilities hereunder, (a)
to manage the Executive's personal affairs, and (b)(i) to serve on boards or
committees of civic or charitable organizations or trade associations, and (ii)
after obtaining the consent of the Board, as evidenced by a written resolution
of the Board and under the terms and conditions specified in any such
resolution, to serve on the boards of directors or trustees of companies or
other organizations and associations; provided, further, however, that all
offices or positions which the Executive currently holds or has held prior to
the date of this Agreement and those set forth on Exhibit "A", annexed hereto
are designated as currently consented to positions.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary of $185,000 per annum ("Base Salary") payable in
accordance with the Bank's normal payroll practices. Such Base Salary shall be
reviewed from time to time by the Board at its convenience, but no less
frequently than annually, for increase by the Board in its sole discretion. Such
Base Salary as so increased shall then constitute the Executive's "Base Salary"
for purposes of this Agreement.
5.2 ANNUAL BONUS. During the Term of Employment, the Executive shall
be entitled to participate in an equitable manner with other executive officers
of the Bank in such discretionary bonus payments or awards as may be authorized,
declared, and paid by the Board to the Bank's executive employees; provided,
however, that, to the extent not prohibited by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, as the same exists
or may hereafter be promulgated or amended, the annual bonus paid to the
Executive following a Change in Control shall not be less than the highest
annual bonus paid during the Term of Employment. No other compensation or
additional benefits provided for in this Agreement shall be deemed a substitute
for the Executive's right, if any, to receive such bonuses if, when and as
declared by the Board.
<PAGE>
5.3 INCENTIVE, RETIREMENT, AND SAVINGS PLANS. During the Term of
Employment, the Executive shall participate in all incentive, pension,
retirement, savings and other employee benefit plans and programs, if any,
maintained from time to time by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.4 WELFARE BENEFIT PLANS. During the Term of Employment, the
Executive, the Executive's spouse, if any, and their eligible dependents, if
any, shall participate in and be covered by all the welfare benefit plans and
programs, if any, maintained by the Corporation and/or the Bank for the benefit
of senior executives and/or other employees of the Corporation and/or the Bank.
5.5 EXPENSE REIMBURSEMENT. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses, including reasonable business travel expenses, incurred by the
Executive in performing her duties and responsibilities hereunder in accordance
with the policies and procedures of the Bank as in effect at the time the
expense was incurred, as the same may be changed from time to time.
5.6 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to five weeks paid vacation each calendar year at
such times which do not materially interfere with the performance of the
Executive's duties hereunder. In addition, during the Term of Employment, the
Executive shall be eligible to benefit from such fringe benefits and
perquisites, if any, in accordance with the policies of the Bank and as in
effect and provided from time to time to senior executives of the Corporation
and/or the Bank. Notwithstanding the above, the Executive, during the Term of
Employment, shall retain, pursuant to current policy and practice of the
Corporation and/or the Bank, all privileges, if any, including club memberships
and automobile usage to which she is entitled on the date of this Agreement.
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH. In the event of the Executive's death
during the Term of Employment, the Term of Employment shall thereupon end and
her estate or other legal representative, as the case may be, shall, subject to
Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be entitled to:
(a)(i)(A) Base Salary continuation at two-thirds (2/3) of the rate
in effect (as provided in Section 5.1 of this Agreement) on the date of
termination for a three-month period commencing on such date of termination, or
(B), if the Board so determines in its sole discretion and in lieu of such
three-month salary continuation described above in (A), a lump sum payment equal
in amount to the present value of such Base Salary continuation (reasonably
determined using a discount rate equal to the most recent quote available for
the three-month United States Treasury Bill rate on the date of termination)
<PAGE>
payable within thirty business days after the date of termination, and (ii) a
pro-rata annual bonus for the fiscal year in which such termination occurs, such
pro-rata bonus amount to be (I) pro-rated based on the number of calendar days
transpired during the fiscal year of the Bank (prior to the date of termination)
in which such termination occurs over 365, (II) determined in good faith by the
Board (but in its sole discretion), and (III) if any such bonus is payable, paid
on or about the same date that the annual bonus amounts payable in respect of
such fiscal year, if any, to the senior executives of the Corporation and/or the
Bank are actually paid to them;
(b) any Base Salary accrued to the date of termination or any bonus
actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Bank in which such termination occurs;
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and programs,
if any, of the Bank or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.2 SUSPENSION FOR DISABILITY.
(a) If, during the Term of Employment, the Executive shall have been
absent from her duties hereunder on a full-time basis due to physical or mental
illness for six (6) consecutive months, the Bank may give thirty (30) days
written notice of potential suspension. If the Executive shall not have returned
to the full-time performance of her duties within such 30-day period, the Bank
may suspend the Executive's employment for "Disability" (a "Suspension for
Disability").
(b) If a Suspension for Disability occurs during the Term of
Employment, the Bank will pay the Executive a bi-weekly payment equal to
two-thirds (2/3) of the Executive's bi-weekly rate of Base Salary on the
effective date of the Suspension for Disability. These payments shall commence
on the effective date of the Executive's Suspension for Disability and will end
on the earlier of (i) the date the Executive returns to full-time employment
hereunder; (ii) the Executive's equivalent full-time employment by another
employer; (iii) the Executive's retirement; (iv) the
<PAGE>
Executive's death; or (v) the expiration or earlier end of the Term of
Employment (the "Term of Suspension"). After a Suspension for Disability
occurs, the Bank shall be free to fill the Executive's position, but such
action by the Bank, shall constitute Good Reason if it occurs after a Change
in Control. Upon the Executive being able to return to full-time employment
hereunder before the expiration or end of the Term of Employment, the
Executive shall be offered an equivalent available position and otherwise be
subject to the provisions of this Agreement. The disability payments
hereunder will be in addition to any benefit payable from any qualified or
nonqualified retirement plans or programs maintained by the Corporation
and/or the Bank but will be reduced by payments received by the Executive on
account of such disability under any long-term disability plan maintained for
the Corporation's and/or the Bank's employees.
(c) During the Term of Suspension, the Bank will cause to be
continued life and health coverage and such other benefits substantially
identical to the coverage and benefits maintained by the Bank for the Executive
prior to the occurrence of any Suspension for Disability.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation (except as otherwise provided in Section 6.2(b) above), accrued
benefits or pension granted or accruing to the Executive during the Term of
Suspension. Nothing in this Section 6.2 shall abrogate or limit other provisions
of this Agreement granting rights to the Executive or the Executive's spouse or
the Executive's estate following death, retirement or termination, if
applicable.
6.3 TERMINATION FOR CAUSE. The Bank may terminate the Executive's
employment hereunder for Cause, upon fifteen (15) days prior written notice to
the Executive. If the Bank terminates the Executive's employment hereunder for
Cause, the Term of Employment (if not already expired) shall thereupon end as
set forth below and the Executive shall, subject to Sections 2.2, 3.2, 6.9,
6.11, and 6.12 of this Agreement, only be entitled to:
(a) Base Salary up to and including the date of termination;
(b) any bonus actually awarded, but not yet paid as of the date of
termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and, to the extent not prohibited by
applicable law, regulation, regulatory bulletin, and/or any other regulatory
requirement, as the same exists or may hereafter be promulgated or amended, the
unused, unaccrued portion of any vacation days available through the end (but
not beyond) of the calendar year of the Bank in which such termination occurs;
<PAGE>
(e) to the extent not prohibited by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, as the same exists
or may hereafter be promulgated or amended, any other compensation and benefits
as may be provided in accordance with the terms and provisions of any applicable
plans and programs, if any, of the Bank or any Subsidiary; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The Bank may
terminate the Executive's employment hereunder at any time without Cause. The
Executive may terminate her employment hereunder for Good Reason at any time by
delivery of written notice to the Bank within the six-month period commencing
after the occurrence of the Good Reason effective forty-five (45) days after
such written notice is delivered. If the Bank terminates the Executive's
employment hereunder without Cause (other than due to Retirement, death,
Disability or the normal expiration of the full Term of Employment), or if the
Executive terminates her employment hereunder for Good Reason, the Term of
Employment shall thereupon end (if not already expired) and the Executive shall,
subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be
entitled to:
(a) as liquidated damages, a cash lump sum equal to three (3) times
the Executive's "Highest Annual Compensation" (as herein defined). For purposes
of this Agreement, "Highest Annual Compensation" shall mean the sum of (i) the
highest per annum rate of Base Salary, and (ii) the aggregate bonus amounts paid
to the Executive (or which would have been paid but for an election to defer
payment to a later period), in respect of any fiscal year of the Bank at any
time during the Term of Employment;
(b) any Base Salary accrued to the date of termination or any bonus
actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Bank in which such termination occurs;
(e) continuation of the welfare benefits of the Executive, at the
level in effect (as provided for by Section 5.4 of this Agreement) on, and at
the same out-of-pocket cost to the Executive as of, the date of termination for
the three-year period commencing on the date of termination (or, if such
continuation is not permitted by applicable law or if the Board so determines in
its sole discretion, the Bank shall provide the economic equivalent in lieu
thereof);
<PAGE>
(f) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or programs, if
any, of the Bank or any Subsidiary; and
(g) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.5 VOLUNTARY TERMINATION. During the Term of Employment, the
Executive may effect, upon thirty (30) days prior written notice to the Bank, a
Voluntary Termination of her employment hereunder and thereupon the Term of
Employment (if not already expired) shall end. A "Voluntary Termination" shall
mean a termination of employment by the Executive on her own initiative other
than (a) a termination due to death or Disability, (b) a termination for Good
Reason, (c) a termination due to Retirement, or (d) a termination as a result of
the normal expiration of the full Term of Employment. A Voluntary Termination
shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement,
entitle the Executive only to all of the payments and benefits which the
Executive would be entitled to in the event of a termination of her employment
by the Bank for Cause.
6.6 TERMINATION DUE TO RETIREMENT. The Executive may terminate the
Executive's employment hereunder due to Retirement upon thirty (30) days prior
written notice to the Bank. If, during the Term of Employment, the Executive's
employment is so terminated due to Retirement, the Term of Employment shall
thereupon end and the Executive shall, subject to Sections 2.2, 3.2, 6.9, 6.11,
and 6.12 of this Agreement, only be entitled to:
(a) Base Salary up to and including the date of termination;
(b) any bonus actually awarded, but not yet paid as of the date of
termination;
(c) reimbursement for all expenses (under Section 5.5) incurred as
of the date of termination, but not yet paid as of the date of termination;
(d)(i) continuation of the Executive's welfare benefits (as
described in Section 5.4 of this Agreement) at the level in effect on the date
of termination for the one-year period following the termination of the
Executive's employment due to Retirement (or, if such continuation is not
permitted by applicable law or if the Board so determines in its sole
discretion, the Bank shall provide the economic equivalent in lieu thereof), and
(ii) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs, if any, of the
Bank or any Subsidiary;
<PAGE>
(e) payment of the per diem value of any unused vacation days
accruing during the Term of Employment and the unused, unaccrued portion of any
vacation days available through the end (but not beyond) of the calendar year of
the Bank in which such termination occurs; and
(f) any rights to indemnification in accordance with Section 11 of
this Agreement.
6.7 NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment or to mitigate damages and there shall be no offset
against any amounts due the Executive under this Agreement for any reason,
including, without limitation, on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.8 NOTICE OF TERMINATION. Any termination of the Executive's
employment under this Section 6 requiring advance written notice shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 12.3 of this Agreement (the "Notice of Termination").
The Notice of Termination, in the case of a termination by the Bank for Cause,
or a termination by the Executive for Good Reason, shall (a) indicate the
specific termination provision in this Agreement relied upon, and (b) set forth
in reasonable detail the dates, facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
6.9 CODE SECTION 280G REDUCTION. Notwithstanding any other
provisions of this Agreement or of any other agreement, contract, understanding,
plan or program entered into or maintained by the Bank, if any payment or
benefit received or to be received by the Executive in connection with a Change
in Control or the termination of the Executive's employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with (a)
the Bank or any Affiliate, Parent or Subsidiary of the Bank, (b) any person
whose actions result in a Change in Control, or (c) any person affiliated with
the Bank or any such person) (all such payments and/or benefits, including the
payments and benefits, if any, under this Section 6, being hereinafter referred
to as the "Total Payments") would subject the Executive to an Excise Tax, and if
such Total Payments less the Excise Tax is less than the maximum amount of Total
Payments which would otherwise be payable to the Executive without imposition of
an Excise Tax, then, to the extent necessary to eliminate the imposition of an
Excise Tax (and after taking into account any reduction in the Total Payments
provided by reason of Section 280G of the Code in such other plan, arrangement
or agreement), (i) the cash and non-cash payments and benefits payable under
this Agreement shall first be reduced (but not below zero), and (ii) all other
cash and non-cash payments and benefits
<PAGE>
shall next be reduced (but not below zero); but only if, by reason of any such
reduction, the Total Payments with any such reduction shall exceed the Total
Payments without any such reduction. For purposes of this Section 6.9, (A) no
portion of the Total Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the date of termination shall
be taken into account, (B) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected in good faith by the Bank
does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, including (without limitation) by reason of Section
280G(b)(4)(A) of the Code, (C) the payments and/or benefits under this Agreement
shall be reduced only to the extent necessary so that the Total Payments (other
than those referred to in clauses (A) and (B) above) in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel referred to above
in clause (B), and (D) the value of any non-cash payment or benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Bank's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. Except as otherwise provided above, the
foregoing calculations and determinations shall be made in good faith by the
Bank and the Executive. If no agreement on the calculations is reached, then the
Executive and the Bank will agree to the selection of an accounting firm to make
the calculations. If no agreement can be reached regarding the selection of an
accounting firm the Bank will select a prominent national accounting firm which
has no current or recent business relationship with the Bank. The Bank shall pay
all costs and expenses incurred in connection with any such calculations or
determinations. Any calculations or determinations made in accordance with this
Section 6.9 shall be conclusive and binding on all parties.
6.10 PAYMENT. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled to under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made, to the extent practicable, within five (5) business days following the
date of termination.
<PAGE>
6.11 BANK REGULATORY LIMITATIONS.
6.11. Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. ss. 1828(k) and any regulations promulgated thereunder.
6.11.2 To the extent required by applicable law, regulation,
regulatory bulletin, and/or any other regulatory requirement, the aggregate
amount and/or value of the Compensation paid as a result of any termination of
the Executive's employment with the Bank, regardless of the reason for any such
termination of employment, shall not exceed three (3) times the Executive's
Average Annual Compensation. For purposes of this Section 6.11.2, "Average
Annual Compensation" means the average of the Executive's Compensation for the
five (5) taxable years immediately preceding the taxable year in which occurs
the date of termination and "Compensation" shall have the same meaning as is
ascribed to such term in OTS Regulatory Bulletin 27a, dated March 5, 1993, or
any subsequent bulletin that supersedes or revokes OTS RB27a.
6.12 Other Required Provisions.
6.12.1 If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this Section 6.12.1 shall not affect
the vested rights of the Bank and/or the Executive, if any.
6.12.2 All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank, (i) by the director, or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the director, or his designee, at the
time the director, or his or her designee, approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by such director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
actions.
6.13 Post-Termination Obligations. During the Term of Employment and
for one (1) full year after the expiration or termination thereof, the Executive
shall, upon reasonable notice, use her reasonable best efforts to cooperate with
the Corporation and/or the Bank by providing such information and assistance to
the Corporation and/or the Bank as may reasonably be required by the Corporation
and/or the Bank at the Bank's expense in connection with any litigation not
commenced by or involving the Executive in which the Corporation and/or the Bank
or any of their Subsidiaries or Affiliates is, or may become, a party.
<PAGE>
7. NON-EXCLUSIVITY OF RIGHTS; NON-EXTENSION SEVERANCE.
7.1 OTHER BENEFITS. Except as is otherwise specifically provided in
this Agreement, the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Bank, and for which the Executive may be eligible and qualify, shall not be
prevented or limited, and the Executive's rights under any future agreements
with the Corporation and/or the Bank and/or any Affiliate thereof, including,
without limitation, any stock option agreements shall not be limited or
prejudiced. Subject to Section 7.2 below, this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to the Executive of a kind
elsewhere provided. Except as otherwise specifically provided in this Agreement,
no provision of this Agreement shall be interpreted to mean or result in the
Executive receiving fewer benefits than those available to her without reference
to this Agreement.
7.2 NON-EXTENSION SEVERANCE. If (a)(i) the Executive's employment
hereunder is not terminated or suspended under Sections 6.1, 6.2, 6.3, 6.4, 6.5
or 6.6 of this Agreement prior to the expiration of the Term of Employment, or
(ii) any such termination or suspension of the Executive's employment is not
initiated prior to the expiration of the Term of Employment, (b) the Term of
Employment is not extended by the Bank, and (c) the Executive's employment with
the Bank terminates after the expiration of the Term of Employment (other than
for Cause), the Executive shall be entitled to receive, in lieu of any severance
payments or severance benefits under any other plan or program maintained by the
Bank or any Affiliate, (1) Base Salary continuation at the rate in effect (as
provided in Section 5.1 of this Agreement) as of the expiration of the Term of
Employment, and (2) welfare benefit continuation, at the level in effect (as
provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket
cost to the Executive as of, the expiration of the Term of Employment, in each
case (1) and (2), for the period ending six (6) months after the Executive's
employment terminates. Notwithstanding the above, if the Board determines in its
sole discretion and in lieu only of such Base Salary continuation in (1), a lump
sum payment, equal to the present value of such Base Salary continuation
(reasonably determined using the discount rate specified in Section 6.1(a)(1)),
shall be paid to the Executive within thirty (30) days after the date the
Executive's employment terminates. Notwithstanding anything to the contrary in
this Section 7.2, if (x) there occurs a Change in Control during the Term of
Employment, (y) the Term of Employment is not extended by the Bank up to and/or
through the second anniversary of any such Change of Control, and (z) the
Executive's employment with the Bank is subsequently terminated (other than for
Cause), the Executive, in lieu of the Base Salary and welfare benefits
continuation under this Section 7.2, shall be entitled to receive the payments
and benefits set forth in Section 6.4 of this Agreement.
8. RESOLUTION OF DISPUTES. With the exception of proceedings for equitable
relief brought pursuant to this Section or Section 9.2 of this Agreement, any
dispute or controversy arising under or in connection with this Agreement may,
at the Executive's
<PAGE>
option, be settled exclusively by arbitration in Melville, Long Island in
accordance with the rules of the American Arbitration Association then in effect
and at the Bank's expense. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. If a claim for any payments or benefits under
this Agreement or any other provision of this Agreement is disputed by the Bank
and the Executive, the Executive shall, to the extent and at such time or times
as is not prohibited by applicable law, regulation, regulatory bulletin, and/or
any other regulatory requirement, as the same exists or may be hereafter
promulgated or amended, be reimbursed for all reasonable attorney's fees and
expenses incurred by the Executive in pursuing such claim.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. The Executive will not, during or after the
Term of Employment, disclose any confidential information relating to the
business activities of the Bank or any Affiliate thereof which has not been
previously disclosed by any person to any person, firm, corporation, bank or
other entity for any reason or purpose whatsoever. Notwithstanding the
foregoing, the Executive may disclose any knowledge or other information
relating to banking, financial and/or economic principles, concepts or ideas
which are based on experience and which are not derived from the business plans
and activities of the Bank, and may disclose such confidential information in
connection with legal and/or regulatory proceedings (which shall include, but
not limited to, formal or informal exams, investigations or inquiries conducted
by the Office of Thrift Supervision).
9.2 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that
the Bank will have no adequate remedy at law, and would be irreparably harmed,
if the Executive breaches or threatens to breach any of the provisions of this
Section 9 of this Agreement. The Executive agrees that the Bank shall be
entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 9, and to specific performance of each of the
terms of such Section in addition to any other legal or equitable remedies that
the Bank may have. The Executive further agrees that she shall not, in any
equity proceeding relating to the enforcement of the terms of this Section 9,
raise the defense that the Bank has an adequate remedy at law.
9.3 SPECIAL SEVERABILITY. The terms and provisions of this Section 9
are intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the validity
nor the enforceability of any other provision of this Agreement shall thereby be
affected.
10. SUCCESSORS.
10.1 THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Bank, shall not be assignable
by the Executive, except that the Executive's rights to receive any compensation
or benefits
<PAGE>
under this Agreement may be transferred or disposed of pursuant to testamentary
disposition, intestate succession or pursuant to a qualified domestic relations
order. This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, beneficiaries and/or legal representatives.
10.2 THE BANK. This Agreement shall inure to the benefit of and be
binding upon the Bank and its successors and assigns; provided, however, that no
assignment of this Agreement may be made without the written consent of the
Executive.
11. INDEMNIFICATION. The Executive (and her heirs, executors and
administrators) shall be indemnified and held harmless by the Bank to the
fullest extent permitted by applicable law, regulation, regulatory bulletin,
and/or any other regulatory requirement, as the same exists or may hereafter be
promulgated or amended, against all expense, liability and loss (including,
without limitation, attorneys' fees, judgments, fines, excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive as a consequence of the Executive being or having been made a
party to, or being or having been involved, in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Executive is or was a trustee,
director or officer of the Bank or is or was serving at the request of the Bank
as a trustee, director or officer of another corporation (including, but not
limited to, a subsidiary or an Affiliate of the Bank), and such indemnification
shall continue after the Executive shall cease to be an officer, director or
trustee. The right to indemnification conferred hereby shall be a contract right
and shall also include, to the extent permitted by applicable regulation, the
right to be paid by the Bank the expenses incurred in defending any such
proceeding in advance of the final disposition upon receipt by the Bank of an
undertaking by or on behalf of the Executive to repay such amount or a portion
thereof, if it shall ultimately be determined that the Executive is not entitled
to be indemnified by the Bank pursuant hereto or as otherwise authorized by law
but such repayment by the Executive shall only be in an amount ultimately
determined to exceed the amount to which the Executive was entitled to be
indemnified.
12. MISCELLANEOUS.
12.1 APPLICABLE LAW. This Agreement shall, to the extent not
superseded by federal law, be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
12.2 AMENDMENTS/WAIVER. This Agreement may not be amended, waived,
or modified otherwise than by a written agreement executed by the parties to
this Agreement or their respective successors and legal representatives. No
waiver by any party to this Agreement of any breach of any term, provision or
condition of this Agreement by the other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same time, or any prior or
subsequent time.
<PAGE>
12.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when received by hand-delivery to the
other party, by facsimile transmission, by overnight courier, or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Ms. Karen M. Cullen
20 East Ninth Street
New York, New York 10003
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
If to the Bank: The Long Island Savings Bank, FSB
201 Old Country Road
Melville, New York 11747
Attn: Corporate Secretary
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4 WITHHOLDING. The Bank may withhold from any amounts payable
under this Agreement such taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
<PAGE>
12.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
12.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7 ENTIRE AGREEMENt. This Agreement contains the entire agreement
between the parties to this Agreement concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
12.8 REPRESENTATION. The Executive represents and warrants that the
performance of the Executive's duties and obligations under this Agreement will
not violate any agreement between the Executive and any other person, firm,
partnership, corporation, or organization.
12.9 SURVIVORSHIP. The respective rights and obligations of the
parties to this Agreement, including, without limitation, any rights of the
Executive and the Bank under Section 11 of this Agreement, shall survive any
termination of this Agreement or the Executive's employment hereunder for any
reason to the extent necessary to the intended preservation of such rights and
obligations.
12.10 EFFECT OF PAYMENTS UNDER CORPORATION AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent that
payments, entitlements and benefits are paid to or received by the Executive
under the Employment Agreement dated as of August 4, 1997, between the Executive
and the Corporation, the amount of any such payments, entitlements and benefits
actually made by the Corporation shall reduce, to the extent so made, the same
payment, entitlement or benefit due to the Executive under the provisions of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Bank has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
THE LONG ISLAND SAVINGS BANK, FSB
By: _____________________________
Name:
Title:
---------------------------------
Karen M. Cullen
<PAGE>
EXHIBIT 10.12
LONG ISLAND BANCORP, INC.
________________________________________________________________________
NON-EMPLOYEE DIRECTORS RETIREMENT BENEFIT PLAN
________________________________________________________________________
June 1997
<PAGE>
LONG ISLAND BANCORP, INC
____________________________________________________________________________
Non-Employee Directors Retirement Benefit Plan
____________________________________________________________________________
*****
TOPIC PAGE
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PURPOSE.................................................................1
DEFINITIONS.............................................................1
RETIREMENT BENEFITS.....................................................3
PLAN ADMINISTRATION.....................................................4
GENERAL PROVISIONS......................................................4
<PAGE>
LONG ISLAND BANCORP, Inc.
Non-Employee Directors Retirement Benefit Plan
*****
1. PURPOSE. The purpose of the Non-Employee Directors Retirement Benefit
Plan (the "Plan") is to strengthen the ability of Long Island Bancorp, Inc. (the
"Company") to attract and retain the services of experienced and knowledgeable
non-employee directors through the provision of reasonable and competitive
benefits upon the retirement of such directors from the Company's Board of
Directors (the "Board").
2. DEFINITIONS. For purposes of the Plan, the following terms shall
have the meanings set forth below:
2.1 "BANK" means The Long Island Savings Bank, FSB.
2.2 ''BENEFICIARY'' means the person or persons designated by the
Eligible Director to receive benefits under this Plan in the event of the
Eligible Director's death.
2.3 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.4 "CHANGE OF CONTROL" means (a) a change in control of the Bank or
the Company of a nature that would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Exchange Act, other than any change in
control directly related to or in connection with the conversion of the Bank
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (b) a change in control of the Bank or the Company within the
meaning of 12 U.S.C. Section 1817(i), the Change in Bank Control Act, and 12
C.F.R. Section 574.4 of the Acquisition of Control of Savings Association
regulations of the office of Control of Savings Association regulations of the
Office Thrift Supervision, other than any change in control directly related to
or in connection with the conversion of the Bank from a federally chartered
mutual savings bank to a federally chartered stock savings bank; (c) individuals
who constitute the Board as of the effective date of the Plan (the "Incumbent
Board") cease for any reason, including in connection with the conversion of the
Bank from a federally chartered mutual savings bank to a federally chartered
stock savings bank, to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the effective date of the Plan whose
election was approved by a vote of at least three-quarters of the directors then
comprising the Incumbent Board, or whose nomination for election by the
Company's shareholders, as the case may be, was approved by the Company's
nominating committee then serving under the Board, shall be, for purposes of
this clause (c), considered as though he or she was a member of the Incumbent
Board (but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are
<PAGE>
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual threatened solicitation of proxies or consents); (d) approval by
the shareholders of the Bank or the Company, as the case may be, of a
reorganization, merger or consolidation, or the consummation of any such
reorganization, merger or consolidation, other than, in any case (i) any such
transaction occurring in connection with or directly related to the conversion
of the Bank from a federally chartered mutual savings bank to a federally
chartered stock savings bank, or (ii) a reorganization, merger or consolidation
with respect to which all or substantially all of the individuals and entities
who were the beneficial owners, immediately prior to such reorganization, merger
or consolidation, of the Voting Interest in the Company beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation more than eighty percent (80%) of the Voting Interest of the
corporation or other entity resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Company; (e) approval by the shareholders of the Bank
or the Company, as the case may be, of (i) a complete liquidation or dissolution
of the Bank or the Company, or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, or the occurrence of any such
liquidation, dissolution, sale or other disposition, other than, in any case, to
a Subsidiary, directly or indirectly, of the Company, or any Affiliate, or in
connection with or directly related to any conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock savings
bank; and/or (f) the solicitation of proxies from shareholders of the Company,
by someone other than the current management of the Company and without the
approval of the Board, seeking shareholder approval of a plan of reorganization,
merger or consolidation of the Bank and/or the Company with one or more
corporations as a result of which the shareholders' interests in the Bank and/or
the Company are actually exchanged for or converted into securities not issued
by the Bank and/or the Company.
2.5 "COMPANY" means Long Island Bancorp, Inc., a Delaware corporation, or
any successor corporation.
2.6 "CREDITED SERVICE" means the number of years (rounded up to the next
whole number) which represents an Eligible Director's years of service as a
director of the Bank or the Company (including partial years of service and
service as a trustee or director of the Bank or the Company prior to the
implementation of this Plan).
2.7 "ELIGIBLE DIRECTOR" means any non-employee Director of the Company (i)
who is not and has never been an employee of the Company or the Bank; (ii) who
is or becomes a member of the Board and whose subsequent retirement from the
Board is in accordance with the requirements and provisions of this Plan; and
(iii) who has not accrued and is not eligible to receive retirement benefits
under any other qualified or non-qualified pension or retirement benefit plan of
the Bank or the Company; provided, that anything in this paragraph to the
contrary notwithstanding, the term "Eligible Director" shall include any person
serving as Director Emeritus of the Company or the Bank as of the Effective Date
of the Plan. Upon a Change of Control, any Director of the Company with five
(5) or more years of Board service, shall be deemed an Eligible Director.
<PAGE>
2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in effect
and as amended from time to time, or any successor statute thereto, together
with any rules, regulations and interpretations promulgated thereunder or with
respect thereto, as the same may be in effect from time to time.
2.9 "MEETING FEE" means the fee paid to an Eligible Director for
attendance at any regular meeting of the Board in effect at the time of such
Eligible Director's retirement.
2.10 "PAYMENT DATE" means the date of the Company's monthly board of
directors meetings, or such other date in the month as may be determined by the
Company.
2.11 "PLAN" means the Long Island Bancorp, Inc. Non-Employee Directors
Retirement Benefit Plan, as set forth herein.
2.12 "RETAINER" means the annual retainer fee paid to each non-employee
Director in effect at the time of an Eligible Director's retirement.
2.13 "RETIREMENT" means the voluntary or involuntary termination of an
Eligible Director from active service on the Board on or after the attainment of
age 65, except in the event of a Change of Control in which case any termination
of an Eligible Director shall be deemed a Retirement.
3. RETIREMENT BENEFITS
3.1 The full retirement benefit (the "full benefit") payable under the
Plan shall be equal to the sum of (a) the annual retainer in effect on the date
of the Eligible Director's retirement from the Board and (b) the product of the
Board meeting fee in effect on that date multiplied by the number of regular
Board meetings then scheduled within a calendar year. Such retirement benefit
shall be payable on each Payment Date beginning with the Payment Date
immediately following the Eligible Director's retirement and ending with the
120th payment.
3.2 No Eligible Director shall receive the full benefit under this Plan
until such Eligible Director completes fifteen years of Credited Service on the
Board. In the case of any breaks in service, all periods of service shall be
aggregated to determine the length of Credited Service. Upon the Eligible
Director's retirement after completion of the required period of Credited
Service, the Eligible Director's full benefit shall be deemed to have been
earned and is thereafter payable in accordance with Paragraph 3.1 and the other
provisions of the Plan.
3.3 In the event that an Eligible Director retires from the Board with a
minimum of five but less than fifteen years of Credited Service, such Eligible
Director shall receive a
<PAGE>
reduced annual retirement benefit (the "reduced benefit") equal to the product
of (a) the full annual retirement benefit as determined in Paragraph 3.1 and (b)
a fraction, the numerator of which is the Eligible Director's number of years of
Credited Service and the denominator of which is fifteen. Such reduced benefit
shall be paid in the manner described in Paragraph 3.1 and in accordance with
the other provisions of the Plan.
3.4 In the event of the death of the Eligible Director after payments have
commenced under this Plan, any remaining unpaid retirement benefit payments
shall be paid to the beneficiary or beneficiaries most recently designated by
the Eligible Director prior to his or her death, or in the absence of such
designation, to the Eligible Director's estate. The remaining payments shall be
made to the designated beneficiary in the same amount(s) and at the same time(s)
that such payments would have been made to the Eligible Director. In the event
of the death of an Eligible Director while still serving on the Board, such
Eligible Director will be deemed to have retired from Board service for purposes
of this Plan and any payment(s) that would have inured to the benefit of such
Eligible Director under Paragraphs 3.1 and 3.2 and the other provisions of the
Plan, will be paid to such Eligible Director's beneficiaries or estate as set
forth above.
3.5 In the event that an Eligible Director who is receiving retirement
benefits under the Plan returns to serve as an active Director, payments under
the Plan shall be suspended until the Payment Date immediately following the
termination of such additional Board service. Upon the termination of such
additional Board service, the retirement benefit shall be adjusted (if
necessary) to reflect the Board retainer and meeting fees in effect at the time
of such termination, and the duration of the retirement benefit shall be
extended (if necessary) to reflect the period of suspension. In the event that
an Eligible Director becomes an employee of the Bank or the Company, retirement
benefit payments hereunder shall cease and the Eligible Director shall have no
further rights to such benefits under the Plan.
4. PLAN ADMINISTRATION.
4.1 The Plan shall be administered by the Board of Directors of the
Company. The Board shall have full power and authority to interpret, construe
and administer the Plan and to review each director's eligibility for benefits
under the Plan, and the Board's interpretations and constructions of the Plan
and actions thereunder shall be binding and conclusive on all persons and for
all purposes.
4.2 The Board shall establish and maintain Plan records and may arrange
for the engagement of consultants or legal counsel, and make use of such agents
and other Company personnel, as it requires or deems advisable for purposes of
the Plan. The Board may rely upon the written opinion of such consultants and
counsel and may delegate to any agent, member of the Board or employee of the
Company, its authority to perform any act hereunder, including without
limitation, those matters involving the exercise of discretion, provided that
such delegation shall be subject to revocation at any time.
5. GENERAL PROVISIONS.
<PAGE>
5.1 AMENDMENT AND TERMINATION. The Plan may be amended, suspended or
terminated, in whole or in part, by the Board, but no such action shall
retroactively impair or otherwise adversely affect the rights of any person to
receive benefits under the Plan which have accrued prior to the date of such
action. Upon a Change of Control, this plan may not be amended or terminated.
5.2 ASSIGNMENT. No right to any amount payable at any time under the Plan
may be assigned, transferred, pledged, or encumbered, either voluntarily or by
operation of law, except as provided expressly herein. This Plan shall be
binding upon and inure to the benefit of the Company and its successors and
assigns, and the Participant, his or her Beneficiary and estate.
5.3 BENEFICIARY DESIGNATION. Each Eligible Director may designate a
beneficiary or beneficiaries to receive any payments which under the terms of
the Plan may be or may become payable on or after the Eligible Director's death.
At any time, and from time to time, such designation may be changed or canceled
by the Eligible Director without the consent of any such beneficiary. Any such
designation, change or cancellation must be on a form provided for that purpose
by the Company and shall not be effective until actually received by the
Company. If no beneficiary has been properly designated by a deceased Eligible
Director, the beneficiary shall be the Eligible Director's estate.
5.4 CONSULTING ARRANGEMENTS. An Eligible Director who enters into a
consulting arrangement with the Bank or the Company subsequent to his or her
retirement from the Board, and who would otherwise be eligible to receive
benefits under this Plan, shall continue to be eligible to receive such benefits
provided, however, that such consulting arrangement does not constitute
employment by the Bank or the Company.
5.5 GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance within the laws of the State of New
York, without reference to the principles of conflict of laws thereof. Any
titles and headings herein are for reference purposes only, and shall in no way
limit, define or otherwise affect the meaning, construction or interpretation of
any provisions of the Plan.
5.6 SOURCE OF PAYMENTS. All payments provided for under the Plan shall be
paid from the general assets of the Company. Nothing contained in this Plan, and
no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind between the Company and any Eligible Director or
Beneficiary. To the extent that any Eligible Director or Beneficiary acquires a
right to receive payment(s) from the Company hereunder, such right shall be no
greater than the right of an unsecured creditor of the Company.
<PAGE>
5.7 WITHHOLDING. The Company may withhold from any benefits payable under
this Plan all Federal, state, city or other taxes as shall be required pursuant
to any applicable law or governmental regulation or ruling.
5.8 EFFECTIVE DATE. The Plan shall be effective upon the date of its
adoption by the Board, which date shall be recorded in the Board's minutes.
<PAGE>
EXHIBIT 10.16
PRIVILEGED AND CONFIDENTIAL
ATTORNEY WORK PRODUCT
SEPARATION AND RELEASE AGREEMENT
THIS SEPARATION AND RELEASE AGREEMENT (this "Agreement") is made and
entered into as of this 17th day of June, 1997 by and between Mr. Joseph Bryant
(the "Executive"), LONG ISLAND BANCORP, INC., a Delaware corporation (the
"Corporation"), and THE LONG ISLAND SAVINGS BANK, FSB, a federal stock savings
bank organized under the laws of the United States (the "Bank") (the Corporation
and the Bank are sometimes hereinafter referred to separately as a "Company" or
together as the "Companies").
W I T N E S S E T H:
WHEREAS, the Executive has been employed by each of the Corporation
and the Bank as an Executive Vice President and Chief Mortgage Officer and in
other capacities; and
WHEREAS, such employment is currently pursuant to an employment
agreement dated as of February 20, 1996 with each of the Bank and the
Corporation (the "Employment Agreements"); and
WHEREAS, the Executive wishes to resign as an Executive Vice
President and Chief Mortgage Officer of each of the Corporation and the Bank,
and all other officer and employee positions with the Companies and their
respective subsidiaries; and
WHEREAS, the Executive and the Companies desire to settle fully and
finally all matters between them to date, including, but in no way limited to,
any issues that might arise out of the Executive's employment or the cessation
of his employment;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto, intending to be legally bound
hereby, agree as follows:
<PAGE>
1. Employment Resignations. The Executive hereby resigns, effective
as of the close of business on June 17, 1997, as an officer and employee of the
Bank and the Corporation, and any of their respective subsidiaries. The
Executive hereby also agrees to vacate immediately and refrain from visiting,
without the prior express written consent of the Bank and the Corporation, the
offices of the Bank and the Corporation or any of their respective subsidiaries.
In addition, following the execution of this Agreement, the Executive shall have
no right to or further interest in, and shall, no later than the close of
business on the tenth business day following such execution, return to the Bank
or the Corporation:
(1) any company-provided cars or other company property in the possession
or under the control of the Executive; and
(2) any unused airline tickets paid for by the Bank or the Corporation in
the possession or under the control of the Executive.
2. Severance Remuneration. The Executive shall be entitled to
receive a lump sum payment equal to $175,000 (subject to required payroll
withholdings). Such payment shall be made to the Executive within ten business
days after the execution of this Agreement. The Executive shall also be entitled
to unused vacation pay of $20,191 (subject to required payroll withholdings) and
business expense reimbursements of $1,500, subject to presentation of proper
documentation regarding such expenses in accordance with the respective written
policies of the Companies as of June 17, 1997.
In addition, the Companies agree that the Executive shall be
entitled (a) to retain the shares of restricted stock awarded to the Executive
under the Bank's Management Recognition and Retention Plan for Executive
Officers (the "MRP") to the extent (and only to the extent) that the Executive
is vested in such shares on June 17, 1997, and (b) to exercise for ninety (90)
days after June 17, 1997 the stock options awarded to the Executive under the
Corporation's 1994 Stock Incentive Plan (the "SIP") to the extent (and only to
the extent) that such stock options are exercisable by the Executive on June 17,
1997 (as set forth on the attached Schedule A hereto), in accordance with the
general terms and conditions of the MRP and the SIP. The Companies agree that
the Executive shall have the right to effect "cashless" stock option exercises.
The Companies hereby agree that the Executive shall be entitled to
continuation of the indemnification rights set forth in the Employment
Agreements until February 21, 2000; provided, however, that such continuation
shall not apply to, and the
<PAGE>
Companies shall not indemnify the Executive for or with respect to, any (i)
sexual harassment or discrimination claims attributable to Executive's acts,
(ii) violation by the Executive of any local, state or federal criminal law,
and/or (iii) violation by the Executive of any banking law or any rule or
regulation promulgated under applicable law by any regulatory agency having
jurisdiction over the Bank and/or the Corporation. In addition, neither the Bank
nor the Corporation will take any action to remove or exclude the Executive from
whatever Directors and Officers liability insurance policies are maintained by
the Companies as of the date of this Agreement.
Finally, the Executive shall be entitled to all the rights and
benefits available to him under, subject to, and in accordance with the terms of
(i) the Corporation's Employee Stock Ownership Plan and (ii) the Split Dollar
Agreement, dated as of January 25, 1994, by and between the Bank and the
Executive (and the related Collateral Assignment, dated June 24, 1994).
3. Announcement. The parties agree that (a) any announcement by
either of the Companies with respect to the cessation of the Executive's
employment shall characterize the Executive's cessation of employment as a
voluntary resignation to pursue other options and interests and (b) the
Companies shall respond to all inquiries from any person with respect to the
Executive and his employment only so as to (i) provide the dates of his
employment, (ii) state he was employed as an Executive Vice President and Chief
Mortgage Officer and (iii) advise that the Executive voluntarily resigned as an
employee to pursue other options and interests.
4. Additional Agreements of the Executive and the Companies. Unless
otherwise required by applicable law, rule, regulation or regulatory authority
(as reasonably determined by the Executive), or by a court of competent
jurisdiction or pursuant to any recognized subpoena power or as is reasonably
necessary in connection with any adversarial process between the Executive and a
Company, the Executive agrees and promises that he will not make any oral or
written statements or reveal any information to any person, company, or agency,
or take any other actions, which may be construed to interfere with, or be
negative, disparaging or damaging to, the reputation or business of either of
the Companies, their respective subsidiaries, directors, officers or affiliates.
The Bank and/or the Corporation may disclose any information as legally required
in connection with any legal and/or regulatory proceedings (which shall include,
but not be limited to, formal or informal exams, investigations or inquiries
conducted by the Office of Thrift Supervision). Unless otherwise required by
applicable law, rule, regulation or regulatory authority (as reasonably
determined by a Company), or by a court of competent jurisdiction or pursuant to
any recognized subpoena power or as is reasonably necessary in connection with
any adversarial process between the Executive and a Company, the Companies agree
and promise that each, respectively, will not make any oral or written
statements or reveal any information to any person, company, or agency which may
be construed to be negative, disparaging or damaging to the reputation
<PAGE>
or business pursuits of the Executive. In addition, the Executive agrees to
cooperate with the Companies, and make himself available at reasonable times on
reasonable notice without further remuneration, in connection with any
litigation, investigation or other adversarial or other legal process involving
the Companies or any of their respective subsidiaries. The Bank or the
Corporation shall promptly reimburse the Executive for all reasonable
out-of-pocket expenses incurred by the Executive in connection with any such
requested cooperation (subject to presentation of proper documentation regarding
such expenses). To the extent permitted by applicable law, rule, regulation, and
any regulatory authority, the Executive shall be entitled to be notified by a
Company if any information regarding the Executive is to be revealed by the
Company in accordance with this Section 4 and the Companies shall be entitled to
be notified by the Executive if any information regarding the Companies, their
respective subsidiaries, directors, officers or affiliates is to be revealed by
the Executive in accordance with this Section 4. All such notices to be given as
promptly, and in the most efficient manner, as is reasonably possible so as to
provide the recipient thereof the maximum amount of time to respond to the party
giving such notice.
5. Agreement Terms. The Executive represents and agrees that, unless
required by legal process or as is reasonably necessary in connection with any
adversarial process between a Company and the Executive, he will keep the
background for and the terms of this Agreement completely confidential, and that
he will not hereafter disclose any information concerning this Agreement to
anyone except his financial, legal or tax advisor(s), his accountants, and his
immediate family; provided that these individuals agree to keep said information
confidential and not disclose it to others. Each Company represents and agrees
that, unless required by legal process or by applicable law, rule, regulation or
regulatory authority, or as is reasonably necessary in connection with any
adversarial process between the Company and the Executive, it will keep the
background for and the terms of this Agreement completely confidential, and that
it will not hereafter disclose any information concerning this Agreement to
anyone except its financial, legal or tax advisor(s), its accountants, its
directors, and those employees of the Company who have a need to know about its
terms; provided that these individuals agree to keep said information
confidential and not disclose it to others. The parties hereto expressly
understand that nothing contained in this Agreement shall limit, restrict or
prevent the Executive or either or both of the Companies from complying with any
requirements (including without limitation information disclosure requirements)
of applicable law, rule, or regulation or any requirements or requests of any
regulatory authority having jurisdiction over any of the parties hereto and that
the Bank and/or the Corporation may disclose any information as required in
connection with any legal and/or regulatory proceedings (which shall include,
but not be limited to, formal or informal exams, investigations or inquiries
conducted by the Office of Thrift Supervision). To the extent permitted by
applicable law, rule, regulation, and any regulatory authority, the Executive
shall be entitled to be notified by a Company if any information regarding the
Executive is to be revealed by the Company in accordance with this Section 5 and
the Companies shall be entitled to be notified by the Executive if any
information regarding the Companies, their respective subsidiaries, directors,
officers or affiliates is to be revealed by the Executive in accordance with
this Section 5. All such notices to be
<PAGE>
given as promptly, and in the most efficient manner, as is reasonably possible
so as to provide the recipient thereof the maximum amount of time to respond to
the party giving such notice.
6. Confidentiality. The Executive will not, at any time, disclose or
use any confidential information relating to the business activities of the
Companies or any affiliates or subsidiaries thereof to any person, firm,
corporation, bank or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, the Executive may disclose such confidential
information as required in connection with legal and/or regulatory proceedings
(which shall include, but not limited to, formal or informal exams,
investigations or inquiries conducted by the Office of Thrift Supervision). The
Executive acknowledges and agrees that the Companies will have no adequate
remedy at law, and would be irreparably harmed, if the Executive breaches or
threatens to breach any of the provisions of this Section 6 of this Agreement.
The Executive agrees that the Bank and the Corporation shall be entitled to
equitable and/or injunctive relief to prevent any breach of threatened breach of
this Section 6, and to specific performance of each of the terms of such Section
in addition to any other legal or equitable remedies that the Bank and/or the
Corporation may have. The Executive further agrees that he shall not, in any
equity proceeding relating to the enforcement of the terms of this Section 6,
raise the defense that the Bank and/or the Corporation has an adequate remedy at
law. The terms and provisions of this Section 6 are intended to be separate and
divisible provisions and if, for any reason, any one or more of them is held to
be invalid or unenforceable, neither the validity nor the enforceability of any
other provision of this Agreement shall thereby be affected.
7. Additional Restrictions. For a period of two years from the date
of this Agreement (the "Restricted Period"), except as specifically requested in
writing by a Company, the Executive, singly or with any other person or directly
or indirectly, shall not propose, enter into, or agree to enter into, or
encourage any other person to propose, enter into, or agree to enter into (i)
any form of business combination, acquisition or other transaction relating to a
Company or (ii) any form of restructuring, recapitalization or similar
transaction with respect to a Company. Furthermore, during the Restricted
Period, except as specifically requested in writing by a Company, the Executive
shall not, singly or with any other person or directly or indirectly, (1)
acquire, or offer, propose or agree to acquire, by tender offer, purchase or
otherwise, any voting securities of a Company, other than 5,000 shares of the
common stock of the Corporation and excluding (A) any shares acquired upon the
exercise of the stock options referred to herein and (B) the MRP shares referred
to herein, (2) make, or in any way participate in, any solicitation of proxies
or written consents with respect to voting securities of a Company (it being
understood that the mere execution of a proxy or written consent shall not be
treated as constituting participation in such a solicitation), (3) participate
in any election contest with respect to a Company (it being understood that the
mere execution of a proxy or written consent shall not be treated as
constituting participation in such a contest), (4) seek to influence any person
with respect to the voting or disposition of any voting securities of a Company,
(5) demand a copy of the Corporation's list of stockholders or its other books
and records, (6) participate in or encourage the formation of any
<PAGE>
partnership, syndicate or other group that seeks to affect control of a Company
or for the purpose of circumventing any provision of this Agreement or (7)
otherwise act to seek or to offer to control or influence, in any manner, the
management, Board of Directors or policies of the Bank and/or the Corporation.
During the Restricted Period, the Executive shall not directly or indirectly (i)
solicit for employment any of the current directors, employees, officers or
managers of either Company or (ii) induce any such directors, employees,
officers or managers to terminate his or her employment with either Company.
8. Releases. In consideration of the payments and benefits to the
Executive under this Agreement and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the Executive,
the Executive knowingly, voluntarily and unconditionally hereby forever waives,
releases and discharges, and covenants never to sue on, any and all claims,
liabilities, causes of actions, judgments, orders, assessments, penalties,
fines, expenses and costs (including without limitation attorneys' fees) and/or
suits of any kind arising out of any actions, events or circumstances before the
date of execution of this Agreement ("Claims") which the Executive has, ever had
or may have, or which the Executive's heirs, executors, administrators and
assigns, or any of them hereafter can, shall or may have, including, without
limitation, any Claims arising in whole or in part from the Executive's
employment or the termination of the Executive's employment with either Company
or the manner of said termination; provided, however, that this Section 8 shall
not apply to any of the obligations of a Company specifically provided for in
this Agreement. This Agreement is intended as a full and final settlement and
compromise of each, every and all Claims of every kind and nature, whether known
or unknown, which have been or could be asserted against either Company and/or
any of its subsidiaries, shareholders, officers, directors, agents, and
employees, past or present, and their respective heirs, successors and assigns
(collectively, the "Releasees"), including, without limitation --
(1) any Claims arising out of any employment agreement or other contract,
side-letter, resolution, promise or understanding of any kind, whether written
or oral or express or implied;
(2) any Claims arising under the Age Discrimination in Employment Act of
1967, as amended ("ADEA"), 29 U.S.C.ss.ss.621 et seq.; and
(3) any Claims arising under any federal, state, or local civil rights,
human rights, anti-discrimination, labor, employment, contract or tort law,
rule, regulation, order or decision, including, without limitation, the Family
and Medical Leave Act, the Employee Retirement Income Security Act of 1974, the
Americans with Disabilities Act of 1990, 42 U.S.C. ss.ss. 12101 et seq., and
Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.ss. 2000 et seq., and as
each of these laws have been or will be amended.
In consideration of the obligations of the Executive under this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Companies, the Companies
knowingly, voluntarily and
<PAGE>
unconditionally hereby forever waive, release and discharge, and covenant never
to sue on, any and all Claims which the Companies have, ever had or may have,
including, without limitation, any Claims arising in whole or in part from the
Executive's employment or the termination of the Executive's employment with
either Company or the manner of said termination; provided, however, that this
Section 8 shall not apply to (x) any of the obligations of the Executive
specifically provided for in this Agreement, and (y) any claim either or both of
the Companies had, have or may in the future have against the Executive in
respect of any (i) sexual harassment or discrimination claims attributable to
Executive's acts, (ii) violation by the Executive of any local, state or federal
criminal law, and/or (iii) violation by the Executive of any banking law or any
rule or regulation promulgated under applicable law by any regulatory agency
having jurisdiction over the Bank and/or the Corporation. Notwithstanding
anything to the contrary in this Section 8, the Executive does not release any
claim he may have under any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended, in which he was a
participant during his employment with either Company for the payment of a
benefit thereunder to which he would be entitled upon his termination of
employment as of June 17, 1997 in accordance with the terms of such plan.
The Executive understands that this Agreement affects significant
rights and represents and agrees that he has carefully read and fully
understands all of the provisions of this Agreement, that he is voluntarily
entering into this Agreement, and that he has been advised to consult with and
has in fact consulted with legal counsel before entering into this Agreement. In
particular, the Executive acknowledges that he has been given twenty-one (21)
days during which time he has carefully considered and voluntarily approved the
terms of this Agreement. The Executive understands that, pursuant to the
provisions of the ADEA, he shall have a period of seven (7) days from the date
of execution of this Agreement during which he may revoke the release provided
under this Section 8 with respect to any claims under ADEA via hand delivery of
a notice of revocation to the offices of the Corporation. This release shall not
become effective or enforceable with respect to any Claims under ADEA until the
revocation period described above has expired. If the Executive elects to revoke
the portion of this release with respect to Claims under ADEA as provided above,
each of the Companies shall have the right, upon written notice to the Executive
within thirty (30) days after such revocation, to terminate all or any portion
of its obligations under this Agreement.
This Agreement does not constitute any admission of wrongdoing, or
evidence thereof, on the part of any of the parties hereto or the Releasees.
Except as required by court order, or to enforce the terms of this Agreement,
this Agreement may not be used in any court or administrative proceeding.
9. Scope of Agreement; Enforceability. This Agreement constitutes
the entire understanding and agreement between the Companies and the Executive
with regard to all matters herein and supersedes all prior oral and written
agreements and understandings of the parties with respect to such matters,
whether express or implied, including without limitation, the Employment
Agreements. Upon the execution of this
<PAGE>
Agreement the Employment Agreements shall be terminated and shall be null and
void and of no further force or legal effect. This Agreement shall inure to the
benefit of and be enforceable by the Executive's heirs, beneficiaries and/or
legal representatives. This Agreement shall inure to the benefit of and be
binding upon the Companies and their respective successors and assigns. If any
term or provision of this Agreement, or the application thereof to any person or
circumstances, will to any extent be invalid or unenforceable, the remainder of
this Agreement, or the application of such terms to persons or circumstances
other than those as to which it is invalid or unenforceable, will not be
affected thereby, and each term of this Agreement will be valid and enforceable
to the fullest extent permitted by law.
10. Amendments/Waiver. This Agreement may not be amended, waived, or
modified otherwise than by a written agreement executed by the parties to this
Agreement or their respective successors and legal representatives. No waiver by
any party to this Agreement of any breach of any term, provision or condition of
this Agreement by the other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same time, or any prior or subsequent
time.
11. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when received by hand-delivery to the other
party, by facsimile transmission, by overnight courier, or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Joseph Bryant
3 Lord Joe's Landing
Northport, New York 11768
with a copy to: Thomas J. Killeen, Esq.
Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano
EAB Plaza
Uniondale, new York 11556-0120
If to the Companies: Long Island Bancorp, Inc.
201 Old Country Road
Melville, New York 11747
Attn: Corporate Secretary
with a copy to: Mel M. Immergut, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12. New York Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York without reference to its
choice of law provisions and shall be binding upon the parties and their
respective heirs, executors, successors and assigns.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Companies and the Executive have caused this
Agreement to be executed as of the date first above written.
LONG ISLAND BANCORP, INC.
By:_____________________________
Name:
Title:
THE LONG ISLAND SAVINGS BANK, FSB
By:_____________________________
Name:
Title:
-----------------------------
Joseph Bryant
(..continued)
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED
SEPTEMBER 30,
------------------------------
1997 1996
------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income................................... $49,420 $32,275
Weighted average common shares outstanding 22,443 23,116
Common stock equivalents due to dilutive
effect of stock option.................. 1,152 1,104
Total weighted average common shares and equivalents
outstanding............................. 23,595 24,220
Primary earnings per common and common share
equivalents............................. $2.09 $1.33
Total weighted average common shares and
equivalents outstanding................. 23,595 24,220
Additional dilutive shares using ending
period market value versus average
market value for the period when utilizing
the treasury stock method regarding
stock options........................... 160 57
Total shares for fully diluted earnings
per share............................... 23,755 24,277
Fully diluted earnings per common and
common share equivalents................ $2.08 $1.33
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
FINANCIAL REVIEW
partnerships
profitability
TABLE OF CONTENTS
Selected Financial Data..................................................... 10
Glossary of Financial Terms................................................. 13
Management's Discussion and Analysis
of Financial Condition and Results of Operations............................ 15
Consolidated Statements of Financial Condition.............................. 29
Consolidated Statements of Operations....................................... 30
Consolidated Statements of
Changes in Stockholders' Equity............................................. 31
Consolidated Statements of Cash Flows....................................... 32
Notes to Consolidated Financial Statements.................................. 33
Independent Auditors' Report................................................ 62
Market Price of Common Stock................................................ 63
Branch Locations............................................................ 64
Mortgage Origination Offices................................................ 65
Directors, Officers and Shareholder Information............................. 66
9
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At September 30,
- -------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $5,930,784 $5,363,791 $4,901,622 $4,516,137 $3,990,731
Loans receivable held
for investment, net 3,484,094 3,040,837 1,994,741 1,630,820 1,760,455
Allowance for possible loan losses 33,881 33,912 34,358 35,713 33,951
Mortgage-backed securities, net(1) 1,830,694 1,740,202 2,276,750 2,060,793 1,386,115
Investment in debt and equity
securities, net(2) 138,578 180,650 289,247 433,840 351,415
Loans sold with recourse(3) 487,102 289,464 250,423 201,083 223,032
Loans held for sale, net 157,617 57,969 49,372 7,956 148,393
Total non-performing loans(4) 47,074 53,166 55,676 54,036 145,316
Real estate owned, net 6,643 8,155 8,893 7,187 25,812
Total non-performing assets(5) 53,717 61,321 64,569 61,223 171,128
Total loans delinquent 60-89 days 15,500 12,002 11,960 11,925 24,801
Mortgage servicing rights, net(6) 41,789 29,687 11,328 759 957
Excess of cost over fair value
of net assets acquired 5,069 5,265 2,789 -- --
Deposits 3,730,503 3,633,010 3,573,529 3,567,815 3,617,600
Borrowed funds, net 1,501,456 978,023 633,675 325,022 44,500
Stockholders' equity-partially
restricted(7)(8)(9) 546,375 519,094 526,174 493,709 211,630
</TABLE>
(1) Includes $1.8 billion, $1.7 billion, $938.8 million, $818.3 million and
$845.0 million of mortgage-backed securities available-for-sale carried at
market value as of September 30, 1997, 1996, 1995, 1994 and 1993,
respectively.
(2) Includes $138.6 million, $180.7 million, $233.4 million, $348.2 million
and $340.4 million of debt and equity securities available-for-sale
carried at market value as of September 30, 1997, 1996, 1995, 1994 and
1993, respectively.
(3) Loans sold with recourse represent the outstanding principal amount of
residential property loans with the majority of these loans having been
securitized with Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC").
(4) Non-performing loans are those loans placed on non-accrual status
(including restructured loans that, in the opinion of Long Island Bancorp,
Inc. and subsidiary ("Company"), have not yet demonstrated a sufficient
payment history to warrant return to performing status).
(5) Non-performing assets include non-performing loans and real estate owned,
net.
(6) Includes mortgage servicing rights purchased and originated.
(7) Includes $12.9 million, $6.6 million, $6.9 million, $(3.1) million and
$19.9 million after tax from unrealized gains (losses) from debt, equity
and mortgage-backed securities available-for-sale at September 30, 1997,
1996, 1995, 1994 and 1993, respectively, in accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for
Certain Investments in Debt and Equity Securities."
(8) Prior to April 14, 1994, represented Retained income-partially restricted.
(9) The increase to September 30, 1994 from September 30, 1993 was primarily
due to the initial public offering of Long Island Bancorp, Inc. common
stock that occurred April 14, 1994.
10
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
SELECTED FINANCIAL DATA
(Continued)
<TABLE>
<CAPTION>
For the Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income $ 399,049 $351,571 $ 321,215 $ 272,157 $ 340,629
Interest expense 239,488 197,176 167,896 130,104 177,193
--------- -------- --------- --------- ---------
Net interest income 159,561 154,395 153,319 142,053 163,436
Provision for possible loan losses 6,000 6,200 6,470 11,955 47,288
--------- -------- --------- --------- ---------
Net interest income after provision for
possible loan losses 153,561 148,195 146,849 130,098 116,148
Non-interest income:
Fees and other income 27,520 28,343 25,992 21,688 18,471
Net gains on sale activity 11,399 8,333 1,638 1,920 57,734
Net (loss) gain on investment in
real estate and premises (1,205) 2,028 (323) (4,790) (12,419)
--------- -------- --------- --------- ---------
Total non-interest income 37,714 38,704 27,307 18,818 63,786
--------- -------- --------- --------- ---------
Non-interest expense:
General and administrative expense 108,084 111,553 100,532 99,972 108,750
SAIF special assessment -- 18,657 -- -- --
Litigation expense--goodwill lawsuit 1,101 370 -- 11 182
Amortization of excess of cost over fair
value of net assets acquired 458 284 211 -- 47,222
Write-off of excess of cost over
fair value of net assets acquired(1) -- -- -- -- 70,809
--------- -------- --------- --------- ---------
Total non-interest expense 109,643 130,864 100,743 99,983 226,963
--------- -------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting changes 81,632 56,035 73,413 48,933 (47,029)
Provision for income taxes 32,212 23,760 29,897 18,046 11,504
--------- -------- --------- --------- ---------
Income (loss) before cumulative effect of
accounting changes 49,420 32,275 43,516 30,887 (58,533)
Cumulative effect of changes in accounting(1)(2) -- -- -- 8,648 (323,545)
--------- -------- --------- --------- ---------
Net income (loss) $ 49,420 $ 32,275 $ 43,516 $ 39,535 $(382,078)
========= ======== ========= ========= =========
Primary earnings per common share(3) $ 2.09 $ 1.33 $ 1.73 $ 0.70 N/A
========= ======== ========= =========
Fully diluted earnings per common share(3) $ 2.08 $ 1.33 $ 1.71 $ 0.70 N/A
========= ======== ========= =========
</TABLE>
(1) The Company adopted Statement of Financial Accounting Standards No. 72
("SFAS 72"), "Accounting for Certain Acquisitions of Banking or Thrift
Institutions" as of October 1, 1992, which resulted in a reduction in the
excess of cost over fair value of net assets acquired and a cumulative
charge to income of $323.5 million. The Company wrote-off the remaining
balance of the then existing excess of cost over fair value of net assets
acquired of $70.8 million after fiscal 1993 amortization of $47.2 million.
(2) The Company adopted Statement of Financial Accounting Standards No. 106
("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" as of October 1, 1993, which
resulted in a cumulative charge to income of $10.7 million and a
cumulative credit to income of $19.4 million, respectively.
(3) Primary and fully diluted earnings per common share ("EPS") for the years
ended September 30, 1997, 1996 and 1995 are calculated by dividing income
by the sum of the weighted average number of shares of common stock
outstanding and the weighted average number of shares issuable under the
Company's stock benefit plans that have a dilutive effect on EPS. For the
year ended September 30, 1994, EPS is based upon the weighted average
number of shares of common stock outstanding and was determined based upon
income earned during the period April 14, 1994 through September 30, 1994.
The weighted average number of shares issuable under the Company's stock
benefit plans were not materially dilutive and therefore were excluded
from the calculation of EPS.
11
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
SELECTED FINANCIAL DATA
(Continued)
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
AND OTHER DATA:
Performance Ratios:
Return on average assets(1) 0.86% 0.64% 0.93% 0.91% (7.57)%
Return on average stockholders' equity(1) 9.33 6.16 8.52 11.41 (147.93)
Average stockholders' equity to average assets(2) 9.22 10.43 10.90 7.93 5.11
Stockholders' equity to total assets(3) 9.21 9.68 10.73 10.93 5.30
Tangible stockholders' equity to total assets(4) 8.94 9.57 10.67 10.93 5.30
Interest rate spread during period 2.57 2.89 3.10 3.30 3.46
Net interest margin 2.91 3.24 3.44 3.47 3.47
Operating expenses to average assets(5) 1.88 2.22 2.15 2.29 2.15
Efficiency ratio(6) 57.78 61.05 56.07 61.05 59.78
Average interest-earning assets to
average interest-bearing liabilities 107.73 108.60 109.25 105.36 100.22
Net interest income to operating expenses(7) 1.48x 1.38x 1.52x 1.42x 1.50x
Asset Quality Ratios:
Non-performing loans to total gross loans(8) 1.28% 1.70% 2.67% 3.20% 7.42%(9)
Non-performing assets to total assets(8) 0.91 1.14 1.32 1.36 4.29(9)
Allowance for possible loan losses to
non-performing loans 71.97 63.79 61.71 66.09 23.36
Other Data:
Loan originations and purchases $2,668,368 $2,464,963 $1,118,201 $ 497,900 $ 545,926
Loans serviced for others $4,548,162 $3,682,399 $2,563,866 $1,687,512 $1,669,787
Average deposits per branch $ 106,503 $ 100,917 $ 99,265 $ 96,427 $ 95,200
Number of deposit accounts 385,336 396,986 391,217 381,606 402,238
Facilities:
Full-service customer service facilities 35 36 36 37 38
Regional lending offices 22 25 16 5 5
</TABLE>
(1) For fiscal 1993 the cumulative charge to income for the adoption of SFAS
72 and the subsequent write-off of the remaining balance of the excess of
cost over fair value of net assets acquired in fiscal 1993 are reflected
in net income and stockholders' equity. For fiscal 1994, the cumulative
charge and credit for the adoption of SFAS 106 and SFAS 109, respectively,
are reflected in net income and stockholders' equity. For fiscal 1996,
exclusive of the one-time SAIF assessment, return on average assets and
return on average stockholders' equity would have been 0.86% and 8.20%,
respectively.
(2) For fiscal 1996, exclusive of the one-time SAIF assessment, average
stockholders' equity to average assets would have been 10.44%.
(3) For fiscal 1996, exclusive of the one-time SAIF assessment, stockholders'
equity to total assets would have been 9.88%.
(4) For purposes of calculating these ratios, stockholders' equity and total
assets have been reduced by the excess of cost over fair value of net
assets acquired.
(5) Amount is determined by dividing total general and administrative expense
by average assets.
(6) Amount is determined by dividing total general and administrative expense
by net interest income before the provision for possible loan losses plus
total fee and other income.
(7) Amount is determined by dividing net interest income before provision for
possible loan losses by total general and administrative expense.
(8) Non-performing loans excludes loans which have been restructured and are
accruing and performing in accordance with the restructured terms.
Restructured accruing loans totalled $9.1 million, $11.8 million, $12.1
million, $12.8 million and $8.9 million at September 30, 1997, 1996, 1995,
1994 and 1993, respectively.
(9) Includes the effect of $25.0 million and $5.0 million reduction in
carrying value in September 1993 relating to a bulk sale of non-performing
loans and other real estate owned, respectively. Excluding the effect of
such reduction in carrying value, the Bank's ratio of non-performing loans
to total gross loans and non-performing assets to total assets would have
been 8.56% and 5.01%, respectively.
12
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
GLOSSARY OF FINANCIAL TERMS
ALLOWANCE FOR POSSIBLE LOAN LOSSES--A balance sheet account which is an
estimation of possible loan losses. The provision for possible loan losses is
added to the allowance account while charge-offs decrease the account.
Recoveries on loans previously charged off increase the allowance.
BASIS POINT--The smallest measure used in quoting interest rate yields. One
basis point is 0.01%. Thus a yield that moves from 7.00% to 7.50% moves up 50
basis points.
BOOK VALUE PER SHARE--Total stockholders' equity divided by numbers of shares of
common stock outstanding, net of treasury shares.
CHARGE-OFFS--Loan balances written off against the allowance for possible loan
losses, rather than charged to current earnings, once a loan is deemed to be
uncollectible.
CORE DEPOSITS--Deposits that are traditionally stable, consisting of passbook,
statement savings, NOW and non-interest-bearing demand accounts.
COST OF FUNDS--The interest cost associated with interest-bearing liabilities. A
cost of funds ratio represents the ratio of interest expense to average
interest-bearing liabilities for the period.
EARNING ASSETS--Interest- or dividend-earning assets, including loans and
securities.
EARNINGS PER SHARE (EPS)--Net income divided by weighted average shares of
common stock outstanding and common stock equivalents, for example, stock
options. Primary EPS is calculated by dividing income by the sum of the weighted
average number of shares of common stock outstanding and the average number of
shares issuable under stock benefit plans that have a dilutive effect measured
under the treasury stock method. Fully diluted EPS is calculated by dividing
income by the sum of the weighted average number of shares of common stock
outstanding and the maximum dilutive effect of shares issuable under stock
benefit plans.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--A type of tax-qualified retirement plan
for employees that maintains individual accounts on behalf of each plan
participant and annually credits individual accounts with contributions which
are invested in company common stock.
FEDERAL FUNDS--Generally one-day loans of excess reserves from one bank to
another. When a bank buys (borrows) federal funds, these funds are called
"federal funds purchased." When it sells (lends) them, they are called "federal
funds sold."
FORECLOSED ASSETS--Property acquired because the borrower defaulted on the loan.
GOODWILL--Excess of cost over fair value of net assets acquired.
INTEREST RATE SENSITIVITY GAP--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 that
time period.
LEVERAGE RATIO--A ratio of equity to assets, defined as period-end Tier 1
capital less goodwill as a percentage of average assets.
LIQUIDITY--The ability of current assets to meet current liabilities when due.
The degree of liquidity of an asset is the period of time anticipated to elapse
until the asset is realized or is otherwise converted into cash. A liquid bank
has less risk of being unable to meet debt obligations than an illiquid one.
Also, a liquid bank generally has more financial flexibility to take on new
investment opportunities.
MORTGAGE SERVICING RIGHTS (MSR'S)--The right to service loans for others
generally obtained by either the sale of loans with servicing retained, the open
market purchase of mortgage servicing rights or the creation of mortgage
servicing rights. MSR's are amortized as a reduction to loan service fee income
on a level-yield basis over the estimated remaining life of the underlying
loans.
13
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
GLOSSARY OF FINANCIAL TERMS
(Continued)
NET INTEREST INCOME--The difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities.
NET INTEREST MARGIN--Net interest income as a percentage of average
interest-earning assets for the period.
NET INTEREST SPREAD--The difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities.
NON-PERFORMING ASSETS--Non-performing loans and securities plus foreclosed
assets.
NON-PERFORMING LOANS--Loans upon which interest income is not currently
recognized because of the borrower's financial problems (non-accrual loans) or
certain loans which have been restructured.
REAL ESTATE OWNED (REO)--Real estate which the bank takes or to which it assumes
title in order to sell the property, obtained as the result of a loan default.
PROVISION FOR POSSIBLE LOAN LOSSES--A charge against current period earnings
which reflects an estimation of possible loan losses.
RETURN ON ASSETS--Net income as a percentage of average total assets for the
period. The return on assets measures profitability in terms of how efficiently
assets are being utilized.
RETURN ON EQUITY--Net income as a percentage of average total equity. The return
on equity measures profitability in terms of how efficiently equity or capital
is being invested.
REVERSE-REPURCHASE AGREEMENTS--Refers to a transaction that is accounted for as
a collateralized borrowing in which the seller-borrower sells securities to a
buyer-lender with an agreement to repurchase them at a stated price plus
interest at a specified date or in specified circumstances.
RISK-BASED CAPITAL--The sum of Tier 1 and Tier 2 capital minus other assets
required to be deducted.
STOCK OPTION--Right to purchase or sell a stock at a specified price within a
stated period.
TIER 1 CAPITAL--Common stockholders' equity, qualifying non-cumulative perpetual
preferred stock and minority interest in equity accounts of consolidated
subsidiaries, less goodwill and other disallowed intangibles.
TIER 2 CAPITAL--The allowance for possible loan losses (limited to a certain
percentage of risk-weighted assets), perpetual and long-term preferred stock,
hybrid capital instruments (including perpetual debt and mandatory convertible
securities) and subordinated debt and intermediate-term preferred stock (subject
to certain limitations).
14
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Long Island Bancorp, Inc. ("the Holding Company") was
formed in December 1993 to serve as the holding company
for The Long Island Savings Bank, FSB ("the Bank"). The
Holding Company is headquartered in Melville, New York
and its primary business consists of the operations of
the Bank, its wholly-owned subsidiary. The Holding
Company had no operations prior to April 14, 1994, the
date on which the Bank completed its conversion from a
federally chartered mutual savings bank to a federally
chartered stock savings bank. The results of operations
prior to that date reflect only those of the Bank and
its subsidiaries.
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, from time to time depending on market
conditions, the Bank will invest in mortgage-backed and
asset-backed securities to supplement its lending
portfolio. The Bank also invests, to a lesser extent, in
residential multi-family, commercial and consumer loans
and other marketable securities. In addition, the Bank
and the Holding Company (collectively "the Company")
invest in U.S. government and federal agency securities,
investment grade preferred stock and Federal Funds.
- --------------------------------------------------------------------------------
Goodwill The Bank was organized in 1876 as a New York State
chartered mutual savings bank. In December 1982, the
Bank converted to a federal mutual savings bank and
changed its name from The Long Island Savings Bank to
The Long Island Savings Bank, FSB ("Syosset"). The
Bank's deposits are insured to the maximum allowable
amount by the Savings Association Insurance Fund
("SAIF") which is administered by the Federal Deposit
Insurance Corporation ("FDIC").
In 1983, with the assistance of the Federal Savings and
Loan Insurance Corporation ("FSLIC") as set forth in an
assistance agreement ("Assistance Agreement"), Syosset
acquired, as a wholly-owned subsidiary, The Long Island
Savings Bank of Centereach, FSB ("Centereach"). Syosset
and Centereach reported to the Federal Home Loan Bank
Board of New York ("FHLB-NY"), forerunner of the Office
of Thrift Supervision ("OTS"), as two separate entities.
In 1986, with FSLIC assistance, Syosset acquired
Flushing Federal Savings and Loan Association ("Flushing
Federal") by merger.
The FSLIC-assisted supervisory acquisitions of
Centereach and Flushing Federal were accounted for using
the purchase method of accounting which resulted in
supervisory goodwill (the excess of cost over fair value
of net assets acquired), an intangible asset, of $656.8
million. Of the $656.8 million of supervisory goodwill,
$625.4 million was recorded on Centereach's balance
sheet and $31.4 million on Syosset's balance sheet. Such
goodwill was included in each bank's regulatory capital.
The Assistance Agreement relating to Syosset's
acquisition of Centereach provided for the inclusion of
goodwill as an asset on Centereach's balance sheet, to
be amortized over 40 years for regulatory purposes and
includible in capital. Pursuant to the regulations
adopted by the OTS to implement the Financial
Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the regulatory capital requirement of
each bank increased and the amount of supervisory
goodwill that each bank could include in its regulatory
capital decreased significantly. At September 30, 1989,
on a stand-alone basis, Syosset, excluding supervisory
goodwill, exceeded the capital requirements of FIRREA.
At that date, however, Centereach, excluding supervisory
goodwill, did not meet any of the three required FIRREA
capital ratios mandated by the OTS and had negative
tangible capital as defined in the OTS regulations.
On August 15, 1989, Syosset and Centereach filed suit
against the US government seeking damages and/or other
appropriate relief on the grounds, among others, that
the government had breached the terms of the Assistance
Agreement. The suit is pending before Chief Judge Loren
Smith in the United States Court of Federal Claims and
is entitled Long Island Savings Bank, FSB. et al. v.
United States. The case had been stayed pending
disposition by the United States Supreme Court of three
related supervisory goodwill cases ("the Winstar
cases"). On July 1, 1996 the Supreme Court ruled in the
Winstar cases the government had breached its contracts
with the Winstar parties and was liable in damages for
those breaches. Thereafter, the stay applicable to the
Bank's case and other Winstar-related cases was lifted.
On November 1, 1996, the Bank filed a motion for summary
judgment on liability. On January 27, 1997, the
government filed a response opposing the Bank's motion
and cross-moving for summary judgment. No decision has
been rendered on the Bank's motion or the government's
cross-motion.
In its complaint, the Bank did not specify the amount of
damages it was seeking from the United States. There
have been no decisions determining damages in the
Winstar cases or any of the Winstar-related cases. The
Bank is unable to predict the
15
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
outcome of its claim against the United States and the
amount of damages that may be awarded to the Bank, if
any, in the event that judgment is rendered in the
Bank's favor. Consequently, no assurances can be given
as to the results of this claim or the timing of any
proceedings in relation thereto.
- --------------------------------------------------------------------------------
Financial Condition At September 30, 1997 total assets were $5.9 billion, an
increase of $567.0 million since September 30, 1996. The
growth in assets is predominately attributable to an
increase of $542.9 million in total net loans receivable
held for investment and for sale. The growth in total
loans receivable reflects the Company's emphasis on
residential lending. Loan volume for the year ended
September 30, 1997 was $2.7 billion, an increase of
$203.4 million since September 30, 1996.
The Company remains committed to increasing the volume
of one-to-four family mortgage loans and to improving
the efficiency and lowering the cost of loan
originations through increased automation of loan
application and processing procedures. In order to
increase the volume of loan originations, the Company
continues to actively manage its origination channels by
increasing the productivity of the loan representatives
in the Company's 22 regional lending centers while
leveraging the existing customer base at each of the
Company's consumer banking branches. The Company has
also expanded its telemarketing efforts to solicit loans
while utilizing the Company's technological capabilities
and the Internet as another origination channel.
Total liabilities increased by $539.7 million to $5.4
billion at September 30, 1997 from $4.8 billion at
September 30, 1996 principally reflecting additional
borrowed funds of $523.4 million and an increase in
deposits of $97.5 million. Historically, the Company has
relied on its deposit base as its principal source of
funding. The Company places major emphasis on its core
deposit relationships, consisting of passbook accounts,
NOW accounts, statement savings, money market and
non-interest-bearing demand accounts, which typically
tend to be more stable than other sources of funding.
The Company's core deposits as a percentage of total
deposits decreased to 43.26% at September 30, 1997 from
46.08% at September 30, 1996. Management believes that
this decrease is attributable in part to a flattening of
the yield curve and a shift in customer preference
towards short-term certificate accounts. The Company
continues to emphasize quality customer service to
attract and retain core deposits as opposed to
soliciting time deposit accounts with higher yields.
Stockholders' equity totalled $546.4 million at
September 30, 1997, an increase of $27.3 million from
September 30, 1996. This increase primarily reflects
earnings of $49.4 million, an increase in unrealized
gains on securities classified as available-for-sale,
net of tax, of $6.3 million, and $6.6 million related to
the Company's stock benefit plans. These increases were
partially offset by the purchase of treasury stock, net
of shares issued for the exercise of stock options, of
$21.7 million and the declaration of $13.3 million in
dividends.
- --------------------------------------------------------------------------------
Liquidity, Regulatory GENERAL. The Company's primary sources of funds are
Capital and deposits and proceeds from principal and interest
Capital Resources payments on loans, mortgage-backed securities ("MBS's")
and other securities. While maturities and scheduled
amortization of loans and MBS's are predictable sources
of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic
conditions and competition. In addition, the Company
often uses borrowings as an alternative and sometimes a
less costly source of funds. The Company's primary
sources of borrowings are through the sales of
securities under agreements to repurchase
("reverse-repurchase agreements"), a funding note issued
in fiscal 1996 and a medium-term note issued in fiscal
1997.
The Bank is required to maintain minimum levels of
liquid assets as defined by OTS regulations. This
requirement, which may be varied at the direction of the
OTS depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and
short-term borrowings. The required ratio is currently
5.00%. The Bank's liquidity ratios were 8.05%, 9.34% and
12.35% at September 30, 1997, 1996 and 1995,
respectively. Currently, the Bank maintains a liquidity
ratio substantially above the regulatory requirements.
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
September 30, 1997, cash and cash equivalents and
short-term and intermediate-term investments
available-for-sale totalled $65.5 million.
The primary investment activity of the Bank is the
origination and purchase of real estate loans and other
loans. During the years ended September 30, 1997 and
1996, the Bank originated or purchased real estate loans
in the amounts of $2.6 billion and $2.4 billion,
respectively, and commercial and other loans in the
amounts of $102.3 million and $89.8 million,
respectively.
16
<PAGE>
Included in the 1997 real estate loan purchases is
$227.5 million, representing the bulk purchase of loans.
The Bank purchases MBS's to reduce liquidity not
otherwise required to meet loan demand. Purchases of
MBS's totalled $300.1 million and $152.3 million for the
years ended September 30, 1997 and 1996, respectively.
Other investing activities include investing in U.S.
government securities, federal agency obligations and
asset-backed securities.
During fiscal 1997, the Company purchased 732,500 shares
of treasury stock at a cost of $24.0 million. The costs
incurred in the purchase of treasury stock were
partially mitigated by the reissuance of 111,267 shares
and the related tax benefits stemming from the exercise
of stock options which totalled $2.6 million. As of
September 30, 1997, the Company owned 2,793,540 shares
of treasury stock which represents 3,230,034 shares
acquired at an aggregate cost of $83.9 million offset by
the cumulative reissuance of 436,494 shares and the
related tax benefits stemming from the exercise of stock
options which totalled $8.8 million.
Liquidity management of the Company is both a daily and
long-term component of management's strategy. Excess
funds are generally invested in short-term and
intermediate-term securities. In the event that the Bank
should require funds beyond its ability to generate them
internally, additional sources of funds are available
through the use of FHLB advances, reverse-repurchase
agreements and additional borrowings of $700.0 million
under the Bank's medium-term note program. In addition,
the Bank may access funds, if necessary, through lines
of credit totaling $150.0 million at September 30, 1997
from an unrelated financial institution.
At September 30, 1997, the Bank had outstanding
commitments to originate or purchase loans of $482.6
million which includes commitments to extend credit and
$200.2 million outstanding commitments to purchase
investment securities. The Bank anticipates that it will
have sufficient funds available to meet its current loan
commitments. Certificates of deposit which are scheduled
to mature in one year or less from September 30, 1997
totalled $1.4 billion. Management believes, based on
historical experience, that a significant portion of
such deposits will remain with the Bank.
REGULATORY CAPITAL POSITION. Under capital adequacy
guidelines and the regulatory framework for prompt
corrective action ("PCA"), the Bank must meet specific
capital guidelines that involve qualitative measures of
the Bank's assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting
practices.
Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain
minimum amounts and ratios of tangible capital, core
capital and total risk-based capital. At September 30,
1997, the Bank had a tangible capital ratio of 7.72%, a
core capital ratio of 7.72%, and a total-risk based
capital ratio of 16.22%, as compared with the required
regulatory capital ratios of 1.50%, 3.00% and 8.00%,
respectively. At September 30, 1997, the Bank met the
criteria to be considered a "well-capitalized"
institution for certain regulatory purposes.
- --------------------------------------------------------------------------------
Asset Quality Asset quality continues to remain stable as
non-performing loans decreased to $47.1 million at
September 30, 1997 from $53.2 million at September 30,
1996, reflecting continued improvements in the local
economy and the continued stabilization of real estate
market values in the New York metropolitan region, the
Bank's historical primary lending area. The ratio of the
allowance for possible loan losses to non-performing
loans increased to 71.97% at September 30, 1997 from
63.79% at September 30, 1996. Additionally, the ratio of
non-performing loans to total gross loans improved by 42
basis points to 1.28% at September 30, 1997 from 1.70%
at September 30, 1996 and the ratio of non-performing
assets to total assets improved by 23 basis points to
0.91% at September 30, 1997 from 1.14% at September 30,
1996. The improvement in each of these ratios is due to
the reduction in non-performing loans and non-performing
assets, coupled with the respective growth in total
gross loans and total assets. Net charge-offs declined
to $6.0 million in fiscal 1997, the lowest level in the
past eight years.
Management believes that a portion of the Company's
non-performing assets is attributable to the low
documentation loans (as defined below) previously
originated by the Company. During the 1986 to 1989
period, the Company originated a significant number of
one-to-four family mortgage loans without verification
of the borrower's financial condition or employer
verification of the borrower's level of income if the
borrower's financial condition and stated income were
considered reasonable for the employment position held
("low documentation loans"). The Company has experienced
higher delinquency and default rates on such loans, as
compared to fully underwritten one-to-four family loans,
and in recognition thereof, the Company discontinued the
origination of low documentation loans in 1990. The
Company is unable to determine the aggregate dollar
amount of low documentation loans originated between
1986 and 1989 which still remain outstanding. At
September 30, 1997, however, approximately $472.8
million, or 14.86% of the Company's one-to-four family
residential loan and co-operative
17
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
apartment loan portfolios consisted of loans originated
during the 1986 to 1989 period, down from $536.1
million, or 19.25%, at September 30, 1996. To the extent
such loans include a significant amount of low
documentation loans, the Company's delinquency and
default rates could be adversely impacted which may
result in material losses. From time to time, on a
selective basis, the Company originates loans that
involve limited verification of the borrower's level of
income or financial condition ("limited documentation
loans"). All such limited documentation loans are
intended to conform to secondary market investor
guidelines.
- --------------------------------------------------------------------------------
Managing Interest Rate
Risk Interest rate risk is defined as the sensitivity of the
Company's current and future earnings to changes in the
level of market interest rates. It arises in the
ordinary course of the Company's business, as the
repricing characteristics of its mortgage loans do not
necessarily match those of its deposit and borrowed
funds liabilities. The Company seeks to reduce its
exposure to interest rate risk through the origination
and retention of adjustable rate mortgage ("ARM") loans,
which at September 30, 1997 represented 93.08% of the
Company's total gross loans excluding loans held for
sale. The Company also maintains MBS's and a
mortgage-related securities portfolio which consists
primarily of ARM-backed securities and fixed rate MBS's
with remaining estimated lives of less than five years.
In an effort to meet the needs of its customers, the
Company continues to originate fixed rate loans. These
loans, however, are originated for immediate sale in the
secondary mortgage market to Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") or other investors. The Company
sells loans to investors on both a servicing released
and servicing retained basis. At September 30, 1997, the
Company's portfolio of loans serviced for investors was
approximately $4.6 billion. During fiscal 1997 as
interest rates decreased, loan prepayments rose and
fixed loans have been in greater demand. However, this
trend may reverse if interest rates increase.
In its securities portfolio, the Company has emphasized
maintaining adequate liquidity, particularly through
amortizing short-term and intermediate-term investment
instruments. Management believes that its policy of
emphasizing lower-cost core deposits also limits
interest rate risk as these deposits are considered by
management to have relatively low volatility.
To a lesser degree, the Company has the ability to
manage its interest rate risk through the use of
derivative financial instruments. During fiscal 1997,
the Company entered into a five year interest rate swap
agreement, with a notional amount of $300.0 million. The
Company does not expect to significantly increase its
utilization of derivative financial instruments in the
future; however, it may enter into such agreements from
time to time to manage its interest rate risk exposure.
- --------------------------------------------------------------------------------
Interest Rate Interest rate sensitivity may be analyzed by examining
Sensitivity Analysis the extent to which 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 that time
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. Generally, in a rising interest rate
environment, an institution with a positive gap would
generally be expected, absent the effects of other
factors, to experience a greater increase in the yield
of its assets relative to the cost of its liabilities
and thus increase earnings. Conversely, the cost of
funds for an institution with a positive gap would
generally be expected to decline less quickly than the
yield on its assets in a falling interest rate
environment. Changes in interest rates generally have
the opposite effect on an institution with a negative
gap.
In the current interest rate environment, the Company
has been investing primarily in adjustable rate real
estate loans with various maturities. In addition, the
Company also invests in federal agency and MBS's and
asset-backed securities with adjustable rates or, in the
case of fixed rate securities, estimated maturities
shorter than five years, and has generally refrained
from investing in fixed rate assets with longer
estimated term maturities. As a result of this strategy,
at September 30, 1997, the Company's total
interest-bearing liabilities maturing or repricing
within one year exceeded its total interest-earning
assets maturing or repricing in the same time by $437.9
million, representing a one year cumulative negative gap
ratio of 7.38% ver-
18
<PAGE>
sus a positive gap of $381.9 million and 7.12% at
September 30, 1996. The change in the cumulative one
year gap is attributable to higher borrowings repricing
within one year, as adjusted for the effects of the
interest rate swap, coupled with the net reduction in
real estate loans repricing within one year. The Company
closely monitors its interest rate risk as such risk
relates to its operational strategies. The Company's
strategy continues to be to maintain a positive gap
position; however, there can be no assurance that the
Company will be able to return to a positive gap
position or that its strategies will not continue to
result in a negative gap position in the future. The
Company has not attempted to retain short-term
certificate of deposit accounts or increase core
deposits by maintaining interest rates above those
offered by its competitors. Instead, the Company has
attempted to encourage long-term depositors to maintain
their accounts with the Company through expanded
customer service. To the extent that the Company's core
deposits run-off at a more rapid rate than the Company's
assumptions on such deposits, the Company's current
negative gap position could be further negatively
impacted. While the Company has experienced some run-off
in its core deposits, there can be no assurance that
such a run-off will not increase in the future if
depositors continue to seek higher yielding investments.
Interest rate contracts such as interest rate swaps,
caps, floors and collars may be used to hedge interest
rates on certain assets and liabilities. The notional
amounts of these instruments are not reflected in the
Company's balance sheet, but are included in the
interest rate sensitivity table for purposes of
analyzing interest rate risk.
The Company uses earning simulations, duration, and gap
analysis to analyze and project future interest rate
risk. Computer generated scenarios are based on various
assumptions including: expected changes in the level of
interest rates and the shape of the yield curve, pricing
strategies, portfolio embedded option impacts and
growth, volume and mix alternatives for each portfolio.
Projected statements are evaluated on a rolling 12 month
period. Duration measures the interest rate sensitivity
of all financial instruments based on their weighted
average term to maturity of all cash flows. The
Asset/Liability Committee ("ALCO") evaluates decisions
in a risk return trade-off framework to ensure that the
level of interest rate risk exposure incurred does not
exceed prudent levels. Specific limits for variation of
net interest income and net portfolio value under
various interest rate scenarios are set annually by ALCO
and approved by the Board of Directors.
The following table sets forth the amounts of
interest-earning assets and interest-bearing liabilities
outstanding at September 30, 1997, which are anticipated
by the Company, based on certain assumptions, to reprice
or mature in each of the future time periods shown.
Except as stated below, the amounts of assets and
liabilities shown to reprice or mature during a
particular period were determined in accordance with the
earlier of term to repricing or the contractual terms of
the asset or liability. Prepayment assumptions ranging
from 0% to 15% per year were applied, dependent upon the
loan type and coupon. Run-off rate assumptions for
passbook savings, statement savings, NOW and money
market accounts, in the one year or less category are
51%, 51%, 40% and 100%, respectively, rather than the
OTS assumptions which, in the one year or less period
are 17%, 17%, 37% and 79%, respectively. These
withdrawal rates and prepayment assumptions are based on
assumptions and analyses prepared internally and are
used in preparing the Regulatory Thrift Bulletin-13
Report and quarterly management reports. These
assumptions were used rather than the assumptions
published by the OTS because management believes they
are more indicative of the actual prepayments and
withdrawals experienced by the Company. The assumptions
do not reflect any increases or decreases in interest
rates paid on various categories of deposits (whether by
the Company or in general) since September 30, 1997.
19
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gap Analysis At September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
More than More than More than More than More
3 Months 3 Months 6 Months 1 Year 3 Years than
or Less to 6 Months to 1 Year to 3 Years to 5 Years 5 Years Total
--------- --------- ----------- ----------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Real estate loans(2) $ 232,194 $ 278,778 $ 553,583 $ 1,251,832 $ 615,451 $514,026 $3,445,864
Commercial loans(2) 112 105 205 3,390 844 1,021 5,677
Other loans(2) 70,938 6,273 13,818 56,555 19,167 10,225 176,976
Mortgage-backed
securities(3) 333,516 297,692 527,194 473,225 145,606 29,989 1,807,222
Interest-earning cash
equivalents 9,735 -- -- -- -- -- 9,735
Debt and equity securities(3) 2,337 2,086 20,479 8,512 497 105,337 139,248
Stock in FHLB-NY -- -- -- -- -- 48,724 48,724
--------- --------- ----------- ----------- --------- -------- ----------
Total interest-
earning assets 648,832 584,934 1,115,279 1,793,514 781,565 709,322 5,633,446
Interest-bearing liabilities:
Passbook accounts 114,019 90,314 107,399 98,747 94,632 103,507 608,618
Statement savings accounts 118,228 94,165 111,978 102,936 98,647 107,914 633,868
NOW accounts 34,955 4,563 9,126 36,504 34,983 1,521 121,652
Checking & demand
deposit accounts 3,240 1,388 2,777 -- -- -- 7,405
Money market accounts 70,319 13,185 26,370 -- -- -- 109,874
Certificate accounts 405,455 412,458 543,509 596,591 148,051 10,755 2,116,819
Borrowings 235,456 -- 88,000 703,000 475,000 -- 1,501,456
--------- --------- ----------- ----------- --------- -------- ----------
Total interest-
bearing liabilities 981,672 616,073 889,159 1,537,778 851,313 223,697 5,099,692
--------- --------- ----------- ----------- --------- -------- ----------
Interest sensitivity gap
per period $(332,840) $ (31,139) $ 226,120 $ 255,736 $ (69,748) $485,625 $ 533,754
Effect of interest rate swap 300,000 -- -- -- (300,000) --
--------- --------- ----------- ----------- --------- -------- ----------
Adjusted interest sensitivity
gap per period $(632,840) $ (31,139) $ 226,120 $ 255,736 $ 230,252 $485,625
========= ========= =========== =========== ========= ========
Cumulative interest
sensitivity gap $(632,840) $(663,979) $ (437,859) $ (182,123) $ 48,129 $533,754
========= ========= =========== =========== ========= ========
Cumulative interest
sensitivity gap as a
percentage of total assets(4) (10.67)% (11.20)% (7.38)% (3.07)% 0.81% 9.00%
Cumulative net interest-earning
assets as a percentage of net
interest-bearing liabilities 66.09% 77.22% 94.46% 102.93% 100.99% 110.47%
</TABLE>
(1) Excludes non-performing loans, net of unearned discounts and premiums,
deferred loan fees, purchase accounting discounts and premiums.
(2) For purposes of gap analysis, the allowance for possible loan losses is
excluded.
(3) MBS's and debt and equity securities are shown excluding the market value
appreciation of $22.8 million, before tax, from SFAS 115.
(4) Amounts for fixed rate loans are based on scheduled payment dates and
loans for which there is no amortization schedule are included as three
months or less.
20
<PAGE>
Certain shortcomings are inherent in the method of
analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in
different degrees to changes in market interest rates.
Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other
types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have
features which limit changes in interest rates on a
short-term basis and over the life of the asset.
Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating
the table. An interest rate increase may impair the
ability of borrowers to service their ARM loans.
The Bank's interest rate sensitivity is also monitored
by management through the use of a model which
internally generates estimates of the change in the net
portfolio value ("NPV") over a range of interest rate
change scenarios. NPV is the present value of expected
cash flows from assets, liabilities, and off-balance
sheet contracts. The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided
by the market value of assets in the same scenario. The
OTS also produces a similar analysis using its own
model, based upon data submitted on the Bank's quarterly
Thrift Financial Reports, the results of which may vary
from the Bank's internal model primarily due to
differences in assumptions utilized between the Bank'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,
reinvestment rates were those in effect for similar
products currently being offered, and rates on core
deposits were modified to reflect recent trends. The
following table sets forth the Bank's NPV as of
September 30, 1997, as calculated by the Bank.
<TABLE>
<CAPTION>
Net Portfolio Value ("NPV") Portfolio Value of Assets
Rates in --------------------------------------- ---------------------------------
Basis Points $ $ % NPV %
(Rate Shock) Amount Change Change Ratio Change(1)
- -------------------------------------------------------------------------- ---------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+200 398,635 159,360 28.56 7.28 13.74
+100 479,952 78,043 13.99 8.15 12.27
0 557,995 9.26
-100 639,317 (81,322) (14.57) 10.37 9.64
-200 722,791 (164,796) (29.53) 11.45 8.73
</TABLE>
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
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
require 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 Bank'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 and net interest income models provide an
indication of the Bank'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 Bank's
net interest income and will differ from actual results.
- --------------------------------------------------------------------------------
Analysis of Net Net interest income represents the difference between
Interest Income income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income
depends upon the relative amount of interest-earning
assets and interest-bearing liabilities and the interest
rate earned or paid on them.
The following table sets forth certain information
relating to the Company's Consolidated Statements of
Financial Condition and the Consolidated Statements of
Operations for the fiscal years ended September 30,
1997, 1996 and 1995 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 the average daily
balances. The yields and costs include fees which are
considered adjustments to yields.
21
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
For the Year Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------- ---------------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning
cash equivalents $ 72,131 $ 3,963 5.49% $ 32,109 $ 1,708 5.32% $ 47,153 $ 2,560 5.43%
Debt and equity
securities and
FHLB-NY stock, net(1) 203,100 11,712 5.77 268,344 15,008 5.59 391,556 22,390 5.72
Mortgage-backed
securities, net(1) 1,725,781 117,110 6.79 1,952,217 134,064 6.87 2,176,416 140,173 6.44
Real estate loans, net(2) 3,339,541 249,843 7.48 2,380,633 185,241 7.78 1,724,834 140,268 8.13
Commercial and other
loans, net(2) 149,859 16,421 10.96 125,629 15,550 12.38 117,993 15,824 13.41
---------- -------- ------- ---------- -------- ------- ---------- -------- ------
Total interest-
earning assets 5,490,412 399,049 7.27 4,758,932 351,571 7.39 4,457,952 321,215 7.21
------- ------- ------
Other non-interest-
earning assets 251,584 268,355 228,981
---------- ---------- ----------
Total assets $5,741,996 $399,049 $5,027,287 $351,571 $4,686,933 $321,215
========== ======== ========== ======== ========== ========
Interest-bearing liabilities:
Deposits:
Time deposits $2,011,621 $114,602 5.70% $1,895,594 $108,479 5.72% $1,626,814 $ 87,849 5.40%
Statement savings 647,862 20,956 3.23 639,318 20,755 3.25 684,340 20,946 3.06
Passbooks 643,520 17,557 2.73 711,993 19,264 2.71 820,526 22,336 2.72
Checking and NOW(3) 303,348 3,357 1.11 268,406 3,419 1.27 255,744 3,488 1.36
Money market 121,260 3,335 2.75 142,192 3,913 2.75 182,147 5,022 2.76
---------- -------- ------- ---------- -------- ------- ---------- -------- ------
Total deposits 3,727,611 159,807 4.29 3,657,503 155,830 4.26 3,569,571 139,641 3.91
Borrowed funds 1,368,982 79,681 5.82 724,448 41,346 5.71 510,987 28,255 5.53
---------- -------- ------- ---------- -------- ------- ---------- -------- ------
Total interest-
bearing liabilities 5,096,593 239,488 4.70 4,381,951 197,176 4.50 4,080,558 167,896 4.11
Non-interest-
bearing liabilities 115,842 120,982 95,689
---------- ---------- ----------
Total liabilities 5,212,435 4,502,933 4,176,247
Total stockholders' equity 529,561 524,354 510,686
---------- -------- ------- ---------- -------- ------- ---------- -------- ------
Total liabilities and
stockholders' equity $5,741,996 239,488 $5,027,287 197,176 $4,686,933 167,896
========== ======== ========== ======== ========== ========
Net interest income/
spread(4) $159,561 2.57% $154,395 2.89% $153,319 3.10%
======== ====== ======== ====== ======== ======
Net interest margin as % of
interest-earning assets(5) 2.91% 3.24% 3.44%
====== ====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities 107.73% 108.60% 109.25%
====== ====== ======
</TABLE>
(1) MBS's and debt and equity securities are shown including the average
market value appreciation of $17.4 million, $12.7 million and $12.2
million, before tax, from SFAS 115 for the years ended September 30, 1997,
1996 and 1995 , respectively.
(2) Net of unearned discounts, premiums, deferred loan fees, purchase
accounting discounts and premiums and allowance for possible loan losses,
and including non-performing loans and loans held for sale.
(3) Includes non-interest-bearing checking accounts.
(4) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
22
<PAGE>
- --------------------------------------------------------------------------------
Rate/Volume Analysis The following table presents the impact of changes in
interest rates and in the volume of interest-earning
assets and interest-bearing liabilities on the Company's
interest income and 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 the prior rate), (ii)
changes attributable to changes in rate (changes in rate
multiplied by the 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 September 30, 1997 Year Ended September 30, 1996
Compared to Compared to
Year Ended September 30, 1996 Year Ended September 30, 1995
Increase/(Decrease) Increase/(Decrease)
- -------------------------------------------------------------------------------------------------------
Due to Due to
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning cash equivalents(1) $ 2,197 $ 58 $ 2,255 $ (801) $ (51) $ (852)
Debt and equity securities(2)(3) (3,749) 453 (3,296) (6,901) (481) (7,382)
Mortgage-backed securities(3) (15,383) (1,571) (16,954) (15,022) 8,913 (6,109)
Real estate loans(4) 71,989 (7,387) 64,602 51,262 (6,289) 44,973
Commercial loans and other loans(4) 2,784 (1,913) 871 988 (1,262) (274)
-------- -------- -------- -------- -------- --------
Total 57,838 (10,360) 47,478 29,526 830 30,356
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits 3,003 974 3,977 3,504 12,685 16,189
Borrowed funds 37,498 837 38,335 12,156 935 13,091
-------- -------- -------- -------- -------- --------
Total 40,501 1,811 42,312 15,660 13,620 29,280
-------- -------- -------- -------- -------- --------
Net change in interest income $ 17,337 $(12,171) $ 5,166 $ 13,866 $(12,790) $ 1,076
======== ======== ======== ======== ======== ========
</TABLE>
(1) Cash equivalents include amounts due from banks and short-term loans to
commercial banks with original terms to maturity of less than three
months.
(2) Includes FHLB-NY stock.
(3) MBS's and debt and equity securities are shown including the market value
appreciation of $17.4 million, $12.7 million and $12.2 million, before
tax, from SFAS 115 for the years ended September 30, 1997, 1996 and 1995,
respectively.
(4) In computing the volume and rate components of net interest income for
loans, non-performing loans and loans held for sale have been included.
- --------------------------------------------------------------------------------
Comparison of Operating GENERAL. Net income increased by $17.1 million, or
Results for the Fiscal 53.12%, to $49.4 million in fiscal 1997 from $32.3
Years million in fiscal 1996. The increase was primarily
Ended September 30, attributable to a special one-time federal insurance
1997 and 1996 assessment of $18.7 million that occurred in 1996,
greater net interest income of $5.2 million in 1997 and
lower G & A expenses in 1997 of $3.5 million. Partially
offsetting these increases was greater income tax
expense of $8.5 million.
INTEREST INCOME. Interest income increased by $47.5
million, or 13.50%, to $399.0 million in fiscal 1997
from $351.6 million in 1996. The improvement is due to
an increase of $731.5 million in average
interest-earning assets partially offset by a decline of
12 basis points in the average yield of interest-earning
assets.
Average real estate loans increased by $958.9 million,
or 40.28%, to $3.3 billion during the year ended
September 30, 1997 from $2.4 billion during the year
ended September 30, 1996. The increase reflects loan
originations and purchases funded by additional
borrowings and the redeployment of funds from principal
payments and sales of MBS's and debt and equity
securities classified as available-for-sale into real
estate loans. The redeployment of funds helped to
mitigate a decrease in the overall yield on average
interest-earning assets by replacing lower yielding
MBS's and debt and equity securities with higher
yielding real estate loans. The yield on average real
estate loans declined to 7.48% in 1997 from 7.78% in
1996 principally reflecting the flattening of the yield
curve. The net result of the increase in average real
estate loans and the decline in the yield on such loans
amounted to an increase in interest income on real
estate loans of $64.6 million, or 34.87%, to $249.8
million in 1997 from $185.2 million in 1996.
23
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Average MBS's declined by $226.4 million, or 11.60%, to
$1.7 billion in 1997 from $2.0 billion in 1996
reflecting the redeployment of funds previously
described and the average yield decreased by 8 basis
points to 6.79% in 1997 from 6.87% in 1996. The net
result of the lower average balances and lower yields
was a reduction in interest income from MBS's of $17.0
million, or 12.65%, to $117.1 million in 1997 from
$134.1 million in 1996.
Average debt and equity securities declined by $65.2
million, or 24.31%, to $203.1 million in 1997 from
$268.3 million in 1996 due to the redeployment of funds
previously described into real estate loans. The yield
on average debt and equity securities increased by 18
basis points to 5.77% in 1997 from 5.59% in 1996. The
net result of the lower average balances and higher
yields contributed to a reduction in interest income
from debt and equity securities of $3.3 million, or
21.96%, to $11.7 million in 1997 from $15.0 million in
1996.
INTEREST EXPENSE. Interest expense increased by $42.3
million, or 21.46%, to $239.5 million in 1997 from
$197.2 million in 1996. The increase is principally the
result of an increase in average borrowed funds of
$644.5 million, or 88.97%, to $1.4 billion in 1997 from
$724.4 million in 1996, coupled with an increase in the
cost of average borrowed funds of 11 basis points to
5.82% in 1997 from 5.71% in 1996. Although deposits are
the Bank's primary source of funds, the Bank has the
ability to use borrowings as an alternative, and
sometimes less costly, source of funds. The increase in
borrowed funds in 1997 enabled the Bank to meet cash
flow or asset/liability needs as well as to take
advantage of investment opportunities that existed in
the market and enabled the Bank to earn a positive
interest rate spread. The greater volume of borrowed
funds and the higher cost of such funds resulted in an
increase in interest expense from borrowed funds of
$38.3 million, or 92.72%, to $79.7 million in 1997 from
$41.3 million in 1996. During 1997 and 1996, interest
expense also includes the amortization of premiums paid
for interest rate cap agreements in the amount of $0.1
million and $0.3 million, respectively. Additionally,
during 1997 interest expense includes the effect of an
interest rate swap agreement which converted a $300.0
million fixed rate borrowing into an adjustable rate
borrowing which reduced the Company's interest cost by
$1.0 million. Further contributing to the increase in
interest expense was an increase in average deposit
liabilities of $70.1 million to $3.7 billion coupled
with an increase in the cost of average deposits of 3
basis points to 4.29% in 1997 from 4.26% in 1996. The
net result of higher average deposit liabilities and the
greater cost associated with such funds resulted in an
increase in interest expense from deposit liabilities of
$4.0 million, or 2.55%, to $159.8 million in 1997 from
$155.8 million in 1996. Interest expense on certificate
accounts increased by $6.1 million, or 5.64%, to $114.6
million in 1997 from $108.5 million in 1996 reflecting
increased average balances of $116.0 million partially
offset by a decrease in the average cost of certificate
accounts of 2 basis points. The effect of this increase
is partially mitigated by a decline in interest expense
on passbook accounts of $1.7 million, or 8.86%, to $17.6
million in 1997.
NET INTEREST INCOME. Net interest income was $159.6
million in 1997, an increase of $5.2 million, or 3.35%,
from $154.4 million in 1996. The increase is primarily
attributable to the Company's higher level of real
estate loans partially offset by greater cost of funds.
The net interest margin declined by 33 basis points to
2.91% in 1997 from 3.24% in 1996 and the net interest
spread declined by 32 basis points to 2.57% in 1997 from
2.89% in 1996. Contributing to these declining ratios
were the flattening of the yield curve during 1997 and,
although adding to higher overall net interest income,
the use of higher costing borrowed funds.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for
possible loan losses decreased by $0.2 million, or
3.23%, to $6.0 million in 1997 from $6.2 million in
1996. The reduction reflects the stable level of
non-performing loans, which declined by $6.1 million, or
11.46%, to $47.1 million at September 30, 1997 from
$53.2 million at September 30, 1996. Additionally, the
ratio of non-performing loans to total gross loans
declined by 42 basis points to 1.28% at September
30,1997 from 1.70% at September 30, 1996 and net
charge-offs declined to an eight year low of $6.0
million. Coverage for possible future loan losses, as
measured by the ratio of the allowance for possible
loans losses to non-performing loans, improved by 818
basis points to 71.97% at September 30, 1997 from 63.79%
at September 30, 1996 while the level of the allowance
for possible loan losses remained relatively stable at
$33.9 million.
NON-INTEREST INCOME. Non-interest income decreased by
$1.0 million, or 2.56%, to $37.7 million in 1997 from
$38.7 million in 1996. Contributing to the decline were
reductions in total fees and other income of $0.8
million and the net gain on investment in real estate
and premises of $3.2 million, partially offset by an
increase in net gains on sales activities of $3.1
million. Total fees and other income decreased by $0.8
million, or 2.90%, to $27.5 million in 1997 from $28.3
million in 1996 primarily due to reductions in loan
servicing fees and deposit service fees which were
partially offset by greater loan
24
<PAGE>
fees and service charges and income from insurance and
securities commissions. Loan servicing fees declined by
$1.8 million, or 13.21%, to $12.0 million in 1997 from
$13.9 million in 1996 primarily due to the run off of
higher yielding fees from previously securitized home
equity loans and the replacement with lower yielding
fees from one-to-four family loans serviced for others.
Despite this shift, the Company continues its strategy
of increasing its mortgage servicing portfolio which
grew to $4.6 billion at September 30, 1997 from $3.7
billion at September 30, 1996. Loan servicing fee income
is reported net of the amortization of mortgage
servicing rights of $7.4 million and $2.7 million in
1997 and 1996, respectively. Deposit service fees
declined by $0.4 million, or 6.37%, to $5.6 million in
1997 from $5.9 million in 1996. The Company anticipates
deposit service fee growth in the future as it expands
its Lifetime Banking strategic plan. Income from
insurance and securities commissions increased by $0.9
million, or 55.41%, to $2.5 million in 1997 from $1.6
million in 1996 reflecting the Company's expansion of
its delivery channels and products. Net gain on
investment in real estate and premises declined by $3.2
million to a loss of $1.2 million in 1997 from a gain of
$2.0 million in 1996 primarily reflecting the
disposition of ten non-strategic real estate investment
properties. The properties were not necessary to support
the Company's core businesses and were mostly the result
of various business acquisitions. Net gains on sale
activity increased by $3.1 million to $11.4 million in
1997 from $8.3 million in 1996. The increase in net
gains on sale activity reflects the Company's strategy
of periodically realizing profits in the Company's loan,
securities available-for-sale and funding portfolios. As
interest rates changed during the year, the Company
realized profits in the available-for-sale portfolios
which resulted in increased liquidity and improved the
Company's ability to take advantage of higher yielding
investments as they became available. Net gains from
sale activity varies from year to year based on, among
other things, the interest rate environment, alternative
investment opportunities and the Company's goals in
managing its available-for-sale portfolios.
NON-INTEREST EXPENSE. Non-interest expense decreased by
$21.2 million, or 16.22%, to $109.6 million in 1997 from
$130.9 million in 1996 primarily due to lower federal
insurance costs. Federal insurance costs (including the
one-time special assessment) declined by $23.5 million,
or 84.64%, to $4.2 million in 1997 from $27.7 million in
1996 reflecting Congressional action to resolve
disparities that had existed among the deposit insurance
funds. Advertising costs decreased by $0.9 million, or
15.37%, to $5.0 million in 1997 from $5.9 million in
1996 reflecting the Company's television advertising
campaign that had occurred in 1996. Compensation and
benefit costs decreased by $0.2 million, or 0.42%, to
$57.7 million in 1997 from $58.0 million in 1996. The
decline reflects the outsourcing of computer and check
processing operations and the January 1, 1997
modifications to the Company's stock based benefit
plans, which were partially offset by normal salary
growth, incremental commission costs and the expansion
of the mortgage business in the Mid-Atlantic states.
Office occupancy and equipment costs increased by $1.1
million, or 5.40%, to $21.7 million in 1997 from $20.6
million in 1996 primarily reflecting the Company's
continued technological investments to improve its
information and communication systems coupled with its
expanded mortgage business in the Mid-Atlantic states.
Other general and administrative costs increased by $1.3
million, or 7.62%, to $19.3 million in 1997 from $17.9
million in 1996. The increase principally reflects
greater costs stemming from increased loan volume, the
expansion of the Company's mortgage business in the
Mid-Atlantic states and fees paid to outsource computer
and check processing operations.
LITIGATION EXPENSE--GOODWILL LAWSUIT. Litigation
expenses related to the Bank's breach of contract suit
against the federal government increased by $0.7 million
to $1.1 million in 1997 from $0.4 million in 1996. The
Company expects these costs to increase in fiscal 1998
as the case continues to proceed.
PROVISION FOR INCOME TAXES. The provision for income tax
expense increased by $8.5 million, or 35.57% to $32.2
million in 1997 from $23.8 million in 1996. This is
principally due to a higher level of taxable income in
1997 partially offset by a reduction of 294 basis points
in the effective tax rate to 39.46% in 1997 from 42.40%
in 1996. The decline in the effective tax rate primarily
reflects changes made to the New York State and City tax
bad debt regulations.
Comparison of Operating GENERAL. Net income declined by $11.2 million, or
Results for the Fiscal 25.83%, to $32.3 million in fiscal 1996 from $43.5
Years million in fiscal 1995. The decrease was primarily
Ended September 30, attributable to a special one-time federal insurance
1996 and 1995 assessment of $18.7 million and higher G&A costs of
$11.0 million over the comparable 1995 period. Partially
offsetting these additional costs were increases in
non-interest income and net interest income of $11.7
million and $1.1 million, respectively, coupled with a
reduction in the provision for
25
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
income taxes of $6.1 million.
INTEREST INCOME. Interest income increased by $30.4
million, or 9.45%, to $351.6 million in fiscal 1996 from
$321.2 million in 1995. The improvement was due to an
increase of $301.0 million in average interest-earning
assets coupled with an increase of 18 basis points in
the average yield of interest-earning assets.
Average real estate loans increased by $655.8 million,
or 38.02%, to $2.4 billion at September 30, 1996 from
$1.7 billion at September 30, 1995. The increase
reflects loan originations and purchases funded by
additional borrowings and the redeployment of funds from
principal payments and sales of MBS's and debt and
equity securities classified as available-for-sale into
real estate loans. The redeployment of funds also
contributed to an increase in the overall yield on
average interest-earning assets by replacing lower
yielding MBS's and debt and equity securities with
higher yielding real estate loans. Despite the
improvement in the overall yield on interest-earning
assets, the yield on average real estate loans declined
to 7.78% in 1996 from 8.13% in 1995, principally
reflecting the significant amount of ARM loans
originated and retained in the portfolio during fiscal
1996 and 1995 that are not fully indexed. The net result
of the increase in average real estate loans and the
decline in the yield on such loans amounted to an
increase in interest income of $44.9 million, or 32.06%,
to $185.2 million in 1996 from $140.3 million in 1995.
Average MBS's declined by $224.2 million, or 10.30%, to
$2.0 billion in 1996 from $2.2 billion in 1995,
reflecting the redeployment of funds previously
described and the 43 basis point increase in the average
yield to 6.87% in 1996 from 6.44% in 1995. The net
result of the lower average balances and higher yields
was a reduction in interest income from MBS's of $6.1
million, or 4.36%, to $134.1 million in 1996 from $140.2
million in 1995.
Average debt and equity securities declined by $123.3
million, or 31.47%, to $268.3 million in 1996 from
$391.6 million in 1995 due to the redeployment of funds
previously described into real estate loans. In
addition, the yield on average debt and equity
securities declined by 13 basis points to 5.59% in 1996
from 5.72% in 1995. The net result of the lower average
balances coupled with a decline in the yield contributed
to a reduction in interest income from debt and equity
securities of $7.4 million, or 32.97%, to $15.0 million
in 1996 from $22.4 million in 1995.
INTEREST EXPENSE. Interest expense increased by $29.3
million, or 17.44%, to $197.2 million in 1996 from
$167.9 million in 1995. The increase is principally the
result of an increase in average deposit liabilities of
$87.9 million to $3.7 billion in 1996 from $3.6 billion
in 1995 coupled with an increase in the cost of average
deposits of 35 basis points to 4.26% in 1996 from 3.91%
in 1995. The net result of higher average deposit
liabilities and the greater cost associated with such
funds resulted in an increase in interest expense from
deposit liabilities of $16.2 million, or 11.59%, to
$155.8 million in 1996 from $139.6 million in 1995.
Interest expense on certificate accounts increased by
$20.6 million, or 23.48%, to $108.5 million in 1996 from
$87.9 million in 1995 reflecting increased average
balances of $268.8 million coupled with an increase in
the average cost of 32 basis points. The effect of this
increase is partially mitigated by declines in interest
expense on passbook accounts of $3.1 million, or 13.76%,
to $19.3 million in 1996 and money market accounts of
$1.1 million, or 22.08%, to $3.9 million in 1996
primarily reflecting decreased average balances of
$108.5 million, and $40.0 million, respectively. Further
contributing to the increase in interest expense was an
increase in average borrowed funds of $213.4 million, or
41.77%, to $724.4 million in 1996 from $511.0 million in
1995 coupled with an increase in the cost of average
borrowed funds of 18 basis points to 5.71% in 1996 from
5.53% in 1995. Although deposits are the Bank's primary
source of funds, the Bank has the ability to use
borrowings as an alternative, and sometimes less costly,
source of funds. The increase in borrowed funds that
occurred during 1996 enabled the Bank to meet cash flow
or asset/liability needs as well as to take advantage of
investment opportunities that existed in the market and
enabled the Bank to earn a positive interest rate
spread. The greater volume of borrowed funds and the
higher cost of such funds resulted in an increase in
interest expense from borrowed funds of $13.0 million,
or 46.33%, to $41.3 million in 1996 from $28.3 million
in 1995. During 1996 and 1995, interest expense also
includes the amortization of premiums paid for interest
rate cap agreements in the amount of $0.3 million for
each year.
26
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
NET INTEREST INCOME. Net interest income was $154.4
million in 1996, an increase of $1.1 million, or 0.70%,
from $153.3 million in 1995. The increase is primarily
attributable to the Company's higher level of real
estate loans partially offset by greater cost of funds.
The net interest margin declined by 20 basis points to
3.24% in 1996 from 3.44% in 1995 and the net interest
spread declined by 21 basis points to 2.89% in 1996 from
3.10% in 1995. Contributing to these declining ratios
were rises in short term interest rates during 1996 and,
although adding to higher overall net interest income,
the use of higher costing borrowed funds.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for
possible loan losses decreased by $0.3 million, or
4.17%, to $6.2 million in 1996 from $6.5 million in
1995. The reduction reflects the stable level of
non-performing loans, which declined by $2.5 million to
$53.2 million at September 30, 1996 from $55.7 million
at September 30, 1995. Additionally, the ratio of
non-performing loans to total gross loans declined by 97
basis points to 1.70% in 1996 from 2.67% in 1995 and net
charge-offs declined to a seven year low of $6.6
million. Coverage for possible future loan losses, as
measured by the ratio of the allowance for possible
loans losses to non-performing loans, improved by 208
basis points to 63.79% at September 30, 1996 from 61.71%
at September 30, 1995, although the level of the
allowance for possible loan losses declined to $33.9
million at September 30, 1996 from $34.4 million at
September 30, 1995.
NON-INTEREST INCOME. Non-interest income increased by
$11.7 million, or 40.20%, to $40.8 million in 1996 from
$29.1 million in 1995. Contributing to the improvement
were increases in total fees and other income of $2.3
million, net gains on sale activity of $6.7 million and
the net gain on investment in real estate and premises
of $2.7 million. Total fees and other income increased
by $2.3 million, or 9.05%, to $28.3 million in 1996 from
$26.0 million in 1995 primarily due to improvements in
loan fees and service charges, loan servicing fees and
income from insurance and securities commissions. Loan
fees and service charges increased by $0.7 million, or
28.99%, to $3.2 million in 1996 from $2.5 million in
1995 primarily reflecting greater mortgage late charges
and tax search fees. Loan servicing fee income increased
by $1.0 million, or 7.69%, to $13.9 million in 1996 from
$12.9 million in 1995. Loan service fee income is
reported net of the amortization of mortgage servicing
rights of $2.7 million and $1.4 million in 1996 and
1995, respectively. The growth in loan servicing fees
reflects the Company's strategy of increasing its
mortgage servicing portfolio which grew to $3.7 billion
at September 30, 1996 from $2.6 billion at September 30,
1995. Income from insurance and securities commissions
increased by $0.8 million, or 99.75%, to $1.6 million in
1996 from $0.8 million in 1995 reflecting the Company's
expansion of its delivery channels and its change to a
new third party provider of financial products and
services during 1995. Net gains on sale activity
increased by $6.7 million to $8.3 million in 1996 from
$1.6 million in 1995. The increase in net gains on sale
activity reflects the Company's strategy of periodically
realizing profits in the Company's loan, securities
available-for-sale and funding portfolios. As interest
rates changed during the year, the Company realized
profits in the available-for-sale portfolios which
resulted in increased liquidity and improved the
Company's ability to take advantage of higher yielding
investments as they became available. Net gains from
sale activity varies from year to year based on, among
other things, the interest rate environment, alternative
investment opportunities and the Company's goals in
managing its available-for-sale portfolios. Further
contributing to the improvement in net gains on sale
activity was the write-down during 1995 of $1.8 million
stemming from the Company's investment in Nationar, a
failed bank service institution.
Net gain on investment in real estate and premises
increased by $2.7 million to $4.1 million in 1996 from
$1.5 million in 1995 primarily reflecting the
disposition of ten non-strategic real estate investment
properties. The properties were not necessary to support
the Company's core businesses and were mostly the result
of various business acquisitions.
NON-INTEREST EXPENSE. Non-interest expense increased by
$30.5 million, or 29.67%, to $133.0 million in 1996 from
$102.5 million in 1995. The primary factors contributing
to the increase were higher federal insurance costs and
greater compensation and benefit costs. Federal
insurance costs increased by $18.8 million during 1996
as compared with 1995 reflecting Congressional action to
resolve disparities that had existed among the deposit
insurance funds. Compensation and benefit costs
increased by $6.6 million, or 12.69%, to $58.0 million
in 1996 from $51.4 million in 1995. The increase in
compensation and benefit costs primarily reflects the
increase in the price of the Common Stock and its impact
on the Company's stock based benefit plans. Stock based
benefit plans costs increased to $7.1 million in 1996
from $4.0 million in 1995. Further contributing to the
rise in compensation and benefit costs were normal
salary increases, retirement costs related to the
retirement of the Company's president and increases
resulting from the expansion of its loan production
centers.
Office occupancy and equipment costs increased by $2.1
million, or 11.24%, to $20.6 million in 1996 from $18.5
million in 1995 primarily reflecting the Company's
continued technological investments to improve its
information and communication systems coupled with its
recent acquisitions previously described.
Advertising costs increased by $1.2 million, or 26.63%,
to $5.9 million in 1996 from $4.7 million in 1995
reflecting the
27
<PAGE>
Company's television advertising campaign.
Other general and administrative costs increased by $1.1
million, or 6.32%, to $17.9 million in 1996 from $16.9
million in 1995. The increase principally reflects
greater costs stemming from increased loan volume and
the expansion of the Company's mortgage business in the
Mid-Atlantic states.
PROVISION FOR INCOME TAXES. The provision for income tax
expense declined by $6.1 million, or 20.53%, to $23.8
million in 1996 from $29.9 million in 1995, primarily
reflecting a lower level of taxable income in 1996. The
effective tax rate increased to 42.40% in 1996 from
40.72% in 1995 principally as a result of the
limitations placed on the tax deductibility of ESOP
contributions that arise from increases in the price of
the Company's common stock.
- --------------------------------------------------------------------------------
Impact of Inflation The consolidated financial statements have been prepared
in accordance with GAAP, which requires the measurement
of and Changing Prices financial position and operating
results in terms of historical dollars without
considering the changes in the relative purchasing power
of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the
Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have
a greater impact on the Company's performance than do
the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.
Year 2000 The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the year 2000. Key
financial, information and operational systems are being assessed and plans are
being developed to address system modifications required by December 31, 1999.
The financial impact of making the required systems changes is not expected to
be material to the Company's consolidated financial position, results of
operations or cash flows.
Private Securities In addition to historical information, this Annual Report
includes certain forward looking statements based on current management
Litigation Reform Act expectations. The Company's actual results could differ
materially from those management expectations. Factors that could Safe Harbor
Statement cause future results to vary from current management expectations
include, but are not limited to, general economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the federal government,
changes in tax policies, rates and regulations of federal, state and local tax
authorities, changes in interest rates, deposit flows, the cost of funds, demand
for loan products, demand for financial services, competition, changes in the
quality or composition of the Bank's loan and investment portfolios, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. Further description of the risks and
uncertainties to the business are included in detail in Item 1, "Business" of
the Company's 1997 Form 10-K.
- --------------------------------------------------------------------------------
Impact of New For discussion regarding the impact of new accounting
Accounting Standards standards, refer to Note 1 of Notes to Consolidated
Financial Statements.
28
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including interest-earning
assets of $9,735 and $37,357, respectively) $ 43,705 $ 76,348
Investment in debt and equity securities, net:
Available-for-sale 138,578 180,650
Mortgage-backed securities, net:
Held-to-maturity (estimated fair value of
$20,188 and $21,120, respectively) 22,223 23,096
Available-for-sale 1,808,471 1,717,106
Stock in Federal Home Loan Bank of New York, at cost 48,724 40,754
Loans held for sale 157,617 57,969
Loans receivable held for investment, net:
Real estate loans, net 3,333,185 2,921,285
Commercial loans, net 6,465 7,810
Other loans, net 178,325 145,654
Loans, net 3,517,975 3,074,749
----------- -----------
Less allowance for possible loan losses (33,881) (33,912)
----------- -----------
Total loans receivable held for investment, net 3,484,094 3,040,837
Mortgage servicing rights, net 41,789 29,687
Office properties and equipment, net 88,466 89,279
Accrued interest receivable, net 35,334 32,962
Investment in real estate and premises, net 9,103 10,680
Deferred taxes 16,547 31,207
Excess of cost over fair value of net assets acquired 5,069 5,265
Prepaid expenses and other assets 31,064 27,951
----------- -----------
Total assets $ 5,930,784 $ 5,363,791
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 3,730,503 $ 3,633,010
Official checks outstanding 26,840 49,860
Borrowed funds, net 1,501,456 978,023
Mortgagors' escrow payments 69,353 64,232
Accrued expenses and other liabilities 56,257 119,572
----------- -----------
Total liabilities 5,384,409 4,844,697
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized; none issued) -- --
Common stock ($0.01 par value, 45,000,000 shares authorized;
26,816,464 issued, 24,022,924 and 24,644,157 outstanding,
respectively) 268 268
Additional paid-in capital 309,372 304,027
Unallocated Employee Stock Ownership Plan (18,079) (19,230)
Unearned Management Recognition & Retention Plan (3,816) (5,551)
Unrealized gain on securities available-for-sale, net of tax 12,947 6,633
Retained income--partially restricted 319,756 285,311
Treasury stock, at cost (2,793,540 and 2,172,307 shares, respectively) (74,073) (52,364)
----------- -----------
Total stockholders' equity 546,375 519,094
----------- -----------
Total liabilities and stockholders' equity $ 5,930,784 $ 5,363,791
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended September 30,
--------------------------------------------------------------------------------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Interest income:
Real estate loans $ 249,843 $185,241 $ 140,268
Commercial loans 604 705 984
Other loans 15,817 14,845 14,840
Mortgage-backed securities 117,110 134,064 140,173
Debt and equity securities 15,675 16,716 24,950
--------- -------- ---------
Total interest income 399,049 351,571 321,215
--------- -------- ---------
Interest expense:
Deposits 159,807 155,830 139,641
Borrowed funds 79,681 41,346 28,255
--------- -------- ---------
Total interest expense 239,488 197,176 167,896
--------- -------- ---------
Net interest income 159,561 154,395 153,319
Provision for possible loan losses 6,000 6,200 6,470
--------- -------- ---------
Net interest income after provision for possible loan losses 153,561 148,195 146,849
Non-interest income:
Fees and other income:
Loan fees and service charges 3,721 3,217 2,494
Loan servicing fees 12,031 13,863 12,873
Income from insurance and securities commissions 2,499 1,608 805
Deposit service fees 5,559 5,937 5,917
--------- -------- ---------
Total fee income 23,810 24,625 22,089
Other income 3,710 3,718 3,903
--------- -------- ---------
Total fees and other income 27,520 28,343 25,992
--------- -------- ---------
Net gains (losses) on sale activity:
Net gains on loans and mortgage-backed securities 11,064 7,993 3,562
Net gains (losses) on investment in debt and equity securities 335 340 (1,924)
Total net gains on sale activity 11,399 8,333 1,638
Net (loss) gain on investment in real estate and premises (1,205) 2,028 (323)
--------- -------- ---------
Total non-interest income 37,714 38,704 27,307
Non-interest expense:
General and administrative expense
Compensation, payroll taxes and fringe benefits 57,728 57,969 51,443
Advertising 5,027 5,940 4,691
Office occupancy and equipment 21,746 20,631 18,547
Federal insurance premiums 4,256 9,055 8,961
Other general and administrative expense 19,327 17,958 16,890
--------- -------- ---------
Total general and administrative expense 108,084 111,553 100,532
SAIF special assessment -- 18,657 --
Litigation expense--goodwill lawsuit 1,101 370 --
Amortization of excess of cost over fair value of net assets acquired 458 284 211
--------- -------- ---------
Total non-interest expense 109,643 130,864 100,743
--------- -------- ---------
Income before income taxes 81,632 56,035 73,413
Provision for income taxes 32,212 23,760 29,897
--------- -------- ---------
Net income $ 49,420 $ 32,275 $ 43,516
========= ======== =========
Primary earnings per common share $ 2.09 $ 1.33 $ 1.73
========= ======== =========
Fully diluted earnings per common share $ 2.08 $ 1.33 $ 1.71
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years ended September
30, 1997, 1996 and 1995 (In thousands, except share data)
<TABLE>
<CAPTION>
Unallocated Unearned Unrealized
Employee Management Gain(Loss) Retained
Additional Stock Recognition on Securities Income--
Common Paid-in Ownership & Retention Available- Partially Treasury
Stock Capital Plan Plan for-Sale Restricted Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1994 $268 $296,841 $(23,093) $(8,506) $(3,053) $231,252 $ -- $493,709
Net income 43,516 43,516
Allocation/amortization of ESOP
and MRP stock and related
tax benefits 1,254 1,650 1,435 4,339
Change in unrealized gains on
securities available-for-sale
(net of tax of $7,600) 10,000 10,000
Dividends (9,693) (9,693)
Repurchase of common stock
(886,000 shares) (17,812) (17,812)
Exercise of stock options
(146,022 shares) and related
tax benefits 423 (970) 2,662 2,115
---- -------- -------- ------- ------- -------- -------- --------
Balance at
September 30, 1995 268 298,518 (21,443) (7,071) 6,947 264,105 (15,150) 526,174
Net income 32,275 32,275
Allocation/amortization of ESOP
and MRP stock and related
tax benefits 4,358 2,213 1,520 8,091
Change in unrealized gains on
securities available-for-sale
(net of tax of $5,300) (7,048) (7,048)
Dividends (9,171) (9,171)
Repurchase of common stock
(1,611,554 shares) (42,043) (42,043)
Exercise of stock options
(179,225 shares) and related
tax benefits 1,151 (1,898) 4,829 4,082
Net unrealized gain on securities
reclassified as available-for-sale
(net of tax of $5,103) 6,734 6,734
---- -------- -------- ------- ------- -------- -------- --------
Balance at
September 30, 1996 268 304,027 (19,230) (5,551) 6,633 285,311 (52,364) 519,094
Net income 49,420 49,420
Allocation/amortization of ESOP
and MRP stock and related
tax benefits 3,447 1,151 1,735 6,333
Change in unrealized gains on
securities available-for-sale
(net of tax of $10,124) 6,314 6,314
Dividends (13,378) (13,378)
Repurchase of common stock
(732,500 shares) (24,017) (24,017)
Exercise of stock options
(111,267 shares) and related
tax benefits 1,898 (1,597) 2,308 2,609
---- -------- -------- ------- ------- -------- -------- --------
Balance at
September 30, 1997 $268 $309,372 $(18,079) $(3,816) $12,947 $319,756 $(74,073) $546,375
==== ======== ======== ======= ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 49,420 $ 32,275 $ 43,516
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 6,000 6,200 6,470
Write-off of real estate owned and investment in real estate 466 490 581
Gains on sale of real estate owned and investment in real estate, net (296) (334) (484)
Depreciation and amortization 16,756 10,988 8,352
Amortization of premiums, net of discount accretion-debt,
equity and mortgage-backed securities (291) 1,909 (972)
Accretion of discounts, net of amortization of premiums-purchase
accounting & goodwill amortization 652 227 (1,550)
Employee Stock Ownership Plan/Management Recognition & Retention Plan expense 5,726 7,331 4,130
Gains on sales of loans and mortgage-backed securities, net (11,064) (7,993) (3,562)
Originations of loans held-for-sale, net of proceeds from sales (105,071) (2,448) (40,054)
(Gains) losses on sales of debt and equity securities, net (335) (340) 1,924
Increase in accrued interest receivable (2,372) (1,210) (4,206)
(Decrease) increase in accrued and other liabilities (64,454) 65,540 10,510
(Decrease) increase in official checks outstanding (23,020) 7,048 17,932
Increase (decrease) in prepaid expenses, deferred taxes and other assets 11,547 (19,874) (4,733)
Net decrease in unearned income (9,919) (7,927) (1,669)
----------- ----------- ---------
Net cash (used) provided by operating activities (126,255) 91,882 36,185
----------- ----------- ---------
Investing activities:
Proceeds from sales of debt and equity securities, available-for-sale 26,144 139,099 48,836
Proceeds from sales of mortgage-backed securities, available-for-sale 567,718 485,195 286,674
Proceeds from maturities of and principal payments on debt and equity securities 175,852 411,319 972,775
Principal payments on mortgage-backed securities 339,549 566,421 360,416
Purchases of debt and equity securities, available-for-sale (156,856) (441,359) (861,877)
Purchases of debt and equity securities, held-to-maturity -- -- (7,128)
Purchases of Federal Home Loan Bank stock (7,970) (5,622) (4,372)
Purchases of mortgage-backed securities, available-for-sale (302,571) (154,185) (341,831)
Purchases of mortgage-backed securities, held-to-maturity -- -- (365,103)
Originations and purchases of loans held-for-investment, net of principal payments (1,137,051) (1,413,321) (521,512)
Proceeds from sale of real estate owned, office properties and equipment 11,022 12,964 10,439
Purchases of office properties and equipment (8,569) (15,023) (12,562)
Purchase of mortgage servicing rights (4,066) (15,159) (10,071)
----------- ----------- ---------
Net cash used by investing activities (496,798) (429,671) (445,316)
----------- ----------- ---------
Financing activities:
Net decrease in demand deposits, NOW accounts and savings accounts (60,535) (58,718) (444,864)
Net increase (decrease) in mortgagors' escrow accounts 5,121 (7,168) 10,211
Net increase in certificates of deposit 158,028 118,199 450,578
Costs to repurchase common stock (24,017) (42,043) (17,812)
Proceeds from the exercise of stock options 1,590 2,070 1,677
Cash dividends paid on common stock (13,210) (9,961) (7,892)
Net decrease in short-term borrowings (242,480) (277,461) (60,022)
Net increase in long-term borrowings 765,913 621,809 368,675
----------- ----------- ---------
Net cash provided by financing activities 590,410 346,727 300,551
----------- ----------- ---------
(Decrease) increase in cash and cash equivalents (32,643) 8,938 (108,580)
Cash and cash equivalents at the beginning of the year 76,348 67,410 175,990
----------- ----------- ---------
Cash and cash equivalents at the end of the year $ 43,705 $ 76,348 $ 67,410
=========== =========== =========
Supplemental disclosures of cash flow information:
Cash paid during the years for:
Interest on deposits and borrowed funds $ 235,617 $ 195,089 $ 164,239
=========== =========== =========
Income taxes $ 31,567 $ 27,465 $ 20,245
=========== =========== =========
Non-cash investing activities:
Additions to real estate owned, net $ 9,599 $ 10,001 $ 10,312
=========== =========== =========
Securitization of loans $ 680,889 $ 358,786 $ 143,679
=========== =========== =========
SFAS 115 Transfer $ -- $ 1,307,472 $ --
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
(1) The accounting and reporting policies of Long Island
Basis of Presentation Bancorp, Inc. and subsidiary ("the Company") conform to
and Summary of generally accepted accounting principles ("GAAP"). The
Significant following are the significant accounting and reporting
Accounting Policies policies that the Company follows in preparing its
consolidated financial statements.
BASIS OF PRESENTATION. The consolidated financial
statements include the accounts of Long Island Bancorp,
Inc. ("Holding Company") and its direct wholly-owned
subsidiary The Long Island Savings Bank, FSB ("Bank"),
after eliminating intercompany balances and
transactions. When necessary, certain reclassifications
have been made to prior year amounts to conform to the
current year presentation.
The Bank converted from a federally chartered mutual
savings bank to a federally chartered stock savings bank
("Conversion") during the fiscal year ended September
30, 1994. The Holding Company was organized for the
purpose of acquiring all of the capital stock of the
Bank pursuant to the Conversion, and is subject to the
financial reporting requirements of the Securities
Exchange Act of 1934, as amended.
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 the related
consolidated statement of operations for the year then
ended.
CASH AND CASH EQUIVALENTS. For purposes of reporting
cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and short-term loans to
commercial banks with original terms to maturity of less
than three months.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES. Securities
that may be sold in response to or in anticipation of
changes in interest rates and resulting prepayment risk,
or other factors, are classified as available-for-sale
and are carried at fair value. Unrealized gains and
losses on these securities are reported, net of
applicable taxes, as a separate component of
stockholders' equity. Securities that the Company has
the positive intent and ability to hold to maturity are
classified as held-to-maturity and are carried at
amortized cost.
Securities that are held for current resale, if any, are
classified as trading securities and reported at fair
value, with unrealized gains and losses included in
earnings.
Amortization of premiums and accretion of discounts are
reported in interest income, using a method which
results in a level yield over the projected holding
period of the security. Gains and losses on the sale of
securities are recognized on realization.
REAL ESTATE AND OTHER LOANS. Loans held for investment
are generally reported at the principal amount
outstanding, net of the allowance for loan losses,
unearned income and net deferred loan fees, if any.
Loans held for sale are carried at the aggregate lower
of cost or market value. Purchased loans are recorded at
cost. Related premiums or discounts are amortized to
expense or accreted to income primarily using the
level-yield method over the estimated life of the loans.
Discounts on other loans are accreted to income over the
term of the loans primarily using the simple-interest
method of accounting.
Loan fees and certain direct loan origination costs are
deferred. Net deferred fees and costs are amortized into
interest income over the life of the loan using the
level-yield method.
Interest income on loans receivable is recognized on an
accrual basis except when a loan has been placed on
nonaccrual status. Loans are placed on nonaccrual status
when principal or interest is past due 90 days or more
or when, in the opinion of management, principal and
interest is not likely to be paid in accordance with the
terms of the loan agreement. Thereafter, interest income
on nonaccrual loans is recorded only when cash is
received.
On October 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114 ("SFAS 114"),
"Accounting by Creditors for Impairment of a Loan" and
Statement of Financial Accounting Standards No. 118
("SFAS 118"), "Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosures." Under SFAS
114 and SFAS 118 ("Statements"), a loan is considered
impaired when it is probable that the Company, based on
current information, will not collect all amounts due,
including principal and interest, according to the
contractual terms of the loan agreement. Loans exempt
from the provisions of these Statements include large
groups of smaller-balance homogenous loans that are
collectively evaluated for impairment
33
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
such as one-to-four family real estate loans and
consumer loans. Such loans that are modified in a
troubled debt restructuring ("TDR"), however, are
subject to the provisions of these Statements. A loan is
considered a TDR when modifications are made to the
original contractual terms of the loan due to the
borrower's financial difficulties. Loans that fall
within the scope of these Statements must be measured
based on the present value of expected future cash flows
discounted at the loan's effective interest rate or at
the loan's observable market price or, if the loan is
collateral dependent, at the fair value of the
collateral.
ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses is based on a periodic analysis of
the loan portfolio and reflects an amount which, in
management's judgment, is adequate to provide for
possible loan losses in the existing portfolio. In
evaluating the portfolio, management takes into
consideration the Company's loan growth, prior loss
experience, present and potential risks of the loan
portfolio and current economic conditions. Provisions
for possible losses on loans are charged to operations.
Loans are charged-off against the allowance for possible
loan losses when the collectability of loan principal is
unlikely. Recoveries of loans previously charged-off are
credited to the allowance.
COMMITMENT AND LOAN ORIGINATION FEES. Non-refundable
commitment fees and other loan origination fees received
for commitments to make or purchase loans are netted
against the costs of originating such loans and the net
fee is deferred. The deferred amount is accreted into
income over the life of the loan using the level-yield
method. The direct origination costs subject to deferral
are captured in the form of a standard cost on
successful loan originations and recorded as reductions
to the applicable expense categories.
OFFICE PROPERTIES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
Office properties and equipment, including leasehold
improvements are stated at cost less accumulated
depreciation and amortization. Office properties and
equipment are depreciated over their estimated useful
lives using the straight-line method. Estimated lives
vary from 20 to 50 years on buildings and 3 to 25 years
on furniture and fixtures. Leasehold improvements are
amortized using the straight-line method over the term
of the respective lease or the life of the improvement,
whichever is shorter.
INVESTMENT IN REAL ESTATE AND PREMISES. Investment in
real estate and premises consists of real estate owned
("REO") and direct investments in real estate.
REO consists of real estate acquired through foreclosure
or deed in lieu of foreclosure. REO is recorded at the
lower of cost or estimated fair value less estimated
selling costs at the time of foreclosure. Subsequent
declines in estimated fair value, net operating results,
and gains or losses resulting from the disposition of
properties are recognized in the current period's
operations.
Direct investment in real estate consists of real estate
the Company has acquired through acquisitions or
purchases. Direct investment in real estate is recorded
at the lower of cost or net realizable value.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company has
limited involvement in derivative financial instruments,
using interest rate swaps and interest rate cap
agreements to manage interest rate exposure. The
Company's interest-rate swap and cap agreements are
considered derivative financial instruments held for
purposes other than trading and are accounted for under
the accrual method. Interest income (expense) resulting
from the derivatives are accrued and reported as an
adjustment to interest income (expense) of the related
asset or liability.
Realized gains and losses from the settlement or
termination of derivative contracts are deferred on the
statement of financial condition and are amortized to
interest income or interest expense over the life of the
hedged item. Amortization commences when the contract is
settled or terminated. If the related assets or
liabilities are sold or otherwise disposed, then the
deferred gains or losses on the derivative contract are
recognized as an adjustment to the gain or loss on
disposition of the related asset or liability.
Premiums paid for interest rate cap agreements are
amortized as additional interest expense over the term
of the contract. Amounts receivable under interest rate
cap agreements are reflected as a reduction to interest
expense.
INCOME TAXES. The Holding Company and its subsidiary
file consolidated tax returns with the Federal taxing
authorities and a combined return with New York State.
In addition, the Bank files tax returns in those states
and localities in which
34
<PAGE>
it maintains operations.
The Company recognizes both the current and deferred tax
consequences of all transactions that have been
recognized in the financial statements. Calculations are
based on the provisions of enacted tax laws and the tax
rates in effect for current and future years. Deferred
tax assets and liabilities are recognized for the future
tax consequences attributable to the differences between
the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
(temporary differences). The deferred tax liability
(asset) is determined based on enacted tax rates which
will be in effect when the underlying items of income
and expense are expected to be reported to the taxing
authorities. Net deferred tax assets, whose realization
is dependent on taxable earnings of future years, are
recognized when a more-likely-than-not criterion is met.
Annual deferred tax expense (benefit) is equal to the
change in the deferred tax liability (asset) account
from the beginning to the end of the year. A current tax
liability (asset) is recognized for the estimated taxes
payable or refundable for the current year.
STOCK-BASED COMPENSATION PLANS. In accordance with
Statement of Financial Accounting Standards No.123
("SFAS 123"), "Accounting for Stock-Based Compensation,"
the Company continues to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") in
accounting for its stock-based compensation plans and
discloses in the footnotes to the financial statements
pro forma net income and EPS information as if the fair
value based method had been adopted.
Deferred compensation for stock award plans is recorded
as a reduction of stockholders' equity and is calculated
as the cost of the shares purchased by the Bank and
contributed to the plan. Compensation expense is
recognized over the vesting period of actual stock
awards based upon the fair value of the shares at the
award date.
Compensation expense for the Employee Stock Ownership
Plan ("ESOP") is recorded at an amount equal to the
shares allocated by the ESOP multiplied by the average
fair market value of the shares during the period. The
Company recognizes compensation expense ratably over the
year for the ESOP shares to be allocated each December
31st, based upon the Company's current estimate of the
number of shares expected to be allocated by the ESOP
during each calendar year. Additionally, as the ESOP
shares are accrued for, the difference between the
average fair market value and the cost of the shares
allocated by the ESOP is treated as an adjustment to
additional paid-in capital.
EARNINGS PER SHARE OF COMMON STOCK. Primary earnings per
share ("EPS") is calculated by dividing net income by
the sum of the outstanding weighted average number of
shares of common stock of the Holding Company ("Common
Stock") and the average number of shares issuable under
the Company's stock benefit plans that have a dilutive
effect measured under the treasury stock method. Fully
diluted EPS is calculated by dividing net income by the
sum of the outstanding weighted average number of shares
of Common Stock and the maximum dilutive effect of
shares issuable under the Company's stock benefit plans.
The maximum dilutive effect is computed using the period
end fair market value of the Company's stock, if it is
higher than the average market price during the period
used in calculating primary EPS. For the years ended
September 30, 1997, 1996 and 1995 the total weighted
average number of shares of Common Stock outstanding and
the weighted average number of shares issuable under the
Company's stock benefit plans for the primary EPS
calculations were 23,595,529, 24,220,480 and 25,088,089
and for the fully diluted EPS calculations were
23,755,249, 24,277,013 and 25,446,558, respectively.
OFF-BALANCE SHEET INSTRUMENTS. In the ordinary course of
business the Bank has entered into off-balance sheet
financial instruments consisting of commitments to
extend credit, and commitments to buy and sell loans and
securities. Such financial instruments are recorded in
the financial statements when they are funded or related
fees are incurred or received.
IMPACT OF NEW ACCOUNTING STANDARDS. Effective January 1,
1997, the Company adopted SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," except for those
transactions that are governed by SFAS 127, "Deferral of
the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS 127 was issued in December 1996
to extend the effective date of the provisions of SFAS
125 as they relate to secured borrowings, collateral and
repurchase agreements, dollar rolls, securities lending
and similar transactions for one year. SFAS 125 provides
accounting and reporting standards for transfers and
servicing of financial assets and extinguish ments of
liabilities occurring after December 31, 1996 based on
consistent application of a financial-components
approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity
recognizes the financial and servicing assets it
controls and the liabilities it has incurred,
derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when
extinguished. This statement provides consistent
standards for distinguishing transfers of financial
assets that are sales from transfers that are secured
borrowings. This statement supersedes SFAS 76,
"Extinguishment of Debt," and SFAS 77, "Reporting
35
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
by Transferors for Transfers of Receivable with
Recourse," and SFAS 122, "Accounting for Mortgage
Servicing Rights," and amends SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities," and
SFAS 65, "Accounting for Certain Mortgage Banking
Activities." The Company does not expect SFAS 125, as
amended by SFAS 127, to have a material effect on the
financial statements.
In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share."
SFAS 128 is effective for periods ending after December
15, 1997 and establishes standards for computing and
presenting EPS for entities with publicly held common
stock and common stock equivalents. The statement
simplifies the computations of EPS that were previously
found in APB Opinion No. 15 "Earnings Per Share" and
replaces primary EPS with basic EPS and fully diluted
EPS with diluted EPS. Basic EPS is computed by dividing
income available to common stockholders by the weighted
average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that
could occur if all common stock equivalents were
converted. This statement requires a reconciliation of
the numerator and denominator of the two EPS
calculations and the restatement of all prior period EPS
data presented after adoption. The Company has not yet
determined the impact of SFAS 128 on its financial
statements.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129 ("SFAS 129"), "Disclosure
of Information about Capital Structure." SFAS 129 is
effective for periods ending after December 15, 1997.
The statement consolidates the disclosure requirements
related to an entity's capital structure that were
previously contained in APB Opinions No. 10, "Omnibus
Opinion-1996," and No. 15 "Earnings Per Share," and
Statement of Financial Accounting Standards No. 47,
"Disclosure of Long Term Obligations." There is no
change in disclosure requirements for entities, such as
the Company, that were previously subject to these
pronouncements.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 is effective for years
beginning after December 15, 1997 and requires
reclassification of financial statements for earlier
periods provided for comparative purposes. The statement
establishes standards for reporting and display of
comprehensive income and its components. This statement
requires that all items that are required to be
recognized as components of comprehensive income be
reported in a financial statement that is displayed with
the same prominence as other financial statements.
Comprehensive income is defined as all changes in equity
during a period except those resulting from investments
by owners and distributions to owners. The Company has
not yet determined the impact of SFAS 130 on its
financial statements.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related
Information." SFAS 131 is effective for financial
statements for periods beginning after December 15,
1997. In the initial year of application, comparative
information for earlier years is to be restated. The
statement requires that a public business enterprise
report financial and descriptive information about its
reportable operating segments. The Company has not yet
determined the impact of SFAS 131 on its financial
statements.
- --------------------------------------------------------------------------------
(2) On April 14, 1994, the Holding Company completed the
Conversion to issuance and sale of 26,816,464 shares of Common Stock,
Stock Form of at a price of $11.50 per share, through an Initial
Ownership Public Offering ("IPO") to the Bank's depositors and the
Bank's stock benefit plans. Approximately $164.0 million
was contributed by the Holding Company to the Bank in
exchange for 100% of the shares issued and outstanding
of the Bank's common stock. The Holding Company recorded
$296.9 million of net proceeds from this offering and
utilized $32.7 million to purchase 2,070,000 and 776,250
shares, respectively, for the ESOP and Management
Recognition and Retention Plans ("MRP").
In accordance with the requirements of the Office of
Thrift Supervision ("OTS") the Bank established a
liquidation account in the amount equal to its capital
as of the date of the latest consolidated statement of
condition appearing in the final IPO prospectus. The
liquidation account is maintained for the benefit of
eligible pre-conversion depositors who continue to
maintain their account at the Bank after the conversion.
The liquidation account is reduced annually to the
extent that eligible account holders reduce their
qualifying deposits. The balance of the liquidation
account at September 30, 1997 was $63.6 million. In the
unlikely event of a complete liquidation of the Bank,
each eligible account holder will be entitled to receive
a distribution from the liquidation account. The Bank is
not permitted to declare or pay a dividend on or to
repurchase any of its capital stock if the effect would
be to cause the Bank's regulatory capital to be reduced
below the amount required for the liquidation account.
36
<PAGE>
Unlike the Bank, the Holding Company is not subject to
OTS regulatory restrictions on the declaration or
payment of dividends to its stockholders, although the
source of such dividends could depend upon dividend
payments from the Bank. The Holding Company is subject,
however, to the requirements of Delaware law, which
generally limit dividends to an amount equal to the
excess of its net assets (the amount by which total
assets exceed total liabilities) over its stated capital
or, if there is no such excess, to its net profits for
the current and/or immediately preceding fiscal year.
- --------------------------------------------------------------------------------
(3) During fiscal 1996, the Company acquired First Home
Business Mortgage of Virginia, Inc. ("First Home") and two
Combinations mortgage origination offices located in Pennsylvania and
North Carolina from Fleet Mortgage Company. The
acquisitions were completed to continue the expansion of
the Company's mortgage origination activities. The
acquisition of First Home, which did not involve
significant tangible assets, was accounted for using the
purchase method of accounting and resulted in goodwill
of approximately $2.8 million which is being amortized
on a straight line basis over 15 years from the date of
acquisition.
During fiscal 1995, the Company acquired the $630.0
million conventional servicing portfolio and eleven
lending offices of Entrust Financial Corporation
("Entrust") and the retail lending office of Developer's
Mortgage Corporation ("Developer's"). The operations of
Entrust and Developer's were merged into the Bank and
the recorded investment in mortgage servicing rights
("MSR's") stemming from these acquisitions approximated
$7.5 million at September 30, 1995. The acquisitions
were designed to expand the Company's mortgage
production capabilities by extending its lending area to
include Pennsylvania, Delaware, Maryland, Virginia and
Georgia. The acquisitions, which did not involve
significant tangible assets, were accounted for using
the purchase method of accounting and resulted in
goodwill at September 30, 1995 of approximately $2.8
million, which is being amortized on a straight line
basis over 15 years from the date of acquisition.
During 1986, with the assistance of the Federal Savings
and Loan Insurance Corporation ("FSLIC"), The Long
Island Savings Bank, FSB ("Syosset") acquired Flushing
Federal Savings and Loan Association ("Flushing
Federal"). Flushing Federal operated eight branches
located in Queens, Nassau and Suffolk Counties. During
1983, Syosset acquired all the outstanding stock of The
Long Island Savings Bank of Centereach FSB
("Centereach"), formerly Suffolk County Federal Savings
and Loan Association pursuant to an assistance agreement
with the FSLIC ("Assistance Agreement"). Centereach
operated thirty-six branches located primarily in Nassau
and Suffolk Counties.
The 1983 and 1986 acquisitions were accounted for using
the purchase method of accounting, resulting in goodwill
of $625.4 million and $31.4 million, respectively, which
was amortized in accordance with GAAP and subsequently
written-off as described below.
On September 3, 1993, with the approval of the OTS,
Syosset was merged into Centereach and its name was
simultaneously changed to The Long Island Savings Bank,
FSB. This voluntary merger was the result of the need to
achieve compliance with current regulatory capital
standards which, as construed by OTS, do not permit the
inclusion of goodwill in calculating capital. The merger
of Syosset and Centereach also involved an approximate
$1.0 billion reduction in asset size from the sale of
ten branches with approximately $836.3 million in
deposit liabilities and certain assets. As a result of
the significant restructuring activities which occurred
during fiscal 1993, principally the downsizing of the
Company through branch deposit and asset sales, which
included branch deposits and assets acquired in previous
business combinations, and the merger of Syosset and
Centereach, as well as prior year sales of branch
deposits and assets acquired in the previous business
combinations, management determined that the value of
the remaining goodwill was substantially diminished.
Accordingly, in the fourth quarter of fiscal 1993, the
remaining goodwill balance was written-off. The
elimination of goodwill from the Company's financial
statements is without prejudice to the Company's lawsuit
against the government.
- --------------------------------------------------------------------------------
(4) The Financial Institutions Reform, Recovery and
Regulatory Matters-- Enforcement Act ("FIRREA") of 1989 imposed more
stringent capital requirements upon the Bank than those
previously in effect. These capital regulations contain
provisions for capital standards that require
37
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
The Bank the Bank to have minimum regulatory tangible capital
equal to 1.5% of total assets and a minimum 3% leverage
capital ratio. The ability to include qualifying
supervisory goodwill for purposes of the leverage
capital ratio requirement was phased out on January 1,
1995. Additionally, the Bank is required to meet a
risk-based capital requirement. The risk-based capital
rule requires that core capital plus supplementary
capital equal 8%. The capital standards are also
required to be no less stringent than standards
applicable to national banks. In that regard, the
Federal regulatory agencies and the OTS periodically
propose modifications to applicable capital standards
which, if adopted, could impact the Bank's capital
requirements.
At September 30, 1992, the Bank reported to the OTS as
two separate entities. On a stand-alone basis, Syosset
exceeded the capital requirements of FIRREA at September
30, 1992. However, Centereach, then a wholly-owned
subsidiary of Syosset, did not meet any of the three
required FIRREA capital ratios, as interpreted by the
OTS, and had negative tangible capital, as defined in
the regulations, of approximately $109.2 million at
September 30, 1992 (unaudited). Centereach submitted a
Capital Plan ("Capital Plan") to the OTS, which the
agency approved, that outlined steps Centereach could
take to attain the levels of regulatory capital required
by the government. Failure to meet the capital
requirements of FIRREA and the interim capital targets
included in its Capital Plan exposed Centereach to
possible regulatory sanctions. In response to the need
to comply with capital standards and to avoid possible
regulatory sanctions, the Bank completed the merger
discussed in Note 3. A merger or similar transaction by
Centereach was required by the timetable of, and
specifically contemplated in, the Capital Plan. At
September 30, 1993, the newly merged The Long Island
Savings Bank, FSB exceeded the three required FIRREA
capital ratios and the OTS terminated the Capital Plan.
There is no supervisory goodwill remaining on the Bank's
books.
The mandated exclusion from regulatory capital of
supervisory goodwill on the books of Centereach was the
reason for its inability to meet the FIRREA capital
standards. The inclusion of goodwill as an asset to be
amortized over forty years for regulatory purposes was
specified in the Assistance Agreement related to the
acquisition. On August 15, 1989, the Bank filed suit
against the United States seeking damages and/or other
appropriate relief on the grounds, among others, that
the government had breached the terms of the Assistance
Agreement. The Assistance Agreement, among other things,
provided for the inclusion of supervisory goodwill as an
asset on Centereach's balance sheet to be included in
capital and amortized over 40 years for regulatory
purposes. The suit is pending before Chief Judge Loren
Smith in the United States Court of Federal Claims and
is entitled The Long Island Savings Bank, FSB et al. vs
the United States. The case had been stayed pending
disposition by the United States Supreme Court of three
related supervisory goodwill cases (the Winstar cases).
On July 1, 1996 the Supreme Court ruled in the Winstar
cases the government had breached its contracts with the
Winstar parties and was liable in damages for those
breaches. Thereafter, the stay applicable to the Bank's
case and other Winstar-related cases was lifted.
On November 1, 1996, the Bank filed a motion for summary
judgment on liability. On January 27, 1997, the
government filed a response opposing the Bank's motion
and cross-moving for summary judgment. No decision has
been rendered on the Bank's motion or the government's
cross-motion.
In its complaint, the Bank did not specify the amount of
damages it was seeking from the United States. There
have been no decisions determining damages in the
Winstar cases or any of the Winstar-related cases. The
Bank is unable to predict the outcome of its claim
against the United States and the amount of damages that
may be awarded to the Bank, if any, in the event that
judgment is rendered in the Bank's favor. Consequently,
no assurances can be given as to the results of this
claim or the timing of any proceedings in relation
thereto.
The Bank is subject to various regulatory capital
requirements administered by the OTS. Failure to meet
minimum capital requirements can initiate certain
mandatory--and possible additional
discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt
corrective action ("PCA"), the Bank must meet specific
capital guidelines that involve qualitative mea-
38
<PAGE>
sures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative
judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to average assets. The Bank
meets all capital adequacy requirements to which it is
subject as of September 30, 1997.
As of September 30, 1997 the most recent notification
from the OTS categorized the Bank as "well-capitalized"
under the regulatory framework for PCA. An institution
is deemed "well-capitalized" if (a) its risk-based
capital is 10% or greater, (b) its Tier 1 risk-based
capital ratio is 6% or greater, and (c) its leverage
ratio is 5% or greater. There are no conditions or
events since the notification that have changed the
institution's category. Set forth below is a summary of
the Bank's compliance with the OTS capital standards as
of September 30,
1997 1996
- --------------------------------------------------------------------------------
Percent of Percent of
Amount Assets(1) Amount Assets(1)
-------------------------------------------
(Dollars in thousands)
GAAP capital $472,525 8.00% $430,546 8.13%
===========================================
Tangible capital:
Capital level(2) $453,516 7.72% $416,802 7.84%
Requirement 88,169 1.50 79,710 1.50
-------------------------------------------
Excess $365,347 6.22% $337,092 6.34%
===========================================
Core capital:
Capital level(2) $453,516 7.72% $416,802 7.84%
Requirement 176,338 3.00 159,419 3.00
-------------------------------------------
Excess $277,178 4.72% $257,383 4.84%
===========================================
Risk-based capital:
Capital level(3) $487,397 16.22% $450,714 16.48%
Requirement 240,393 8.00 218,808 8.00
-------------------------------------------
Excess $247,004 8.22% $231,906 8.48%
===========================================
(1) Capital levels are shown as a percentage of the Bank's total adjusted
assets, as computed under GAAP. Tangible and core capital levels are shown
as a percentage of the Bank's total adjusted assets, as computed based on
regulatory guidelines. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
(2) Represents GAAP capital excluding the effect of SFAS 115, goodwill and
MSR's limitations.
(3) The difference between GAAP capital and regulatory risk-based capital
level represents the exclusion of the effect of SFAS 115 and goodwill and
an addition for a portion of the loan valuation allowance.
- --------------------------------------------------------------------------------
(5)
Investment in Debt and At September 30, 1997 and 1996, all of the Company's
Equity Securities investments in debt and equity securities were
classified available-for-sale. The amortized cost and
estimated fair values of debt and equity securities
available-for-sale at September 30, are summarized
below:
<TABLE>
<CAPTION>
1997
- --------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
--------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
U.S. government and agency obligations $ 14,007 $ 9 $ -- $ 14,016
U.S. government and agency obligations pledged as collateral 82,686 -- 623 82,063
Commercial Paper 700 -- -- 700
Asset-backed securities (automobile loans and leases) 11,797 33 77 11,753
--------------------------------------------
Total debt securities available-for-sale 109,190 42 700 108,532
--------------------------------------------
Equity securities:
Preferred and common stock 30,058 1 13 30,046
--------------------------------------------
</TABLE>
39
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Total equity securities available-for-sale 30,058 1 13 30,046
--------------------------------------------
Total securities available-for-sale $139,248 $43 $713 $138,578
============================================
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
--------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
U.S. government and agency obligations $ 13,385 $ -- $ 3 $ 13,382
U.S. government and agency obligations pledged as collateral 88,021 17 1,933 86,105
Asset-backed securities (automobile loans and leases) 40,561 140 332 40,369
--------------------------------------------
Total debt securities available-for-sale 141,967 157 2,268 139,856
--------------------------------------------
Equity securities:
Preferred and common stock 40,038 -- -- 40,038
Investment in mutual funds 779 -- 23 756
--------------------------------------------
Total equity securities available-for-sale 40,817 -- 23 40,794
--------------------------------------------
Total securities available-for-sale $182,784 $157 $2,291 $180,650
============================================
</TABLE>
Sales of debt and equity securities from the
available-for-sale portfolio during the years ended
September 30, are summarized as follows:
1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands)
Proceeds from sales $26,144 $139,099 $48,836
Gross gains -- 380 480
Gross losses 37 89 526
During fiscal 1995, the Company wrote-off its investment
in Nationar, a failed bank service institution, in the
amount of $1.8 million. In fiscal 1997 and 1996, the
Company recovered $372,000 and $49,000, respectively on
its investment in Nationar.
The maturities of the investments in debt securities at
September 30, are as follows:
1997 1996
- --------------------------------------------------------------------------------
Available-for-sale Available-for sale
-----------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------
(In thousands)
Within 1 year $ 19,039 $ 19,048 $ 26,584 $ 26,596
After 1 year through 5 years 11,513 11,512 35,543 35,457
After 5 years through 10 years 74,872 74,250 74,822 72,891
After 10 years 3,766 3,722 5,018 4,912
-----------------------------------------------
$109,190 $108,532 $141,967 $139,856
-----------------------------------------------
41
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
- --------------------------------------------------------------------------------
(6) The amortized cost and estimated fair values of
Mortgage-Backed Mortgage-Backed Securities (" MBS's") at September 30,
Securities are summarized below:
<TABLE>
<CAPTION>
1997
- --------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
--------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Real estate mortgage investment conduit $ 16,144 $ -- $2,035 $ 14,109
Other pass-through certificates 6,079 -- -- 6,079
--------------------------------------------
Mortgage-backed securities held-to-maturity $ 22,223 $ -- $2,035 $ 20,188
============================================
Available-for-sale:
GNMA pass-through certificates $ 251,362 $ 2,215 $ -- $ 253,577
FHLMC pass-through certificates 189,565 1,213 331 190,447
FNMA pass-through certificates 297,087 4,397 177 301,307
Other pass-through certificates 49,736 58 286 49,508
GNMA, FHLMC and FNMA securities pledged as collateral 994,012 19,994 374 1,013,632
--------------------------------------------
Gross mortgage-backed securities available-for-sale 1,781,762 27,877 1,168 1,808,471
Unamortized premium, net 3,238 (3,238) -- --
--------------------------------------------
Mortgage-backed securities available-for-sale, net $1,785,000 $24,639 $1,168 $1,808,471
============================================
</TABLE>
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
--------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Real estate mortgage investment conduit $ 17,017 $ -- $1,976 $ 15,041
Other pass-through certificates 6,079 -- -- 6,079
--------------------------------------------
Mortgage-backed securities held-to-maturity $ 23,096 $ -- $1,976 $ 21,120
============================================
Available-for-sale:
GNMA pass-through certificates $ 3,582 $ 50 $ -- $ 3,632
FHLMC pass-through certificates 367,480 3,651 1,794 369,337
FNMA pass-through certificates 483,480 4,238 2,022 485,696
Other pass-through certificates 78,101 92 309 77,884
GNMA, FHLMC and FNMA securities pledged as collateral 767,263 14,357 1,063 780,557
--------------------------------------------
Gross mortgage-backed securities available-for-sale 1,699,906 22,388 5,188 1,717,106
Unamortized premium, net 3,270 (3,270) -- --
--------------------------------------------
Mortgage-backed securities available-for-sale, net $1,703,176 $19,118 $5,188 $1,717,106
============================================
</TABLE>
Sales of MBS's from the available-for-sale portfolio
during the years ended September 30, are summarized as
follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Proceeds from sales $567,718 $485,195 $286,674
Gross gains 10,352 6,931 2,343
Gross losses 80 1,232 35
42
<PAGE>
- --------------------------------------------------------------------------------
(7) Loans held-for-sale as of September 30, are summarized
Loans Held for Sale as follows:
and Loans Receivable
Held for Investment
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Real estate loans:
One-to-four family $ 157,203 $ 57,812
Co-operative apartment 162 49
--------------------------
157,365 57,861
Student loans 252 108
--------------------------
Total loans held-for-sale $ 157,617 $ 57,969
==========================
The Bank originates most fixed rate loans for immediate
sale to FNMA, FHLMC or other investors. Generally, the
sale of such loans is arranged at the time the loan
application is received through best effort commitments.
In addition, student loans are sold to the Student Loan
Mortgage Association generally before repayment begins
during the grace period of the loan.
Loans receivable held for investment as of September 30,
are summarized as follows:
1997 1996
- -------------------------------------------------------------------------------
(In thousands)
Real estate loans held-for-investment
One-to-four family $ 3,075,653 $ 2,670,387
Co-operative apartment 105,437 114,560
Home equity 20,171 18,564
Second mortgage 3,986 5,154
Multi-family 45,324 34,883
Commercial real estate 66,266 69,625
Construction and Land 11,370 7,730
--------------------------
3,328,207 2,920,903
Deferred loan costs 6,849 3,159
Purchase accounting discount (1,871) (2,777)
--------------------------
3,333,185 2,921,285
Allowance for possible loan losses (20,510) (20,226)
--------------------------
Real estate loans held-for-investment, net 3,312,675 2,901,059
--------------------------
Commercial loans receivable
Commercial 6,850 8,206
Unearned discount (385) (396)
--------------------------
6,465 7,810
Allowance for possible loan losses (3,894) (3,631)
--------------------------
Commercial loans receivable, net 2,571 4,179
--------------------------
Other loans receivable
Consumer 100,882 69,575
Consumer line of credit 57,350 55,292
Property improvement 7,087 9,028
Student 8,231 6,976
Loans on deposit accounts 2,251 2,475
--------------------------
175,801 143,346
Purchase accounting premium 29 50
Deferred loan costs 2,495 2,258
--------------------------
43
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
178,325 145,654
Allowance for possible loan losses (9,477) (10,055)
--------------------------
Other loans receivable, net 168,848 135,599
--------------------------
Total loans receivable held-for-investment, net $ 3,484,094 $ 3,040,837
==========================
44
<PAGE>
SIGNIFICANT CREDIT RISK CONCENTRATIONS. The Bank may be
exposed to a concentration of credit risk from a
regional economic standpoint since prior to fiscal 1995
loans were made primarily in the Metropolitan New York
area. In an effort to minimize this risk, the Bank began
to originate or acquire loans on a nationwide basis in
fiscal 1995. At September 30, 1997, 48.16% of the Bank's
real estate loans (excluding home equity loans) were
derived from outside of New York, New Jersey and
Connecticut.
NON-ACCRUAL LOANS. The principal amount of
non-performing real estate loans excluding restructured
loans aggregated approximately $33.8 million, $38.8
million and $38.5 million at September 30, 1997, 1996
and 1995, respectively. Interest income that would have
been recorded if the loans had been performing in
accordance with their original terms aggregated $2.1
million, $2.9 million and $2.7 million for the fiscal
years ended September 30, 1997, 1996 and 1995,
respectively. No interest income was recorded for these
loans during the fiscal years ended September 30, 1997,
1996 and 1995. The principal amount of non-performing
commercial loans excluding restructured loans aggregated
$1.2 million, $0.8 million and $0.8 million at September
30, 1997, 1996 and 1995, respectively.
RESTRUCTURED REAL ESTATE LOANS. The principal amount of
restructured real estate loans that have not complied
with the terms of their restructure agreement for a
satisfactory period (generally six months) aggregated
approximately $10.9 million, $11.4 million and $14.8
million at September 30, 1997, 1996 and 1995,
respectively. Interest income that would have been
recorded if the loans had been performing in accordance
with their original terms aggregated $140,000, $300,000
and $300,000 for the fiscal years ended September 30,
1997, 1996 and 1995, respectively. Interest income
recorded for these loans amounted to $50,000, $100,000
and $100,000 for the fiscal years ended September 30,
1997, 1996 and 1995, respectively. Restructured loans
that have complied with the terms of their restructure
agreement for a satisfactory period (generally six
months) and have therefore been returned to performing
status aggregated $9.1 million, $11.8 million and $12.1
million as of September 30, 1997, 1996 and 1995,
respectively.
The principal amount of restructured commercial loans
aggregated $0.3 million, $0.5 million and $0.9 million
at September 30, 1997, 1996 and 1995, respectively.
Interest income that would have been recorded if the
loans had been performing in accordance with their
original terms aggregated $40,000, $43,000 and $49,000
for fiscal years ended September 30, 1997, 1996 and
1995, respectively. Interest income recorded for these
loans amounted to $26,000, $29,000 and $40,000 for the
fiscal years ended September 30, 1997, 1996 and 1995,
respectively.
IMPAIRED LOANS. As of September 30, 1997 and 1996, $6.4
million and $7.7 million, respectively, in loans were
considered impaired within the scope of SFAS 114, of
which $4.6 million and $5.6 million, respectively, were
on nonaccrual status. The application of SFAS 114
measurement indicated that approximately $0.9 million
and $0.7 million, respectively, of these loans required
valuation allowances, totaling $0.3 million, which are
included within the overall allowance for possible loan
losses at each of September 30, 1997 and 1996. SFAS 114
does not apply to periods prior to fiscal 1996.
Interest income recognized on impaired loans during the
year ended September 30, 1997 and 1996 amounted to
approximately $0.5 million and $0.4 million,
respectively, which is approximately equal to the actual
interest payments received. The average recorded
investment in impaired loans during the year ended
September 30, 1997 and 1996 was $7.3 million and $8.9
million, respectively. The allowance for possible loan
losses contains additional amounts for impaired loans,
as deemed necessary, to maintain reserves at levels
considered adequate by management.
LOAN SERVICING. The Company has entered into various
agreements to service loans for others. At September 30,
1997 and 1996, 53,574 loans and 47,146 loans with a
total balance of $4.5 billion and $3.7 billion,
respectively, were being serviced for others. Of this
total balance, the Company has retained participation in
loans equal to $9.9 million and $10.3 million at
September 30, 1997 and 1996, respectively.
The right to service loans for others is generally
obtained by either the sale of loans with servicing
retained, the open market purchase or creation of MSR's.
During the fiscal years ended September 30, 1997, 1996
and 1995, the Company sold approximately $834.6 million,
$186.8 million and $100.4 million, respectively, of
whole loans and MBS's with servicing retained.
MSR activity for the years ended September 30, is
summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
45
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
Beginning balance $ 29,769 $ 11,328 $ 759
Purchased MSR's 4,066 15,159 10,071
Capitalized MSR's 15,385 5,982 1,969
Amortization (7,381) (2,700) (1,471)
------------------------------------
41,839 29,769 11,328
Less: Allowance for MSR's 50 82 --
------------------------------------
Ending balance $ 41,789 $ 29,687 $ 11,328
====================================
Fees earned for servicing loans are reported as income
when the related mortgage loan payments are collected.
MSR's are amortized as a reduction to loan service fee
income on a level-yield basis over the estimated
remaining life of the underlying mortgage loans. MSR's
are carried at fair value and impairment, if any, is
recognized through a valuation allowance. At September
30, 1997 and 1996 the valuation allowance amounted to
$50,000 and $82,000, respectively. No valuation
allowance was required for 1995.
Loan servicing income for the years ended September 30,
is summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Servicing fees $ 19,380 $ 16,645 $ 14,344
Amortization of MSR's (7,381) (2,700) (1,471)
Recovery of allowance (provision) for MSR's 32 (82) --
------------------------------
Total servicing income $ 12,031 $ 13,863 $ 12,873
==============================
- --------------------------------------------------------------------------------
(8) Real
Allowance for Estate Commercial Other
Possible Loan Losses Loans Loans Loans Total
- --------------------------------------------------------------------------------
(In thousands)
Balance at September 30, 1994 $22,881 $ 4,250 $ 8,582 $ 35,713
Add:
Provision for possible loan losses 1,275 400 4,795 6,470
Recoveries of previous charge-offs 1,006 141 651 1,798
--------------------------------------
25,162 4,791 14,028 43,981
Less charge-offs 4,608 917 4,098 9,623
--------------------------------------
Balance at September 30, 1995 20,554 3,874 9,930 34,358
Add:
Provision for possible loan losses 2,850 -- 3,350 6,200
Recoveries of previous charge-offs 691 319 543 1,553
--------------------------------------
24,095 4,193 13,823 42,111
Less charge-offs 3,869 562 3,768 8,199
--------------------------------------
Balance at September 30, 1996 20,226 3,631 10,055 33,912
Add:
Provision for possible loan losses 3,000 -- 3,000 6,000
Recoveries of previous charge-offs 161 263 461 885
--------------------------------------
23,387 3,894 13,516 40,797
Less charge-offs 2,877 -- 4,039 6,916
--------------------------------------
Balance at September 30, 1997 $20,510 $ 3,894 $ 9,477 $33,881
======================================
- --------------------------------------------------------------------------------
(9) The following is a summary of investment in real estate
and premises owned by the Company at September 30:
46
<PAGE>
Investment in Real Estate
and Premises
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
REO:
One-to-four family $4,294 $ 5,835
Condo/co-op 1,955 1,990
Commercial 394 330
-------------------
6,643 8,155
Direct Investment:
Land 2,460 2,525
-------------------
Investment in real estate and premises $9,103 $10,680
===================
Investment in real estate and premises operating results
for the years ended September 30, were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Income
Rental income $ 82 $1,994 $ 3,051
Gains on sales 540 1,978(1) 628
Net profits, equity in joint venture 1,209 1,243 1,109
Other income 68 527 18
--------------------------------
Total income 1,899 5,742 4,806
--------------------------------
Expenses
Acquisition expenses 777 799 766
Operating expenses 1,407 1,888 3,134
Losses on sales 244 225 139
Depreciation -- 312 509
Write-downs 676 490 581
--------------------------------
Total expenses 3,104 3,714 5,129
--------------------------------
Net (loss) gain on investment in real
estate and premises $(1,205) $2,028 $ (323)
================================
(1) Includes net profit of $1.4 million from the sale of eight rental office
buildings previously held as direct investments and two other properties
previously utilized for Company operations.
- --------------------------------------------------------------------------------
(10) Certificate accounts and other deposit accounts at
Deposits September 30, are summarized as follows:
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Account type:
Passbook $608,618 $669,241
Demand and NOW 261,324 227,747
Money market 109,874 130,442
47
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
Statement savings 633,868 646,789
Certificate accounts 2,116,819 1,958,791
------------------------
Total deposits $3,730,503 $3,633,010
========================
Contractual maturity of certificates:
Within twelve months $1,361,427 $1,360,835
Over one to three years 596,603 314,327
Over three years 158,789 283,629
------------------------
$2,116,819 $1,958,791
========================
Certificate accounts in excess of $100,000 $ 197,747 $ 160,654
========================
Included in Demand and NOW accounts at September 30,
1997 and 1996, were approximately $132.3 million and
$98.7 million, respectively, of non-interest-bearing
deposits.
Interest expense on deposits for the years ended
September 30, is summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Account type:
Passbook $ 17,557 $ 19,264 $ 22,336
NOW 3,109 3,105 3,181
Money market 3,335 3,913 5,022
Statement savings 20,956 20,755 20,946
Certificate accounts 114,603 108,479 87,849
Escrow accounts 247 314 307
--------------------------------
Total interest expense on deposits $159,807 $155,830 $139,641
================================
- --------------------------------------------------------------------------------
(11) Borrowed funds at September 30, are summarized as
Borrowed Funds follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Balance Rate Balance Rate
------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities sold under agreements to repurchase $ 1,013,400 5.73% $ 800,000 5.69%
Advance--Federal Home Loan Bank
of New York ("FHLB") 33,120 6.63 -- --
Funding Note 155,540 6.00 178,023 6.11
Medium-term note 300,000 7.00 -- --
------------------------------------------
1,502,060 978,023
Unamortized Discount on Medium-term note (604) --
------------------------------------------
Borrowed Funds, net $ 1,501,456 $ 978,023
==========================================
</TABLE>
At September 30, 1997, securities sold under agreements
to repurchase (reverse-repurchase agreements) were
collateralized by MBS's having an estimated fair value
of $1.1 billion. The maximum amount of agreements
outstanding at a month end during fiscal 1997 and 1996
were $1.1 billion and $805.9 million, respectively. The
average amounts of these agreements outstanding during
fiscal 1997 and 1996 were $1.0 billion and $675.1
million, respectively. All outstanding agreements at
September 30, 1997 mature within 54 months from that
date.
48
<PAGE>
FHLB advances are secured under assignment arrangements
of eligible collateral, primarily mortgage loans in an
amount equal to 110% of outstanding advances. The Bank
maintains various lines of credit from the FHLB totaling
$150.0 million at September 30, 1997. At September 30,
1997, the Bank had available and unused lines of credit
aggregating $116.9 million. In addition, the Bank has
the ability to obtain additional funds in the form of
FHLB advances in an amount based upon its stock
ownership in the FHLB of New York.
The Funding note was issued during fiscal 1996 in the
amount of $181.4 million which is collateralized by a
pool of adjustable rate residential mortgage loans. The
interest on the Funding note changes monthly and bears
interest at a rate of 50 basis points over the one month
London Interbank Offered Rate ("LIBOR"), subject to a
maximum rate of 11% through June 2001. Thereafter, the
interest on the Funding note is subject to further
adjustments. The Bank has the option to redeem the
Funding note in whole on or after June 2001 or when the
principal balance of the collateral pool is less than 5%
of $269.9 million, the principal balance of the
collateral pool at the time the Funding note was issued.
The Funding note was issued to a special purpose
financing entity of an investment banking firm for the
purpose of securitizing mortgage pass-through
certificates. At September 30, 1997 and 1996, the
outstanding principal balance of the Funding note
collateral pool was $240.9 million and $265.6 million,
respectively.
During fiscal 1997, the Bank issued a five year
medium-term note in the amount of $300.0 million. The
medium-term note is part of a $1.0 billion medium-term
note program the Bank established in 1997 in which the
medium-term notes can be issued bearing interest at
either a fixed or floating rate and have maturities
ranging from nine months to 30 years from their
respective issue dates. At September 30, 1997, the Bank
has available $700.0 million under this borrowing
program.
Interest expense on borrowed funds for the years ended
September 30, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Reverse-repurchase agreements $58,706 $37,998 $27,870
Funding note 10,371 2,877 --
Advance--FHLB of NY 5,051 141 55
Medium-term note 5,464 -- --
Amortization of interest rate cap agreements (See Note 12) 89 330 330
-------------------------
Total interest expense on borrowed funds $79,681 $41,346 $28,255
=========================
</TABLE>
- --------------------------------------------------------------------------------
(12) The Bank has entered into transactions as of September
Financial Instruments 30, 1997, that involve financial instruments with
with Off-Balance off-balance sheet risks, in the normal course of
Sheet Risk business in order to meet the financing and servicing
needs of its customers and to reduce the Bank's exposure
to fluctuations in interest rates. The instruments
include commitments to extend credit, letters of credit,
commitments to sell loans, recourse liability on loans
sold and derivative financial instruments. The contract
amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit, commitments
to sell loans and standby letters of credit is generally
represented by the contractual amount of those
instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it
does for on-balance sheet instruments. Unless otherwise
noted, the Bank does not require collateral or other
security to support financial instruments with credit
risk.
COMMITMENTS TO EXTEND CREDIT AND FINANCIAL GUARANTEES.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any
condition established in the contract. Commitments
generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a
case-by-case basis.
Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
49
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
COMMITMENTS TO SELL LOANS. Commitments to sell loans are
contracts for delayed delivery of loans in which the
Bank agrees to make delivery at a specified future date
of a specified instrument, at a specific price or yield.
Generally, risks arise from the possible inability to
meet the terms of the contracts and from movements in
interest rates. Since the Bank's commitments are
substantially made on a "best-efforts" basis, the Bank
does not expect any adverse financial impact.
The notional amount of the Company's financial
instruments with off-balance sheet risk at September 30,
are summarized as follows:
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Commitments to originate or purchase:
Real estate loans $338,106 $311,967
Home equity loans--unused lines of credit 15,160 9,554
Commercial loans--unused lines of credit 2.477 2,576
Consumer loans--unused lines of credit 126,878 115,126
Commitments to sell loans 231,277 75,413
Commitments to purchase investment securities 200,180 --
---------------------
Total commitments $914,078 $514,636
=====================
Real estate loan commitments included approximately
$147.3 million and $104.8 million relating to adjustable
rate loans at September 30, 1997 and 1996, respectively.
In addition, the Bank has entered into adjustable rate
standby letters of credit related to commercial loan
transactions amounting to $3.5 million and $0.3 million
at September 30, 1997 and 1996, respectively.
DERIVATIVES. The Company has only limited involvement
with derivative financial instruments and does not use
them for trading purposes; they are used to manage
interest rate risk. During fiscal 1997, the Company
entered into a five year interest rate swap agreement,
with a notional amount of $300.0 million. The swap
agreement converted the medium-term note issued in 1997
from a fixed rate obligation of 7.0% into a variable
rate of LIBOR minus 3 basis points. As of September 30,
1997, LIBOR minus 3 basis points was 5.69% and the
interest rate swap had a gross positive market value of
$1.7 million.
During fiscal 1996, the Company was party to $90.0
million notional amount of interest rate cap agreements.
The agreements entitled the Company to receive from
counterparties the amounts, if any, by which the
Company's interest payments on its floating-rate
reverse-repurchase agreements exceed the cap rate
specified in the agreement. There were no contracts in
effect at September 30, 1997.
- --------------------------------------------------------------------------------
(13) The Company discloses fair value information about
Fair Value of financial instruments for which it is practicable to
Financial Instruments estimate the value, whether or not such financial
instruments are recognized on the balance sheet. Fair
value is the amount at which a financial instrument
could be exchanged in a current transaction between
willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market
price, if one exists.
Quoted market prices are not available for a significant
portion of the Company's financial instruments. As a
result, the fair values presented are estimates derived
using present value or other valuation techniques and
may not be indicative of the net realizable or
liquidation value. In addition, the calculation of
estimated fair value is based on market conditions at a
specific point in time and may not be reflective of
current or future fair values.
The fair value disclosures provide only a partial
estimate of the fair value of the Company; for example,
the values associated with the Company's long-term
relationships with its customers through its deposit
base and the value of a portion of its portfolio of
MSR's are excluded. In the aggregate, these items add
value to the Company but their fair value is not
disclosed in this Note.
The following summary presents the methodologies and
assumptions used to estimate the fair value of the
Company's financial instruments.
FINANCIAL ASSETS
Mortgage-backed and Debt and Equity Securities. Fair
values are determined by published market prices or
securities dealers' estimated prices.
50
<PAGE>
Loans Held for Sale. Fair value is estimated based on
current prices established in the secondary market or,
for those loans committed to be sold, based upon the
price established in the commitment.
Loans Receivable Held for Investment. Fair values are
estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as
one-to-four family residential, multi-family
residential, commercial real estate, various consumer
loans and commercial loans. Each loan category is
further segmented into fixed and adjustable rate, and by
performing and non-performing categories. The pricing
methodology for fiscal 1997 and 1996 assumes FNMA or
FHLMC securitization of mortgage loans with conforming
loan balances and secondary market whole loan standards
for co-op residential loans and larger balance mortgage
loans.
Other Loans. Due to the small number, student loans and
loans on deposits are valued at approximately par. The
remaining consumer loans are priced at a spread off of
securitized consumer debt.
Commercial Loans. Commercial loans were valued at a
discount or premium based upon the origination of new
commercial loans in the current market.
Mortgage Servicing Rights. MSR's are valued based upon
the Company's stratification of the mortgage servicing
portfolio. Stratification is based upon the predominate
risk characteristics of the underlying loans, including
but not limited to, interest rates, loan type, the
frequency of interest rate adjustments in the case of
adjustable rate mortgage loans, etc. Each strata is then
discounted to reflect the present value of the expected
future cash flows utilizing current market assumptions
regarding discount rates, prepayment speeds, delinquency
rates, etc.
FINANCIAL LIABILITIES
Deposits. Deposit liabilities with no stated maturity
(i.e., demand, savings and certain money market
deposits) are equal to their carrying value. The fair
value of certificate accounts is estimated by
discounting the future cash flows using the Treasury
yield curve plus additional basis points as the discount
rate.
Borrowed Funds. The fair value of borrowed funds is
estimated by discounting the future cash flows using the
Treasury yield curve plus additional basis points as the
discount rate.
Derivatives. The fair value of interest rate swap
agreements and interest rate cap agreements are based on
securities dealers' estimated market values. The fair
value of interest rate swaps reflects the estimated
amounts the Company would receive or pay to terminate
the contract at the reporting date, thereby taking into
account the current unrealized gains and losses of open
contracts.
Commitments. The fair value of commitments to originate
or purchase loans is estimated using the fees currently
charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For
fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates
and the committed rates. The commitments existing at
September 30, 1997 and 1996 would be offered at
substantially the same rates and terms had they been
issued using the same criteria as used for commitments
issued on September 30, 1997 and 1996, respectively.
Accordingly, the estimated fair value of such
commitments is deemed to be equivalent to their stated
aggregate issuance value as of September 30, 1997 and
1996, respectively. The fair value of commitments to
purchase investment securities is based on securities
dealers' estimated market values. The fair value of
commitments to sell loans and unused lines of credit is
valued at par as of September 30, 1997 and 1996,
respectively.
The estimated fair value of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
At September 30,
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Debt and equity securities:
Available-for-sale $ 138,578 $ 138,578 $ 180,650 $ 180,650
Mortgage-backed securities:
Held-to-maturity 22,223 20,188 23,096 21,120
</TABLE>
51
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Available-for-sale 1,808,471 1,808,471 1,717,106 1,717,106
Loans receivable held-for-investment:
Real estate loans 3,312,675 3,566,012 2,901,059 2,926,757
Other loans 168,848 174,974 135,599 142,307
Commercial loans 2,571 6,315 4,179 8,122
Loans held-for-sale 157,617 158,336 57,969 58,029
Mortgage servicing rights 41,789 45,673 29,687 29,687
Financial liabilities:
Deposits 3,730,503 3,727,170 3,633,010 3,619,110
Borrowings, net 1,501,456 1,509,919 978,023 969,680
Off-balance sheet:
Commitments to originate or purchase loans 338,106 338,106 311,967 311,967
Commitments to sell loans 231,277 231,277 75,413 75,413
Commitments to purchase investment securities 200,180 200,180 -- --
Fund unused lines of credit 144,515 144,515 127,256 127,256
Interest rate swap -- 1,741 -- --
Interest rate cap -- -- 89 --
</TABLE>
- --------------------------------------------------------------------------------
(14) Income tax expense for the years ended September 30, is
Income Taxes summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Current:
Federal $ 10,348 $ 24,316 $ 23,691
State and local 2,926 9,875 9,273
------------------------------------
13,274 34,191 32,964
------------------------------------
Deferred:
Federal 15,225 (7,700) (2,333)
State and local 3,713 (2,731) (734)
------------------------------------
18,938 (10,431) (3,067)
------------------------------------
Total income tax expense $ 32,212 $ 23,760 $ 29,897
====================================
52
<PAGE>
The following schedule illustrates the components of the
net deferred tax asset at September 30:
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Financial statement loan loss reserve $14,500 $14,619
BIF-SAIF Assessment -- 8,043
Accrual for post-employment benefits 4,777 4,859
Basis difference in investment in real estate 673 707
Mark-to-market recognition on securities under
Internal Revenue Code Section 475 4,663 7,442
Deferred pension expense 2,876 3,626
Deferred origination fees 408 605
Non-accrual interest 802 615
Other 82 1,677
------------------
Total deferred tax assets 28,781 42,193
------------------
Deferred tax liabilities:
Tax reserve in excess of base year reserve 1,182 437
Basis difference in properties and equipment 3,332 4,527
Deferred origination costs 4,922 1,291
Recognition of taxes payable under Internal Revenue
Code Section 481 for unrealized gains 234 1,840
Basis difference in home equity investment 1,592 1,674
Other 972 1,217
------------------
Total deferred tax liabilities 12,234 10,986
------------------
Net deferred tax asset $16,547 $31,207
==================
The effective tax rates differ from the statutory
Federal income tax rate of 35 percent. The reasons for
the differences as applied to income before income taxes
are as follows:
<TABLE>
<CAPTION>
For the Years Ended September 30,
- ----------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Earnings Amount Earnings Amount Earnings
-------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate $ 28,571 35.0% $ 19,612 35.0% $ 25,695 35.0%
State and local income taxes, net of
Federal income tax benefit 4,315 5.3 4,644 8.3 5,550 7.6
Tax adjustment for prior year (458) (0.5) 370 0.7 (814) (1.1)
Reversal of deferred tax valuation
allowance -- -- (2,328) (4.2) (532) (0.7)
Other (216) (0.3) 1,462 2.6 (2) (0.1)
-------------------------------------------------------------
Income tax expense $ 32,212 39.5% $ 23,760 42.4% $ 29,897 40.7%
=============================================================
</TABLE>
53
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
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.
Effective January 1, 1996 under the Small Business Job
Protection Act of 1996 ("1996 Act"), the Bank is unable
to make additions to the tax bad debt reserves but is
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 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. For
calendar 1996, recapture was deferred and if certain
requirements are met for calendar 1997, the recapture
may be deferred again. The base year reserves, which
amounted to approximately $60.1 million at September 30,
1997 and 1996, 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 "thrift" 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; or (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 a percentage equal
to 32% of the Bank's taxable income ("PTI method") to
determine the bad debt deduction in computing New York
State and New York City tax liability.
- --------------------------------------------------------------------------------
(15) The Bank currently provides health care and life
Postretirement Health insurance benefits for retirees and their eligible
Care and Life dependents. The coverage provided depends upon the date
Insurance Benefits they retired as well as the bank from which they
retired. The Bank accrues the cost of postretirement
benefits during the years employees render service.
The following table sets forth the accumulated
postretirement benefit obligation ("APBO") for the years
ended September 30:
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Retirees $ 4,226 $ 3,727
Active eligible 389 270
Other active 1,762 1,259
-----------------
Total $ 6,377 $ 5,256
=================
The following is a reconciliation of the accrued benefit
cost at September 30:
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
APBO $ 6,377 $ 5,256
Unrecognized prior service cost 133 130
Unrecognized net actuarial gain 4,769 5,886
-----------------
Accrued postretirement benefit cost $11,279 $11,272
=================
The assumed medical cost trend used in computing the
accumulated postretirement benefit obligation was 8.50%
in 1997 and was assumed to decrease gradually to 4.5% in
2009 and to remain at that level thereafter. Increasing
the assumed medical care cost trend rates by 1% point in
each year would increase the APBO and the net periodic
postretirement benefit cost as of October 1, 1997 by
$0.5 million and $0.1 million, respectively.
The weighted average discount rate used in determining
the APBO was 7.75% at September 30, 1997 and 1996.
54
<PAGE>
The net periodic postretirement benefit cost included in
compensation, payroll taxes and fringe benefits in the
accompanying Consolidated Statements of Operations for
the years ended September 30, is comprised of the
following components:
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Service cost $ 174 $ 161 $ 127
Interest cost 388 398 503
Net amortization of prior service cost (85) (85) (85)
Net amortization of unrecognized gain (239) (236) (177)
-------------------------
Net periodic postretirement benefit cost $ 238 $ 238 $ 368
=========================
- --------------------------------------------------------------------------------
(16) DEFINED BENEFIT PENSION PLAN. The Bank sponsors a
Pension Plans non-contributory defined benefit pension plan
("Retirement Plan") covering substantially all employees
twenty-one years of age or older. Prior to January 1,
1996, the benefit multiplier to determine the normal
annual retirement benefit was 2% of the pensioner's
final average salary multiplied by the number of service
years credited. Final average salary was the average
annual salary attributable to the highest 36 consecutive
calendar months of base compensation that fell within
the last 10 years of credited service. Effective January
1, 1996, the benefit multiplier was reduced to 1.5% of
the pensioner's final average salary and the base
compensation factor was increased to the highest sixty
consecutive calendar months. The funding of the
Retirement Plan is actuarially determined on an annual
basis.
The following table depicts the components of pension
expense for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 1,090 $ 1,199 $ 1,417
Interest cost 3,316 3,240 3,572
Actual return on assets (11,443) (7,581) (9,714)
Amortization of unrecognized transition asset (326) (429) (430)
Amortization of unrecognized past service liability (794) (794) (165)
Net amortization and deferral 6,480 3,329 6,006
---------------------------
Pension (benefit) expense $ (1,677) $(1,036) $ 686
===========================
</TABLE>
The following table sets forth the Retirement Plan's
funded status and amounts recognized in the Bank's
consolidated statements of financial condition at
September 30:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $ 45,179 $ 42,915
Non-vested 1,191 1,893
--------------------
Total accumulated plan benefits $ 46,370 $ 44,808
====================
Fair value of plan net assets $ 67,626 $ 59,276
Project benefit obligations 47,119 44,911
--------------------
Fair value of plan net assets in excess of projected benefit obligation 20,507 14,365
Unrecognized gain (14,679) (9,094)
Unrecognized past service liability (5,361) (6,155)
Unrecognized transition asset -- (326)
--------------------
Prepaid (accrued) pension expense $ 467 $ (1,210)
====================
Assumed rate of return on assets 8.00% 8.00%
====================
Assumed rate of compensation increase 5.50% 5.50%
====================
Assumed discount rate 7.75% 7.75%
====================
</TABLE>
55
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
NON-EMPLOYEE DIRECTOR RETIREMENT BENEFIT PLAN. In fiscal
1994, the Company adopted a non-qualified retirement
benefit plan for directors who are not employees of the
Bank or the Holding Company. Upon retirement from the
Board of Directors at age 65 or older, with a minimum of
15 years of service, the retirement benefits provide
continuation of the annual retainers and Board meeting
fees received by such directors from the Bank and the
Holding Company at the then current rate for a period of
ten years following retirement.
Accordingly, the Company recorded a charge to earnings
in fiscal 1994 representing the discounted value of
accumulated plan benefits in the amount of $2.4 million.
Additional accumulated plan benefits resulted in a
charge to earnings in fiscal 1997, 1996 and 1995 of $0.2
million per year. The retirement benefit plan is an
unfunded plan and is estimated based upon an assumed
discount rate of 7.75% for fiscal years ended September
30, 1997 and 1996, and an assumed rate of increase in
director fees of 6.0% in both years, each compounded
annually.
- --------------------------------------------------------------------------------
(17) The Bank sponsors a Savings Incentive Plan ("SIP")
Savings Incentive Plan available to all full-time employees after completion of
one year of employment. Prior to April 18, 1994, the
Bank matched 50% of every dollar contributed by
employees to a maximum of 6% of an employee's salary for
the first three years of participation; the Bank matched
100% thereafter to a maximum of 6% of an employee's
salary. Effective April 18, 1994 through December 31,
1995, the Bank reduced its matching contribution from
100% to 50% of the first 6% of the participant's base
salary contributed to the plan regardless of length of
participation. As of January 1, 1996, the Bank began to
phase out this matching contribution to 30% of the first
6% of the participant's base salary contributed to the
plan. During calendar 1997, the Bank will continue to
further decrease its matching contribution to 15% of the
first 6% of the participant's base salary. For calendar
1998 and thereafter, the Bank will no longer make
matching contributions. SIP expense was $0.4 million,
$0.4 million and $0.5 million for the years ended
September 30, 1997, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
(18) EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the
Stock Benefit Plans Conversion, the Bank established an ESOP for eligible
employees. The ESOP borrowed $23.8 million from the
Holding Company and used the funds to purchase 2,070,000
shares of Common Stock issued in the Conversion. The
loan to the ESOP will be repaid primarily from the
Bank's contributions to the ESOP over a period not to
exceed 15 years. At September 30, 1997 the loan had an
outstanding balance of $19.8 million and an interest
rate of 6.15%.
Shares purchased with the loan proceeds are held in a
suspense account by the trustee of the plan for future
allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the
suspense account are allocated among participants on the
basis of compensation as described in the plan.
Effective April 18, 1994 through December 31, 1996, the
number of shares released to participants was determined
based upon the cost of the Common Stock to the ESOP
trustee. As of January 1, 1997, the number of shares
released to participants will be determined based upon
the average of the closing price of the Common Stock for
all the trading days in the plan year. Participants will
vest in the shares allocated to their respective
accounts over a period not to exceed 5 years. Any
forfeited shares are allocated to the then remaining
participants in the same proportion as contributions. At
December 31, 1996, approximately 417,000 shares have
been allocated to participants. At September 30, 1997,
the Bank has accrued for the release of approximately
65,000 additional shares which represents the 1997
allocations earned from January 1, 1997 through the end
of the fiscal year.
The trustee for the ESOP must vote all allocated shares
held in the ESOP trust in accordance with the
instructions of the participants. Unallocated shares
held by the ESOP trust are voted by the trustee in a
manner calculated to most accurately reflect the results
of the allocated ESOP shares voted, subject to the
requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
56
<PAGE>
STOCK OPTION PLANS. In connection with the Conversion
and the initial public offering, the Company adopted,
and its shareholders later ratified, two stock option
plans: the Long Island Bancorp, Inc. 1994 Stock
Incentive Plan ("Stock Option Plan") and the Long Island
Bancorp, Inc. 1994 Non-Employee Directors Stock Option
Program ("Directors Stock Option Plan").
THE STOCK OPTION PLAN. Under the Stock Option Plan,
1,811,250 stock options have been reserved for executive
officers, employees and consultants. Options under this
plan are either non-statutory stock options or incentive
stock options. Each option entitles the holder to
purchase one share of the Common Stock at an exercise
price equal to the fair market value on the date of
grant. Options are exercisable ratably over five years,
unless otherwise authorized, measured from the date of
grant. Each option, however, will become 100%
exercisable upon the occurrence of a change in control
of the Holding Company or the Bank, or upon death,
disability or retirement of the optionee. All options
expire no later than ten years following the date of
grant. Option transactions for the years ended September
30 are shown below:
Weighted
Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------------
Options outstanding at September 30, 1994 1,321,650 $11.50
Granted 184,279 17.35
Forfeited 17,964 11.50
Exercised 78,540 11.50
--------------------
Options outstanding at September 30, 1995 1,409,425 12.23
Granted 1,554 27.38
Forfeited 69,899 11.77
Exercised 123,303 11.57
--------------------
Options outstanding at September 30, 1996 1,217,777 12.34
Granted 135,295 28.65
Forfeited 49,800 16.51
Exercised 101,267 14.56
--------------------
Options outstanding at September 30, 1997 1,202,005 15.04
====================
Options exercisable at September 30, 1997 631,965 $13.27
====================
The range of exercise prices on options outstanding for
the years ending September 30, 1997, 1996 and 1995 were
$11.50 to $34.80, $11.50 to $27.38 and $11.50 to $18.75,
respectively. The weighted average remaining contractual
life for options outstanding at September 30, 1997 is
7.01 years.
57
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
DIRECTORS STOCK OPTION PLAN. Under the Directors Stock
Option Plan, 776,250 stock options have been reserved
for non-employee directors. Options granted under this
plan are non-statutory options. Each option entitles the
holder to purchase one share of the Common Stock at an
exercise price equal to the fair market value on the
date of grant. Options are exercisable ratably over five
years measured from the date of grant. Each option,
however, will become 100% exercisable upon the
occurrence of a change in control of the Holding Company
or the Bank, or upon death, disability or retirement of
the optionee. All options expire no later than ten years
following the date of grant. Option transactions for the
years ended September 30 are shown below:
Weighted
Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------------
Options outstanding at September 30, 1994 694,485 $11.50
Granted 5,698 17.38
Forfeited -- --
Exercised 67,482 11.50
-------------------
Options outstanding at September 30, 1995 632,701 11.56
Granted 5,698 27.38
Forfeited -- --
Exercised 55,922 11.50
-------------------
Options outstanding at September 30, 1996 582,477 11.72
Granted 5,180 34.80
Forfeited 30,741 11.85
Exercised 10,000 11.50
-------------------
Options outstanding at September 30, 1997 546,916 $11.93
===================
Options exercisable at September 30, 1997 294,760 $11.60
===================
The range of exercise prices on options outstanding for
the years ending September 30, 1997, 1996 and 1995 were
$11.50 to $34.80, $11.50 to $27.38 and $11.50 to $17.90,
respectively. The weighted average remaining contractual
life for options outstanding at September 30, 1997 is
6.56 years.
In accordance with SFAS No. 123, the Company used the
Black-Scholes option-pricing model with the following
weighted-average assumptions to value options granted:
1997 1996
- --------------------------------------------------------------------------------
Dividend yield 1.35% 1.35%
Expected volatility 24.07% 24.07%
Risk-free interest rate 6.04% 6.03%
Expected option lives 6.90 years 8.60 years
58
<PAGE>
On a pro forma basis, had compensation expense for the
Company's stock-based compensation plans been determined
based on the fair value at the grant dates for awards
made under those plans, consistent with the method of
SFAS No.123, the Company's net income and earnings per
share for the years ended September 30 would have been
reduced as follows:
1997 1996
- --------------------------------------------------------------------------------
(In thousands, except
per share amounts)
Net Income As reported $49,420 $32,275
Pro forma 49,148 32,258
Primary Earnings per share As reported 2.09 1.33
Pro forma 2.07 1.33
Fully Diluted Earnings per share As reported 2.08 1.33
Pro forma 2.07 1.33
The effects of applying SFAS No. 123 for providing pro
forma disclosures are not indicative of the effects on
reported net income for future years because SFAS No.
123 has not been applied to all outstanding, non-vested
awards (does not apply to awards prior to October 1,
1995).
MANAGEMENT RECOGNITION AND RETENTION PLANS. In
connection with the Conversion and the IPO, the Company
adopted, and its shareholders later ratified, two
recognition and retention plans: The Long Island Savings
Bank Management Recognition and Retention Plan for
Executive Officers ("Officers MRP Plan") and The Long
Island Savings Bank Management Recognition and Retention
Plan for Non-Employee Directors ("Directors MRP Plan").
The purpose of these plans (collectively the "MRPs") is
to provide officers and non-employee directors of the
Bank with a proprietary interest in the Holding Company
in a manner designed to encourage their retention with
the Bank. Upon completion of the IPO, the Bank
contributed $8.9 million to the MRPs to enable the MRPs
to purchase an aggregate of 776,250 shares of Common
Stock at $11.50 per share. This contribution represents
deferred compensation which is initially recorded as a
reduction to stockholders' equity and ratably charged to
compensation expense over the vesting period of the
stock awards granted.
OFFICERS MRP PLAN. Under the Officers MRP Plan, 543,375
shares were purchased for the benefit of executive
officers and consultants. During the years ended
September 30, 1997, 1996 and 1995, 21,800, 106,545 and
156,931 shares, respectively, were granted. These awards
vest ratably over five years, unless otherwise
authorized, measured from the date of grant, except for
the 1996 grants that were awarded to employees based
upon their length of service with the Bank and their
officer status. The employee awards vest over one year
and the officer awards vest ratably over two years. At
September 30, 1997, 120,205 shares are available for
future grants. Immediate vesting of awards is deemed to
occur upon change in control of the Holding Company or
Bank, or upon death, disability or retirement of the
participant. For the years ended September 30, 1997,
1996, and 1995, compensation expense relating to the
awards under this plan totalled $2.5 million, $1.8
million and $1.4 million, respectively.
DIRECTORS MRP PLAN. Under the Directors MRP Plan,
232,875 shares were purchased for the benefit of
non-employee directors and 214,956 shares were granted
at the date of Conversion. No additional shares were
granted during the years ended September 30, 1997, 1996
and 1995. At September 30, 1997, 35,832 shares are
available for future grants. Awards vest ratably over
the life of the grant, however, immediate vesting is
deemed to occur upon change in control of the Holding
Company or Bank, or upon death, disability or retirement
of the participant. For the years ended September 30,
1997, 1996 and 1995, compensation expense relating to
the awards under this plan, totalled $0.4 million, $0.5
million and $0.7 million, respectively.
59
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)
- --------------------------------------------------------------------------------
(19) LEASES. The Bank is obligated under several
Commitments and non-cancelable operating lease agreements as of
Contingencies September 30, 1997. The future minimum rental payments
required under these operating leases are as follows:
Year ending September 30, Amount
- --------------------------------------------------------------------------------
(In thousands)
1998 $ 3,261
1999 2,809
2000 2,036
2001 1,526
2002 844
Thereafter 5,551
-------
$16,027
=======
PENDING LITIGATION. The Company is involved in various
legal actions arising in the ordinary course of
business, in addition to a class action lawsuit
involving certain mortgage borrowers, which in the
aggregate are believed by management to be immaterial to
the financial position of the Company.
LOANS SOLD WITH RECOURSE. The Bank has sold loans with
recourse obligations and has retained servicing on these
loans which have outstanding principal balances of
$487.1 million at September 30, 1997. At this time, the
maximum exposure under the Bank's recourse obligations
is $134.1 million. In general, recourse means that the
Bank is obligated to remit to the investor the amount of
contractual principal and interest due (less a servicing
fee), regardless of whether these payments are actually
received from the borrower. On completion of
foreclosure, the entire balance of the loan must be
remitted to the investor, regardless of whether the sale
of the REO yields that amount. Although the Bank does
not believe that its recourse obligations subject it to
risk of material loss in the future, the Bank has
established recourse reserves which at September 30,
1997 aggregated approximately $0.6 million. In addition,
various securities have been pledged as collateral in
order to secure performance of the Bank's obligations
under certain mortgage pool purchase contracts.
60
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table is a summary of operations by
quarter for the years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
For the Quarter Ended
- --------------------------------------------------------------------------------------------------------------------------
9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95
--------- -------- -------- -------- -------- ------- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 103,396 $100,416 $ 99,267 $ 95,970 $ 91,420 $87,862 $ 85,562 $86,727
Interest expense 64,270 60,367 59,137 55,714 52,694 48,723 47,443 48,316
--------- -------- -------- -------- -------- ------- -------- -------
Net interest income 39,126 40,049 40,130 40,256 38,726 39,139 38,119 38,411
Provision for possible loan losses 1,500 1,500 1,500 1,500 1,500 1,600 1,500 1,600
--------- -------- -------- -------- -------- ------- -------- -------
Net interest income after provision
for possible loan losses 37,626 38,549 38,630 38,756 37,226 37,539 36,619 36,811
Non-interest income:
Fee income:
Loan fees and service charges 1,061 764 890 1,006 944 837 736 700
Loan servicing fees 3,124 2,417 3,108 3,382 4,648 3,058 3,100 3,057
Income from insurance and
securities commissions 747 655 590 507 368 442 471 327
Deposit service fees 1,343 1,275 1,413 1,528 1,518 1,463 1,496 1,460
--------- -------- -------- -------- -------- ------- -------- -------
Total fee income 6,275 5,111 6,001 6,423 7,478 5,800 5,803 5,544
Other income 1,153 699 997 861 1,050 968 1,039 661
--------- -------- -------- -------- -------- ------- -------- -------
Total fee and other income 7,428 5,810 6,998 7,284 8,528 6,768 6,842 6,205
Net gains (losses) on sale activity:
Net gains on loans and
mortgage-backed securities 3,739 3,087 2,263 1,975 2,676 2,195 2,497 625
Net gains (losses) on
investment in debt
and equity securities -- 236 -- 99 (88) 169 -- 259
--------- -------- -------- -------- -------- ------- -------- -------
Total net gains (losses)
on sale activity 3,739 3,323 2,263 2,074 2,588 2,364 2,497 884
Net (loss) gain on
investment in real
estate and premises (913) 765 (542) (515) (835) 1,098 (403) 2,168
--------- -------- -------- -------- -------- ------- -------- -------
Total non-interest income 10,254 9,898 8,719 8,843 10,281 10,230 8,936 9,257
Non-interest expense:
General and administrative expense:
Compensation, payroll taxes
and fringe benefits 13,741 15,000 14,859 14,128 16,812 14,255 13,625 13,277
Advertising 1,465 1,218 1,089 1,255 1,673 1,836 1,216 1,215
Office occupancy
and equipment 5,021 5,761 5,567 5,397 5,679 5,223 4,795 4,934
Federal insurance premiums 783 792 778 1,903 2,287 2,292 2,259 2,217
Other general and
administrative expense 5,733 4,817 4,512 4,265 5,083 4,719 4,060 4,096
--------- -------- -------- -------- -------- ------- -------- -------
Total general and
administrative expense 26,743 27,588 26,805 26,948 31,534 28,325 25,955 25,739
Litigation expense--
goodwill lawsuit 139 444 159 359 150 169 4 47
SAIF special assessment -- -- -- -- 18,657 -- -- --
Amortization of excess of cost
over fair value of assets acquired 114 125 109 110 94 63 63 64
--------- -------- -------- -------- -------- ------- -------- -------
Total non-interest expense 26,996 28,157 27,073 27,417 50,435 28,557 26,022 25,850
--------- -------- -------- -------- -------- ------- -------- -------
Income (loss) before income taxes 20,884 20,290 20,276 20,182 (2,928) 19,212 19,533 20,218
Provision for income tax
expense (benefit) 7,941 7,864 8,159 8,248 (1,026) 7,918 8,271 8,597
--------- -------- -------- -------- -------- ------- -------- -------
Net income (loss) $ 12,943 $ 12,426 $ 12,117 $ 11,934 $ (1,902) $11,294 $ 11,262 $11,621
========= ======== ======== ======== ======== ======= ======== =======
Primary earnings (loss)
per common share $ 0.55 $ 0.53 $ 0.51 $ 0.50 $ (0.08) $ 0.47 $ 0.46 $ 0.47
========= ======== ======== ======== ======== ======= ======== =======
Fully diluted earnings (loss)
per common share $ 0.55 $ 0.53 $ 0.51 $ 0.50 $ (0.08) $ 0.47 $ 0.46 $ 0.47
==================================================================================
</TABLE>
61
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Long Island Bancorp, Inc.
We have audited the accompanying consolidated statements
of financial condition of Long Island Bancorp, Inc. and
subsidiary ("Company") as of September 30, 1997 and 1996
and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each
of the years in the three year period ended September
30, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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
September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in
the three year period ended September 30, 1997 in
conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
October 21, 1997
62
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MARKET PRICE OF COMMON STOCK
Long Island Bancorp, Inc. common stock is traded on the
NASDAQ national market under the symbol "LISB". The
following table shows the high, low and closing sales
price of the Common Stock during the periods indicated.
The Common Stock began trading April 14, 1994.
1996 High Low Closing
--------------------------------------------------------
First Quarter $26.750 $22.375 $26.375
Second Quarter 29.625 24.375 28.125
Third Quarter 31.000 26.875 30.563
Fourth Quarter 33.250 27.500 28.875
1997
----
First Quarter $35.125 $33.750 $35.000
Second Quarter 39.750 32.875 33.062
Third Quarter 36.875 32.875 36.312
Fourth Quarter 48.750 34.875 47.000
As of September 30, 1997, the Company had approximately
3,180 shareholders of record, not including the number
of persons or entities holding stock in nominee or
street name through various brokers and banks. There
were 24,022,924 shares of Common Stock shares
outstanding at September 30, 1997. Dividends of fifteen
cents per Common Share have been paid to shareholders as
follows:
Declaration Date Record Date Payment Date
--------------------------------------------------------
December 19, 1996 January 15, 1997 February 14, 1997
March 25, 1997 April 14, 1997 May 14, 1997
June 24, 1997 July 16, 1997 August 14, 1997
September 23, 1997 October 15, 1997 November 14, 1997
63
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
BRANCH LOCATIONS
BRANCH LOCATIONS
Queens
35-01 30th Ave.
Astoria, NY 11103
22-02 31st Street
Astoria, NY 11105
30-27 Steinway Street
Astoria, NY 11103
72-35 Broadway
Jackson Heights, NY 11372
97-33 Queens Blvd.
Rego Park, NY 11374
153-01 10th Ave.
Whitestone, NY 11357
Nassau
1150 Franklin Ave.
Garden City, NY 11530
3105 Hempstead Turnpike
Levittown, NY 11756
1900 Northern Blvd.
Manhasset, NY 11030
1001 Park Blvd.
Massapequa Park, NY 11762
2090 Merrick Road
Merrick, NY 11566
339 Merrick Road
Rockville Centre, NY 11570
3887 Merrick Road
Seaford, NY 11783
50 Jackson Ave.
Syosset, NY 11791
120 South Franklin Ave.
Valley Stream, NY 11580
1149 Wantagh Ave.
Wantagh, NY 11793
Suffolk
180 West Main Street
Babylon, NY 11702
300 East Main Street
Bay Shore, NY 11706
269 Middle Country Road
Coram, NY 11727
180 East Main Street
East Islip, NY 11730
696 Horseblock Road
Farmingville, NY 11738
845 Wheeler Road
Hauppauge, NY 11788
839 New York Ave.-140
Huntington, NY 11743
1229 East Jericho Turnpike
Huntington, NY 11743
599 Middle Country Road
Middle Island, NY 11953
718 Medford Ave.
Patchogue, NY 11772
1336 Montauk Highway
Oakdale, NY 11769
450 Jefferson Shopping Plaza
Port Jefferson Station, NY 11776
325 Route 25A
Rocky Point, NY 11778
999-25 Montauk Highway
South Port Shopping Center
Shirley, NY 11967
65 Nugent Street
Southampton, NY 11968
1047 North Country Road
Stony Brook, NY 11790
6348 Route 25A
Wading River, NY 11792
71 Sunset Ave.
Westhampton Beach, NY 11978
526 Union Blvd.
West Islip, NY 11795
64
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
MORTGAGE ORIGINATION OFFICES
MORTGAGE ORIGINATION
OFFICES
Whitestone Executive Plaza
30-50 Whitestone Expressway
Flushing, NY 11354
201 Old Country Road
Melville, NY 11747
2780 Middle Country Road
Lake Grove, NY 11755
750 Broad Street
Shrewsbury, NJ 07702
111 Gibraltar Road
Horsham, PA 19044
10005 Old Columbia Road
Ste. L260
Columbia, MD 21046
6 Montgomery Village Ave., Ste. 220
Gaithersburg, MD 20879
658 Kenilworth Drive, Ste. 205
Townson, MD 21204
5301 Buckeystown Pike, Ste. 200
Frederick, MD 21704
7825 Tuckerman Lane, Ste. 210
Potomac, MD 20854
8321 Old Courthouse Road
Ste. 110
Vienna, VA 22182
220 Middle Street
Franklin, VA 23851
206 Temple Ave., Ste. C
Colonial Heights, VA 23834
5041 Corporate Woods Drive
Ste. 100
Virginia Beach, VA 23462
7231 Forest Ave., Ste. 303
Richmond, VA 23226
1001 Boulders Parkway, Ste. 110
Richmond, VA 23225
6845 Fairview Road, Ste. 100
Charlotte, NC 28210
4325 Lake Boone Trail, Ste. 102
Raleigh, NC 27607
222 West Coleman Blvd., Ste. 104
Mount Pleasant, SC 29464
410 Commerce Drive
Peachtree City, GA 30269
2000 RiverEdge Pky., Ste. 880
Atlanta, GA 30328
255 Corporate Center Drive, Ste. C
Stockbridge, GA 30281
65
<PAGE>
Long Island Bancorp, Inc. and Subsidiary
DIRECTORS, OFFICERS AND SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
John J. Conefry, Jr.,
Chairman
Bruce M. Barnet
Clarence M. Buxton
Edwin M. Canuso
Richard F. Chapdelaine
Brian J. Conway
Robert J. Conway
Frederick DeMatteis
George R. Irvin
Herbert J. McCooey
Lawrence W. Peters
Robert S. Swanson, Jr.
Dr. James B. Tormey
Leo J. Waters
Donald D. Wenk
Troy J. Baydala
(Director Emeritus)
EXECUTIVE OFFICERS
John J. Conefry, Jr.,
Chairman of the Board and
Chief Executive Officer
Lawrence W. Peters,
President and
Chief Operating Officer
Bruce M. Barnet,
Executive Vice President
and Director of Real Estate
and Development
Karen M. Cullen,
Executive Vice President
and General Counsel
Mark Fuster,
Executive Vice President
and Chief Financial Officer
W. Douglas Singer,
Executive Vice President
and Treasurer
Robert T. Volk,
Executive Vice President and Director of Consumer
Banking
SENIOR VICE PRESIDENTS OF THE LONG ISLAND SAVINGS
BANK, FSB
Roberta E. Cashwell
Louis A. Iannaccone
Dena L. Kwaschyn
James A. Lacchini
Arthur D. McDermott
Anthony J. Morris
John B. Pettit
William A. Purschke
John Talotta
Roger Teurfs
CORPORATE OFFICE
Long Island Bancorp, Inc.
201 Old Country Road
Melville, NY 11747
ANNUAL MEETING
The Annual Meeting of shareholders will be held Tuesday,
February 17, 1998 at 9:30 AM at the Huntington Hilton
located on Route 110 at 598 Broadhollow Road, Melville,
NY. Notice of the meeting, a proxy statement and proxy
form are included with this mailing to shareholders of
record as of December 22, 1997.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Jericho, New York
SHAREHOLDER INQUIRIES
Shareholders, analysts and others interested in
additional information may contact: Mary M. Feder Vice
President, Investor Relations (516) 547-2607.
STOCK TRANSFER AGENT
AND REGISTRAR
Inquiries regarding stock transfer, lost certificates,
or changes in name and/or address should be directed to
the stock transfer agent and registrar:
ChaseMellon Shareholder
Services, L.L.C.
Customer Service Department
P.O. Box 590
Ridgefield Park, NJ 07660
(800) 465-7038
STOCK LISTING
Long Island Bancorp Inc.'s common stock is traded on the
Nasdaq National Market under the symbol "LISB". Stock
quotes are included in the Nasdaq National Market stock
tables published in leading dailies and other business
publications. In The Wall Street Journal we are listed
as "LI Bncp". In The New York Times we are listed as "LI
Bcp". In Newsday we are listed as "LI Bancrp".
ANNUAL REPORT ON
FORM 10-K
A copy of the Company's 1997 annual report on Form 10-K
(without exhibits), which has been filed with the
Securities and Exchange Commission and the annual report
pursuant to Section 112 of the FDIC Improvement Act of
1991 will be furnished to shareholders without charge,
upon written request to:
Investor Relations Department
Long Island Bancorp, Inc.
201 Old Country Road
Melville, NY 11747
WORLD WIDE WEB SITES:
www.lisb.com
www.entrustmortgage.com
SALES AND
CUSTOMER SERVICE:
1-800-THE-LISB
BANK BY PHONE:
694-9010
From the 516, 212, 718 and
914 area codes
Available 8:00 AM - 8:00 PM
Monday-Friday and
8:00 AM - 3:00 PM Saturday
66
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
The Long Island Savings Bank, FSB New York
Long Island Savings Agency New York
Kyle Development Corp. New York
Longrich Investors Inc. New York
Mortgage Headquarters Inc. New York
Syosset Connecticut Realty Inc. Connecticut
Syosset New Jersey Realty Inc. New Jersey
Longco Investors Inc. New York
Longpond Investors Inc. New York
Christa Realty Corp. New York
First Home Mortgage Corp. of Virginia Virginia
3366 Park Ave. Corp. New York
Starline Development Corp. New York
Syosset Document Corp. New York
Great Neck Towers Corp. New York
Oldfield Realty Corp. New York
63 Ocean Realty Corp. New York
Suffco Service Corp. New York
201 Old Country Road Inc. New York
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 33,970
<INT-BEARING-DEPOSITS> 9,735
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,947,049
<INVESTMENTS-CARRYING> 22,223
<INVESTMENTS-MARKET> 20,188
<LOANS> 3,675,592
<ALLOWANCE> 33,881
<TOTAL-ASSETS> 5,930,784
<DEPOSITS> 3,730,503
<SHORT-TERM> 488,056
<LIABILITIES-OTHER> 152,450
<LONG-TERM> 1,013,400
0
0
<COMMON> 268
<OTHER-SE> 546,107
<TOTAL-LIABILITIES-AND-EQUITY> 5,930,784
<INTEREST-LOAN> 266,264
<INTEREST-INVEST> 132,785
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 399,049
<INTEREST-DEPOSIT> 159,807
<INTEREST-EXPENSE> 239,488
<INTEREST-INCOME-NET> 159,561
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> 11,399
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 81,632
<INCOME-PRE-EXTRAORDINARY> 81,632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,420
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.08
<YIELD-ACTUAL> 2.91
<LOANS-NON> 47,074
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 33,912
<CHARGE-OFFS> 6,916
<RECOVERIES> 885
<ALLOWANCE-CLOSE> 33,881
<ALLOWANCE-DOMESTIC> 33,881
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99
[Company Logo and Address]
January 5, 1998
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of Long Island Bancorp, Inc. (the "Company") which will be held on
February 17, 1998, at 9:30 a.m., at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York (the "Annual Meeting"). The attached Notice of Annual
Meeting and Proxy Statement describe the business to be transacted at the Annual
Meeting.
The major business to be transacted at the Annual Meeting will be
the election of directors, approval to increase the authorized Common Stock and
the ratification of KPMG Peat Marwick LLP as our auditors. Officers of the
Company as well as representatives of KPMG Peat Marwick LLP will be present at
the Annual Meeting to respond to any questions that our stockholders may have
regarding the business to be transacted.
The Board of Directors of the Company has determined that the
matters to be considered at the Annual Meeting are 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.
It is important that your shares be represented at the Annual
Meeting whether or not you are present. Please be sure to sign, date and mail
the enclosed Proxy Card in the postage-paid envelope provided, even if you plan
to attend in person.
If you attend the Annual Meeting, you may vote in person even if
you have already mailed in your Proxy.
On behalf of the Board of Directors and all the employees of the
Company and The Long Island Savings Bank, FSB, I thank you for your continued
support.
Sincerely,
John J. Conefry, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE>
[Company Logo and Address]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 17, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Long Island Bancorp, Inc. (the "Company") will be held on February 17, 1998, at
9:30 a.m., at the Huntington Hilton, 598 Broadhollow Road, Melville, New York
(the "Annual Meeting").
A Proxy Statement and Proxy Card for the Annual Meeting are
enclosed.
The Annual Meeting is for the purpose of considering and voting
upon the following matters:
1. The election of four directors of the Company for terms of three years
each;
2. The approval of the proposed increase in authorized Common Stock to
130,000,000 shares;
3. The ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending September
30, 1998; and
4. Such other business as may properly come before the Annual Meeting or
any adjournment thereof.
Note: The Board of Directors of the Company is not aware of any other business
to come before the Annual Meeting.
Any action may be taken on any one of the foregoing proposals at
the Annual Meeting on the date specified above or on any date or dates to which,
by original or later adjournment, the Annual Meeting may be adjourned.
Stockholders of record at the close of business on December 22, 1997, are the
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof. A complete list of stockholders entitled to vote at the
Annual Meeting will be open for examination by any stockholder for any purpose
germane to the Annual Meeting during ordinary business hours at the Company's
principal office located at 201 Old Country Road, Melville, New York for a
period of ten days prior to the Annual Meeting and will also be available at the
Annual Meeting.
<PAGE>
You are requested to fill in, sign and date the enclosed proxy
which is solicited by the Board of Directors and to return it promptly by mail
in the enclosed envelope. The proxy will not be used if you attend and vote in
person at the Annual Meeting.
By Order of the Board of Directors,
Roger Teurfs
Secretary
Melville, New York
January 5, 1998
________________________________________________________________________________
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
________________________________________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
LONG ISLAND BANCORP, INC.
201 Old Country Road
Melville, New York 11747
(516) 547-2000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
February 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL
- --------------------------------------------------------------------------------
This Proxy Statement is furnished to stockholders of Long Island
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 to be held on February 17, 1998, at 9:30
a.m., at the Huntington Hilton, 598 Broadhollow Road, Melville, New York (the
"Annual Meeting"), and at any adjournment thereof. Only holders of record of
the Company's issued and outstanding common stock, par value $0.01 per share
(the "Common Stock"), as of the close of business on December 22, 1997 (the
"Record Date") are entitled to vote at the Annual Meeting and any adjournments
thereof. The accompanying Notice of Annual Meeting and form of proxy, the 1997
Annual Report to Stockholders, including the consolidated financial statements
for the fiscal year ended September 30, 1997, and this Proxy Statement are being
first mailed on or about January 5, 1998 to all stockholders entitled to vote at
the Annual Meeting.
- --------------------------------------------------------------------------------
Voting and Revocability of Proxies
- --------------------------------------------------------------------------------
A majority of the holders of the Common Stock must be
represented, either in person or by proxy, to constitute a quorum for the
conduct of business. In order to insure a quorum, 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 WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN THEREIN.
WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR THE SPECIFIC
PROPOSALS PRESENTED IN THIS PROXY STATEMENT. Proxies marked as abstentions will
not be counted as votes cast. In addition, shares held in street name which
have been designated by brokers on Proxy Cards as not voted will not be counted
as votes cast. Proxies marked as abstentions or as broker non-votes, however,
will be treated as shares present for purposes of determining whether a quorum
is present. In the event that 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.
<PAGE>
The election of directors shall be by a plurality of votes cast
by the holders present in person or by proxy of shares entitled to vote thereon.
The holders of Common Stock may not vote their shares cumulatively for election
of directors.
As to the approval of the proposed increase in authorized Common
Stock, ratification of KPMG Peat Marwick LLP as independent auditors of the
Company and all other matters that may properly come before the Annual Meeting,
by checking the appropriate box, a shareholder may: (i) vote "FOR" the item;
(ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on such item.
Under the Company's Restated Bylaws (the "Bylaws"), unless otherwise required by
law, the Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") or the Bylaws, all matters submitted to stockholders at any
meeting, other than the election of directors, shall be decided by the
affirmative vote of a majority of the shares present in person or represented by
proxy at such meeting and entitled to vote on such matters.
The Board of Directors knows of no additional matters that will
be presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxyholders discretionary authority to vote
the shares in accordance with their best judgment with respect to the election
of any person as a director where the nominee is unable to serve or for good
cause will not serve, matters incident to the conduct of the Annual Meeting, and
such other business, if any, that may properly come before the Annual Meeting or
any adjournments thereof.
A proxy may be revoked at any time prior to its exercise by the
filing of a written notice of revocation with the Secretary of the Company, by
delivering a duly executed proxy bearing a later date to the Secretary of the
Company at the address listed above, or by attending the Annual Meeting and
voting in person.
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, D.F. King & Co., Inc., a proxy soliciting firm, will assist the Company in
soliciting proxies for the Annual Meeting and will be paid a fee of $6,000, plus
reimbursement for out-of-pocket expenses. Proxies also may be solicited
personally or by telephone or telegraph by directors, officers and regular
employees of the Company and The Long Island Savings Bank, FSB (the "Bank"),
without additional compensation therefor. 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 materials
to and obtain proxies from such beneficial owners, and will reimburse such
holders for reasonable expenses incurred in connection therewith.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
General
Stockholders of record as of the close of business on the Record
Date are entitled to one vote for each share of Common Stock then held except as
described below. As of the Record Date, there were 24,027,929 shares of Common
Stock outstanding.
As provided in the Certificate of Incorporation, record holders
of Common Stock who, directly or indirectly, beneficially own in excess of 10%
of the outstanding shares of Common Stock (the "Limit") are not entitled to any
vote in respect of the shares held in excess of the Limit. A person or entity
is deemed to own beneficially shares owned by an affiliate of, as well as
persons acting in concert with, such person or entity. The 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 Common Stock in excess of the
Limit supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
-2-
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon
such reports, the following table sets forth, as of December 1, 1997, certain
information as to the Common Stock beneficially owned by persons owning in
excess of 5% of the outstanding shares of Common Stock. Management knows of no
person, except as listed below, who owned more than 5% of the Company's
outstanding shares of Common Stock as of December 1, 1997.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
The LISB Employee Stock 2,028,648 shares(1) 8.44 %
Ownership Trust
114 W. 47th Street
New York, New York 10036
Wellington Management Company 1,377,000 shares(2) 5.73 %
75 State Street
Boston, Massachusetts 02109
_____________________
(1) The Employee Stock Ownership Plan ("ESOP") is administered by a
committee consisting of three employees of the Bank who were appointed
by the Board of Directors of the Bank. The ESOP's assets are held in
trust (the "ESOP Trust"), for which CG Trust Company serves as trustee
(the "ESOP Trustee"). The terms of the ESOP Trust Agreement provide
that U.S. Trust Company of California, N.A., as the ESOP Investment
Manager (the "Investment Manager"), subject to the Investment
Manager's fiduciary responsibilities under the Employee Retirement
Income Security Act of 1974, as amended, will direct the ESOP Trustee
to vote, tender or exchange shares of Common Stock held in the ESOP
Trust in accordance with the following rules. The Investment Manager
will direct the ESOP Trustee to vote, tender or exchange shares of
Common Stock allocated to participants' accounts in accordance with
instructions received from the participants. The Investment Manager
will direct the ESOP Trustee to vote allocated shares as to which no
instructions are received and any shares in the "suspense account" or
that otherwise have not been allocated to participants' accounts in
the same proportion as allocated shares with respect to which the
Investment Manager receives instructions are voted.
Excludes amounts held by the Trustee for the benefit of the 401(k)
Trust.
(2) According to its filing on Schedule 13G with the Securities and
Exchange Commission dated January 24, 1997, Wellington Management
Company acquired such interest through its subsidiary Wellington Trust
Company, N.A. and claims sole voting power over -0- shares of Common
Stock, shared voting power with respect to 789,320 shares of Common
Stock and shared dispositive power as to 1,377,000 shares of Common
Stock. Shares of Common Stock beneficially owned by Wellington
Management Company are owned by a variety of investment advisory
clients of Wellington Management Company. No such client is known to
have an interest in more than 5% of the Common Stock.
-3-
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The table below presents the shares of Common Stock and the
percentage of Common Stock beneficially owned as of September 30, 1997 by (i)
the Company's directors, (ii) the executive officers named in the "Summary
Compensation Table" below (see "Executive Compensation") and (iii) the Company's
directors and executive officers, as a group.
<TABLE>
<CAPTION>
Shares of Common Stock Percent
Position(s) Beneficially Owned of Class
Name With the Company (1) (2) (3) (4) (5)
- ---- ---------------- ---------------------- --------
<S> <C> <C> <C>
John J. Conefry, Jr...... Chairman of the Board, 355,531 1.48%
and CEO
Lawrence W. Peters (6)... President and COO, 26,749 .11%
Director
Bruce M. Barnet (7)...... Executive Vice President, 36,155 .15%
Director
Clarence M. Buxton....... Director 85,096 .35%
Edwin M. Canuso.......... Director 79,824 .33%
Richard F. Chapdelaine... Director 84,360 .35%
Brian J. Conway.......... Director 85,792 .36%
Robert J. Conway (8)..... Director 75,335 .31%
Frederick DeMatteis...... Director 105,664 .44%
George R. Irvin (9)...... Director 77,056 .32%
Herbert J. McCooey....... Director 59,702 .25%
Robert S. Swanson, Jr.... Director 77,202 .32%
James B. Tormey,M.D.(10). Director 62,506 .26%
Leo J. Waters............ Director 36,832 .15%
Donald D. Wenk (11)...... Director 111,540 .46%
Troy J. Baydala.......... Director Emeritus 47,963 .20%
W. Douglas Singer........ Executive Vice President 87,852 .37%
Mark Fuster.............. Executive Vice President 87,106 .36%
Robert T. Volk........... Executive Vice President 79,646 .33%
All directors and
executive officers as a
group (19 persons)....... 1,661,911 6.92%
</TABLE>
-4-
<PAGE>
(1) Unless otherwise indicated, each person effectively exercises sole
voting and dispositive power as to the shares reported.
(2) Includes options granted under the Long Island Bancorp, Inc. 1994 Stock
Incentive Plan (the "Stock Incentive Plan") or the Long Island Bancorp,
Inc. 1994 Non-Employee Directors Stock Option Program (the "Director
Stock Option Program") which are currently exercisable. Excludes
remaining options granted in 1994 which are exercisable on March 29,
1999, options granted in 1995 which are exercisable in two equal
installments beginning on March 29, 1999, options granted in 1996 which
are exercisable in three equal installments beginning on March 29, 1999,
and options granted in 1997 which are exercisable in four equal
installments beginning on March 29, 1999.
(3) Includes shares awarded under The Long Island Savings Bank Management
Recognition and Retention Plan for Executive Officers (the "Executive
Officer MRP") and The Long Island Savings Bank Management Recognition
and Retention Plan for Non-Employee Directors (the "Director MRP" and,
together with the Executive Officer MRP, the "MRPs"). Under the MRPs,
awards are granted in the form of shares of Common Stock held by the
MRPs. Directors and executive officers earn shares of Common Stock
covered by the awards prior to 1997 at a rate of 20% per year commencing
one year from the date of the award. However, shares awarded in 1997
vest 50% on March 29, 1997 and 50% on March 29, 1998.
(4) Includes 2,587, 2,357, 2,357, 0, and 2,296 shares allocated under the
ESOP to the accounts of Messrs. Conefry, Singer, Fuster, Barnet and
Volk, respectively.
(5) The total number of shares of Common Stock outstanding on September 30,
1997 was 24,022,924. For purposes of this table, 279,219 shares of
Common Stock subject to stock options granted, in the aggregate, to all
directors and executive officers are not considered outstanding as such
options are not exercisable prior to March 29, 1999.
(6) Mr. Peters was elected President and Chief Operating Officer on March 1,
1997.
(7) Mr. Barnet was elected Executive Vice President, Director of Real Estate
and Development for both the Company and the Bank on October 3, 1996.
(8) Of the 75,335 shares of Common Stock beneficially owned, Mr. Robert J.
Conway has sole voting and investment power with respect to 67,335
shares of Common Stock and has shared voting and investment power with
respect to 8,000 shares of Common Stock.
(9) Of the 77,056 shares of Common Stock beneficially owned, Mr. Irvin has
sole voting and investment power with respect to 7,166 shares of Common
Stock and has shared voting and investment power with respect to 69,890
shares of Common Stock.
(10) Of the 62,506 shares of Common Stock beneficially owned, Dr. Tormey has
sole voting and investment power with respect to 60,506 shares of Common
Stock and has shared voting and investment power with respect to 2,000
shares of Common Stock.
(11) Of the 111,540 shares of Common Stock beneficially owned, Mr. Wenk has
sole voting and investment power with respect to 104,540 shares of
Common Stock and has shared voting and investment power with respect to
7,000 shares of Common Stock.
-5-
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 1
ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors of the Company consists of fifteen
directors divided into three classes, Class I, Class II and Class III directors,
and one director emeritus. Upon election by the stockholders, the directors of
each class serve for a term of three years, with the directors of one class
elected each year. The Class I directors, consisting of Messrs. Conefry,
Chapdelaine, Irvin and Tormey, were elected to terms of office expiring at the
1998 annual meeting of stockholders. The Class II directors, consisting of
Messrs. DeMatteis, McCooey, Swanson, Canuso, Barnet and Peters were elected to
terms of office expiring at the 1999 annual meeting of stockholders. The Class
III directors, consisting of Messrs. Buxton, Conway (Brian J.), Conway (Robert
J.), Waters and Wenk, were elected to terms of office expiring at the 2000
annual meeting of stockholders. In all cases, directors serve until their
respective successors are duly elected and qualified.
The directors whose terms expire at the Annual Meeting are
Messrs. Conefry, Chapdelaine, Irvin, and Dr. Tormey. Each of these directors
(each a "Board Nominee") has been nominated by the Board to stand for
reelection, and, if elected, to serve for a term expiring at the annual meeting
of stockholders to be held in 2001. Each Board Nominee has consented to being
named in this Proxy Statement and to serve if elected.
UNLESS OTHERWISE INSTRUCTED, IT IS THE INTENTION OF THE PROXY
HOLDERS TO VOTE THE PROXIES RECEIVED BY THEM IN RESPONSE TO THIS SOLICITATION
FOR THE ELECTION OF THE BOARD NOMINEES AS DIRECTORS. IF ANY BOARD NOMINEE
SHOULD REFUSE OR BE UNABLE TO SERVE, THE PROXIES WILL BE VOTED FOR SUCH PERSON
AS SHALL BE DESIGNATED BY THE BOARD TO REPLACE ANY SUCH NOMINEE. THE BOARD
PRESENTLY HAS NO KNOWLEDGE THAT ANY OF THE BOARD NOMINEES WILL REFUSE OR BE
UNABLE TO SERVE.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE BOARD
NOMINEES.
BOARD NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
Board Nominees and the other members of the Board of Directors of the Company.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH DIRECTOR TERM
NAME AGE(1) THE COMPANY SINCE(2) EXPIRES
- ---- ------ --------------------- -------- -------
<S> <C> <C> <C> <C>
John J. Conefry, Jr........ 53 Chairman of the Board 01/15/80 1998
and CEO
Lawrence W. Peters......... 67 President and COO and 04/25/89 1999
Director
Bruce M. Barnet(3)......... 45 Executive Vice President, 06/24/86 1999
Director
Clarence M. Buxton......... 70 Director 01/15/74 2000
Edwin M. Canuso............ 72 Director 05/19/70 1999
Richard F. Chapdelaine(4).. 72 Director 11/22/88 1998
Brian J. Conway(5)......... 39 Director 03/28/89 2000
Robert J. Conway(5)........ 62 Director 08/17/83 2000
Frederick DeMatteis........ 74 Director 04/20/65 1999
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
George R. Irvin(3)......... 70 Director 09/21/76 1998
Herbert J. McCooey......... 71 Director 07/21/64 1999
Robert S. Swanson, Jr...... 72 Director 08/20/68 1999
Dr. James B. Tormey........ 68 Director 01/19/82 1998
Leo J. Waters.............. 62 Director 03/27/90 2000
Donald D. Wenk............. 67 Director 01/15/74 2000
Troy J. Baydala............ 79 Director Emeritus 08/15/72 -
</TABLE>
____________________
(1) As of November 1, 1997.
(2) All directors commenced service as directors of the Company on December
20, 1993, the date of the Company's incorporation. The dates set forth
above are the dates the individuals commenced service as directors of
the Bank.
(3) Bruce M. Barnet is the son-in-law of George R. Irvin.
(4) Mr. Chapdelaine served on the Board of Directors of the Bank from August
1968 to March 1986, at which time he left the Board. He was reappointed
to the Board of Directors of the Bank in November 1988.
(5) Brian J. Conway is the nephew of Robert J. Conway.
The following table sets forth certain information regarding the
executive officers who are not directors of the Company.
POSITION(S) HELD WITH
NAME AGE(1) THE COMPANY
---- ------ ---------------------
Joseph P. Bryant........ 50 Former Executive Vice President
W. Douglas Singer....... 47 Executive Vice President
Mark Fuster............. 50 Executive Vice President/Treasurer
Robert T. Volk.......... 45 Executive Vice President
____________________
(1) As of November 1, 1997.
Mr. Fuster has served as an executive officer of the Company
since December 21, 1993, the first meeting of the Board of Directors of the
Company. Messrs. Singer and Volk have served as executive officers of the
Company since March 29, 1994 and July 26, 1994, respectively. Mr. Bryant served
as an executive officer of the Company between July 26, 1994 and June 17, 1997.
All executive officers of the Company are elected annually and serve at the will
of the Board of Directors, until their respective successors have been elected
and qualified.
-7-
<PAGE>
BIOGRAPHICAL INFORMATION
Set forth below is certain information with respect to the directors,
Board Nominees and executive officers of the Company. Unless otherwise
indicated, the principal occupation listed for each person below has been his
principal occupation for the past five years.
DIRECTORS AND BOARD NOMINEES
JOHN J. CONEFRY, JR. has served as the Chairman of the Board of Directors
and Chief Executive Officer of the Company since December 21, 1993, the first
meeting of the Board of Directors of the Company, and as Chairman of the Board
of Directors of the Bank since January 25, 1994. He joined the Bank as an
employee on September 6, 1993 as Vice Chairman. On November 23, 1993, he was
elected Chief Executive Officer of the Bank. Mr. Conefry has been a Director of
the Bank since January 15, 1980. On September 7, 1996 he assumed the Presidency
of the Company and of the Bank. Mr. Conefry previously was employed by Merrill
Lynch, Pierce, Fenner & Smith, Inc., where he had been a Senior Vice President
since 1981. Prior to that, he had been a partner in the public accounting firm
of Deloitte Haskins & Sells. Mr. Conefry also serves on a number of boards of
not-for-profit organizations.
LAWRENCE W. PETERS has been a director of the Company since its formation
in 1993. He joined the Bank on April 13, 1989 as a Senior Executive Vice
President and Chief Lending Officer. Mr. Peters retired from his management
position on May 23, 1995 and rejoined the Company and Bank as President and
Chief Operating Officer on March 1, 1997. Prior to joining the Bank, Mr. Peters
was employed by Dime Savings Bank of New York as Vice Chairman and Director, and
was in charge of all lending functions.
BRUCE M. BARNET has been a director of the Company since its formation in
1993. He became a director of the Bank on June 24, 1986. As the President of
Sunset Developers, Inc., a real estate brokerage firm, he was active in the
development, sale and management of residential and commercial real estate in
the New York area since 1985. On October 3, 1996, Mr. Barnet was appointed
Executive Vice President, Director of Real Estate and Development, of the
Company and the Bank.
CLARENCE M. BUXTON has been a director of the Company since its formation
in 1993. He became a director of the Bank on January 15, 1974. Mr. Buxton is a
partner in Buxton, Davidson Associates, an employee benefit and estate planning
firm.
EDWIN M. CANUSO has been a director of the Company since its formation in
1993. He became a director of the Bank on May 19, 1970. He served the Bank
for 16 years as the Senior Executive Vice President in charge of real estate
management, development, construction and joint ventures. Mr. Canuso retired
from the Bank on January 1, 1993. He currently serves in a consulting capacity
to the Bank.
RICHARD F. CHAPDELAINE has been a director of the Company since its
formation in 1993. He became a director of the Bank on August 20, 1968. He is
the Chairman of the Board of Chapdelaine Corporate Securities & Co., and
Chapdelaine & Co., Inc., both firms dealing in financial services. He serves on
the Boards of Niagara University (Emeritus), and Golden Bear International.
BRIAN J. CONWAY has been a director of the Company since its formation in
1993. He became a director of the Bank on March 28, 1989. He is a Managing
Director of TA Associates, Inc., a private equity investment firm.
ROBERT J. CONWAY has been a director of the Company since its formation in
1993. He became a director of the Bank on August 17, 1983. Mr. Conway was
employed by AMF for 29 years. His last
-8-
<PAGE>
position with AMF was Corporate Vice President and Group Executive of the
Worldwide Bowling Products Group. He has worked as a professional equities
trader.
FREDERICK DEMATTEIS has been a director of the Company since its formation
in 1993. He became a director of the Bank on April 20, 1965. Mr. DeMatteis is
the Chairman of the Board and CEO of Leon D. DeMatteis Construction Corporation,
a real estate development and construction firm. He is the Chairman of the
Board for St. Vincent's Services and the Chairman of the Board of DM Airport
Developers, Inc. He serves as Chairman of RY Management Co., Inc., a real
estate building management firm. He is also a Director on the Board of Downtown
Lower Manhattan Association of New York and a Trustee of the Dante Foundation.
GEORGE R. IRVIN has been a director of the Company since its formation in
1993. He became a director of the Bank on September 21, 1976. As President of
Realty Syndicates Co., Mr. Irvin is an active developer of residential and
commercial real estate on Long Island.
HERBERT J. MCCOOEY has been a director of the Company since its formation
in 1993. He became a director of the Bank on July 21, 1964. Mr. McCooey is
retired. Prior to his retirement he served as Executive Vice President of Robb,
Peck, McCooey & Co., Inc., a specialist firm on the New York Stock Exchange. He
was also a Senior Floor Governor of the New York Stock Exchange.
ROBERT S. SWANSON, JR. has been a director of the Company since its
formation in 1993. He became a director of the Bank on August 20, 1968. Mr.
Swanson served as Chairman of the Board of S.B. Thomas Inc., a specialty baking
company. He retired in 1976.
JAMES B. TORMEY, M.D. has been a director of the Company since its
formation in 1993. He became a director of the Bank on January 19, 1982. Since
January 1, 1995 he has been retired from the active practice of medicine. Dr.
Tormey has served as a member of the Medical Ethics Committee of the Catholic
Diocese of Rockville Centre. He is a limited partner in the Rockville Centre
Medical Realty Association.
LEO J. WATERS has been a director of the Company since its formation in
1993. He became a director of the Bank on March 27, 1990. He is the President
of a private investment consulting firm.
DONALD D. WENK has been a director of the Company since its formation in
1993. He became a director of the Bank on January 15, 1974. From June 23, 1992
until January 25, 1994, Mr. Wenk served as Chairman of the Board of Directors of
the Bank. From January 25, 1994 until January 23, 1996, Mr. Wenk served as
Chairman of the Executive Committee of the Board of Directors of the Bank. He
is the Chairman of the Board of American Casting & Manufacturing Corporation.
TROY J. BAYDALA has been a director emeritus of the Company since soon
after its formation in 1993. He became a director of the Bank on August 15,
1972 and retired from the Board of the Bank on December 8, 1992 upon reaching
the mandatory retirement age of 75. Mr. Baydala retired in 1983 from his
position as Executive Vice President and Secretary of the Bank. He previously
served as a Senior Vice President of Franklin National Bank, where he worked for
23 years. Mr. Baydala was the President of the New York chapter of the American
Institute of Real Estate Appraisers (MAI).
-9-
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
W. DOUGLAS SINGER has been an Executive Vice President of the Company since
March 29, 1994. He is Executive Vice President and Treasurer of the Bank. He
joined the Bank in 1988 from Goldman Sachs & Co. where he was a Vice President
in its Mortgage Backed Securities Department.
MARK FUSTER has been the Treasurer of the Company since December 21, 1993
and Executive Vice President and Treasurer of the Company since January 23,
1996. He is Executive Vice President and Chief Financial Officer of the Bank.
Mr. Fuster joined the Bank in 1981. Prior to joining the Bank, Mr. Fuster
served as Vice President and Controller for the real estate and mortgage loan
department at another financial institution. Mr. Fuster had previously served
as a supervisor at the accounting firm of Peat Marwick Mitchell & Co.
ROBERT T. VOLK has been an Executive Vice President of the Company since
July 26, 1994. He is Executive Vice President and Director of Consumer Banking
at the Bank. Mr. Volk joined the Bank in 1989. He formerly served as Vice
President, Community Banking Group Administration at National Westminster Bank
USA.
JOSEPH P. BRYANT was an Executive Vice President of the Company from July
26, 1994 to June 17, 1997. He was Executive Vice President and Chief Mortgage
Officer of the Bank.
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COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
OF THE COMPANY AND OF THE BANK
- --------------------------------------------------------------------------------
The Board of Directors meets on a monthly basis and may have
additional special meetings upon the request of the Chairman of the Board or a
majority of the Board of Directors. During the fiscal year ended September 30,
1997, the Board of Directors met thirteen times. All directors attended at least
75% of the aggregate number of meetings of the Board of Directors and committee
meetings, for those committees on which such director served, during this
period. The Board of Directors has established the following committees among
others:
The Compensation Committee consists of Chairman Chapdelaine and
Messrs. DeMatteis, Wenk and Swanson. The function of the Compensation Committee
is to review the performance and compensation of the officers of the Company,
make recommendations to the Board of Directors with respect thereto and
administer the Executive Officer MRP, including the granting of restricted
shares of Common Stock pursuant thereto, and the Stock Incentive Plan, including
the granting of options pursuant thereto. This committee meets on an as-needed
basis and met 3 times during fiscal 1997.
The Audit Committee consists of Chairman Waters and Messrs. Conway
(Brian J.), McCooey, and Tormey. The purpose of this Committee is to review the
progress of all internal audits, all independent audits and all periodic reports
of such audits submitted to the Audit Committee and to supervise and coordinate
with persons conducting such audits. This committee generally meets, at a
minimum, on a quarterly basis and met 7 times during fiscal 1997.
In addition to the Committees described above, the Board of Directors
has established an Executive Committee and a Planning and Development Committee.
The Board of Directors of the Bank (the "Bank Board") and the Board of
Directors are identically constituted. During fiscal 1997, the Bank Board met
thirteen times. No director attended fewer than 75% of the aggregate of Bank
Board and committee meetings, for those committees on which such director served
during the time he served, held during this period.
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The Bank Board also maintains executive, compensation and audit
committees, the membership of which is the same as the comparable committees of
the Board of Directors. The Committees of the Bank Board serve substantially
the same functions at the Bank level as those of the Company. The Compensation
and Audit Committees of the Bank Board met 3 times and 7 times, respectively,
during such period.
In addition to the Committees described above, the Bank Board has
established the Loan, Investment and Community Reinvestment Act ("CRA")
Committees.
There are no arrangements or understandings between the Company or any
person(s) pursuant to which any person is or was selected as a director or
nominee. There is no family relationship between any director, any Board
Nominee, any executive officer or any significant employee of the Company,
except that Brian J. Conway is the nephew of Robert J. Conway and Bruce M.
Barnet is the son-in-law of George R. Irvin.
No director, Board Nominee, officer, or affiliate of the Company, or
any owner of record or beneficially of more than five percent (5%) of the Common
Stock or any associate of such parties is, or has been involved in any legal
proceedings as a party adverse to the Company or its subsidiaries or has a
material interest adverse to the Company or its subsidiaries. During the past
five years no director, Board Nominee, executive officer, promoter or control
person is or has been involved in any proceeding of a nature requiring
disclosure herein which is material to an evaluation of the ability or integrity
of such director, Board Nominee or executive officer or to the stockholders'
voting or investment decision.
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TRANSACTIONS WITH CERTAIN RELATED PERSONS
- --------------------------------------------------------------------------------
Savings associations such as the Bank are subject to the restrictions
contained in Section 22(h) of the Federal Reserve Act (as implemented by
provisions of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA")) and the Federal Reserve Board's Regulation O thereunder on
loans to executive officers, directors and principal stockholders. Under
Section 22(h), loans to a director, executive officer and to a greater than
10.0% stockholder of a savings association and certain affiliated interests of
such persons may not exceed, together with all other outstanding loans to such
person and affiliated interests, the institution's loans-to-one-borrower limit
(generally equal to 15.0% of the institution's unimpaired capital and surplus).
Section 22(h) also generally prohibits the making of loans above amounts
prescribed by the appropriate federal banking agency to directors, executive
officers and greater than 10.0% stockholders of a savings association and their
respective affiliates, unless such loan is approved in advance by a majority of
the board of directors of the institution with any "interested" director not
participating in the voting. Regulation O prescribes the loan amount (which
includes all other outstanding loans to such person) as to which such prior
board of director approval is required as being the greater of $25,000 or 5.0%
of the association's unimpaired capital and unimpaired surplus (up to $500,000).
Further, Section 22(h) requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same as, and following
credit-underwriting procedures that are not less stringent than, those offered
in comparable transactions to other persons and that do not involve more than
normal risk of repayment or present other unfavorable features, except that
extensions of credit to directors, executive officers, and principal
shareholders are permitted as long as the extension of credit is made pursuant
to a pension or benefit program that is widely available to employees and does
not give preference to directors, executive officers, and principal
shareholders. Section 22(h) also generally prohibits a depository institution
from paying the overdrafts of any of its executive officers or directors, unless
the payment of funds is made in accordance with a written, pre-authorized
interest-bearing extension of credit plan that specifies a method of payment or
a written, pre-authorized transfer of funds from another account of the account
holder at the institution.
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<PAGE>
Savings associations also are subject to the requirements and
restrictions of Section 22(g) of the Federal Reserve Act (as implemented by
FDICIA) and Regulation O on loans to executive officers. Under Section 22 (g),
the Bank is prohibited from extending credit, unless secured by a perfected
security interest in qualifying United States or United States agency
obligations or a deposit account in the lending bank, to its executive officers,
except to finance the purchase, construction, maintenance or
improvement of the executive's residence or the education of the executive's
children or if for any other purpose the aggregate loans do not exceed at any
one time the higher of $25,000 or 2.5% of the institution's unimpaired capital
and unimpaired surplus but in no event more than $100,000. Under OTS
regulations in effect prior to the FIRREA and FDICIA amendments, similar
restrictions applied; however, a savings association could make loans such as
residential mortgage loans and consumer loans to officers and directors (and
other employees) at favorable interest rates and loan fees if certain procedures
were followed.
Although the Company does not, the Bank may from time to time make
loans to the directors and executive officers of the Company or the Bank or
members of their families, as well as to members of the public. In keeping with
earlier applicable OTS regulations, the loans were made by the Bank in the past
in the ordinary course of business and on substantially the same terms and
conditions, except for reduced interest rates and loan fees, as those of
comparable transactions prevailing at the time, and did not involve more than
the normal risk of repayment or present other unfavorable features. The Bank's
policy during fiscal 1997 complied in all respects with Sections 22(g) and 22(h)
of the Federal Reserve Act and Regulation O and provided, among other things,
that all loans made by the Bank to its directors and executive officers which,
when aggregated with all other extensions of credit to that director or
executive officer, exceeded $350,000 were required to be approved by the Bank
Board, be 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 not involve more than the
normal risk of collectability or present other unfavorable features.
Mr. Barnet is the sole shareholder and President of Sunset Developers,
Inc. which until October 3, 1996 served as a real estate advisor and rendered
real estate services to the Bank and to subsidiaries of the Bank, pursuant to an
advisory agreement dated April 1, 1996 (1996 Advisory Agreement), covering 11
separate Bank owned properties. The 1996 Advisory Agreement consolidated four
separate Advisory Agreements previously existing between the Bank and Sunset
Developers. In connection with the 1996 Advisory Agreement, Sunset Developers
was entitled to an hourly fee for services rendered for each property covered
under the 1996 Advisory Agreement and result-based additional compensation for
10 of the properties covered under the 1996 Advisory Agreement. Sunset
Developers, Inc. received a total of $304,939 in fees from the Bank during the
fiscal year ended September 30, 1996. In connection with Mr. Barnet's joining
the Bank and Company on October 3, 1996 as Executive Vice President, Director of
Real Estate and Development, the 1996 Advisory Agreement was terminated pursuant
to a Termination Agreement dated October 3, 1996. Pursuant to the terms of the
Termination Agreement, all amounts due and owing to Sunset Developers were paid
by the Bank, and Sunset Developers released the Bank from any claims for
additional compensation and payment. The Company believes that the terms and
conditions of its relationship with Sunset Developers, Inc. were as favorable as
those that could be obtained from arms length negotiations with unassociated
third parties.
Mr. Buxton is an agent for certain large insurance companies. In such
capacity, he has acted as the agent for certain life and health insurance
policies provided by the Bank to its executive officers and other employees.
During fiscal 1997, the Bank paid $562,950 in premiums to these insurance
companies in connection with such policies and Mr. Buxton received compensation
from such insurance companies in connection therewith.
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BENEFICIAL OWNERSHIP REPORT
- --------------------------------------------------------------------------------
Section 16(a) of the Exchange Act and regulations promulgated
thereunder require the Company's directors and executive officers, and persons
who own more than 10% of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission (the "SEC") and the NASDAQ
reports of ownership and changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended September 30, 1997.
- --------------------------------------------------------------------------------
DIRECTOR'S COMPENSATION
- --------------------------------------------------------------------------------
DIRECTOR FEES. Non-employee members of the Board of Directors receive
an annual retainer of $6,000 and non-employee members of the Bank Board receive
an annual retainer of $18,000. In addition, each such member receives a fee of
$1,000 per meeting for attendance at Board meetings and a fee of $500 per
meeting for attendance at Committee meetings. For Board meetings of the Company
and the Bank held on the same day, only one fee is paid to cover both meetings.
For Committee meetings of the same Committee of the Company and the Bank held on
the same day, only one fee is paid for both meetings. Mr. Waters, Chairman of
the Audit Committee, and Mr. Chapdelaine, Chairman of the Compensation
Committee, each receive one Committee retainer fee of $12,000 per annum for
serving as Chairman of his Committee of the Company and the Bank, in addition to
any other compensation that they receive as members of the Board of Directors or
the Bank Board. Committee Chairmen who receive such a retainer receive no
additional compensation (e.g., Committee meeting fees) for serving in that
capacity regardless of the number of meetings held. Directors who are employees
of the Bank receive no fees or retainers. In addition, Mr. Canuso, Mr. Wenk,
Dr. Tormey and Mr. Baydala provide consulting services to the Bank. For these
services, Mr. Canuso receives a consulting fee of $30,000 per annum, Mr. Wenk
receives a consulting fee of $1,000 per month, and Dr. Tormey receives a
consulting fee of $1,000 per month. Mr. Wenk's consulting agreement was
terminated on March 1, 1997. Mr. Baydala receives a consulting fee of $500 per
Loan Committee meeting attended and $600 per day during which he performs loan
inspections and appraisals; such fees are expected to approximate between
$26,000 and $29,000 per annum.
The Company maintains a deferred fee plan for directors whereby
directors may elect to defer any or all fees earned for their services as a
director. During fiscal 1997, Messrs. Robert J. Conway and Lawrence W. Peters
deferred current fees paid pursuant to this plan.
OPTION PROGRAM FOR NON-EMPLOYEE DIRECTORS. The Company maintains a
non-employee director stock option program. The program automatically grants to
directors of the Company who are not employees of or consultants to the Bank or
the Company non-statutory options to acquire a fixed number of shares of Common
Stock. Under the program, each outside director received, in connection with
the consummation of the Bank's conversion from mutual to stock form, the
concurrent issuance of the Bank's capital stock to the Company and the sale of
the Company's Common Stock to the public (the "Conversion"), an option to
acquire a number of shares of the Common Stock equal to (a) 41,400 shares, plus
(b) 1,035 shares for each full and partial year of service by any such outside
director on the Bank Board (a "Conversion Grant"). Each new outside director
will receive an option to acquire 2,588 shares of the Common Stock, as of the
date of appointment or election to the Board of Directors (an "Initial
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Grant"). On each anniversary of any Conversion Grant and Initial Grant each
continuing outside director shall automatically receive an option to acquire 518
shares of the Common Stock. These additional options will be granted subject to
the availability of options within the program. Outside directors have to date
received fixed option awards, depending upon length of service on the Bank
Board, covering an aggregate 711,061 shares of Common Stock before forfeitures,
including an aggregate of 5,180 shares of Common Stock covering the 1997
automatic grant of options. Currently, 95,930 shares remain available for
future fixed option awards, as described above, to new outside directors and
current outside directors who continue to serve on the Board of Directors. The
exercise price per share of each option equals the fair market value of the
underlying shares of Common Stock on the date of grant of such option. All
options granted under the program become exercisable as to one-fifth of the
underlying shares on each of the first five anniversaries of the date of grant.
All option grants expire upon the earlier of ten years following the date of
grant, or, in the event of an involuntary termination, as defined in the
program, one year following the date the optionee ceases to be a director of the
Company. In the event of an involuntary termination, or upon the occurrence of
a change in control, as defined in the program, all options granted to an
outside director become 100% exercisable. In the event of a voluntary
termination, as defined in the program, the outstanding options will
automatically expire on the date of any such termination.
MANAGEMENT RECOGNITION AND RETENTION PLAN FOR NON-EMPLOYEE DIRECTORS.
The Bank maintains a management recognition and retention plan for directors of
the Bank and the Company who are not employees of or consultants to the Bank or
the Company. The plan provides for the automatic fixed grant of 17,913 shares
of restricted Common Stock to those individuals (a) who were directors of the
Company and the Bank on the date of the Conversion and (b) who are subsequently
elected or appointed as a director of both the Company and the Bank. To date,
outside directors as a group have received, in the aggregate, awards of 197,043
shares of restricted Common Stock net of forfeitures under the plan. 35,832
shares of restricted Common Stock remain available for future grants under the
plan. All grants of shares of restricted Common Stock vest at a rate of one-
fifth on each of the first five anniversaries of the date of grant. In the
event of a termination of board membership, other than a termination due to
retirement after age 75, death, or disability (as defined in the plan), all
unvested shares of restricted Common Stock will be forfeited by the former
director. In the event of any such retirement, death, or disability, or any
change in control, as defined in the plan, of the Company or the Bank, all
shares of restricted Common Stock become fully vested as of the date of any such
termination or change in control.
HEALTH CARE COVERAGE. The Bank has made available a plan of health
care coverage to directors who are not employees of the Bank or the Company and
who wish to participate in the plan. Such directors may choose to receive
health care coverage under one of the plans offered by the Bank. These include
a traditional reimbursement option, a point of service option, or a selection of
health maintenance organizations.
RETIREMENT BENEFIT PLAN. The Bank has adopted a non-qualified
Retirement Benefit Plan for directors who are not employees of the Bank or the
Company ("Eligible Directors"). Upon retirement from the Board of Directors at
age 65 or older, with a minimum of 15 years of service, the retirement benefits
provide continuation of the annual retainers received by Eligible Directors from
the Bank and the Company and Board meeting fees at the then current rate for a
period of ten years following retirement. In the event that an Eligible
Director retires from the Board of Directors with a minimum of five but less
than 15 years of service, such Eligible Director shall receive pro-rated
retirement benefits based on the years of service. Mr. Baydala is currently
receiving annual benefits of $36,000 under the Retirement Benefit Plan.
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EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
THE REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION 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 OR THE EXCHANGE ACT, EXCEPT AS TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE,
AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committees of the Bank and the Company (together,
the "Committee") are identically constituted and, at the direction of the Board
of Directors, have jointly prepared the following report for inclusion in this
Proxy Statement. The Committee is comprised of Messrs. Chapdelaine, DeMatteis,
Wenk, and Swanson, four non-employee directors who are "disinterested persons"
within the meaning of Rule 16b-3 of the Exchange Act. The Committee has the
responsibility for all compensation matters concerning the Company's and the
Bank's executive officers.
COMPENSATION PHILOSOPHY. The executive compensation program links
management pay with the Company's annual and long-term performance. The program
is intended to attract and retain highly-qualified senior managers by providing
compensation opportunities that are consistent with the Company's performance.
The program provides for base salaries that reflect such factors as level of
responsibility, individual performance, internal fairness, and external
competitiveness, annual incentive bonus awards that are payable in cash for the
achievement of strategic acquisitions and/or divestitures, loan production,
improvement in asset quality, increased fee income, introduction of innovative
products and services, and the achievement of other significant annual financial
and operational objectives. The program also provides long-term incentive
opportunities in the form of stock options and restricted shares that strengthen
the mutuality of interest between management and the Company's stockholders and
encourage management continuity. From time to time, the Committee utilizes the
services of a recognized, external consulting firm to assess marketplace
compensation values and practices, and to assess the reasonableness of the
overall compensation program.
The Company strives to provide motivational compensation opportunities
that effectively and appropriately reward management for the achievement of
critical performance objectives. The Committee supports a pay-for-performance
policy that determines executive compensation amounts based on both corporate
and individual performance. Salaries and annual bonuses for senior corporate
executives are therefore based on the overall performance of the Company and on
their personal contributions to that performance. In addition, the program
provides stock incentive opportunities designed to align the interests of
executives and other key employees with other stockholders through the ownership
of Common Stock.
Effective January 1, 1994, Internal Revenue Code of 1986, as amended
(the "Code") Section 162(m) places a limitation of $1 million per officer on the
deductibility of certain elements of compensation paid to the Named Executive
Officers (as defined below) of the Company and the Bank. As stated above, the
Committee designs its compensation arrangements to achieve various objectives.
Because of the importance placed by the Committee on establishing appropriate
compensation arrangements that will achieve these objectives, the Committee has
not taken into account the impact of Section 162(m) of the Code and does not
believe that the tax law should dictate compensation policies or have a
significant effect in determining compensation policies and practices for the
Company's executive officers. The Committee continues to study whether it is
possible or desirable to cause compensation arrangements in the future to be
exempt from the limitation imposed under Section 162(m) of the Code. To the
extent that the Committee's compensation objectives can be achieved in a manner
that maximizes the deductibility of compensation paid by the Company, it will
seek to do so.
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<PAGE>
The following is a discussion of each of the elements of the Company's
executive compensation program, including a description of the decisions and
actions taken by the Committee with respect to fiscal 1997 compensation for the
Chief Executive Officer (the "CEO") and all executive officers as a group.
MANAGEMENT COMPENSATION PROGRAM. Compensation paid to the Company's
executive officers in the fiscal year ended September 30, 1997 (as reflected in
the tables that follow with respect to the Named Executive Officers) consisted
of the following elements: base salary, annual incentive bonus, restricted
shares under the Management Recognition and Retention Plan for Executive
Officers and stock options under the Stock Incentive Plan. Total annual cash
compensation for each executive officer varies each year based on the Company's
achievement of its annual objectives and the individual's performance.
With respect to determining the base salary of executive officers, the
Committee takes into consideration a variety of factors, including the
executive's level of responsibility and individual performance, the salaries of
similar positions in the Company, comparable companies in our industry and the
financial and operational performance of the Company in relation to its
competition in the industry. The Company participates in and reviews various
industry salary surveys. In addition, the Committee may, from time to time,
utilize the services of independent consultants to assess comparable external
salaries.
The Company's annual incentive bonus to its executive officers
(including the Named Executive Officers) is based on the achievement of
objective, financial, and operational performance targets and the discretion of
the Committee. These targets may include net operating income, completion of
certain strategic business transactions, attainment of certain critical
financial ratios, and other performance objectives as may be determined
annually. In determining individual incentive bonus awards, accountability of
executive officers and individual contributions towards the attainment of these
objectives are considered. In determining specific awards for the fiscal year
ended September 30, 1996, which were paid during fiscal 1997, the Committee
placed considerable emphasis on loan production, continued growth of market
share, financial performance as reflected by net income, and the introduction of
innovative relationship banking products in determining annual incentive bonus
for the Company's executive officers. The calculation of the Company's
financial performance with respect to the determination of these incentive bonus
awards is made as soon as is practicable after the completion of the Company's
fiscal year.
The long-term retention element of the management compensation program
is in the form of restricted share grants. These restricted shares are granted
and administered by the Committee under the Executive Officer MRP. The
Committee and the Board of Directors believe that providing executive officers
with stock ownership opportunities significantly aligns the interests of the
executives with stockholders and encourages the executives' long-term retention.
Restricted share grants under the Executive Officer MRP also recognize the past
contributions of these employees and provide an additional incentive for
shareholder value creation. On December 19, 1996, the Committee granted certain
officers and key employees (including the Named Executive Officers) restricted
shares that vested (with respect to the lapse of restriction) at the rate of 50%
on March 29, 1997 and 50% will vest on March 29, 1998.
The long-term incentive element of the Company's management
compensation program is in the form of stock option grants. These stock options
are granted and administered by the Committee under the Company's Stock
Incentive Plan (the "Plan"). The Plan is intended to create an opportunity for
executive officers and other key employees of the Company to acquire a
proprietary interest in the Company and thereby enhance their efforts in the
service of the Company and its stockholders.
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On the Grant Date (March 29, 1994), the Committee granted to certain
executive officers (including the Named Executive Officers) and certain other
key employees of the Company, stock options with an exercise price of $11.50 per
share that was the initial offering price (and then current fair market value)
of the Common Stock. Of the stock options granted to each executive officer and
key employees, 20% become exercisable on each succeeding anniversary of the
Grant Date. In 1995 stock options with an exercise price of $17.81 per share
(the current fair market value at grant date) were granted to executive officers
and certain key employees These options became exercisable in 20% annual
installments beginning on March 29, 1996. On December 19, 1996, options with an
exercise price of $33.625 per share (the then current fair market value) were
granted to executive officers and certain key employees. The Committee believes
that by rationing the exercisability of these stock options over a five-year
period, the executive retention impact of the Plan will be strengthened and
management's motivation to enhance the value of the Common Stock will be
influenced positively.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. John J. Conefry, Jr.,
Chairman and Chief Executive Officer of the Company, joined the Bank on
September 6, 1993 as Vice Chairman of the Bank Board. On November 23, 1993, he
was elected Chief Executive Officer of the Bank and on January 25, 1994 he was
elected Chairman of the Bank Board. On September 7, 1996, he was elected to the
additional position of President which he held until March 1, 1997, when Mr.
Lawrence W. Peters was appointed President and COO. Mr. Conefry has served as
the Chairman of the Board of Directors and Chief Executive Officer of the
Company since December 21, 1993. In consideration of Mr. Conefry's assumption
of these responsibilities the Company entered into an employment agreement with
Mr. Conefry that provided for a base salary of $600,000 per year through
December 31, 1995 and $700,000 per year beginning January 1, 1996. This amount
was determined based on an assessment of the degree of accountability of the
Chairman and Chief Executive Officer position during this critical period in the
Bank's and the Company's history, as well as an assessment of competitive
marketplace compensation for positions of comparable responsibility among
similar financial institutions. This employment agreement provides that the
base salary amount may be reviewed annually and adjusted at the sole discretion
of the Board of Directors. Similar agreements were entered into with other
executive officers of the Company in order to maintain a stable and competent
management group through and after the Conversion.
Mr. Conefry was awarded a bonus of $400,000 in December 1997 for the
fiscal year ended September 30, 1997 in recognition of his accountability for
adding shareholder equity value and for his contributions to the Company's
meeting its targeted performance objectives for the year. With respect to the
long-term retention and incentive elements of Mr. Conefry's compensation, grants
of restricted shares (as identified in the tables below) were made during fiscal
1997 and were based on the practices of comparable companies in our industry as
well as in recognition of Mr. Conefry's leadership and his level of
responsibility and seniority.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
Richard F. Chapdelaine, Frederick DeMatteis Robert S. Swanson, Jr. Donald D. Wenk
Chairman
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One of the responsibilities of the Compensation Committee is to
determine the level of compensation for executive officers of the Company. The
Compensation Committee for 1997 consisted of directors Chapdelaine, DeMatteis,
Wenk, and Swanson, none of whom are officers or employees of or consultants to
the Company, the Bank or any of their subsidiaries.
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Although the Company does not, the Bank may, from time to time, make
loans to the Company's and the Bank's directors, executive officers, or members
of their families, subject to certain regulatory restrictions applicable
thereto. All loans outstanding to members of the Compensation Committees of the
Company or the Bank or to members of the Boards of Directors of the Company or
the Bank were made in the ordinary course of business of the Bank, were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the times the loans were made for comparable transactions with
other persons (except for reduced interest rates and loan fees for certain loans
made prior to August 9, 1989 under the applicable OTS regulations), and do not
involve more than the normal risk of collectability or present other unfavorable
features.
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STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
return on the Common Stock since April 14, 1994 (the date of the consummation of
the Conversion) with the cumulative total returns of both a broad equity market
index and a published industry index. The broad equity market index chosen was
the Nasdaq National Composite Index and the published industry index chosen was
the NASDAQ Bank Composite Index. The Common Stock began trading on April 14,
1994. As a result, the graph may not be indicative of possible future
performance of the Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
THE COMMON STOCK, NASDAQ NATIONAL COMPOSITE INDEX
AND NASDAQ BANK COMPOSITE INDEX (1)
[GRAPH OMITTED]
<TABLE>
<S> <C> <C> <C> <C>
GRAPH COORDINATES 4/14/94 9/30/94 3/31/95 9/30/95
LISB 100.00 133.63 147.31 206.23
NASDAQ BANK COMPOSITE INDEX 100.00 113.40 113.06 142.30
NASDAQ NAT'L COMPOSITE INDEX 100.00 105.49 113.32 144.96
<CAPTION>
<S> <C> <C> <C> <C>
GRAPH COORDINATES 3/31/96 9/30/96 3/31/97 9/30/97
LISB 236.74 243.06 278.30 395.62
NASDAQ BANK COMPOSITE INDEX 154.63 168.85 202.42 278.29
NASDAQ NAT'L COMPOSITE INDEX 152.98 171.26 170.37 236.57
</TABLE>
LISB Common Stock
NASDAQ National Composite Index
NASDAQ Bank Composite Index
____________________
(1) Assumes $100 invested on April 14, 1994 and all dividends reinvested
through the end of the Company's fiscal year ended September 30, 1997.
The price of the Common Stock issued at the Conversion was $11.50 per
share. The performance graph above is based upon closing prices on the
trading day specified. The Common Stock closed on April 14, 1994, its
first day of trading activity, at $11.875 per share.
-19-
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company or
any of its subsidiaries for services during the three fiscal years ended
September 30, 1997 to the Chief Executive Officer and the four highest paid
executive officers of the Company or its subsidiaries who each received total
salary and bonus in excess of $100,000 (the "Named Executive Officers"). In
addition, one executive officer of the Company who resigned during the year is
included in the table.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
RESTRICTED SECURITIES
NAME AND FISCAL SALARY BONUS OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITIONS (16) YEAR ($) ($) COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
- ------------------------ ---- ---- --- ($)(1) ($)(2) (#)(3) ($)(4) ($)(5)
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J.Conefry, Jr.(6).... 1997 700,000 400,000 0 170,000 30,000 0 59,210(7)
Chairman, Chief Executive
Officer and Director 1996 673,076 400,000 0 112,169 0 0 56,420
1995 600,000 350,000 0 712,500 0 0 98,728
Joseph P. Bryant (8)...... 1997 241,346 -0- 0 68,000 10,000 0 198,028(9)
Former Executive
Vice President 1996 248,076 125,000 0 28,356 0 0 31,680
1995 225,000 125,000 0 151,406 31,050 0 67,891
Bruce M. Barnet (10)...... 1997 218,077 50,000 0 0 30,741 0 12,797(11)
Director
Executive Vice President 1996 - - - - - - -
1995 - - - - - - -
W. Douglas Singer (12).... 1997 180,000 60,000 0 51,000 10,000 0 18,166(13)
Executive Vice President
and Treasurer 1996 180,000 45,000 0 29,334 0 0 20,141
1995 160,000 70,000 0 151,406 0 0 15,938
Mark Fuster (12).......... 1997 180,000 60,000 0 51,000 10,000 0 19,799(14)
Executive Vice President
and Chief Financial Officer 1996 180,000 45,000 0 30,731 0 0 19,955
1995 160,000 60,000 0 151,406 0 0 15,598
Robert T. Volk............ 1997 174,615 50,000 0 51,000 10,000 0 18,795(15)
Executive Vice President 1996 160,000 45,000 0 29,334 0 0 18,746
1995 155,962 80,000 0 151,406 0 0 18,334
</TABLE>
-20-
<PAGE>
(1) For fiscal 1997, there were no (a) perquisites with an aggregate value
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) payments of earnings with respect to
long-term incentive plans prior to settlement or maturation; or (d)
preferential discounts on stock.
(2) In fiscal 1995, 1996, and 1997 restricted stock awards were granted
under the Bank's Executive Officer MRP. The 1997 awards were 5,000,
2,000, 0, 1,500, 1,500 and 1,500 shares of Common Stock to Messrs.
Conefry, Bryant, Barnet, Singer, Fuster, and Volk respectively. The
dollar value of such 1997 awards set forth in the above table is based
upon $34.00 per share, which was the fair value of the Common Stock on
the date of the award of such grants. The dollar value of all unvested
awards based upon the closing price of the Common Stock of $47.00 per
share as reported on the NASDAQ system on September 30, 1997 is
$235,000, $94,000, $70,500, $70,500, and $70,500 respectively. The 1997
awards for Messrs. Conefry, Bryant, Singer, Fuster and Volk vested on
March 29, 1997, in the amounts of 2,500, 1,000, 750, 750 and 750 shares
respectively. The balance of the 1997 awards will vest on March 29,
1998.
(3) Reflects options granted under the Company's 1994 Stock Incentive Plan.
For a discussion of the terms of the grant and the vesting of options,
see "Option Grants in Last Fiscal Year" and the corresponding tables.
(4) For fiscal 1995, 1996 and 1997 the Bank had no long-term incentive
plans. Consequently, there were no payouts or awards under any
long-term incentive plan.
(5) Amounts include contributions to the 401(k) Savings Plan and Employee
Stock Ownership Plan, and the imputed income on the value of split
dollar life insurance and premiums paid for group term life insurance
policy. The split dollar life insurance policies are also owned by the
individuals but any cash surrender value proceeds received on
termination of a policy will be first used to refund the premiums paid
by the Company with respect to such policy.
(6) On November 23, 1993, John J. Conefry, Jr. was elected Chief Executive
Officer of the Bank. On January 25, 1994, he was elected Chairman of
the Bank Board. Mr. Conefry held the additional position of Presidency
of the Company and the Bank between September 7, 1996 and March 1, 1997.
As of January 1, 1996 his annual salary was increased to $700,000.
(7) Includes (i) imputed income on the value of split dollar life insurance
in the amount of $4,503, (ii) premium for group term life insurance in
the amount of $5,472, (iii) personal use of a company-provided
automobile in the amount of $9,248, (iv) 401(k) Savings Plan
contribution in the amount of $1,454, (v) ESOP contributions in the
amount of $9,750, and (vi) dividends on unvested restricted stock awards
of $28,783.
(8) Mr. Bryant resigned on June 17, 1997.
(9) Includes (i) severance payment in the amount of $175,000, (ii) premiums
for group term life insurance and split dollar life insurance in the
amounts of $1,457 and $1,293 respectively, (iii) personal use of a
company provided automobile in the amount of $4,830, (iv) ESOP
contributions in the amount of $9,750, (v) dividends on unvested
restricted stock awards of $3,421, and (vi) imputed cost of fringe
benefits of $2,277.
(10) Mr. Barnet was elected Executive Vice President on October 3, 1996.
-21-
<PAGE>
(11) Includes (i) premiums for group term life insurance and split dollar
life insurance in the amounts of $800 and $829, respectively, (ii)
personal use of company-provided automobile in the amount of $6,331, and
(iii) dividends on unvested restricted stock awards of $4,837.
(12) Effective September 22, 1997, the annual salaries of Messrs. Singer and
Fuster was increased to $215,000 per annum.
(13) Includes (i) premiums for group term life insurance and split dollar
life insurance in the amounts of $765 and $1,002, respectively, (ii)
401(k) Savings Plan contribution in the amount of $658, (iii) ESOP
contributions in the amount of $9,750, and (iv) dividends on unvested
restricted stock awards of $5,991.
(14) Includes (i) premiums for group term life insurance and split dollar
life insurance in the amounts of $1,132 and $982, respectively, (ii)
401(k) Savings Plan contribution in the amount of $1,931, (iii) ESOP
contributions in the amount of $9,750, and (iv) dividends on unvested
restricted stock awards of $6,004.
(15) Includes (i) premiums for group term life insurance and split dollar
life insurance in the amounts of $664 and $831, respectively, (ii)
401(k) Savings Plan contributions in the amount of $1,559, (iii) ESOP
contributions in the amount of $9,750, and (iv) dividends on unvested
restricted stock awards of $5,991.
(16) Mr. Peters was elected President and Chief Operating Officer of both the
Company and the Bank on March 1, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table lists all grants of options under the
Company's 1994 Stock Incentive Plan to the Named Executive Officers in fiscal
1997 and contains certain information about the potential value of such options
based upon certain assumptions to the appreciation of the Common Stock over the
life of the option.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE
----------------- APPRECIATION FOR
OPTION TERM(3)
----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE EXPIRATION
NAME GRANTED (#) EMPLOYEES PRICE DATE 5%($) 10%($)
- ---- (1) IN FISCAL ($/SH) ---- ----- ------
---------- YEAR(2) ---------
(%)
---------
<S> <C> <C> <C> <C> <C> <C>
John J. Conefry, Jr. 30,000 22.2 $33.625 3/28/2007 $634,397 $1,607,688
Joseph P. Bryant(4) 10,000 7.4 $33.625 3/28/2007 $211,466 $ 535,896
Bruce M. Barnet 30,741 22.7 (5) 12/19/2006 $229,105 $ 580,768
W. Douglas Singer 10,000 7.4 $33.625 3/28/2007 $211,466 $ 535,896
Mark Fuster 10,000 7.4 $33.625 3/28/2007 $211,466 $ 535,896
Robert T. Volk 10,000 7.4 $33.625 3/28/2007 $211,466 $ 535,896
</TABLE>
-22-
<PAGE>
(1) All options are intended to be incentive stock options to the extent
permitted under Section 422 of the Code. The grants will be exercisable
in equal installments commencing one year from the date of grant, at a
rate of 20% per year; provided, however, that all options will be 100%
exercisable in the event the optionee terminates his employment due to
death, disability, retirement or in the event of a change of control of
the Company.
(2) Based upon a total of 135,295 options granted to employees and
consultants during fiscal 1997.
(3) Assumes a term of the option of 10 years.
(4) Mr. Bryant forfeited 50% of options granted in fiscal 1997 when his
employment terminated on June 17, 1997.
(5) Mr. Barnet forfeited 30,741 options issued under the 1994 Non-Employee
Directors Stock Option Program when he was appointed Executive Vice
President on October 3, 1996. An equivalent option position was issued
to Mr. Barnet from the employee option plan on December 19, 1996
restoring the forfeited options.
The following table sets forth information with respect to (i)
the number of shares of Common Stock underlying unexercised stock options held
by the Named Executive Officers and (ii) the value of such unexercised
in-the-money options, both as of September 30, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING VALUE OF UNEXERCISED
ACQUIRED REALIZED UNEXERCISED OPTIONS IN-THE MONEY OPTIONS
NAME ON EXERCISE ($) AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) (#) ($) (1)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
John J. Conefry, Jr.... - - 179,565/124,710 $6,042,683/$4,095,330
Joseph P. Bryant....... 30,050 $625,617 - -
W. Douglas Singer...... - - 42,260/29,840 $1,389,605/$ 948,695
Mark Fuster............ - - 42,260/29,840 $1,389,605/$ 948,695
Robert T. Volk......... - - 42,260/29,840 $1,389,605/$ 948,695
Bruce M. Barnet........ - - 10,245/20,599 $ 360,743/$ 722,678
</TABLE>
____________________
(1) Based upon the difference between $47.00, the closing price of the
Common Stock as reported on the NASDAQ system on September 30, 1997, and
the $11.50 exercise price of the options granted in 1994 and the $33.625
exercise price in the case of options granted in 1997.
-23-
<PAGE>
EMPLOYMENT AND OTHER AGREEMENTS
The Bank has entered into employment agreements with Messrs.
Conefry, Peters, Bryant, Barnet, Singer, Fuster, and Volk (the "Bank
Agreements"). Messrs. Conefry, Peters, Bryant, Barnet, Singer, Fuster and Volk
have also entered into employment agreements with the Company (the "Company
Agreements"). To ensure that no duplicate payments or benefits are received by
Messrs. Conefry, Peters, Bryant, Barnet, Singer, Fuster and Volk, any amounts
paid or benefits provided by the Company under the Company Agreements to such
officers will reduce commensurately any obligation of the Bank to pay such
amounts under the Bank Agreements, and vice versa. The term of employment under
Mr. Bryant's employment agreement with the Bank and Company terminated on June
17, 1997 pursuant to a separation agreement between Mr. Bryant and the Bank and
Mr. Bryant and the Company dated June 17, 1997.
The Bank Agreements and the Company Agreements establish the
respective duties and compensation of these officers and were intended to ensure
that the Bank and the Company would be able to maintain stable and competent
management. The Company Agreements provide for a three-year term of employment
for each officer as do their employment agreements with the Bank. Upon the
satisfactory completion of an annual performance review, the Bank Board, in its
sole discretion, may approve, as of each anniversary of the date of each of the
Bank Agreements, a one year extension of the officer's term of employment
thereunder. The term of employment under the Company Agreements will be
automatically extended on each anniversary of the date thereof for an additional
one year period unless, six months prior to any such anniversary, the relevant
officer or the Company elects not to extend (or further extend) the term of
employment thereunder. The annual base salary amounts for Messrs. Conefry,
Barnet, Singer, Fuster and Volk under their employment agreements are $700,000,
$225,000, $215,000, $215,000 and $180,000 respectively. The Bank Agreements and
the Company Agreements also provide that the base salary of the officers will be
reviewed annually for increase in the sole discretion of the Board of Directors
or the Bank Board, as the case may be. In addition to such base salary, the
Bank Agreements and the Company Agreements also provide for, among other things,
annual bonus payments (in the sole discretion of the Board of Directors or the
Bank Board, as the case may be), disability pay, entitlement to participate in
incentive, retirement, savings and welfare benefit plans, business expense
reimbursement, vacation and other benefits. Mr. Peters' Agreement with the
Company and Bank provides for a term of employment through December 31, 1998
with a base salary of $375,000 per annum. The term of Mr. Peters' employment
may be extended upon written agreement of the parties.
The Bank Agreements and the Company Agreements provide for
termination by the Bank or the Company, as the case may be, with or without
"cause" (as defined in the relevant employment agreements) at any time. In the
event that the Bank or the Company chooses to terminate the officer's employment
without cause or if the officer resigns from the Bank or the Company for "good
reason" (as defined in the relevant employment agreements), including, without
limitation, (i) failure of the Bank Board or the Board of Directors, as the case
may be, to appoint or reappoint the officer to his stated offices, (ii) a
material change in any officer's functions, duties or responsibilities causing
his or her position with the Bank or the Company to become one of lesser
responsibility, importance, or scope, (iii) any reduction in base salary or a
material reduction in other benefits, or (iv) a "change in control" (as defined
in the relevant employment agreements) of the Bank or the Company, the officer
will be entitled to a lump sum severance payment equal to three times such
officer's highest annual base salary and bonus payment. The Bank or the
Company, as the case may be, will also be required to continue the officer's
life, health, accident, dental and disability coverage for up to three years.
The officer would also be entitled to base salary through the date of
termination, any annual bonus previously awarded but not yet paid, reimbursement
for business expenses incurred prior to termination but not yet paid, payment
for unused vacation days, any other compensation or benefits under the Bank's or
the Company's benefit plans to which the officer is otherwise entitled (the
"Standard Entitlements"), and certain indemnification rights (to the extent
permitted by the OTS). In the event of death, the officer's beneficiary will be
entitled to continuation of two-thirds of the officer's base salary for three
months or the same payable in one lump sum at the Bank's or the Company's
discretion, as the case may be, a prorated annual bonus for the year of death,
and the Standard Entitlements. In the event of termination upon retirement, the
agreements require continuation of life and health insurance coverage for one
year that is substantially identical to the coverage maintained for such
individual prior to retirement and the
-24-
<PAGE>
Standard Entitlements. In the event of a termination for cause, the officer
will only be entitled to the Standard Entitlements and to certain
indemnification rights (in both cases, where applicable, only to the extent
permitted by the OTS). In the event of a "voluntary termination" (as defined in
the relevant employment agreements), the officer will only be entitled to such
payments or benefits as he would be if terminated for cause. In the event an
officer is disabled he may be suspended and shall be entitled to receive
two-thirds of base salary for the period of time specified in the Bank
Agreements or the Company Agreements. In addition, a disabled officer shall be
entitled to continued coverage under life, health and other welfare benefit
plans while such officer is disabled.
If an officer's term of employment under the Bank Agreements or
the Company Agreements is not extended and such officer's employment with the
Bank and the Company has not previously been terminated thereunder (x) with or
without cause, (y) voluntarily or for good reason by the officer, or (z) due to
death, disability or retirement, the officer shall be entitled to receive, upon
termination of employment (other than for cause) and in lieu of any other
severance payments, base salary continuation for the period commencing on the
date of termination and ending six months thereafter. The present value of this
base salary continuation may be paid to any relevant officer in one lump sum.
Notwithstanding the above, if (a) there occurs a change in control during the
officer's term of employment under the Bank Agreements or Company Agreements,
(b) such officer's term of employment under the Bank Agreements or the Company
Agreements is not extended through the second anniversary of any such change in
control, and (c) the employment of any such officer is subsequently terminated
(other than for cause), such officer, in lieu of the special severance and
welfare benefit continuation described in the first sentence of this paragraph,
shall be entitled to receive the severance and benefits to which he would have
been entitled had his employment been terminated without cause.
If any amounts payable in connection with any change in control
are determined to be "excess parachute payments" under Section 280G of the Code
resulting in the imposition of the 20% excise tax on such payments under Section
4999 of the Code, each officer will receive from the Company an additional
amount such that the effect of the imposition of that excise tax is effectively
eliminated.
To provide additional employment incentive to certain executives,
the Bank, in accordance with the terms of the Deferred Pension Plan (the
"Deferred Plan"), will provide a specified benefit, payable in 40 equal
quarterly installments to each participant upon reaching age 65. Generally, a
participant becomes vested in his benefit under the Deferred Plan at the rate of
10% on each anniversary of the participant's participation in the Deferred Plan.
Mr. Fuster will not be subject to the Deferred Plan's non-competition forfeiture
provisions unless he voluntarily terminates his employment with the Bank. The
Deferred Plan is a non-qualified plan and was adopted effective January 1, 1987.
The benefit payable under the Deferred Plan to Mr. Fuster is $250,000. Messrs.
Conefry, Barnet, Singer and Volk are not participants in the Deferred Plan. Mr.
Peters is currently receiving annual payments under this plan of $75,000 per
annum.
The Federal Deposit Insurance Corporation ("FDIC") has adopted
regulations that limit the payment, by banking institutions experiencing
financial difficulties, of "golden parachutes" and certain other benefits. The
golden parachute regulations prohibit any insured depository institution
(including its holding company, subsidiaries or affiliates) which is insolvent,
for which a conservator or receiver has been appointed, and as to which a
determination that such insured depository institution is troubled has been
made, and which has been assigned a composite OTS CAMEL rating of 4 or 5, or as
to which a proceeding to terminate deposit insurance has been instituted, from
making any payments that are contingent on or payable on or after termination of
employment, unless such payment falls within certain specific exceptions,
including payments under tax-qualified pension or retirement plans, bona fide
deferred compensation plans, non-discriminatory severance pay plans and payments
on account of death or disability. With certain exceptions, the regulations
also generally prohibit all insured depository institutions, their subsidiaries
and affiliated holding companies, regardless of their financial health, from
making certain indemnification payments for civil money penalties or other
enforcement action. If the Bank's or the Company's financial position at the
time of a change in control (or other termination other than for cause) is such
that it is subject to the regulations, termination payments under the Bank
Agreements and the Company Agreements may be limited.
-25-
<PAGE>
Under the Bank Agreements and the Company Agreements, the Bank
and the Company have agreed to indemnify the officers and hold them harmless, to
the fullest extent permitted by law and the OTS, against all expense, liability
and loss reasonably incurred by such officers as a consequence of being involved
in a legal action by reason of the fact that the officer was an executive or
director of the Bank or the Company. Such indemnification shall continue after
the officer shall cease to be an executive or director of the Bank or the
Company.
OTHER BENEFITS
RETIREMENT PLAN. The Bank has maintained a non-contributory,
tax-qualified defined benefit pension plan (the "Retirement Plan") for eligible
employees since 1940. All employees at least age 21 who have been employed for
a twelve-month period and are salaried employees, and are not paid on a
commission basis, are eligible to participate in the Retirement Plan. The
Retirement Plan provides for a benefit for each participant, including the
executive officers named in the executive compensation table above, equal to the
sum of (i) a participant's benefit accrued under the Retirement Plan as of
December 31, 1995 (as described below), plus (ii) 1.5% of the participant's
5-year average annual compensation (i.e., average compensation during the
highest 60 consecutive months of the participant's final 120 months of
employment) multiplied by the participant's years (and any fraction thereof) of
full-time employment after December 31, 1995, reduced by 1% of the participant's
primary social security benefit multiplied by the participant's years (and any
fraction thereof) of full-time employment after December 31, 1995. A
participant's benefit accrued under the Retirement Plan as of December 31, 1995
is equal to 2% of the participant's 3-year average annual compensation (i.e.,
average compensation during the highest 36 consecutive months of the
participant's final 120 months of employment) multiplied by the participant's
years (and any fraction thereof) of full-time employment before January 1, 1996,
reduced by 1% of the participant's primary social security benefit multiplied by
the participant's years (and any fraction thereof) of full-time employment from
January 1, 1986 to December 31, 1995. In no event can a participant receive
credit for more than 30 years of service. Compensation, as defined in the
Retirement Plan, excludes overtime payments, bonuses, other special payments or
awards, such as awards under the Executive Officer MRP and the 1994 Stock
Incentive Plan, and deferred compensation arrangements. A participant is fully
vested in his or her benefit under the Retirement Plan after five years of
service. For the 1995, 1996 and 1997 plan years, the Bank was not required to
make a contribution to the Retirement Plan.
-26-
<PAGE>
The following table illustrates annual pension benefits at age 65
under the current Retirement Plan provisions available at various levels of
compensation and years of service:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
REMUNERATION(1), (2) 15 20 25 30 35
-------------------- --- --- --- --- --
<S> <C> <C> <C> <C>
$125,000................ $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000................ 33,750 45,000 56,250 67,500 78,750
175,000................ 39,375 52,500 65,625 78,750 91,875
200,000................ 45,000 60,000 75,000 90,000 105,000
225,000................ 50,625 67,500 84,375 101,250 118,125
250,000................ 56,250 75,000 93,750 112,500 125,000(3)
300,000................ 67,500 90,000 112,500 125,000(3) 125,000(3)
400,000................ 90,000 120,000 125,000(3) 125,000(3) 125,000(3)
450,000................ 101,250 125,000(3) 125,000(3) 125,000(3) 125,000(3)
500,000................ 112,500 125,000(3) 125,000(3) 125,000(3) 125,000(3)
600,000................ 125,000(3) 125,000(3) 125,000(3) 125,000(3) 125,000(3)
</TABLE>
(1) The annual retirement benefits shown in the table do not reflect a
deduction for Social Security benefits, and there are no other offsets
to benefits. The amounts shown in the table do not include additional
benefits payable to Messrs. Peters and Fuster under the Deferred Pension
Plan. See discussion on Deferred Pension Plan under "Employment and
other Agreements".
(2) For the plan year beginning in 1996, the average final compensation for
computing benefits under the Retirement Plan cannot exceed $150,000 (as
adjusted for subsequent years pursuant to Code provisions).
(3) For 1997, applicable law limits the annual benefit payable under the
Retirement Plan to $125,000. For subsequent years, this limit is
indexed for inflation.
The following table sets forth the years of credited service
under the Retirement Plan as of September 30, 1997, for each of the individuals
named in the Executive Compensation Table.
PERIOD OF CREDITED SERVICE
YEARS MONTHS
John J. Conefry, Jr.............................. 4 1
Lawrence W. Peters (1)........................... 6 9
Joseph P. Bryant (2)............................. 3 8
Bruce M. Barnet.................................. 1 0
W. Douglas Singer................................ 9 8
Mark Fuster...................................... 16 8
Robert T.Volk.................................... 8 1
(1) Mr. Peters has resumed accruing credited service upon reentering employment
with the Bank on March 1, 1997.
(2) Mr. Bryant resigned on June 17, 1997.
-27-
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank maintains an Employee
Stock Ownership Plan which became effective upon the Conversion, for the benefit
of eligible employees of the Bank and its affiliates that are participating
employers in the ESOP. On May 18, 1995, the Bank received a determination from
the Internal Revenue Service that the ESOP qualifies under Sections 401(a) and
4975(e)(7) of the Code and that the trust established to implement the ESOP is
tax-exempt under Section 501(a) of the Code.
Generally, each salaried employee, who has completed one year of
service with a participating employer, is eligible to participate in the ESOP.
An employee automatically becomes a participant in the ESOP after becoming an
eligible employee. Mr. Barnet is the only Named Executive Officer that is not
yet a participant in the ESOP.
Using proceeds of a loan from the Company (the "ESOP Loan") and a
minimal cash contribution from the Bank, the ESOP Trust purchased 7.72% of the
Common Stock issued in the Conversion. The loan principal amount totaled
$19,800,000 at September 30, 1997 and is payable by the ESOP Trust in quarterly
installments of principal plus interest at a rate of 6.15% per annum.
The shares of Common Stock purchased by the ESOP Trust were
placed in a "suspense account" where the shares are held subject to the
encumbrance of the ESOP Loan. As the ESOP Loan is repaid, generally with
periodic contributions to the ESOP Trust by the participating employers and cash
dividends, if any, paid on the shares of Common Stock purchased by the ESOP
Trust with the ESOP Loan proceeds, shares of Common Stock will be released from
the suspense account and allocated to participants' accounts at least annually.
Effective January 1, 1997, cash dividends attributable to
allocated shares are paid out directly to participants. For each calendar year,
shares will be allocated to each participant who either is employed by a
participating employer as of the end of that year or who was employed during
that year but who retired, became disabled or died prior to the last day of that
year, an amount equal to 6.5% of the participant's eligible earnings for that
year subject to certain limitations, including a limitation for the plan year
beginning in 1997 of $160,000 (as adjusted for subsequent years pursuant to Code
provisions) on the amount of a participant's compensation that may be taken into
account in determining contributions under the ESOP. While the number of shares
had been allocated to participants' accounts based on the Initial Public
Offering price of $11.50 per share, effective January 1, 1997 shares will be
allocated based on the average market price over the year. To date,
approximately 417,000 shares have been allocated to participants' ESOP accounts.
A participant's account balance in the ESOP generally will become
vested and nonforfeitable at a rate of 20% as of each anniversary of the
participant's commencement of service. A participant's ESOP account generally
will be distributable in full in shares of Common Stock or cash, at the
participant's election, after termination of service.
-28-
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 2
APPROVAL OF THE PROPOSED INCREASE IN AUTHORIZED COMMON STOCK
- --------------------------------------------------------------------------------
PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
-------------------------------------------------------------------
By resolution dated November 25, 1997, the Board of Directors declared
it advisable and in the best interests of the Company to amend the Company's
Restated Certificate of Incorporation to increase the number of shares of stock
that the Company has the authority to issue to an aggregate of 135,000,000
shares, of which 130,000,000 would be Common Stock and 5,000,000 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 IV (A) of the Certificate is hereby amended to read as follows:
ARTICLE IV (A). The total number of shares of stock which the
Corporation shall have authority to issue is 135,000,000 shares,
consisting of (i) 130,000,000 shares of Common Stock, par value $.01
per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred
Stock, par value $.01 per share ("Preferred Stock").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS RESOLUTION FOR THE
FOLLOWING REASONS:
The Certificate of Incorporation currently authorizes the issuance of
up to 50,000,000 shares, consisting of 45,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. As of September 30, 1997, the Company had
24,022,924 shares of Common Stock and no shares of Preferred Stock outstanding.
As of September 30, 1997, the Company had 2,307,023 shares of Common Stock
reserved for issuance under the Company's stock option plans. In addition, the
Company had reserved 250,000 shares of Preferred Stock for possible issuance
pursuant to the Company's stockholder rights plan, adopted in April 1997.
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 a
variety of 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. 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 or preferred stock, except as
described in the preceding paragraph.
The authorized shares of Common Stock and Preferred Stock in excess of
those presently 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. In this regard, the rules of the National Association of
Securities Dealers, Inc. with respect to securities of companies approved for
trading on the NASDAQ National Market System, upon which the Company's Common
Stock trades, currently requires stockholder approval of (a) acquisition
transactions where the present or potential issuance of shares could result in
an increase of 20% or more in the number of shares of Common Stock outstanding,
(b) a stock option or purchase plan to be established pursuant to which stock
may be acquired by officers or directors, and (c) a transaction pursuant to
which the issuance would result in a change of control. The Board does not
intend to issue any stock except on terms or for reasons which the Board deems
to be in the best
-29-
<PAGE>
interests of the Company. Because the holders of the Company's Common Stock do
not have preemptive rights, the issuance of Common Stock otherwise than on a
pro-rata basis to all current stockholders would reduce the current
stockholders' proportionate interests. However, in any such event, stockholders
wishing to maintain their interests may be able to do so through normal market
purchases. Any future issuance of Common Stock or preferred stock will be
subject to the rights of holders of outstanding shares of any preferred stock
which the Company may issue in the future. While the issuance of shares in
certain instances may have the effect of forestalling a hostile takeover, the
Board does not intend or view the increase in authorized Common Stock as an
anti-takeover measure, nor is the Company 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.
Adoption of the amendment to the Certificate requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock in
person or by proxy and entitled to vote. Abstention from voting on this
amendment (including broker non-vote) has the same legal effect as a vote
"against" this amendment. The Board of Directors unanimously recommends a vote
FOR the proposal to amend the Certificate to increase the number of shares of
Common Stock that the Company is authorized to issue. Proxies will be voted FOR
unless stockholders specify otherwise in their proxies.
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.
-30-
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors has appointed KPMG Peat Marwick LLP to
perform the audit of the Company's financial statements for the year ending
September 30, 1998, subject to ratification by the Company's stockholders at the
Annual Meeting. KPMG Peat Marwick LLP served as the independent auditors of the
Company for the year ended September 30, 1997. Representatives from KPMG Peat
Marwick LLP will be present at the Annual Meeting and will be given the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions from stockholders.
Unless marked to the contrary, the shares represented by the
enclosed proxy card, if executed and returned, will be voted FOR ratification of
the appointment of KPMG Peat Marwick LLP as the independent auditors of the
Company for the fiscal year ending September 30, 1998. The appointment of KPMG
Peat Marwick LLP as the Company's independent auditors must be approved by a
majority of the votes present in person or represented by proxy at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING SEPTEMBER 30, 1998.
- --------------------------------------------------------------------------------
OTHER MATTERS MAY PROPERLY COME BEFORE THE MEETING
- --------------------------------------------------------------------------------
The Board of Directors knows of no business that 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 signed and dated proxy promptly. If you are
present at the Annual Meeting and wish to vote your shares, your proxy may be
revoked by voting at the Annual Meeting.
- --------------------------------------------------------------------------------
NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING
- --------------------------------------------------------------------------------
The Restated 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 seventy (70) days nor more than ninety (90) days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than seventy days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
-31-
<PAGE>
The advance notice by shareholders 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 owned beneficially and of record by such stockholder, and
any material interest of such stockholder in the proposed business. In the case
of nominations for election 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.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order to be eligible for inclusion in the proxy materials of
the Company for the Annual Meeting of Stockholders for the fiscal year ending
September 30, 1998, any stockholder proposal to take action at such meeting must
be received at the Company's executive offices at 201 Old Country Road,
Melville, New York 11747 no later than September 2, 1998. Any such proposals
shall be subject to the requirements of the proxy rules adopted under the
Exchange Act.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
A copy of the Company's Annual Report on Form 10-K (without
exhibits) for the year ended September 30, 1997, as filed with the SEC, will be
furnished without charge to stockholders of record upon written request to Long
Island Bancorp, Inc., 201 Old Country Road, Melville, New York 11747, Attention:
Mary M. Feder, Vice President, Investor Relations.
By Order of the Board of Directors,
Roger Teurfs
Secretary
Melville, New York
January 5, 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,
DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
-32-
<PAGE>
VOTING INSTRUCTIONS TO UNITED STATES TRUST COMPANY OF NEW YORK AS
INVESTMENT MANAGER OF THE LISB EMPLOYEE STOCK OWNERSHIP PLAN AND CG TRUST
AS TRUSTEE UNDER THE LONG ISLAND SAVINGS BANK 401(K) SAVINGS PLAN
I hereby direct that at the annual meeting of stockholders of Long Island
Bancorp, Inc. on February 17, 1998, and at any adjournments thereof, the voting
rights pertaining to the shares of Long Island Bancorp, Inc. Common Stock
credited to my account under The Long Island Savings Bank 401(k) Saving Plan
and/or allocated to my account under The LISB Employee Stock Ownership Plan
shall be exercised as checked on this card, or if not checked, shall be voted in
proportion to the voting instructions received from participants who provided
voting instructions under each plan.
ADDRESS CHANGE: PLEASE MARK ADDRESS CHANGE BOX ON REVERSE SIDE
(Continued and to be signed on other side)
See Reverse
Side
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/X/ Please mark
your votes
as this
The Board of Directors recommends a vote FOR
Items I through III.
FOR WITHHELD FOR AGAINST ABSTAIN
Item I - ELECTION OF DIRECTORS / / / / Item III - Approval of Auditors. / / / / / /
Nominees: John J. Conefry, Jr.,
Richard F. Chapdelaine, George R.
Irwin, and Dr. James B. Tormey ADDRESS CHANGE
Please mark this box if you have / /
written address change information
on the reverse side.
WITHHELD FOR: (Write that nominee's name in the space
provided below).
___________________________________________________________
FOR AGAINST ABSTAIN Receipt is hereby acknowledged of the
Item II - Approval of proposed increase in / / / / / / Long Island Bancorp, Inc. Notice of
Authorized Common Stock to Meeting and Proxy Statement.
130,000,000 shares
Signature ______________________________________________________________________ Date ______________________________
Note: Please sign as name appears hereon.
</TABLE>
<PAGE>
PROXY>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LONG ISLAND BANCORP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
February 17, 1998
The undersigned hereby appoints Frederick DeMatteis, Herbert J. McCooey,
Robert J. Conway, and Donald D. Wenk, and each of them, proxies for the
undersigned, with full power of substitution, to vote all shares of Long
Island Bancorp, Inc. Common Stock which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of Long Island Bancorp, Inc.,
Melville, New York, on Tuesday, February 17, 1998, at 9:30 A.M., or at any
adjournment thereof, upon the matters set forth on the reverse side and
described in the accompanying Proxy Statement and upon such other business as
may properly come before the meeting or any adjournment thereof.
Please mark this proxy as indicated on the reverse side to vote any
item. If you wish to vote in accordance with the Board of Directors
recommendations, please sign the reverse side; no boxes need to be checked.
ADDRESS CHANGE: PLEASE MARK ADDRESS CHANGE BOX ON REVERSE SIDE
(Continued and to be signed on other side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/X/ Please mark
your vote
as this
The Board of Directors recommends a vote FOR
Items I through III.
FOR WITHHELD FOR AGAINST ABSTAIN
FOR ALL
Item I - ELECTION OF DIRECTORS / / / / Item III - Approval of Auditors. / / / / / /
Nominees: John J. Conefry, Jr.,
Richard F. Chapdelaine, George R. I PLAN TO ATTEND MEETING / /
Irwin, and Dr. James B. Tormey ADDRESS CHANGE
Please mark this box if you have / /
written address change information
on the reverse side.
WITHHELD FOR: (Write that nominee's name in the space
provided below).
___________________________________________________________
FOR AGAINST ABSTAIN Receipt is hereby acknowledged of the
Item II - Approval of proposed increase in / / / / / / Long Island Bancorp, Inc. Notice of
Authorized Common Stock to Meeting and Proxy Statement.
130,000,000 shares
Signature ______________________________________________________________________ Date ______________________________
Note: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
</TABLE>
<PAGE>
NOTICE TO PARTICIPANTS IN
THE LONG ISLAND SAVINGS BANK 401(K) SAVINGS PLAN
Dear Plan Participant:
Enclosed with this notice is a Proxy Statement of Long Island Bancorp, Inc.
(the "Company"), describing the Annual Meeting of Stockholders to be held on
February 17, 1998 (the "Annual Meeting"). The Annual Meeting will be for the
purpose of electing four directors, approving the proposed increase in
authorized Common Stock to 130,000,000 shares, and ratifying the appointment of
KPMG Peat Marwick LLP as the Company's independent auditors. Directors and
officers of the Company will be present at the Annual Meeting to respond to any
questions that stockholders may have regarding the business to be transacted.
The Proxy Statement has been prepared by the Board of Directors of the Company,
in connection with the business to be transacted at the Annual Meeting. THE
ITEMS TO BE PRESENTED AT THE ANNUAL MEETING ARE IMPORTANT AND ARE DESCRIBED IN
THE PROXY MATERIALS BEING ENCLOSED WITH THIS NOTICE.
DIRECTIONS TO THE TRUSTEE
Only CG Trust Company, as trustee (the "Trustee") of The Long Island Savings
Bank 401(k) Savings Plan (the "401(k) Plan") can vote the shares of the Company
stock ("Shares") held by the 401(k) Plan. However, under the terms of the 401(k)
Plan, you, as a participant in the 401(k) Plan, are entitled to instruct the
Trustee how to vote Shares credited to your 401(k) Plan account and as a result,
you are a named fiduciary with respect to such shares.
Enclosed with this notice is a confidential voting instruction card which is
provided to you for the purpose of instructing the Trustee how to vote
concerning the election of directors, approving the proposed increase in
authorized Common Stock to 130,000,000 shares, and the ratification of the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors. Your
interest in this matter is very important. Please take the time to complete the
instruction card and return it to the Trustee. You may instruct the Trustee to
vote for, against, or to withhold consent with respect to these matters. If you
do not provide instructions to the Trustee, the Trustee will vote your shares in
proportion to the voting instructions received by the Trustee from all 401(k)
Plan participants who provide voting instructions. Thus, through your
instructions you will be exercising power and control as a named fiduciary of
the Plan not only over the shares allocated to your account, but also with
respect to a portion of the unvoted shares.
The Trustee will vote all Shares held by the Plan in accordance with the
instructions set forth on the voting instruction cards which are received by the
Trustee on a timely basis, unless the Trustee determines such instructions are
contrary to the requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
CONFIDENTIALITY AND INSTRUCTIONS
How you vote will not be revealed, directly or indirectly, to any officer,
to any other employee, or any director of the Company or to anyone else, except
as otherwise required by law. You should, therefore, feel completely free to
instruct the Trustee to vote in the manner you think best. The Trustee will
monitor the mailing of all materials relating to the Annual Meeting to the
Plans' participants.
VOTING DEADLINE
Because of the time required to tabulate voting instructions from
participants before the Annual Meeting, the Trustee must establish a cut-off
date for receiving your instruction card. The cut-off date established by the
Trustee is 5:00 P.M. Eastern Time February 6, 1998. The Trustee cannot insure
that instruction cards received after the cut-off date will be tabulated.
Therefore, it is important that you act promptly and return your instruction
card on or before February 6, 1998, in the envelope provided for your
convenience. If the Trustee does not receive timely instructions from you, the
Trustee will vote your Shares in proportion to the voting instructions received
by the Trustee from all 401(k) Plan participants who provide timely voting
instructions.
<PAGE>
If you are a direct stockholder of Long Island Bancorp, Inc., you will
receive under separate cover proxy solicitation materials, including a proxy
card. This card CANNOT be used to direct the voting of Shares held by the 401(k)
Plan.
FURTHER INFORMATION
If you have questions regarding the information provided to you, you may
contact Mr. Roger Teurfs, Office of the Corporate Secretary at 516-547-3030.
Your ability to instruct the Trustee how to vote Shares held by the 401(k)
Plan is an important part of your rights as a 401(k) Plan participant. Please
consider the enclosed material carefully and then furnish your voting
instructions promptly.
<TABLE>
<S> <C>
Dated January 5, CG Trust Company as Trustee of
1998 THE LONG ISLAND SAVINGS BANK 401(k) SAVINGS PLAN
</TABLE>
<PAGE>
NOTICE TO PARTICIPANTS IN
THE LISB EMPLOYEE STOCK OWNERSHIP PLAN
Dear Plan Participant:
Enclosed with this notice is a Proxy Statement of Long Island Bancorp, Inc.
(the "Company"), describing the Annual Meeting of Stockholders to be held on
February 17, 1998 (the "Annual Meeting"). The Annual Meeting will be for the
purpose of electing four directors, approving the proposed increase in
authorized Common Stock to 130,000,000 shares, and ratifying the appointment of
KPMG Peat Marwick LLP as the Company's independent auditors. Directors and
officers of the Company will be present at the Annual Meeting to respond to any
questions that stockholders may have regarding the business to be transacted.
The Proxy Statement has been prepared by the Board of Directors of the Company,
in connection with the business to be transacted at the Annual Meeting. THE
ITEMS TO BE PRESENTED AT THE ANNUAL MEETING ARE IMPORTANT AND ARE DESCRIBED IN
THE PROXY MATERIALS BEING ENCLOSED WITH THIS NOTICE.
DIRECTIONS TO THE INVESTMENT MANAGER
U.S. Trust Company of California, N.A., as Investment Manager (the
"Investment Manager") of The LISB Employee Stock Ownership Plan (the "ESOP"), is
responsible for directing CG Trust Company, as trustee (the "Trustee") of the
ESOP, how to vote the shares of the Company stock (the "Shares") held by the
ESOP. However, under the terms of the ESOP, you, as a participant in the ESOP,
are entitled to instruct the Investment Manager how the Shares allocated to your
account under the ESOP are to be voted. With respect to the Shares held by the
ESOP that are not allocated to any participant's account, the Investment Manager
will direct the Trustee to vote such Shares in proportion to the voting
instructions received by the Investment Manager from all ESOP participants who
provided such voting instructions. Thus, through your instructions, you will be
exercising power and control as a named fiduciary of the ESOP not only over the
shares allocated to your account, but also with respect to a portion of the
unallocated shares.
Enclosed with this notice is a confidential voting instruction card which is
provided to you for the purpose of instructing the Investment Manager how to
vote concerning the election of directors, approval of the proposed increase in
authorized Common Stock, and the ratification of the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors. Your interest in this matter
is very important. Please take the time to complete the instruction card and
return it to the Investment Manager. You may instruct the Investment Manager to
vote for, against, or to withhold consent with respect to these matters. If you
do not provide instructions to the Investment Manager, the Investment Manager
will direct the Trustee to vote your shares in proportion to the voting
instructions received by the Investment Manager from all ESOP participants who
provided voting instructions. Thus, through your instructions, you will be
exercising power and control as a named fiduciary of the ESOP not only over the
shares allocated to your account, but also with respect to a portion of the
unvoted shares.
The Investment Manager will direct the Trustee to vote all Shares held by
the ESOP in accordance with the instructions set forth on the voting instruction
card which is received by the Investment Manager on a timely basis, unless the
Investment Manager determines such instructions are contrary to the requirements
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
CONFIDENTIALITY AND INSTRUCTIONS
How you vote will not be revealed, directly or indirectly, to any officer,
to any other employee, or any director of the Company or to anyone else, except
as otherwise required by law. You should, therefore, feel completely free to
instruct the Investment Manager to vote in the manner you think best. The
Investment Manager will monitor the mailing of all materials relating to the
Annual Meeting to ESOP participants.
<PAGE>
VOTING DEADLINE
Because of the time required to tabulate voting instructions from
participants before the Annual Meeting, the Investment Manager must establish a
cut-off date for receiving your instruction card. The cut-off date established
by the Investment Manager is 5:00 P.M. Eastern Time February 6, 1998. The
Investment Manager cannot insure that instruction cards received after the
cut-off date will be tabulated. Therefore, it is important that you act promptly
and return your instruction card on or before February 6, 1998, in the envelope
provided for your convenience. If the Investment Manager does not timely receive
instructions from you, the Investment Manager will direct the Trustee to vote
your shares in proportion to the voting instructions received by the Investment
Manager from all ESOP participants.
If you are a direct stockholder of Long Island Bancorp, Inc., you will
receive under separate cover, proxy solicitation materials, including a proxy
card. This card CANNOT be used to direct the voting of Shares held by the ESOP.
FURTHER INFORMATION
If you have questions regarding the information provided to you, you may
contact the Investment Manager at 1-800-535-3093 between 11:00 A.M. and 7:00
P.M. Eastern Time, Monday through Friday.
Your ability to instruct the Investment Manager how your ESOP shares are to
be voted is an important part of your rights as an ESOP participant. Please
consider the enclosed material carefully and then furnish your voting
instructions promptly.
Dated January 5, 1998
United States Trust Company of California as Investment Manager of
THE LISB EMPLOYEE STOCK OWNERSHIP PLAN
