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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File Number 0-23229
INDEPENDENCE COMMUNITY BANK CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3387931
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
195 Montague Street
Brooklyn, New York 11201
(Address of principal executive office) (Zip Code)
(718) 722-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. At November 8, 1999,
the registrant had 66,929,844 shares of common stock ($.01 par value per share)
outstanding.
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INDEPENDENCE COMMUNITY BANK CORP.
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Table of Contents PAGE
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Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Condition 3
as of September 30, 1999 (unaudited)
and March 31, 1999
Consolidated Statements of Income for 4
the three and six months ended
September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Changes in 5
Stockholders' Equity for the six
months ended September 30, 1999 and 1998
(unaudited)
Consolidated Statements of Cash Flows 6
for the three and six months ended
September 30, 1999 and 1998(unaudited)
Notes to Consolidated Financial 8
Statements (unaudited)
Item 2 Management's Discussion and Analysis 17
of Financial Condition and Results of
Operations
Item 3 Quantitative and Qualitative Disclosures 33
About Market Risk
Part II Other Information
Item 1 Legal Proceedings 34
Item 2 Changes in Securities and Use of Proceeds 34
Item 3 Defaults upon Senior Securities 34
Item 4 Submission of Matters to a Vote of 34
Security Holders
Item 5 Other Information 35
Item 6 Exhibits and Reports on Form 8-K 35
Signatures 36
</TABLE>
2
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
---- ----
(Unaudited)
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ASSETS:
Cash and due from banks $ 119,824 $ 70,811
Commercial paper 71,110 37,290
Federal funds sold 33,565 171,784
----------- -----------
Total cash and cash equivalents 224,499 279,885
----------- -----------
Securities available-for-sale:
Investment securities 342,826 331,795
Mortgage-related securities 827,578 1,189,833
----------- -----------
Total securities available for sale 1,170,404 1,521,628
----------- -----------
Mortgage loans on real estate 3,583,693 2,926,978
Other loans 780,873 579,503
----------- -----------
Total loans 4,364,566 3,506,481
Less: Allowance for possible loan losses 59,834 46,823
----------- -----------
Total loans, net 4,304,732 3,459,658
----------- -----------
Premises, furniture and equipment, net 76,951 68,595
Accrued interest receivable 31,235 30,575
Intangible assets, net 147,646 47,244
Other assets 192,355 129,393
----------- -----------
Total assets $ 6,147,822 $ 5,536,978
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $ 3,979,436 $ 3,447,364
Borrowings 1,170,659 1,118,364
Company-obligated mandatorily redeemable cumulative
trust preferred securities of a subsidiary trust
holding solely junior subordinated debentures
of the Company 11,500 --
Escrow and other deposits 52,250 61,003
Accrued expenses and other liabilities 112,693 85,285
----------- -----------
Total liabilities 5,326,538 4,712,016
----------- -----------
Stockholders' equity
Common stock: $.01 par value: 125,000,000
shares authorized, 76,043,750 shares issued;
67,464,216 shares and 67,873,876 shares
outstanding at September 30, 1999 and
March 31, 1999, respectively 760 760
Additional paid-in-capital 729,372 739,090
Treasury stock at cost: 8,579,534 shares
and 8,169,874 shares at September 30, 1999 and
March 31, 1999, respectively (123,275) (125,993)
Unallocated common stock held by ESOP (90,221) (92,693)
Unearned common stock held by RRP (30,824) (33,918)
Retained earnings-substantially restricted 359,616 340,019
Accumulated other comprehensive loss:
Net unrealized loss on securities available-
for-sale, net of tax (24,144) (2,303)
----------- -----------
Total stockholders' equity 821,284 824,962
----------- -----------
Total liabilities and stockholders' equity $ 6,147,822 $ 5,536,978
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
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INTEREST INCOME:
Mortgage loans on real estate $ 63,008 $ 48,000 $ 118,844 $ 93,439
Other loans 13,335 9,852 23,864 19,493
Investment securities 4,466 12,041 8,111 24,583
Mortgage-related securities 13,681 5,364 31,176 7,517
Other 3,378 6,318 7,442 16,065
--------- --------- --------- ---------
Total interest income 97,868 81,575 189,437 161,097
--------- --------- --------- ---------
INTEREST EXPENSE:
Deposits 33,905 32,937 66,275 66,652
Borrowings 15,277 6,793 30,339 11,318
Cumulative trust preferred securities 182 -- 182 --
--------- --------- --------- ---------
Total interest expense 49,364 39,730 96,796 77,970
--------- --------- --------- ---------
Net interest income 48,504 41,845 92,641 83,127
Provision for loan losses 2,930 2,325 5,559 4,657
--------- --------- --------- ---------
Net interest income after
provision for loan losses 45,574 39,520 87,082 78,470
--------- --------- --------- ---------
NON-INTEREST INCOME:
Net gain (loss) on sales of loans
and securities 393 (8) (1,776) 10
Service fees 3,748 1,298 5,936 2,562
Other 945 1,326 2,815 2,814
--------- --------- --------- ---------
Total non-interest income 5,086 2,616 6,975 5,386
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Compensation and employee benefits 12,964 9,665 23,237 18,950
Occupancy costs 3,645 3,587 7,047 6,987
Data processing fees 2,298 3,211 4,393 6,174
Advertising 1,415 1,317 2,830 2,446
FDIC insurance premiums 293 309 575 608
Amortization of intangible assets 3,359 2,155 5,514 4,319
Other 5,427 5,059 10,210 9,200
--------- --------- --------- ---------
Total non-interest expense 29,401 25,303 53,806 48,684
--------- --------- --------- ---------
Income before provision for income taxes 21,259 16,833 40,251 35,172
Provision for income taxes 8,236 6,314 15,230 13,744
--------- --------- --------- ---------
Net income $ 13,023 $ 10,519 $ 25,021 $ 21,428
========= ========= ========= =========
Basic earnings per share $ 0.22 $ 0.15 $ 0.43 $ 0.30
========= ========= ========= =========
Diluted earnings per share $ 0.22 $ 0.15 $ 0.43 $ 0.30
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In Thousands, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Additional Unallocated
Common Paid in Treasury Common Stock
Stock Capital Stock Held by ESOP
----- ------- ----- ------------
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Balance-March 31,1999 $ 760 $ 739,090 $(125,993) $ (92,693)
Comprehensive income:
Net income for the six months ended
September 30, 1999 -- -- -- --
Other comprehensive income, net of tax benefit
of $18.3 million
Change in net unrealized losses on
securities available-for-sale, net of tax -- -- -- --
Less: reclassification adjustment of
net losses realized in net income, net of tax -- -- -- --
--------- --------- --------- ---------
Comprehensive income -- -- -- --
Repurchase of common stock (5,467,508 shares) -- -- (72,370) --
Treasury stock issued for Broad National
Bancorporation acquisition (4,950,699 shares) -- (7,317) 73,376 --
Treasury Stock issued for options exercised
(107,419 shares) -- (1,577) 1,712 --
Dividends declared -- -- -- --
ESOP shares committed to be released -- (645) -- 2,472
Amortization of earned portion of Recognition
and Retention Plan -- (179) -- --
--------- --------- --------- ---------
Balance-September 30, 1999 $ 760 $ 729,372 $(123,275) $ (90,221)
========= ========= ========= =========
Balance-March 31, 1998 $ 760 $ 741,277 $ -- $ (97,636)
Comprehensive income:
Net income for the six months ended
September 30, 1998 -- -- -- --
Other comprehensive income, net of tax of $2,238
Change in net unrealized gains on securities
available-for-sale, net of reclassification
adjustment of $0 -- -- -- --
--------- --------- --------- --------
Comprehensive income -- -- -- --
ESOP shares committed to be released -- (236) -- 2,472
Issuance of grants under Recognition and
Retention Plan -- -- -- --
Purchase of shares granted under Recognition
and Retention Plan -- (73) -- --
Amortization of earned portion of Recognition
and Retention Plan -- -- -- --
Other conversion related costs -- (372) -- --
--------- --------- --------- ---------
Balance-September 30, 1998 $ 760 $ 740,596 $ -- $ (95,164)
========= ========= ========= =========
</TABLE>
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Accumulated
Unearned Other
Common Stock Retained Comprehensive
Held by RRP Earnings Income/(Loss) Total
------------- -------- ------------- -----
<S> <C> <C> <C> <C>
Balance-March 31,1999 $ (33,918) $ 340,019 $ (2,303) $ 824,962
Comprehensive income:
Net income for the six months ended
September 30, 1999 -- 25,021 -- 25,021
Other comprehensive income, net of tax benefit
of $18.3 million
Change in net unrealized losses on
securities available-for-sale, net of tax -- -- (17,898) (17,898)
Less: reclassification adjustment of
net losses realized in net income, net of tax -- -- (3,943) (3,943)
--------- --------- --------- ---------
Comprehensive income -- 25,021 (21,841) 3,180
Repurchase of common stock (5,467,508 shares) -- -- -- (72,370)
Treasury stock issued for Broad National
Bancorporation acquisition (4,950,699 shares) -- -- -- 66,059
Treasury Stock issued for options exercised
(107,419 shares) -- -- -- 135
Dividends declared -- (5,424) -- (5,424)
ESOP shares committed to be released -- -- -- 1,827
Amortization of earned portion of Recognition
and Retention Plan 3,094 -- -- 2,915
--------- --------- --------- ---------
Balance-September 30, 1999 $ (30,824) $ 359,616 $ (24,144) $ 821,284
========= ========= ========= =========
Balance-March 31, 1998 $-- $ 298,876 $ 5,847 $ 949,124
Comprehensive income:
Net income for the six months ended
September 30, 1998 -- 21,428 -- 21,428
Other comprehensive income, net of tax of $2,238
Change in net unrealized gains on securities
available-for-sale, net of reclassification
adjustment of $0 -- -- (3,231) (3,231)
--------- --------- --------- ---------
Comprehensive income -- 21,428 (3,231) 18,197
ESOP shares committed to be released -- -- -- 2,236
Issuance of grants under Recognition and
Retention Plan (29,134) -- -- (29,134)
Purchase of shares granted under Recognition
and Retention Plan -- -- -- (73)
Amortization of earned portion of Recognition
and Retention Plan 100 -- -- 100
Other conversion related costs -- -- -- (372)
--------- --------- --------- ---------
Balance-September 30, 1998 $ (29,034) $ 320,304 $ 2,616 $ 940,078
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
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SIX MONTHS ENDED
SEPTEMBER 30,
-------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,021 $ 21,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 5,559 4,657
Net loss (gain) on sale of loans and securities 1,776 (10)
Amortization of deferred income and premiums (1,388) (2,493)
Amortization of intangibles 5,514 4,319
Depreciation and amortization 4,418 3,712
Deferred income tax benefit (6,565) (3,372)
Amortization of unearned compensation of
ESOP and RRP 4,742 2,337
Decrease (increase) in accrued interest receivable 1,941 (3,035)
Decrease in accounts receivable-securities
transactions 299 8,930
Increase (decrease) in accrued expenses and other
liabilities 19,704 (21,002)
Other, net (28,001) 10,988
--------- ---------
Net cash provided by operating activities 33,020 26,459
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases (886,170) (681,502)
Principal payments on loans 383,248 233,659
Proceeds from sale of loans 1,708 31,714
Proceeds from sale of securities available-for-sale 431,973 173,400
Proceeds from maturities of securities
available-for-sale 114,546 555,158
Principal collected on securities
available-for-sale 158,099 47,656
Purchases of securities available-for-sale (322,367) (644,446)
Purchase of FHLB stock (2,088) --
Cash consideration paid to acquire Broad (66,059) --
Cash and cash equivalents acquired from
Broad acquisition 196,653 --
Proceeds from sale of other real estate 171 --
Net additions to premises, furniture and equipment (2,763) (6,611)
--------- ---------
Net cash provided by (used in) investing activities 6,951 (290,972)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits 21,072 (111,128)
Net (decrease) increase in time deposits (73,807) 12,401
Net increase in borrowings 45,328 37,979
Net decrease in escrow and other deposits (10,157) (4,449)
Repurchase of common stock (72,370) --
Dividends paid (5,424) --
--------- ---------
Net cash used in financing activities (95,358) (65,197)
--------- ---------
Net decrease in cash and cash equivalents (55,387) (329,710)
Cash and cash equivalents at beginning of period 279,885 857,251
--------- ---------
Cash and cash equivalents at end of period $ 224,499 $ 527,541
========= =========
</TABLE>
6
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------
1999 1998
---- ----
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SUPPLEMENTAL INFORMATION
Income taxes paid $ 1,255 $10,302
======= =======
Interest paid $94,136 $38,207
======= =======
NON-CASH INVESTING ACTIVITIES:
Treasury Stock issued for Broad National
Bancorporation acquisition $66,059 $ --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
7
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INDEPENDENCE COMMUNITY BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION/FORM OF OWNERSHIP
Independence Community Bank (the "Bank"), formerly known as
Independence Savings Bank, was originally founded as a New York-chartered
savings bank in 1850. In April 1992, the Bank reorganized into the mutual
holding company form of organization pursuant to which the Bank became a wholly
owned stock savings bank subsidiary of a mutual holding company (the "Mutual
Holding Company").
On April 18, 1997, the Board of Directors of the Bank and the Board of
Trustees of the Mutual Holding Company adopted a Plan of Conversion to convert
the Mutual Holding Company to the stock form of organization and simultaneously
merge with and into the Bank and all of the outstanding shares of Bank common
stock held by the Mutual Holding Company would be cancelled.
As part of the conversion, Independence Community Bank Corp. (the
"Company") was incorporated under Delaware law in June 1997. The Company is
regulated by the Office of Thrift Supervision ("OTS"). The Company completed its
initial public offering on March 13, 1998 and issued 70,410,880 shares of common
stock resulting in proceeds of $685.7 million, net of expenses which totaled
$18.4 million. The Company used $343.0 million or approximately 50% of the net
proceeds to purchase all of the outstanding stock of the Bank. The Company also
loaned $98.9 million to the Company's Employee Stock Ownership Plan (the "ESOP")
which purchased 5,632,870 shares of the Company's common stock in the open
market.
As part of the Plan of Conversion, the Company formed the Independence
Community Foundation (the "Foundation") and donated 5,632,870 shares of common
stock of the Company valued at the time of its contribution at $56.3 million.
The Foundation was established in order to further the Company's and the Bank's
commitment to the communities that they serve.
Additionally, the Bank established, in accordance with the requirements
of the New York State Banking Department ("Department"), a liquidation account
for the benefit of depositors of the Bank as of March 31, 1996 and September 30,
1997 in the amount of $319.7 million which was equal to the Bank's total equity
as of the date of the latest consolidated statement of financial condition
(August 31, 1997) appearing in the final prospectus used in connection with the
reorganization and conversion of the Bank and the Mutual Holding Company.
The Board of Directors declared the Company's fifth consecutive
quarterly cash dividend on October 29, 1999. The dividend amounted to $0.06 per
share of common stock and is payable on November 24, 1999 to shareholders of
record on November 12, 1999.
On May 27, 1999 the Company announced that its Board of Directors
authorized a fourth stock purchase plan for up to five percent of common shares
outstanding or 3,250,870 shares. As of September 30, 1999, 13,637,382 shares had
been purchased at a cost of $198.4 million pursuant to the Company's four
publicly announced repurchase programs.
The purchased shares will be held as treasury stock and will be
utilized to fund the stock portion of the merger consideration paid in
acquisitions (see Note 2 - Acquisitions) as well as the Company's stock benefit
plans, in particular, the 1998 Stock Option Plan, ("Option Plan") and for
general corporate purposes.
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2. ACQUISITIONS
The Company completed its acquisition of Broad National Bancorporation
("Broad") and the merger of Broad's wholly owned subsidiary, Broad National Bank
("Broad National"), with and into the Bank, all effective as of July 31, 1999.
Under the terms of the Agreement and Plan of Merger between
Independence and Broad dated February 1, 1999 (the "Agreement"), the merger
consideration consisted of approximately 50% Independence common stock and 50%
cash. As a result of the completed election procedures and in accordance with
the terms of a formula set forth in the Agreement, each Broad stockholder who
submitted a valid election for stock consideration received 1.9859 shares of
Independence common stock for each share of Broad common stock, plus cash in
lieu of any fractional shares, and each Broad stockholder who submitted a valid
election for cash consideration received $26.50 per share of Broad common stock
except Broad stockholders who elected to receive cash as any portion of their
consideration for their Broad shares received a portion of such consideration in
the form of Independence common stock (the "Consideration Adjustment") in
accordance with the terms of the Agreement. To the extent that certain Broad
stockholders elected to receive some combination of stock and cash consideration
in exchange for their shares of Broad common stock, such individuals received
the entire portion of their stock election in the form of 1.9859 shares of
Independence common stock for each share of Broad common stock, plus cash in
lieu of any fractional shares, and the cash portion of their election was
subject to the Consideration Adjustment described above. The remaining shares of
Broad common stock for which a valid election was not submitted received 1.9859
shares of Independence common stock for each share of Broad common stock, plus
cash in lieu of any fractional shares. The Broad transaction had an aggregate
value of approximately $132 million assuming an acquisition value of $26.50 per
share of Broad common stock.
The acquisition was accounted for as a purchase and the excess of cost
over the fair value of net assets acquired ("goodwill") in the transaction was
$105.9 million, which is being amortized on a straight line basis over 15 years.
As a result of the acquisition, the Company operates 50 banking offices located
in the greater New York Metropolitan area, which includes the five counties of
New York City, Nassau County as well as the Northern New Jersey counties of
Essex, Union, Bergen, Hudson and Middlesex, which was formerly served by Broad
National.
On April 13, 1999, the Company announced that it had signed a
definitive agreement to acquire Statewide Financial Corp.("Statewide"). Pursuant
to the agreement, the Company will acquire Statewide, in a transaction valued at
the time of execution of the definitive agreement at $25.25 per Statewide share.
Upon completion of the acquisition, Statewide's wholly owned subsidiary,
Statewide Savings Bank, S.L.A., a New Jersey-chartered savings and loan
association which operates 16 branches in Bergen, Hudson and Union Counties,
will merge with and into the Bank. Based upon Statewide's public filings, at
September 30, 1999, Statewide had assets totaling $743.7 million, deposits
totaling $448.6 million and stockholders' equity of $53.8 million.
Under the terms of the Statewide agreement, which was approved
unanimously by both boards of directors, holders of Statewide common stock will
receive cash or shares of the Company's common stock pursuant to an election,
proration and allocation procedure subject to the total consideration being
comprised of approximately 50% paid in the Company's common stock and 50% paid
in cash assuming the purchase consideration is $25.25 per share. The number of
shares of the Company's common stock that any Statewide shareholder receives
will be determined by an exchange ratio based on the average closing price of
the Company's common stock during the pricing period as calculated pursuant to
the terms of the
9
<PAGE> 10
agreement. The Statewide transaction had an aggregate value as of the date of
execution of approximately $108 million.
The Statewide transaction will be accounted for as a purchase and will
not affect the Company's ability to repurchase shares of stock. The Company
intends to repurchase in the open market all of the shares of common stock that
will be issued in the transaction. The transaction currently is expected to
close by January 31, 2000 and is subject to receipt of various regulatory
approvals, approval by Statewide's stockholders and certain other conditions.
Additional information concerning the agreement and the proposed acquisition is
contained in the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 20, 1999.
Concurrent with the execution of the agreement, Statewide granted an
option to the Company to purchase up to 19.9% of Statewide's common shares then
outstanding under certain circumstances.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying financial statements were prepared in accordance with
instructions to Form 10-Q and therefore do not include all the information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the six months
ended September 30, 1999 are not necessarily indicative of the results to be
expected for the year ending March 31, 2000. These interim financial statements
should be read in conjunction with the Company's consolidated audited financial
statements and the notes thereto contained in the Company's Annual Report to
Shareholders for the year ended March 31, 1999.
Business
The Company's principal business is conducted through the Bank which is
a traditional, full-service, community-oriented savings bank headquartered in
Brooklyn, New York. The Bank operates 50 banking offices located in the greater
New York Metropolitan area, which includes the five counties of New York City
and Nassau County that are served by the Bank and the Northern New Jersey
counties of Essex, Union, Bergen, Hudson and Middlesex which were formerly
served by Broad National. The Bank's deposits are insured by the Bank Insurance
Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") to the maximum
extent permitted by law. The Bank is subject to examination and regulation by
the Federal Deposit Insurance Corporation ("FDIC"), which is the Bank's primary
federal regulator, and the New York State Banking Department ("Department"),
which is the Bank's chartering authority and its primary state regulator. The
Bank also is subject to certain reserve requirements established by the Board of
Governors of the Federal Reserve System ("FRB") and is a member of the Federal
Home Loan Bank ("FHLB") of New York, which is one of the 12 regional banks
comprising the FHLB system.
4. EARNINGS PER SHARE.
Basic earnings per share ("EPS") is computed by dividing net income by
the weighted average number of common shares outstanding. Diluted EPS is
computed using the same method as basic EPS, but reflects the potential dilution
of common stock equivalents. Shares of common stock held by the ESOP that have
not been
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allocated to participants' accounts or are not committed to be released for
allocation and non-vested 1998 Recognition and Retention Plan and Trust
Agreement (the "RRP") shares are not considered to be outstanding for the
calculation of basic EPS. However, a portion of such shares are considered in
the calculation of diluted EPS as common stock equivalents of basic EPS. Basic
and diluted weighted-average common shares outstanding were 59,006,768 shares
for the quarter ended September 30, 1999 compared to 70,552,467 and 70,576,375
shares, respectively for the quarter ended September 30, 1998. For the six
months ended September 30, 1999 basic and diluted weighted average common shares
outstanding were 58,509,369 shares compared to 70,517,458 and 70,529,477 shares,
respectively, for the six months ended September 30, 1998.
5. BENEFIT PLANS
Employee Stock Ownership Plan.
To fund the purchase in the open market of 5,632,870 shares of the
Company's common stock, the ESOP borrowed funds from the Company. The loan to
the ESOP is being repaid principally from the Bank's contributions to the ESOP
over a period of 20 years. Dividends paid by the Company on unallocated shares
owned by the ESOP are also utilized to repay the debt. The collateral for the
loan are the shares of common stock of the Company purchased by the ESOP.
Shares held by the ESOP are held by an independent trustee for
allocation among participants as the loan is repaid. The number of shares
released annually is based upon the ratio that the current principal and
interest payments bears to the original principal and interest payments to be
made. ESOP participants will become 100% vested in the ESOP after three years of
service. Compensation expense related to the 70,411 shares committed to be
released during the second quarter of fiscal 2000 was $0.9 million and was $1.8
million with respect to the 140,822 shares committed to be released during the
six months ended September 30, 1999. At September 30, 1999, 281,644 shares were
allocated to participant accounts and 211,233 shares were committed for release.
Recognition and Retention Plan
The 1998 Recognition and Retention Plan ("RRP") was implemented in
September 1998. The RRP may grant up to 4% of the common stock sold in the
Conversion, or 2,816,435 shares. The RRP provides that awards may be designated
as performance share awards, subject to the achievement of performance goals, or
non-performance share awards which are subject to time vesting requirements.
Certain key executive officers were granted performance based-shares. These
shares become payable only upon the achievement of certain annually-defined
corporate performance targets. During fiscal 1999, the RRP purchased all
2,816,435 shares in the open market. On September 25, 1998, (the "anniversary
date"), the Board of Directors issued grants covering 2,188,517 shares of stock
of which 844,931 were deemed performance based. On September 25, 1999, the Board
of Directors granted a non-performance share award covering 15,363 shares. The
stock awards are generally payable over a five-year period at a rate of 20% per
year, beginning one year from the anniversary date. Subject to certain
exceptions, awards become 100% vested upon termination of employment due to
death, disability or retirement. Compensation expense is recognized over the
vesting period at the fair value of the common stock on the date of grant for
non-performance share awards. The expense related to performance share awards is
recognized over the vesting period at the fair value on the measurement date.
The Company recorded compensation expense of $1.6 million and $2.9 million
related to the RRP for the three and six months ended September 30, 1999,
respectively.
11
<PAGE> 12
Option Plan
The Option Plan was implemented in September 1998. The Option Plan may
grant up to 10% of the common stock sold in the conversion, or 7,041,088 shares,
to officers, key employees and non-employee directors of the Company. On
September 25, 1998 (the "anniversary date"), the Board of Directors issued
options covering 6,101,608 shares of common stock vesting over a five-year
period at a rate of 20% per year, beginning one year from the anniversary date.
Subject to certain exceptions, options become 100% vested upon termination of
employment due to death, disability or retirement. The option exercise price of
$13.3125 per share was the fair market value of the Company's common stock on
the date of grant. Each stock option or portion thereof is exercisable at any
time on or after it vests and generally is exercisable until the earlier of ten
years after its date of grant or six months after the date on which the
optionee's employment terminates (three years after termination of service in
the case of non-employee directors), unless extended by the Board of Directors
to a period not to exceed five years from such termination. The granting of
these options did not affect the Company's results of operations for the six
months ended September 30, 1999 or its statement of condition at September 30,
1999.
6. COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in
equity during a period except those resulting from investments by owners and
distribution to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. Comprehensive
income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income consists solely of
unrealized gains and losses on available for sale securities.
12
<PAGE> 13
7. SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of securities
available-for-sale at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 180,303 $ 13 $ (10,774) $ 169,542
Municipals 3,661 2 (30) 3,633
---------- ---------- ---------- ----------
Total debt securities 183,964 15 (10,804) 173,175
---------- ---------- ---------- ----------
Equity securities:
Preferred 145,592 -- (315) 145,277
Common 22,840 2,422 (888) 24,374
---------- ---------- ---------- ----------
Total equity securities 168,432 2,422 (1,203) 169,651
---------- ---------- ---------- ----------
Total investment securities 352,396 2,437 (12,007) 342,826
---------- ---------- ---------- ----------
Mortgage-related securities:
FNMA pass through certificates 8,720 60 (35) 8,745
GNMA pass through certificates 39,623 1,062 (32) 40,653
FHLMC pass through
certificates 6,183 70 (49) 6,204
Collateralized mortgage
obligation bonds 805,932 3 (33,959) 771,976
---------- ---------- ---------- ----------
Total mortgage-related securities 860,458 1,195 (34,075) 827,578
---------- ---------- ---------- ----------
Total securities available-
for-sale $1,212,854 $ 3,632 $(46,082) $1,170,404
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale at
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 268,524 $ 249 $ (4,550) $ 264,223
Municipals 699 -- -- 699
Corporate 78 -- -- 78
----------- ----------- ----------- -----------
Total debt securities 269,301 249 (4,550) 265,000
----------- ----------- ----------- -----------
Equity securities:
Preferred 15,000 -- -- 15,000
Common 47,457 6,995 (2,657) 51,795
----------- ----------- ----------- -----------
Total equity securities 62,457 6,995 (2,657) 66,795
----------- ----------- ----------- -----------
Total investment securities 331,758 7,244 (7,207) 331,795
----------- ----------- ----------- -----------
Mortgage-related securities:
FNMA pass through certificates 3,830 68 (23) 3,875
GNMA pass through certificates 46,981 1,991 (16) 48,956
FHLMC pass through
certificates 6,756 102 (38) 6,820
Collateralized mortgage
obligation bonds 1,136,655 1,188 (7,661) 1,130,182
----------- ----------- ----------- -----------
Total mortgage related securities 1,194,222 3,349 (7,738) 1,189,833
----------- ----------- ----------- -----------
Total securities available-
for-sale $ 1,525,980 $ 10,593 $ (14,945) $ 1,521,628
=========== =========== =========== ===========
</TABLE>
13
<PAGE> 14
8. LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999 AT MARCH 31, 1999
--------------------------------------------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C> <C> <C>
Single-family residential $ 520,280 11.9% $ 491,523 14.0%
Multi-family residential 2,571,693 58.9 2,195,879 62.6
Commercial and other
real estate 502,134 11.5 250,105 7.1
---------- ------------ ---------- ------------
Total principal balance of
mortgage loans 3,594,107 82.3 2,937,507 83.7
Less net deferred fees 10,414 0.2 10,529 0.3
---------- ------------ ---------- ------------
Total mortgage loans 3,583,693 82.1 2,926,978 83.4
---------- ---------
Other loans:
Cooperative apartment loans 491,690 11.2 458,165 13.1
Student loans 39,828 0.9 41,633 1.2
Home equity loans and lines 69,727 1.6 12,295 0.4
Commercial business loans 138,354 3.2 39,362 1.1
Consumer and other loans 41,994 1.0 28,382 0.8
---------- ------------ ---------- ------------
Total principal balance
other loans 781,593 17.9 579,837 16.6
Less unearned discounts and
deferred fees 720 0.0 334 0.0
---------- ------------ ---------- ------------
Total other loans 780,873 17.9 579,503 16.6
Total loans receivable 4,364,566 100.0% 3,506,481 100.0%
---------- ============ ---------- ============
Less allowance for loan losses 59,834 46,823
---------- ------------
Loans receivable, net $4,304,732 $3,459,658
========== ============
</TABLE>
14
<PAGE> 15
9. NON-PERFORMING ASSETS. The following table sets forth information with
respect to non-performing assets identified by the Company, including
non-performing loans and other real estate owned at the dates indicated.
Non-performing loans consist of non-accrual loans, loans 90 days or more past
due as to interest and principal and other loans which have been identified by
the Company as presenting uncertainty with respect to the collectibility of
interest or principal.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999 AT MARCH 31, 1999
--------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans
Mortgage loans:
Single-family residential $ 1,894 $ 2,809
Multi-family residential 1,004 830
Commercial and other 2,973 2,687
Other loans:
Cooperative apartment loans 656 381
Consumer and commercial
business loans(1) 3,236 400
------- -------
Total non-accrual loans 9,763 7,107
------- -------
Loans past due 90 days or more as to:
Interest and accruing 1,770 1,197
Principal and accruing(2) 15,524 30,805
------- -------
Total past due loans and accruing 17,294 32,002
------- -------
Total non-performing loans 27,057 39,109
------- -------
Other real estate owned, net(3) 157 273
------- -------
Total non-performing assets $27,214 $39,382
======= =======
Allowance for loan losses as a
percent of total loans 1.37% 1.34%
Allowance for loan losses as a
percent of non-performing loans 221.14 119.72
Non-performing loans as a percent of
total loans 0.62 1.12
Non-performing assets as a percent
of total assets 0.44 0.71
</TABLE>
- - ----------------
(1) Consists primarily of commercial business loans and home equity lines
of credit.
(2) Reflects loans that are 90 days or more past maturity which continue to
make payments on a basis consistent with the original repayment
schedule.
(3) Net of related loss allowances.
15
<PAGE> 16
10. ALLOWANCE FOR LOAN LOSSES.
It is management's policy to maintain an allowance for loan losses
based on total loans outstanding, the volume of loan originations, the type,
size and geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans, and the number of loans
requiring heightened management oversight. Management believes that based on
information currently available, the Company's allowance for possible loan
losses is sufficient to cover losses inherent in its loan portfolio at this
time. However, no assurances can be given that the Company's level of allowance
for loan losses will be sufficient to absorb future possible loan losses
incurred by the Company or that future adjustments to the allowance for possible
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for possible loan losses.
The following table sets forth the activity in the Company's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of period $46,823 $36,347
------- -------
Allowance of acquired institution 6,658 --
Provision:
Mortgage loans(1) 5,550 3,800
Consumer and commercial business loans 9 858
------- -------
Total provisions 5,559 4,658
------- -------
Charge-offs:
Mortgage loans(1) 42 138
Consumer and commercial business loans(2) 75 122
------- -------
Total charge-offs 117 260
------- -------
Recoveries:
Mortgage loans(1) 126 237
Consumer and commercial business loans (2) 785 105
------- -------
Total recoveries 911 342
------- -------
Net recoveries 794 82
------- -------
Allowance at end of period $59,834 $41,087
======= =======
Allowance for possible loan
losses as a percent of total loans 1.37% 1.29%
Allowance for possible loan
losses as a percent of total
non-performing loans(3) 221.14% 117.02%
</TABLE>
(1) Includes cooperative apartment loans.
(2) Includes student loans, home equity loans and lines of credit,
automobile loans, secured and unsecured personal loans, and commercial
business loans.
(3) Non-performing loans consist of non-accrual loans and loans 90 days or
more past due as to interest or principal and other loans which have
been identified by the Company as presenting uncertainty with respect
to the collectibility of interest or principal.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets, which principally consist of loans, mortgage-backed and
mortgage-related securities and investment securities, and interest expense on
interest-bearing liabilities, which consist of deposits and borrowings. The
Company's results of operations also are affected by the amount of the provision
for loan losses, resulting from management's assessment of the adequacy of the
allowance for loan losses, the level of its non-interest income, including
service fees and related income, gains and losses from the sales of loans and
securities, and the level of its non-interest expenses, including among other
things compensation and employee benefits, occupancy expense, data processing
services, amortization of goodwill and income tax expense.
The Bank is a community-oriented bank which emphasizes customer service
and convenience. As part of this strategy, the Company offers products and
services designed to meet the needs of its customers. The Company generally has
sought to achieve long-term financial strength and stability by increasing the
amount and stability of its net interest income and non-interest income and by
maintaining a high level of asset quality. In pursuit of these goals, the
Company has adopted a business strategy emphasizing controlled growth,
multi-family residential lending, commercial business lending, retail deposit
products and customer service, while maintaining asset quality and stable
liquidity.
Certain information in this Form 10-Q may constitute forward-looking
information within the meaning of the Private Securities Litigation Reform Act
of 1995 that involves risks and uncertainties that could cause actual results to
differ materially from those estimated. Persons are cautioned that such
forward-looking statements are not guarantees of future performance and are
subject to various factors which could cause actual results to differ materially
from those estimated. These factors include, but are not limited to, changes in
general economic and market conditions, changes in accounting principles,
policies or guidelines, changes in legislation or regulation, loan demand, real
estate values and deposit flows and the development of an interest rate
environment that adversely affects the interest rate spread or other income from
the Company's and the Bank's investments and operations.
CHANGES IN FINANCIAL CONDITION
GENERAL.
Total assets at September 30, 1999 were $6.15 billion, an increase of
$610.8 million, from $5.54 billion at March 31, 1999. The increase resulted
primarily from the Broad acquisition partially offset by the use of the
Company's assets to repurchase its stock in the open market. As of the
acquisition date, Broad had total assets of approximately $646.3 million, total
deposits of $584.8 million and total equity of $33.9 million. During the six
months ended September 30, 1999, the Company had increases of $858.1 million in
the total loan portfolio, $100.4 million in intangible assets and $63.0 million
in other assets while its securities available-for-sale portfolio decreased
$351.2 million and cash and cash equivalents decreased $55.4 million during the
same period.
17
<PAGE> 18
CASH, CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER AND FEDERAL FUNDS SOLD
(COLLECTIVELY "CASH AND CASH EQUIVALENTS").
Cash and cash equivalents decreased from $279.9 million at March 31,
1999 to $224.5 million at September 30, 1999. The $55.4 million decrease was
principally due to decreases in cash and due from banks as well as Federal funds
sold as a result of funding mortgage loans, which decrease was partially offset
by the acquisition of cash and cash equivalents from Broad.
SECURITIES AVAILABLE-FOR-SALE.
The aggregate securities available-for-sale portfolio (which includes
investment securities and mortgage-related securities) decreased $351.2 million
from $1.52 billion at March 31, 1999 to $1.17 billion at September 30, 1999.
Total securities were reduced during the six months in order to fund mortgage
originations, consisting of primarily multi-family residential loans. As of
September 30, 1999 and March 31, 1999, the Company's investment securities
totaled $342.8 million and $331.8 million, respectively, all of which were
classified as available for sale. The Company acquired $70.8 million of
investment securities due to the Broad acquisition.
The Company's mortgage-related securities, a portion of which at
September 30, 1999 consisted of collateralized mortgage obligations secured by
mortgage-backed securities issued by Fannie Mae ("FNMA") or Freddie Mac
("FHLMC"), decreased from $1.19 billion at March 31, 1999 to $827.6 million (all
of which were classified as available for sale) at September 30, 1999. As a
result of the Broad transaction $5.9 million of mortgage-related securities were
acquired.
At September 30, 1999, the Company had a $24.1 million net unrealized
loss on available-for-sale investment and mortgage-related securities.
LOANS, NET.
Loans, net, increased by $845.1 million or 24.4% to $4.30 billion at
September 30, 1999 from $3.46 billion at March 31, 1999. The Company acquired
$362.3 million of loans, consisting primarily of commercial real estate and
commercial business loans, as a result of the Broad acquisition. During the
first six months of fiscal 2000 the Company originated approximately $802.7
million of mortgage loans, compared to $611.8 million in the corresponding
period of last year. These mortgage loans, consisting primarily of multi-family
residential loans, were originated primarily for retention in its loan
portfolio. The increased level of loan production is partially attributable to
the refinance market in the earlier part of the year. The Company's continued
emphasis on multi-family residential mortgage loan originations resulted in a
net increase of $375.8 million, or 17.1%, in multi-family loans from $2.20
billion at March 31, 1999 to $2.57 billion at September 30, 1999. These loans
currently comprise 58.9% of the loan portfolio compared to 62.6% at March 31,
1999.
NON-PERFORMING ASSETS.
The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets declining to 44 basis
points (0.44%) at September 30, 1999 compared to 71 basis points (0.71%) at
March 31, 1999. At September 30, 1999, the Company's non-performing assets
consisted of $9.8 million of non-accrual loans, $1.8 million of loans past due
90 days or more as to interest and accruing, $15.5 million of loans past due 90
days or more as to
18
<PAGE> 19
principal and accruing ($11.4 million of which were multi-family loans and $3.9
million of which were commercial and other real estate loans) and $157,000 of
other real estate acquired through foreclosure or deed-in-lieu thereof.
Non-performing assets decreased by $12.2 million to $27.2 million at September
30, 1999 from $39.4 million at March 31, 1999. This decrease was primarily due
to satisfactions on loans which were 90 days or more past maturity which
continued to make payments on a basis consistent with the original repayment
schedule.
ALLOWANCE FOR LOAN LOSSES.
The Company's allowance for loan losses amounted to $59.8 million at
September 30, 1999 as compared to $46.8 million at March 31, 1999. At September
30, 1999, the Company's allowance amounted to 1.37% of total loans and 221.1% of
total non-performing loans compared to 1.34% and 119.7%, at March 31, 1999,
respectively. It is management's policy to maintain an allowance for loan losses
based upon total loans outstanding, the volume of loan originations, the type,
size and geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans and the number of loans
requiring heightened management oversight.
The Company's allowance for loan losses increased $13.0 million from
March 31, 1999 to September 30, 1999 due to $6.7 million acquired as a result of
the Broad acquisition, provisions of $5.5 million, and net recoveries of
$794,000. The increase during the period was due to several factors, including
growth in the size of the Company's loan portfolio, the Company's increasing
investment in multi-family residential and commercial real estate loans, all of
which were concentrated in the New York City metropolitan area (including
northern New Jersey), which loans as a general matter are considered to involve
a greater risk of loss than single-family residential loans, and an increase in
the number of larger multi-family residential and individual cooperative
apartment loans as compared to prior years.
INTANGIBLE ASSETS.
The Company's intangible assets consist of goodwill and other
intangibles resulting primarily from (i)the acquisition of Broad and its wholly
owned subsidiary Broad National Bank, effective July 31, 1999, (ii)the
acquisition of Bay Ridge Bancorp, Inc. and its wholly owned subsidiary Bay Ridge
Federal Savings Bank (collectively, "Bay Ridge") in January 1996 and (iii)the
completion in fiscal 1996 of two branch purchase transactions (the "Branch
Acquisitions"). At September 30, 1999, intangibles totaled $147.6 million and
consisted of $104.7 million related to the acquisition of Broad, $19.0 million
related to the acquisition of Bay Ridge and $23.9 million related to the Branch
Acquisitions. The Company's intangible assets increased by $100.4 million to
$147.6 million at September 30, 1999 from $47.2 million at March 31, 1999 as a
result of the Broad acquisition offset partially by the amortization of the
intangible assets during the six months ended September 30, 1999. Amortization
of such intangibles will continue to reduce net income until such intangible
assets are fully amortized. The recently completed Broad transaction has and the
pending Statewide transaction will increase intangible assets and the related
amortization of intangibles will directly impact fiscal 2000 earnings.
DEPOSITS.
Deposits increased $532.1 million or 15.4% to $3.98 billion at
September 30, 1999. The increase was due to $584.8 million of deposits acquired
as a result of the Broad acquisition, deposit outflows totaling $119.0 million
which was partially offset by interest credited of $66.3 million. The deposit
outflows in the six months of the fiscal year were attributable to
disintermediation primarily
19
<PAGE> 20
as a result of customer transfers of funds to the equities markets and, to a
lesser extent, to other financial institutions conducting deposit gathering
campaigns by paying above market rates.
EQUITY.
At September 30, 1999, total stockholders' equity totaled $821.3
million, compared to $825.0 million at March 31, 1999. This $3.7 million
decrease was primarily due to a $72.4 million reduction in capital due to the
purchase of shares in connection with the Company's stock repurchase program, a
$5.4 million decrease for dividends paid and a net $21.8 million increase in the
unrealized loss on securities available for sale reflecting the effect of the
recent shift in interest rates. Such reductions were partially offset by $66.1
million of treasury shares reissued in connection with the Broad acquisition,
net income of $25.0 million, amortization of earned portion of RRP of $2.9
million and $1.8 million related to ESOP shares committed to be released for the
first six months of fiscal 2000. Tangible book value per share was $9.99 and the
tangible equity to assets ratio was 11.23% at September 30, 1999.
20
<PAGE> 21
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID.
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) the interest rate spread; and (v)
the net interest margin. Information is based on average daily balances during
the indicated periods and is annualized where appropriate.
<TABLE>
<CAPTION>
For the three months ended
September 30, 1999 September 30, 1998
------------------ ------------------
(Dollars in Thousands)
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1):
Mortgage loans $3,420,742 $ 63,008 7.37% $2,502,953 $ 48,000 7.67%
Other loans:
Cooperative apartment
loans 494,380 8,558 6.92 406,796 7,287 7.16
Consumer and commercial
business loans(2) 232,796 4,777 8.21 119,497 2,565 8.52
------- ----- ------- -----
Total loans 4,147,919 76,343 7.36 3,029,246 57,852 7.64
Mortgage-related securities 877,630 13,681 6.24 320,990 5,364 6.68
Investment securities 328,382 4,466 5.44 832,251 12,041 5.79
Other interest-earning
assets(3) 263,932 3,378 5.12 459,473 6,318 5.50
------- ----- ------- -----
Total interest-earning
assets 5,617,862 97,868 6.97 4,641,960 81,575 7.03
----- ---- ----- ----
Non-interest-earning
assets 303,137 199,702
------- -------
Total assets $5,920,999 $4,841,662
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $ 894,256 $ 3,934 1.75 $ 634,227 $ 3,571 2.23
Savings deposits 1,049,375 5,642 2.13 973,265 6,242 2.54
Certificates of deposit 1,909,478 24,329 5.05 1,693,061 23,124 5.42
--------- ------ --------- ------
Total deposits 3,853,109 33,905 3.49 3,300,553 32,937 3.96
--------- ------ --------- ------
Cumulative trust
preferred securities 7,667 182 9.50 -- -- .00
Total borrowings 1,122,179 15,277 5.40 469,168 6,793 5.74
--------- ------ ------- -----
Total interest-bearing
liabilities 4,982,954 49,364 3.93 3,769,721 39,730 4.18
------ ---- -----
Non-interest-bearing
liabilities 131,531 110,480
------- -------
Total liabilities 5,114,485 3,880,201
Total equity 806,514 961,461
------- -------
Total liabilities and
equity $5,920,999 $4,841,662
========== ==========
Net interest-earning
assets $ 634,908 $ 872,239
========== ==========
Net interest income/interest
rate spread $ 48,504 3.04% $ 41,845 2.85%
========== ==== ========== ====
Net interest margin 3.48% 3.63%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.13x 1.23x
==== ====
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
------------------------
September 30, 1999 September 30, 1998
------------------ ------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1):
Mortgage loans $3,218,754 $ 118,844 7.38% $2,413,693 $ 93,439 7.74%
Other loans:
Cooperative apartment
loans 479,811 16,629 6.93 396,442 14,272 7.20
Consumer and commercial
business loans(2) 177,537 7,235 8.13 120,336 5,221 8.65
------- ----- ------- -----
Total loans 3,876,102 142,708 7.36 2,930,471 112,932 7.71
Mortgage-related securities 998,083 31,176 6.25 220,173 7,517 6.83
Investment securities 302,847 8,111 5.36 888,994 24,583 5.53
Other interest-earning
assets(3) 302,805 7,442 4.92 564,768 16,065 5.88
------- ----- ---- ------- ------
Total interest-earning
assets 5,479,836 189,437 6.91 4,604,406 161,097 7.00
----- ---- ------ ----
Non-interest-earning
assets 251,349 206,720
------- -------
Total assets $ 5,731,185 $ 4,811,126
=========== =============
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $ 814,214 $ 7,550 1.85 $ 658,805 $ 7,111 2.15
Savings deposits 1,012,076 11,380 2.24 981,191 12,886 2.62
Certificates of deposit 1,852,088 47,345 5.10 1,699,981 46,655 5.47
--------- ------ --------- ------
Total deposits 3,678,378 66,275 3.59 3,339,977 66,652 3.98
--------- ------ --------- ------
Cumulative trust
preferred securities 3,833 182 9.50 -- -- .00
Total borrowings 1,119,951 30,339 5.40 396,862 11,318 5.69
--------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 4,802,162 96,796 4.02 3,736,839 77,970 4.16
------ ---- ------ ----
Non-interest-bearing
liabilities 123,374 117,189
------- -------
Total liabilities 4,925,536 3,854,028
Total equity 805,649 957,098
------- -------
Total liabilities and
equity $ 5,731,185 $ 4,811,126
============= =============
Net interest-earning
assets $ 677,674 $ 867,567
============= =============
Net interest income/interest
rate spread $ 92,641 2.89% $ 83,127 2.84%
========== ==== ========== ====
Net interest margin 3.39% 3.61%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.14x 1.23x
==== ====
</TABLE>
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes home equity lines of credit and improvement loans, student
loans, automobile loans, passbook loans, credit card loans, personal
loans and commercial business loans.
(3) Includes federal funds sold, interest-earning bank deposits, FHLB
stock, overnight commercial paper and certificates of deposit.
(4) Includes NOW, money market and checking accounts.
21
<PAGE> 22
RATE/VOLUME ANALYSIS.
The following table sets forth the effects of changing rates and
volumes on net interest income of the Company. Information is provided with
respect to (i) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate) and (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume).
The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Three months ended September 30, 1999 Six months ended September 30, 1999
compared to three months ended September 30, 1998 compared to six months ended September 30, 1998
------------------------------------------------- -----------------------------------------------
(In Thousands)
Increase Total Net Increase Total Net
(Decrease) due to Increase (Decrease) due to Increase
----------------- -------- ----------------- --------
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $ (1,947) $ 16,955 $ 15,008 $ (705) $ 26,110 $ 25,405
Co-operative apartment loans (241) 1,512 1,271 (98) 2,455 2,357
Consumer and commercial
business loans(1) (96) 2,308 2,212 (52) 2,066 2,014
--- ----- ----- --- ----- -----
Total loans receivable (2,284) 20,775 18,491 (855) 30,631 29,776
Mortgage-related securities (385) 8,702 8,317 (68) 23,727 23,659
Investment securities (688) (6,887) (7,575) (734) (15,738) (16,472)
Other interest-earning assets (410) (2,530) (2,940) (2,245) (6,378) (8,623)
---- ------ ------ ------ ------ ------
Total net change in income on
interest-earning assets (3,767) 20,060 16,293 (3,902) 32,242 28,340
Interest-bearing liabilities:
Deposits:
Demand deposits (886) 1,249 363 (18,889) 19,328 439
Savings deposits (1,056) 456 (600) (11,430) 9,924 (1,506)
Certificates of deposit (1,593) 2,798 1,205 (55,476) 56,166 690
------ ----- ----- ------- ------ ---
Total deposits (3,535) 4,503 968 (85,795) 85,418 (377)
Cumulative trust preferred
securities -- 182 182 -- 182 182
Borrowings (6) 8,490 8,484 (16,649) 35,670 19,021
-- ----- ----- ------- ------ ------
Total net change in expense on
interest-bearing liabilities (3,541) 13,175 9,634 (102,444) 121,270 18,826
------ ------ ----- -------- ------- ------
Net change in net interest
income $ (226) $ 6,885 $ 6,659 $ 98,542 $ (89,028) $ 9,514
========= ========= ========= ========= ========= =========
</TABLE>
(1)Includes home equity lines of credit and improvement loans, student loans,
automobile loans, passbook loans, personal loans.
22
<PAGE> 23
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
GENERAL.
The Company reported a 47% increase in diluted earnings per share to
$0.22 per diluted share for the quarter ended September 30, 1999 compared to
$0.15 per diluted share for the quarter ended September 30, 1998. Net income
increased 23.8% to $13.0 million for the quarter ended September 30, 1999
compared to $10.5 million for the quarter ended September 30, 1998.
Cash earnings (which include net income adjusted for the amortization
of intangibles and certain charges related to the Company's stock related
benefit plans, net of tax) for the second quarter of fiscal year 2000 increased
34.2% to $17.9 million and increased 58% per diluted share to $0.30 compared to
the same period in the prior fiscal year. Management believes the reporting of
cash earnings along with traditional earnings per share calculated in accordance
with generally accepted accounting principles provides a more complete picture
of the Company's operating performance.
NET INTEREST INCOME.
Net interest income increased by $6.7 million or 15.9% to $48.5 million
for the three months ended September 30, 1999 as compared to $41.8 million for
the period ended September 30, 1998. The increase was due to a $16.3 million
increase in interest income offset in part by a $9.6 million increase in
interest expense. The growth in net interest income reflects primarily the
$975.9 million increase in average interest-earning assets during the three
months ended September 30, 1999 resulting in large part from the Broad
acquisition compared to the three months ended September 30, 1998. This growth
was partially offset by a lower interest rate environment resulting from the
flattening of the yield curve as well as compression of net interest rate margin
due to the leveraging of the balance sheet.
The Company's net interest margin was 3.48% and 3.63% for the three
months ended September 30, 1999 and 1998, respectively. The 15 basis point
decrease in net interest margin for the 1999 period is primarily the result of
the Company's leveraging strategy during fiscal 1999 under which the increased
investment in mortgage-related securities and to a lesser extent multi-family
mortgage loans were funded with FHLB advances which bear interest generally at
higher rates than deposits, thus increasing the Company's cost of funds. Also
contributing to the interest margin compression were the generally lower yields
on loan originations in the 1999 periods combined with the downward repricing of
adjustable-rate mortgages. This decline was partially offset by a reduction in
the overall cost of deposits. The decline also reflected the Company's use of
$198.4 million of its earning assets to fund its stock repurchase program.
The increase in interest income was primarily due to a $975.9 million
increase in the average balance of the Company's interest-earning assets, offset
in part by a decline in the weighted average yield earned thereon from 7.03% to
6.97%. The increase in the average balance was primarily attributable to the
combination of the Company's leveraging strategy initiated in fiscal 1999 and
the assets acquired in connection with the acquisition of Broad. Interest income
on loans increased $18.5 million due to a $1.12 billion increase in the average
balance of loans partially offset by a 28 basis point decline in the yield
earned on loans from 7.64% for the three-month fiscal 1999 period to 7.36% for
the three-
23
<PAGE> 24
month fiscal 2000 period. The decline in yield is attributable to the effects of
originations at lower current interest rates combined with the repricing
downward of some of the Company's adjustable-rate loans in addition to the
pre-payments of higher yielding mortgages. Income on investment securities
decreased $7.6 million due to a $503.9 million decrease in the average balance
of investment securities for the quarter ended September 30, 1999 compared to
the quarter ended September 30, 1998. Interest income on mortgage-related
securities increased $8.3 million during the second quarter of fiscal 2000
compared to the same period in fiscal 1999 as a result of a $556.6 million
increase in the average balance of these securities which was partially offset
by a 44 basis point decline in the yield earned. In conjunction with its
leverage strategy, the Company repositioned its balance sheet from investment
securities to higher yielding mortgage-related securities. Income on other
interest-earning assets (consisting primarily of interest on federal funds and
dividends on FHLB stock) decreased $2.9 million in the current quarter compared
to the prior year quarter due to a decrease of $4.1 million of interest income
earned from securities lending activities which was partially offset by
increases of $0.6 million in dividends on FHLB stock and $0.3 million in
interest on federal funds and overnight deposits.
Interest expense increased $9.6 million to $49.4 million or 24.2% for
the three months ended September 30, 1999 as compared to the three months ended
September 30, 1998. The increased FHLB borrowings associated with the
implementation of the Company's leverage strategy resulted in additional
interest expense of $12.5 million. The increase was partially offset by a $4.1
million decrease in interest paid on borrowings related to securities lending
activities. The $552.6 million increase in the average balance of deposits
increased interest paid on deposits by $1.0 million which was partially offset
by a 47 basis point decline in the average rate paid on deposits to 3.49% for
the quarter ended September 30, 1999 compared to 3.96% for the quarter ended
September 30, 1998 reflecting declines in market rates of interest.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses increased from $2.3 million for
the three months ended September 30, 1998 to $2.9 million for the three months
ended September 30, 1999. The Company continues to provide for loan losses due
to its ongoing and increasing investment in multi-family residential and
commercial real estate loans, which, while not delinquent, may be subject to
greater risk of loss.
NON-INTEREST INCOME.
Non-interest income increased $2.5 million to $5.1 million for the
three months ended September 30, 1999 compared to $2.6 million for the three
months ended September 30, 1998. Service fee income increased $2.5 million
primarily as a result of fee income generated by the Broad branch network,
increased fees on sales of annuities and mutual funds and an increase in banking
service and ATM fees. The Company recognized a net gain of $0.4 million on the
sale of approximately $56 million of securities which were sold to fund mortgage
originations. Other non-interest income decreased $0.4 million as a result of
lower mortgage prepayment fees of $0.5 million associated with the refinancing
of mortgage loans.
24
<PAGE> 25
NON-INTEREST EXPENSES.
Non-interest expense amounted to $29.4 million for the quarter ended
September 30, 1999 compared to $25.3 million for the quarter ended September 30,
1998. The $4.1 million growth in expenses was primarily attributable to
increases in personnel costs of $3.3 million, amortization of intangibles of
$1.2 million and other non-interest expenses of $0.4 million. These increases
were offset by a $0.9 million decrease in data processing service expense.
Compensation and employee benefits expense increased $3.3 million or
34.1% to $13.0 million for the three months ended September 30, 1999 as compared
to the same period in the prior year. The increase is primarily the result of a
$1.6 million expense due to the implementation of the Company's 1998 Recognition
and Retention Plan during the later part of the second quarter of fiscal 1999,
$1.5 million of staff additions relating to the Broad acquisition as well as
normal merit salary increases.
Data processing service expenses decreased by $0.9 million or 28.4% to
$2.3 million during the three months ended September 30, 1999 as compared to the
three months ended September 30, 1998. During the 1999 period, the Company was
involved in the second phase of its data processing conversion which was
completed during the fourth quarter of fiscal 1999. Accordingly, the Company's
data processing costs have substantially declined.
Amortization of intangibles increased $1.2 million or 55.9% to $3.4
million for the quarter ended September 30, 1999 as compared to $2.2 million for
the quarter ended September 30, 1998. The increase is primarily due to
approximately $105.9 million of goodwill associated with the Broad acquisition
which is being amortized over 15 years.
Other non-interest expenses increased $0.4 million for the three months
ended September 30, 1999 compared to the same period in the prior year primarily
due to additional expenses associated with the expansion of operations resulting
from the acquisition of Broad National Bank. These expenses also include items
such as equipment expenses, office supplies, postage, telephone expenses and
maintenance and security.
INCOME TAXES.
Income tax expense amounted to $8.2 million and $6.3 million for the
three months ended September 30, 1999 and 1998, respectively. The increase
experienced in the fiscal 2000 period reflected in part the increase in the
Company's income before income taxes as well as an increase in the Company's
effective tax rate for the three months ended September 30, 1999 to 38.7%
compared to 37.5% for the three months ended September 30, 1998.
As of September 30, 1999, the Company had a net deferred tax asset of
$78.3 million. No valuation allowance was deemed necessary with respect to such
asset.
25
<PAGE> 26
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
GENERAL.
The Company reported a 43% increase in diluted earnings per share to
$0.43 per share for the six months ended September 30, 1999 compared to $0.30
per diluted share for the six months ended September 30, 1998. Net income for
the six months ended September 30, 1999 increased $3.6 million, or 16.8% to
$25.0 million, compared to the six months ended September 30, 1998.
Cash earnings for the six months ended September 30, 1999 increased
23.2% to $33.5 million compared to $27.2 million for the same period of the
prior year. Cash earnings per diluted share increased 46.2% to $0.57 as compared
to $0.39 for the six months ended September 30, 1998.
The $3.6 million increase in net income during the six months ended
September 30, 1999 compared to the same period in the prior year was primarily
due to increases of $9.5 million in net interest income and $1.6 million in
non-interest income. These increases were partially offset by a $5.1 million
increase in non-interest expense, a $1.5 million increase in the provision for
income taxes and a $0.9 million increase in provision for loan losses.
NET INTEREST INCOME.
Net interest income increased by $9.5 million or 11.5% to $92.6 million
for the six months ended September 30, 1999 as compared to the same period in
1998. The increase was due to a $28.3 million increase in interest income offset
in part by a $18.8 million increase in interest expense. The growth in net
interest income reflects primarily the $875.4 million increase in average
interest-earning assets resulting in large part from the Broad acquisition
during the six months ended September 30, 1999 compared to the six months ended
September 30, 1998, which was partially offset by a lower interest rate
environment resulting from the flattening of the yield curve as well as
compression associated with the leveraging of the balance sheet.
The Company's net interest margin was 3.39% and 3.61% for the six
months ended September 30, 1999 and 1998, respectively. The 22 basis point
decrease in net interest margin for the 1999 period is primarily the result of
the Company's leveraging strategy during fiscal 1999 under which the increased
investment in mortgage-related securities was funded with FHLB advances which
bear interest generally at higher rates than deposits, thus increasing the
Company's cost of funds. Also contributing to the interest margin compression
were the generally lower yields on loan originations in the 1999 periods
combined with the downward repricing of adjustable-rate mortgages. This decline
was partially offset by a reduction in the overall cost of deposits. The decline
also reflected the Company's use of $198.4 million of its earning assets to fund
its stock repurchase program.
The increase in interest income was primarily due to a $875.4 million
increase in the average balance of the Company's interest-earning assets, offset
in part by a decline in the weighted average yield earned thereon from 7.00% to
6.91%. Interest income on loans increased $29.8 million due to a $945.6 million
increase in the average balance of loans partially offset by a 35 basis point
decline in the yield earned on loans from 7.71% for the fiscal 1999 period to
7.36% for the fiscal 1999 period. The decline in yield is attributable to the
effects of originations at lower current interest rates combined with the
26
<PAGE> 27
repricing downward of some of the Company's adjustable-rate loans. Income on
investment securities decreased $16.5 million due to a $586.1 million decrease
in the average balance of investment securities along with a decline in the
yield earned from 5.53% for the six months ended September 30, 1998 to 5.36% for
the six months ended September 30, 1999. Interest income on mortgage-related
securities increased $23.7 million during the first six months of fiscal 2000
compared to the same period in fiscal 1999 as a result of a $777.9 million
increase in the average balance of these securities which was partially offset
by a 58 basis point decline in the yield earned. In conjunction with its
leverage strategy, the Company repositioned its balance sheet from investment
securities to higher yielding mortgage-related securities. Income on other
interest-earning assets (consisting primarily of interest on federal funds and
dividends on FHLB stock) decreased $8.6 million in the current six months
compared to the prior year six months primarily due to a decrease of $8.4
million of interest income earned from securities lending activities in the 1998
period along with a $0.6 million decrease in interest on federal funds and
overnight deposits. Partially offsetting these decreases was a $1.0 million
increase in dividends on FHLB stock.
Interest expense increased $18.8 million or 24.1% for the six months
ended September 30, 1999 as compared to the six months ended September 30, 1998.
Interest expense on borrowings increased by $19.0 million as a result of the
increased FHLB borrowings associated with the implementation of the Company's
leverage strategy. This increase was partially offset by a decrease of $0.4
million in interest paid on deposits due to a 39 basis point decline in the
average rate paid on deposits to 3.59% for the six months ended September 30,
1999 compared to 3.98% for the six months ended September 30, 1998 reflecting
decreases in market rates of interest which was partially offset by a $338.4
million increase in the average balance of deposits.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses increased by $0.9 million or
19.4% to $5.6 million as compared to $4.7 million for the same period in the
prior year. The Company continues to provide for loan losses due to its ongoing
and increasing investment in multi-family residential and commercial real estate
loans, which while not delinquent may be subject to greater risk of loss than
single-family owner occupied residential loans.
NON-INTEREST INCOME.
For the six months ended September 30, 1999 non-interest income
increased $1.6 million or 29.5% from $5.4 million for the six months ended
September 30, 1998 to $7.0 million for the six months ended September 30, 1999.
The increase was primarily due to a $3.4 million increase in service fee income
primarily as a result of fee income generated by the Broad branch network,
increased fees on sales of annuities and mutual funds and an increase in banking
service and ATM fees. The increase was partially offset by a net loss of $1.8
million recognized on the sale of approximately $435 million of securities which
were sold to fund mortgage loan originations and stock repurchases.
NON-INTEREST EXPENSES.
Non-interest expense increased by $5.1 million, or 10.5%, to $53.8
million for the six months ended September 30, 1999. The increase in expenses
was attributable to increases in personnel costs of $4.3 million, amortization
of intangibles of $1.2 million, other non-interest expenses of $1.0 million and
27
<PAGE> 28
advertising expense of $0.4 million. These increases were partially offset by a
decrease in data processing service expenses of $1.8 million.
Compensation and employee benefits expense increased $4.3 million, or
22.6%, to $23.2 million for the six months ended September 30, 1999 as compared
to the same period in the prior year. The increase is primarily the result of a
$2.9 million increase in expense due to the implementation of the Company's 1998
Recognition and Retention Plan during the later part of the second quarter of
fiscal 1999, $1.5 million of staff additions relating to the Broad acquisition
as well as normal merit salary increases.
Data processing service expenses decreased $1.8 million, or 28.8%, to
$4.4 million during the six months ended September 30, 1999, respectively as
compared to the six months ended September 30, 1998. During the 1999 period the
Company was involved in the second phase of its data processing conversion. Such
second phase was completed during the fourth quarter of fiscal 1999.
Accordingly, the Company's data processing costs have substantially declined.
For the six months ended September 30, 1999 advertising expense
amounted to $2.8 million as compared to $2.4 million for the six months ended
September 30, 1998. The increase reflects the Company's determination to
increase its market presence through, in part, increased advertising in print
media and radio.
Amortization of intangibles increased 27.7% to $5.5 million for the six
months ended September 30, 1999 compared to $4.3 million for the same period in
the prior year. The increase is primarily due to $105.9 million goodwill
recognized as a result of the Broad acquisition which is being amortized over 15
years.
Other non-interest expenses increased $1.0 million for the six months
ended September 30, 1999 as compared to the six months ended September 30, 1998
primarily due to additional expenses associated with the expansion of operations
resulting from the acquisition of Broad National Bank. These expenses included
items such as equipment expenses, office supplies, postage, telephone expenses,
maintenance and security.
INCOME TAXES.
Income tax expense amounted to $15.2 million and $13.7 million during
the six months ended September 30, 1999 and 1998, respectively. The increase
experienced in the fiscal 2000 period reflected in part the increase in the
Company's income before income taxes. In addition, the Company's effective tax
rate for the six months ended September 30, 1999 was 37.8% compared to 39.1% for
the six months ended September 30, 1998.
28
<PAGE> 29
REGULATORY CAPITAL REQUIREMENTS
The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at September 30, 1999.
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
----------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier I leverage capital
ratio(1)(2) 4.0% $234,655 8.9% $520,484 4.9% $285,829
Risk-based capital
ratios: (2)
Tier I 4.0 182,625 11.4 520,484 7.4 337,859
Total 8.0 365,250 12.7 580,160 4.7 214,910
</TABLE>
(1) Reflects the 4.0% requirement to be met in order for an institution to
be "adequately capitalized" under applicable laws and regulations.
(2) The Bank is categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized "well
capitalized" the Bank must maintain Tier 1 leverage capital of 5%, Tier
1 risk-based capital of 6% and Total risk-based capital of 10%.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
sources of funds are deposits, the amortization, prepayment and maturity of
outstanding loans, mortgage-related securities, the maturity of debt securities
and other short-term investments and funds provided from operations. While
scheduled payments from the amortization of loans, mortgage-related securities
and maturing debt securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. In
addition, the Company invests excess funds in federal funds sold and other
short-term interest-earning assets which provide liquidity to meet lending
requirements. Historically the Company has been able to generate sufficient cash
through its deposits and has only utilized borrowings, consisting primarily of
advances from the FHLB of New York, to a limited degree as a source of funds
during the past five years. However, due to the increased demand for mortgage
loans during fiscal 1999 and as part of the Company's leverage strategy, the
Company has increased its FHLB advances which totaled $1.17 billion at September
30, 1999.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold or Dutch Auction Rate Treasury Securities. On a
longer term basis, the Company maintains a strategy of investing in various
lending products. The Company uses its sources of funds primarily to meet its
ongoing commitments, to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-related
securities and debt and equity securities. At September 30, 1999, there were
outstanding commitments and unused lines of credit by the Company to originate
or acquire mortgage loans and other loans aggregating $112.1 million and $81.0
million, respectively, consisting primarily of fixed and adjustable-rate
residential loans and fixed-rate commercial real estate loans that are expected
to close during the twelve months ended September 30, 2000. Certificates of
deposit scheduled to mature in one year or
29
<PAGE> 30
less at September 30, 1999, totaled $1.75 billion. Based on historical
experience, management believes that a significant portion of maturing deposits
will remain with the Company. The Company anticipates that it will continue to
have sufficient funds, together with borrowings, to meet its current
commitments.
THE YEAR 2000 ISSUE
The Year 2000 Issue ("Y2K Issue") is the result of computer programs
which were written using two digits rather than four to define the applicable
year. As a result, such programs may recognize a date using "00" as the year
1900 instead of the year 2000 which could result in system failures or
miscalculations.
In order to be ready for the year 2000 the Company has developed the
Year 2000 Testing Assurance Plan(TM) (the "Assurance Plan"), which was presented
to the Information Technology Committee of the Board of Directors in March 1998.
The Assurance Plan was developed using the guidelines outlined in the Federal
Financial Institutions Examination Council's "The Effect of 2000 on Computer
Systems". The Company assigned responsibility for the implementation of the
Assurance Plan to the Year 2000 Steering Committee which reports to the
Information Technology Committee on a quarterly basis. The Steering Committee
includes the Company's Chief Executive Officer and other members of executive
management. This Committee has engaged an independent consultant to act as
project manager of the Y2K project. The Company has established an advisory
council as well as both research and implementation support teams, consisting of
Company personnel who have relevant expertise in the various application
systems, to perform planning and testing for Y2K compliance.
The Assurance Plan recognizes that the Company's operating, processing
and accounting systems are computer reliant and could be affected by the Y2K
Issue. The Company is primarily reliant on third party vendors for its computer
output and processing, as well as other significant functions and services
(i.e., securities safekeeping services, securities pricing information, etc.).
The Assurance Plan is divided into three phases. Phase 1: Risk
Assessment and Planning; Phase 2: Development and Testing Preparation; and Phase
3: Testing and Validation.
Phase 1: Risk Assessment and Planning - As of December 31, 1998, Phase
I was fully completed. This phase identified each application and interface,
facilities and hardware utilized by the Company and prioritized them by the
level of risk (business critical, medium and low) they impose on the operations
of the Company. The Company identified 42 business critical systems (operations
that will be significantly impacted if the system is not Y2K compliant), 23
medium risk systems (operations that will be impacted mainly from a productivity
perspective, but the risk to the Company can be identified and managed) and 15
low risk systems (normal business operations of the Company that will be
minimally impacted, if at all, if the system is not Y2K compliant).
Substantially all of the Company's vendors of its business critical and medium
risk applications have provided written assurances that their products and
services will be Y2K compliant. Of the 75 combined business critical and medium
risk systems, approximately 34% are provided by the Company's data service
processor which has informed the Company that it has completed testing of its
systems and such systems are Y2K compliant. Based upon its initial assessment,
management presently believes that with planned modifications to existing
software and hardware and planned conversions to new software and hardware, the
Company's third party vendors are taking the appropriate steps to ensure that
business critical systems will function properly.
30
<PAGE> 31
Phase 2: Development and Testing Preparation - This phase of the
Assurance Plan is the comprehensive preparation for the actual testing and
validation of assertions made by third party providers that they are Year 2000
compliant. During this phase, the vendors prepared their test system environment
and the Company defined and documented all test scenarios and test cases. This
phase is 100% completed.
Phase 3 - Testing and Validation - The third and final phase of the
Assurance Plan involves a comprehensive testing process by the Company that
employs both unit testing and full integration/confirmation testing. The Company
began testing business critical and medium risk applications in September 1998
and all such testing was successfully completed by June 30, 1999 and no
exceptions were noted.
The Company has received assurances that third party products and
services will be Y2K compliant. However, these assurances are not guarantees and
may not be enforceable. The Company's contracts with such third-party vendors do
not include Y2K certification or warranties. Thus, in the event such vendors'
products and/or services are not Y2K compliant, the Company's recourse in the
event of such failure may be limited. If the required modifications and
conversions are not made, or are not completed on a timely basis, the Y2K Issue
could have a material impact on the operations of the Company.
The Y2K Issue also affects certain of the Company's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of April 1998, the Company had contacted all of its large
borrowers regarding such customers' awareness of the Y2K Issue. While no
assurance can be given that its customers will be Y2K compliant, management
believes, based on representations of such customers and reviews of their
operations, that the Company's customers are either addressing the appropriate
issues to insure timely compliance or that they are not faced with material Y2K
issues. In addition, in substantially all cases, the credit extended to such
borrowers is collateralized by real estate which inherently minimizes the
Company's exposure in the event that such borrowers do experience problems or
delays becoming Y2K compliant. In addition, in February 1999, the Company
notified its entire customer base of the Y2K issue and the steps it has taken to
ensure that the Company, and it's underlying computer systems, are Year 2000
compliant.
The Company has completed a Y2K contingency plan for 100% of its
identified business critical and medium risk applications including contingency
plans which address operational policies and procedures in the event of data
processing, electrical power supply and/or telephone service failures associated
with the year 2000. Such contingency plan provides documented actions to allow
the Company to maintain and/or resume normal operations in the event of the
failure of business critical or medium risk applications. The contingency plan
identifies participants, processes and equipment that will be necessary to
permit the Company to continue operations. The contingency plan includes
providing off-line system processing, back-up electrical and telephone systems
and other methods to ensure the Company's ability to continue to operate. Also,
the Company's current data service provider (representing approximately 34% of
the business critical and medium risk applications) is Y2K compliant at March
31, 1999.
The costs of modifications to the existing software are being primarily
absorbed by the third party vendors. However, the Company recognizes the need to
purchase new hardware and software. Based upon current estimates, the Company
has identified approximately $3.4 million in total costs, including hardware,
31
<PAGE> 32
software, and other costs, for completing the Year 2000 project. Of that amount,
approximately $1.7 million and $0.3 million were expensed during the fiscal
years ended March 31, 1999 and 1998, respectively. The Company has expensed $0.7
million in the first six months of fiscal 2000 and has budgeted another $0.7
million for the remainder of fiscal 2000.
The FDIC and other federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any Year 2000 problems. Any institution's
failure to address appropriately the Year 2000 problem could result in
supervisory action. The Bank has been examined for Year 2000 compliance by the
FDIC and the Department.
Pursuant to FFIEC guidelines, the Company has adopted a Liquidity
Contingency Plan to address the potential liquidity issues that federal banking
regulations have raised. These plans include ordering extra currency, utilizing
lines of credit, holding more liquid investments in order to provide the Bank
with the ability to maintain smooth operations in the event of abnormally large
withdrawals of funds by consumers concerned with the effect of the advent of the
Year 2000.
Please be advised that this portion of this Quarterly Report is
designated as a Year 2000 Readiness Disclosure pursuant to the Year 2000
Information and Readiness Disclosure Act (Public Law 105-271, October 19, 1998).
It is intended for informational purposes only and is not intended to be a
representation or warranty.
32
<PAGE> 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability
management policies of the Company's portfolio equity, see "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in the
Company's Annual Report on Form 10-K for the year ended March 31, 1999, which
was filed with the Securities and Exchange Commission on June 28, 1999.
One of the methods the Company utilizes to predict the effect of
changing interest rates on assets and liabilities is to estimate the change in
the Company's net portfolio value ("NPV") over a range of interest rate
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 model assumes estimated loan
prepayment rates and reinvestment rates similar to the Company's historical
experience. The following sets forth the Company's NPV as of September 30, 1999.
<TABLE>
<CAPTION>
NPV AS % OF
CHANGE (IN BASIS POINTS) PORTFOLIO
IN INTEREST RATES NET PORTFOLIO VALUE VALUE OF ASSETS
NPV CHANGE IN
AMOUNT $ CHANGE % CHANGE RATIO NPV RATIO
------ -------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
+300 614,609 (397,567) (39.28)% 11.27% (5.17)%
+200 754,811 (257,364) (25.43) 13.26 (3.18)
+100 887,720 (124,455) (12.30) 14.98 (1.46)
0 1,012,175 -- -- 16.44 --
- - -100 1,133,529 121,353 12.01 17.75 1.32
- - -200 1,270,666 258,491 25.54 19.23 2.79
- - -300 1,452,104 439,929 43.46 21.19 4.75
</TABLE>
As of September 30, 1999, the Company's NPV was $1.01 billion, or
16.44% of the market value of assets. Following a 200 basis point increase in
interest rates, the Company's "post shock" NPV was $754.8 million, or 13.26% of
the market value of assets. The change in the NPV ratio or the Company's
Sensitivity Measure was negative 3.18%.
33
<PAGE> 34
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on
July 23, 1999. Proxies were solicited with respect to such
meeting under Regulation 14A of the Securities Exchange Act of
1934 pursuant to proxy materials dated June 23, 1999. Of the
65,059,876 shares eligible to vote at the meeting, 53,230,403
were represented in person or by proxy.
(b) There was no solicitation in opposition to the Board's
nominees for director, and all of such nominees were elected
for a three year term expiring in 2002, as follows:
<TABLE>
<CAPTION>
No. of Votes No. of Votes
For Withheld
--- --------
<S> <C> <C>
Willard N. Archie 51,903,191 1,327,212
Donald H. Elliott 51,896,895 1,333,506
Janine Luke 51,824,668 1,405,735
Malcolm MacKay 51,922,527 1,307,875
</TABLE>
The following directors are serving terms of office that continue
through 2000,2001 and 2002, as noted:
<TABLE>
<CAPTION>
Director Year Term Expires
-------- -----------------
<S> <C>
Chaim Edelstein 2000
Donald Kolowsky 2000
Joseph S. Morgano 2000
Wesley D. Ratcliff 2000
Robert B. Catell 2001
Rohit M. Desai 2001
Robert W. Gelfman 2001
Charles J. Hamm 2001
Scott M. Hand 2001
Donald M. Karp 2002
</TABLE>
34
<PAGE> 35
(c) One additional proposal was submitted for a vote, with the
following results:
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes
For Against Abstaining
--- ------- ----------
<S> <C> <C> <C>
(1)Ratification of
the appointment of
Ernst & Young LLP
as independent
auditors for the
fiscal year ending
March 31, 2000 52,642,848 384,925 202,628
</TABLE>
Item 5. Other Information
The Company amended its bylaws effective July 31, 1999 in
order to enable the Company to be in compliance with certain
provisions of the Agreement and Plan of Merger dated February
1, 1999 between Broad National Bancorporation and the Company.
The bylaw amendments provided for the addition of the office
of Vice Chairman and for certain changes in procedures related
to the conduct of Board meetings. See Exhibit 3.2
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 3.2 - Bylaws, as amended.
b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE ITEM DESCRIPTION
---- ---- -----------
<S> <C> <C>
July 31, 1999 5 Reported completion of
acquisition of Broad
National Bancorporation
</TABLE>
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENCE COMMUNITY BANK CORP.
Date: November 10, 1999 By:/s/ Charles J. Hamm
------------------- -------------------------------------
Charles J. Hamm
Chairman, President and
Chief Executive Officer
Date: November 10, 1999 By:/s/ John B. Zurell
------------------- -------------------------------------
John B. Zurell
Executive Vice President and
Chief Financial Officer
36
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
INDEPENDENCE COMMUNITY BANK CORP.
AS LAST AMENDED EFFECTIVE JULY 31ST, 1999
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of
Independence Community Bank Corp. ("Corporation") shall be located in the State
of Delaware at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office.
1.2 Other Offices. The Corporation may have other offices within or
without the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors, and the place at which any such meeting shall be held shall
be stated in the notice of the meeting.
2.2 Annual Meeting. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and time
as determined by the Board of Directors and stated in the notice of such
meeting.
2.3 Organization. Each meeting of the stockholders shall be presided
over by the Chairman of the Board, or in his absence by the President, or in
their absences, any other individual selected by the Board of Directors. The
Secretary, or in his absence a temporary Secretary, shall act as secretary of
each meeting of the stockholders. In the absence of the Secretary and any
temporary Secretary, the chairman of the meeting may appoint any person present
to act as secretary of the meeting. The chairman of any meeting of the
stockholders shall announce the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
and, unless prescribed by law or regulation or unless the Board of Directors has
otherwise determined, shall determine the order of the business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussions as seem to him in order.
2.4 Special Meetings. Except as otherwise required by law and subject to
the rights of the holders of any class or series of Preferred Stock, special
meetings of the stockholders may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of at least
three-fourths of the directors then in office.
2.5 Notice.
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally or by mailing a written notice of the
same, not less than ten days and not more than sixty days prior to the date of
the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned for
thirty days or more, or if a new record date is fixed for an adjourned meeting
of stockholders, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the
37
<PAGE> 2
time and place of any meeting adjourned for less than thirty days (unless a new
record date is fixed therefor), other than an announcement at the meeting at
which such adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
(b) Not less than ten days and not more than sixty days prior to the
meeting, a written notice of each special meeting of stockholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
stockholder of record entitled to vote at such meeting.
2.6 Record List of Stockholders. At least ten days before each meeting
of stockholders, a complete record of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares registered in the name of each,
which record shall be kept open to the examination of any stockholder, for a
purpose germane to the meeting, in accordance with the General Corporation Law
("GCL") of the State of Delaware. The record also shall be kept open at the time
and place of such meeting for the inspection of any stockholder.
2.7 Quorum; Actions of Stockholders. Except as otherwise required by law
or the Corporation's Certificate of Incorporation:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote at such
meeting.
(b) In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
2.8 Voting of Shares. Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, each stockholder, on each matter
submitted to a vote at a meeting of stockholders, shall have one vote for each
share of stock registered in his name on the books of the Corporation.
2.9 Closing of Transfer Books and Fixing of the Record Date. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or entitled to receive
payment of any dividend, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period not to exceed 60 days nor
less than ten days preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a record date for any such
determination of stockholders, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty days and, in case
of a meeting of stockholders, not less than ten days prior to the date on which
the particular action requiring such determination of stockholders is to be
taken.
2.10 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder or his duly authorized attorney-in-fact.
Without limiting the manner in which a stockholder may authorize another person
or persons to act for him as proxy, a stockholder may grant such authority in
the manner specified in Section 212(c) of the GCL (or any successor thereto). No
proxy shall be valid after three years from the date of its execution, unless
otherwise provided in the proxy.
2.11 Waiver of Notice. A waiver of any notice required to be given any
stockholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice. The attendance of any stockholder at a meeting, in
person or by proxy, shall constitute a waiver of notice by such stockholder,
except where a stockholder attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or commenced.
38
<PAGE> 3
2.12 Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided, at
any meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock stand,
the vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or by proxy at
such meeting, but no votes shall be cast for such stock if a majority cannot
agree, except to the extent provided in Section 217(b)(3) of the GCL (or any
successor thereto).
2.13 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by an officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee shall
be entitled to vote the shares so transferred.
2.14 Proposals. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, or (b) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than 120 days prior to
the anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of the
Corporation or, in the case of the first annual meeting of stockholders of the
Corporation following its acquisition of all of the outstanding capital stock of
Independence Savings Bank, Brooklyn, New York (the "Bank"), which is expected to
be held in July 1998, notice by the stockholder must be so delivered and
received no later than the close of business on Thursday, March 26, 1998,
notwithstanding a determination by the Corporation to schedule such first annual
meeting later than July 1998. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (c) the class and number of
shares of Corporation stock which are Beneficially Owned (as defined in Article
12.A(e) of the Corporation's Certificate of Incorporation) by the stockholder
submitting the notice, by any Person who is Acting in Concert with or who is an
Affiliate or Associate of such stockholder (as such capitalized terms are
defined in Article 12.A of the Corporation's Certificate of Incorporation), by
any Person who is a member of any group with such stockholder with respect to
the Corporation stock or who is known by such stockholder to be supporting such
proposal on the date the notice is given to the Corporation, and by each Person
who is in control of, is controlled by or is under common control with any of
the foregoing Persons (if any of the foregoing Persons is a partnership,
corporation, limited liability company, association or trust, information shall
be provided regarding the name and address of, and the class and number of
shares of Corporation stock which are Beneficially Owned by, each partner in
such partnership, each director, executive officer and stockholder in such
corporation, each member in such limited liability company or association, and
each trustee and beneficiary of such trust, and in each case each Person
controlling such entity and each partner, director, executive officer,
stockholder, member or trustee of any entity which is ultimately in control of
such partnership, corporation, limited liability company, association or trust),
(d) the identification of any person retained or to be compensated by the
stockholder submitting the proposal, or any person acting on his or her behalf,
to make solicitations or recommendations to stockholders for the purpose of
assisting in the passage of such proposal and a brief description of the terms
of such employment, retainer or arrangement for compensation, and (e) any
material interest of the stockholder in such business. The chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Article II, Section 2.14, and if he should so determine, he
shall so declare to the
39
<PAGE> 4
meeting and any such business not properly brought before the meeting shall not
be transacted. This provision is not a limitation on any other applicable laws
and regulations.
2.15 Inspectors. For each meeting of stockholders, the Board of
Directors shall appoint one or more inspectors of election, who shall make a
written report of such meeting. If for any meeting the inspector(s) appointed by
the Board of Directors shall be unable to act or the Board of Directors shall
fail to appoint any inspector, one or more inspectors shall be appointed at the
meeting by the chairman thereof. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability. An inspector or inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
(v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at the meeting by the chairman
thereof. An inspector or inspectors shall not accept a ballot, proxy or vote,
nor any revocations thereof or changes thereto, after the closing of the polls
(unless the Court of Chancery of the State of Delaware upon application by a
stockholder shall determine otherwise) and may appoint or retain other persons
or entities to assist them in the performance of their duties. Inspectors need
not be stockholders and may not be nominees for election as directors.
ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chairman of the Board or the President, and the Secretary or the Treasurer, and
may be sealed with the seal of the Corporation or facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other than
the Corporation itself or an employee of the Corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be an officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date of
issue. Each certificate of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series,
if any, which such certificate represents; and
(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer books
of the Corporation, kept at the registered office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder of
said certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation.
(c) A written restriction on the transfer or registration of transfer of
a certificate evidencing stock of the Corporation, if permitted by the GCL and
noted conspicuously on such certificate, may be enforced against the holder of
40
<PAGE> 5
the restricted certificate or any successor or transferee of the holder,
including an executor, administrator, trustee, guardian or other fiduciary
entrusted with like responsibility for the person or estate of the holder.
3.3 Registered Owner. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
3.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
new certificate of stock in place of any certificate previously issued by it
which is alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Powers. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors, which may exercise all such
authority and powers of the Corporation and do all such lawful acts and things
as are not by law, the Certificate of Incorporation or these Bylaws directed or
required to be exercised or done by the stockholders.
4.2 Classification, Term and Qualifications. The Board of Directors
shall be divided into three classes as provided in Article 7.A. of the
Corporation's Certificate of Incorporation. No director shall serve beyond the
31st day of December in the year in which he reaches his 75th birthday. No
person shall be eligible for initial election as a director who has attained
seventy years of age or more.
4.3 Number of Directors. The initial Board of Directors shall consist of
13 persons. The number of directors may at any time be increased or decreased by
a vote of a majority of the Board of Directors, provided that no decrease shall
have the effect of shortening the term of any incumbent director.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may not be less than five nor more than 20.
4.4 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Corporation's Certificate of Incorporation.
4.5 Removal of Directors. Directors may be removed in the manner
provided in the Corporation's Certificate of Incorporation.
4.6 Regular Meetings. Regular meetings of the Board of Directors or any
committee thereof may be held at the principal place of business of the
Corporation or at such other place or places, either within or without the State
of Delaware, as the Board of Directors or such committee, as the case may be,
may from time to time designate. Notice of such meetings shall be provided to
directors in accordance with the provisions of the GCL. Unless otherwise
determined by the Board of Directors, the annual meeting of the Board of
Directors shall be held immediately after the adjournment of the annual meeting
of stockholders.
41
<PAGE> 6
4.7 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board, the President or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Corporation or at such other place or places as the Board of Directors or the
person or persons calling such meeting may from time to time designate. Notice
of all special meetings of the Board of Directors shall be given to each
director at least twenty-four (24) hours prior to such meeting if notice is
given in person or by telephone, telegraph, telex, facsimile or other electronic
transmission and at least five (5) days prior to such meeting if notice is given
in writing and delivered by courier or by postage prepaid mail. Such notice need
not specify the business to be transacted at, nor the purpose of, the meeting.
Any director may waive notice of any meeting by submitting a signed waiver of
notice with the Secretary, whether before or after the meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
(b) Special meetings of any committee of the Board of Directors may be
called at any time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the absence of
such specification, in the manner and with the notice required for special
meetings of the Board of Directors.
4.8 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before or after the time stated for the meeting,
shall be equivalent to the giving of notice.
4.9 Quorum; Actions of the Board of Directors. Except as may be
otherwise specifically provided by law, the Certificate of Incorporation or
these Bylaws, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
4.10 Action by Directors Without a Meeting. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be, and such consents are filed with
the minutes of proceedings of the Board of Directors or committee, as the case
may be. Such consent shall have the same effect as a unanimous vote.
4.11 Conduct of Meetings. Meetings of the Board shall be presided over
by the Chairman of the Board, and in the absence or disability of the Chairman
of the Board by the President. If the Chairman of the Board and the President
are absent from any meeting of the Board, the Director then currently serving
who is senior in tenure on the Board, or such other Director as shall be
designated by a majority vote of the Directors present, shall preside. The
Chairman (or other person presiding) shall conduct all meetings of the Board in
accordance with the best interests of the Corporation and shall have the
authority and discretion to establish reasonable procedural rules for the
conduct of Board meetings. Any one or more Directors may participate in a
meeting of the Board or committee by means of a conference telephone or
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at any such meeting, subject to any applicable provisions of
the GCL.
4.12 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
42
<PAGE> 7
4.13 Executive and Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees which in each case consist of one or more directors of the
Corporation, and may from time to time invest such committees with such powers
as it may see fit, subject to such conditions as may be prescribed by the Board.
An Executive Committee may be appointed by resolution passed by a majority of
the full Board of Directors. It shall have and exercise all of the authority of
the Board of Directors, except in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation or plan of
voluntary liquidation, recommending to the stockholders the sale, lease or
exchange or other disposition of all or substantially all the property and
assets of the Corporation, declaring a dividend on the Corporation's capital
stock or amending these Bylaws. The designation of any such committee, and the
delegation of authority thereto, shall not relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
4.14 Remuneration. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors, a stated salary as
director and/or such other compensation as may be fixed by the Board of
Directors. Members of special or standing committees may be allowed like
compensation for serving on committees of the Board of Directors. No such
payments shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
4.15 Nominations of Directors. Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or committee appointed by the Board of Directors
or by any stockholder entitled to vote generally in an election of directors.
However, any stockholder entitled to vote generally in an election of directors
may nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid to the Secretary of the Corporation, which notice is
delivered to or received by the Secretary not later than (i) 120 days prior to
the anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of the
Corporation or, in the case of the first annual meeting of stockholders of the
Corporation following its acquisition of all of the outstanding capital stock of
the Bank, which is expected to be held in July 1998, any such nomination by a
stockholder must be so delivered or received no later than the close of business
on Thursday, March 26, 1998, notwithstanding a determination by the Corporation
to schedule such first Annual Meeting later than July 1998, and (ii) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name, age, business address and residence address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (b) the principal occupation or employment of the stockholder
submitting the notice and of each person being nominated; (c) the class and
number of shares of Corporation stock which are Beneficially Owned (as defined
in Article 12.A(e) of the Corporation's Certificate of Incorporation) by the
stockholder submitting the notice, by any Person who is Acting in Concert with
or who is an Affiliate or Associate of such stockholder (as such capitalized
terms are defined in Article 12.A of the Corporation's Certificate of
Incorporation), by any Person who is a member of any group with such stockholder
with respect to the Corporation stock or who is known by such stockholder to be
supporting such nominee(s) on the date the notice is given to the Corporation,
by each person being nominated, and by each Person who is in control of, is
controlled by or is under common control with any of the foregoing Persons (if
any of the foregoing Persons is a partnership, corporation, limited liability
company, association or trust, information shall be provided regarding the name
and address of, and the class and number of shares of Corporation stock which
are Beneficially Owned by, each partner in such partnership, each director,
executive officer and stockholder in such corporation, each member in such
limited liability company or association, and each trustee and beneficiary of
such trust, and in each case each Person controlling such entity and each
partner, director, executive officer, stockholder, member or trustee of any
entity which is ultimately in control of such partnership, corporation, limited
liability company, association or trust); (d) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (e) a description of all
arrangements or understandings between the stockholder and each nominee and any
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (f) such other
information regarding the stockholder submitting the notice and each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (g) the consent of each nominee to serve as a director of the
Corporation if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
43
<PAGE> 8
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Corporation shall be a Chairman of
the Board, one or more Vice Chairman of the Board, a President, a Secretary and
a Treasurer appointed by the Board of Directors, as well as such Executive Vice
Presidents, Senior Vice Presidents, First Vice Presidents, Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and such
other officers as the Board of Directors or the Chairman of the Board and
President may designate. Officers of the Corporation shall be elected for one
year by the directors at their first meeting after the annual meeting of
stockholders, and officers of the Corporation shall hold office until their
successors are elected and qualified. Any two or more offices may be held by the
same person, except the offices of President and Secretary.
5.2 Powers and Duties. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors or, in the case of
officers with a title of First Vice President or lower, the Chairman of the
Board and President, may from time to time authorize or determine. In the
absence of action by the Board of Directors or the Chairman of the Board and
President, as applicable, the officers shall have such powers and duties as
generally pertain to their respective offices; provided, however,
notwithstanding the foregoing, persons serving as Vice Chairman of the Board
shall only have such authority and duties as shall specifically be authorized by
the Board of Directors or the Chairman thereof.
5.3 Delegation. In the case of absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Term - Removal. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or by the Chairman and the President may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
5.6 Bonds. The Board of Directors may, by resolution, require any and
all of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditions for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI. INDEMNIFICATION, ETC. OF DIRECTORS,
OFFICERS AND EMPLOYEES
6.1 Indemnification. The Corporation shall provide indemnification to
its directors, officers, employees, agents and former directors, officers,
employees and agents and to others in accordance with the Corporation's
Certificate of Incorporation.
6.2 Advancement of Expenses. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 Other Rights and Remedies. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another
44
<PAGE> 9
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer or employee and shall inure to the benefit of
the heirs, executors and administrators of such person.
6.4 Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of its
Certificate of Incorporation or this Article VI.
6.5 Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
ARTICLE VII. DIVIDENDS; FINANCE; AND FISCAL YEAR
7.1 Dividends. Subject to the applicable provisions of the General
Corporation Law of the State of Delaware, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property or in shares of the
capital stock of the Corporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves to meet contingencies, or for
dividends, or for repairing or maintaining any property of the Corporation, or
for any other proper purpose, and the Board of Directors may modify or abolish
any such reserve.
7.2 Disbursements. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
7.3 Depositories. The monies of the Corporation shall be deposited in
the name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
7.4 Fiscal Year. The fiscal year of the Corporation shall end on the
31st day of March of each year.
ARTICLE VIII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally or by mail. If mailed, the
notice shall be deemed to have been delivered when deposited in the United
States mail, addressed to the addressee at his last known address in the records
of the Corporation, with postage thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Corporation shall be in such form and bear
such inscription as may be adopted by resolution of the Board of Directors, or
by usage of the officers on behalf of the Corporation.
45
<PAGE> 10
ARTICLE X. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of meetings and proceedings of its stockholders
and Board of Directors (including committees thereof); and it shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each. Any books, records and minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
ARTICLE XI. AMENDMENTS
11.1 Amendments. These Bylaws may be altered, amended or repealed only
as set forth in the Corporation's Certificate of Incorporation, which provisions
are incorporated herein with the same effect as if they were set forth herein.
11.2 Emergency Bylaws. The Board of Directors may adopt emergency
Bylaws, subject to repeal or change by action of the stockholders, which shall
be operative during any national or local emergency.
ARTICLE XII. USE OF PRONOUNS
Use of the masculine gender in these Bylaws shall be considered to
represent either masculine or feminine gender whenever appropriate.
46
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