SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No.: 0-21628
HAVEN BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-3153802
(I.R.S. Employer I.D. No.)
615 Merrick Avenue, Westbury, New York 11590
(Address of principal executive offices)
(516) 683-4100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of class)
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant, i.e., persons other than directors
and executive officers of the registrant is $112,701,403 and is
based upon the last sales price as quoted on the Nasdaq Stock
Market for March 26, 1999.
The registrant had 8,867,781 shares outstanding as of March 26,
1999.
INDEX
PART I Page
Item 1. Description of Business .......................... 1 - 53
Business ....................................... 1 - 2
Market Area and Competition .................... 2 - 3
Lending Activities ............................. 3 - 12
Delinquencies and Classified Assets ............ 12 - 16
Allowances for Loan and REO Losses ............. 16 - 19
Investment Activities .......................... 19 - 22
Mortgage-Backed Securities ..................... 23 - 28
Sources of Funds ............................... 28 - 31
Borrowings ..................................... 32 - 33
Subsidiary Activities .......................... 34 - 35
Personnel ...................................... 35
Regulation and Supervision ..................... 35 - 48
Federal and State Taxation ..................... 48 - 50
Item 2. Properties ....................................... 51 - 52
Item 3. Legal Proceedings ................................ 52 - 53
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 53
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ...................... 53 - 54
Item 6. Selected Financial Data .......................... 54
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 54
Item 7a. Quantitative and Qualitative Disclosures
about Market Risk ................................ 54
Item 8. Financial Statements and Supplementary Data ...... 54
Item 9. Change In and Disagreements with Accountants on
Accounting and Financial Disclosure .............. 54
PART III
Item 10. Directors and Executive Officers of the
Registrant ...................................... 54
Item 11. Executive Compensation ........................... 55
Item 12. Security Ownership of Certain Beneficial
Owners and Management ............................ 55
Item 13. Certain Relationships and Related Transactions ... 55
PART IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K .............................. 55 - 57
i
EXHIBIT INDEX
The following exhibits are physically filed with this report:
Exhibit 10.2(F) Change in Control Agreement between Haven
Bancorp, Inc. and Mark A. Ricca
Exhibit 10.2(G) Change in Control Agreement between CFS Bank
and Mark A. Ricca
Exhibit 11.0 Computation of earnings per share
Exhibit 13.0 Portions of the 1998 Annual Report to
Stockholders
Exhibit 23.0 Consent of Independent Auditors
Exhibit 27.0 Financial Data Schedule
Exhibit 99 Proxy Statement for 1999 Annual Meeting
Additional exhibits are incorporated herein by reference from
prior filings of Haven Bancorp, Inc. set forth in Item 14.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year
ended December 31, 1998, are incorporated by reference into Parts
I and II of this Form 10-K.
Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
Form 10-K.
ii
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was
incorporated under Delaware law on March 25, 1993 as the holding
company for CFS Bank ("CFS" or the "Bank") in connection with the
Bank's conversion from a federally chartered mutual savings bank
to a federally chartered stock savings bank. The Company is a
savings and loan holding company and is subject to regulation by
the Office of Thrift Supervision ("OTS"), the Federal Deposit
Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). The Company is headquartered in Westbury,
New York and its principal business currently consists of the
operation of its wholly owned subsidiary, the Bank. At December
31, 1998, the Company had consolidated total assets of $2.4
billion and stockholders' equity of $119.9 million.
Currently, the Company does not transact any material business
other than through its subsidiary, the Bank.
The Bank was established in 1889 as a New York-chartered building
and loan association and converted to a New York-chartered
savings and loan association in 1940. The Bank converted to a
federally chartered mutual savings bank in 1983. As the Bank
expanded its presence in the New York tri-state area it changed
its name to CFS Bank in 1997. The Bank is a member of the
Federal Home Loan Bank ("FHLB") System, and its deposit accounts
are insured to the maximum allowable amount by the FDIC. At
December 31, 1998, the Bank had total assets of $2.4 billion and
stockholders' equity of $137.2 million.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations and
borrowings, primarily in one- to four-family, owner-occupied
residential mortgage loans. Since 1994, the Bank has gradually
increased its activity in multi-family and commercial real estate
lending. In addition, the Bank will invest in debt, equity and
mortgage-backed securities to supplement its lending portfolio.
Although the Bank has dicontinued offering certain consumer
loans, during 1998 the Bank also invested in home equity loans,
home equity lines of credit and other marketable securities.
On May 1, 1998, the Bank completed the purchase of the loan
production franchise of Intercounty Mortgage, Inc. The business
operates as a division of the Bank under the name CFS Intercounty
Mortgage ("IMI") originating and purchasing residential loans for
the Bank's portfolio and for sale in the secondary market,
primarily through six loan origination offices located in New
1
York, New Jersey and Pennsylvania. Loan sales in the secondary
market are primarily on a servicing-released basis, for which the
Bank earns servicing-released premiums.
On November 2, 1998, the Company purchased 100% of the
outstanding common stock of Century Insurance Agency, Inc. The
insurance agency operates as a wholly owned subsidiary of the
Company under the name CFS Insurance Agency, Inc. ("CIA"),
providing automobile, homeowners and casualty insurance to
individuals, and various lines of commercial insurance to
individuals.
The Bank's results of operations are dependent primarily on its
net interest income, which is the difference between the interest
income earned on its loan and securities portfolios and its cost
of funds, which consists of the interest paid on its deposits and
borrowed funds. The Bank's net income is also affected by its
non-interest income, including, beginning May 1, 1998, the
results of the acquisition of the loan production franchise of
CFS Intercounty Mortgage, its provision for loan losses and its
operating expenses consisting primarily of compensation and
benefits, occupancy and equipment, real estate operations, net,
federal deposit insurance premiums and other general and
administrative expenses. The earnings of the Bank are
significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, and to
a lesser extent by government policies and actions of regulatory
authorities.
MARKET AREA AND COMPETITION
The Bank has been, and continues to be, a community oriented
savings institution offering a variety of traditional financial
services to meet the needs of the communities in which it
operates. Management considers the Bank's reputation and
customer service as its major competitive advantage in attracting
and retaining customers in its market area.
The Bank's primary market area is concentrated in the
neighborhoods surrounding its eight full service banking and
fifty-nine supermarket banking facilities located in the New York
City boroughs of Queens, Brooklyn, Manhattan and Staten Island,
the New York counties of Nassau, Suffolk, Rockland and
Westchester and in New Jersey and Connecticut. During 1998, the
Bank opened twenty-five supermarket branches. Management
believes that supermarket branching is a cost effective way to
extend the Bank's franchise and put its sales force in touch with
more prospective customers than possible through conventional
bank branches. Management believes that all of its branch
offices are located in communities that can generally be charac-
terized as stable, residential neighborhoods of predominantly
2
one- to four-family residences and middle income families.
During the past five years, the Bank's expanded loan work-out and
resolution efforts have successfully contributed toward reducing
non-performing assets to manageable levels. Although there are
encouraging signs in the local economy and the Bank's real estate
markets, it is unclear how these factors will affect the Bank's
asset quality in the future. See "Delinquencies and Classified
Assets."
The New York City metropolitan area has a large number of
financial institutions, many of which are significantly larger
and have greater financial resources than the Bank, and all of
which are competitors of the Bank to varying degrees. The Bank's
competition for loans and deposits comes principally from savings
and loan associations, savings banks, commercial banks, mortgage
banking companies, insurance companies and credit unions. In
addition, the Bank faces increasing competition for deposits from
non-bank institutions such as brokerage firms and insurance
companies in such areas as short-term money market funds,
corporate and government securities funds, mutual funds and
annuities and insurance. Competition may also increase as a
result of the lifting of restrictions on the interstate
operations of financial institutions.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by owner
occupied one- to four-family residences, and, to a lesser extent,
multi-family residences, commercial real estate and construction
and land loans. Also, the Bank's loan portfolio includes
cooperative loans, which the Bank has not originated since 1990
except to facilitate the sale of real estate owned ("REO") or to
restructure a problem asset. During 1998, loan originations and
purchases totaled $1.22 billion (comprised of $1.04 billion of
residential one- to four-family mortgage loans, $156.8 million of
commercial and multi-family real estate loans, $2.8 million of
construction loans and $16.4 million of consumer loans). One- to
four-family mortgage loan originations included $570.0 million of
loans originated and purchased for sale in the secondary market.
During 1998, the Bank sold $515.8 million of one- to four-family
mortgage loans in the secondary market on a servicing-released
basis.
At December 31, 1998, the Bank had total mortgage loans
outstanding of $1.27 billion, of which $888.6 million were one-
to four-family residential mortgage loans, or 67.9% of the Bank's
total loans. At that same date, multi-family residential
mortgage loans totaled $215.5 million, or 16.5% of total loans.
The remainder of the Bank's mortgage loans, included $163.9
3
million of commercial real estate loans, or 12.5% of total loans,
$4.0 million of cooperative apartment loans, or 0.3% of total
loans and $2.7 million of construction and land loans, or 0.2% of
total loans. Other loans in the Bank's portfolio principally
consisted of home equity lines of credit and consumer loans
totaling $34.9 million, or 2.7% of total loans at December 31,
1998.
The following table sets forth the composition of the Bank's loan
portfolio, excluding loans held for sale, in dollar amounts and
in percentages of the respective portfolios at the dates
indicated.
At December 31,
---------------
1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Mortgage loans:
One- to four-family $888,610 67.85% $805,690 69.93% $556,818 65.63% $325,050 57.03% $258,698 49.34%
Multi-family 215,542 16.46 143,559 12.46 105,341 12.42 79,008 13.86 94,259 17.98
Commercial 163,935 12.52 148,745 12.91 127,956 15.08 111,038 19.48 102,415 19.54
Cooperative 3,970 0.30 19,596 1.70 19,936 2.35 10,187 1.79 24,369 4.65
Construction and land 2,731 0.20 2,263 0.20 4,227 0.50 5,737 1.01 3,491 0.67
--------- ----- --------- ----- ------- ----- ------- ----- ------- -----
Total mortgage loans 1,274,788 97.33 1,119,853 97.20 814,278 95.98 531,020 93.17 483,232 92.17
Other loans:
Home equity lines of
credit 15,173 1.16 15,449 1.34 15,677 1.85 16,454 2.89 17,802 3.39
Property improvement
loans 2,634 0.20 4,392 0.38 6,957 0.82 10,248 1.80 11,814 2.26
Loans on deposit
accounts 957 0.07 895 0.08 809 0.10 821 0.14 940 0.18
Commercial loans 445 0.03 453 0.04 351 0.04 479 0.08 605 0.12
Guaranteed student loans 774 0.06 882 0.08 985 0.12 1,181 0.21 1,761 0.34
Unsecured consumer loans 2,029 0.16 450 0.04 809 0.10 1,950 0.34 2,366 0.45
Other loans 12,914 0.99 9,770 0.84 8,506 0.99 7,834 1.37 5,737 1.09
--------- ------ --------- ------ ------- ------ ------- ------ ------- ------
Total other loans 34,926 2.67 32,291 2.80 34,094 4.02 38,967 6.83 41,025 7.83
--------- ------ --------- ------ ------- ------ ------- ------ ------- ------
Total loans 1,309,714 100.00% 1,152,144 100.00% 848,372 100.00% 569,987 100.00% 524,257 100.00%
====== ====== ====== ====== ======
Less:
Unearned discounts,
premiums and deferred
loan fees, net 966 (1,363) (786) (1,029) (1,375)
Allowance for loan
losses (13,978) (12,528) (10,704) (8,573) (10,847)
--------- --------- ------- ------- -------
Loans, net $1,296,702 $1,138,253 $836,882 $560,385 $512,035
========= ========= ======= ======= =======
4
The following table shows the estimated contractual maturity of
the Bank's loan portfolio at December 31, 1998, assuming no
prepayments.
At December 31, 1998
Mortgage Other Total
Loans Loans Loans
-------- ----- -------
(In thousands)
Amounts due:
Within one year $ 42,933 $ 4,517 $ 47,450
------- ------ -------
After one year:
One to three years 67,251 3,847 71,098
Three to five years 20,807 3,048 23,855
Five to ten years 283,909 12,167 296,076
Ten to twenty years 359,518 11,347 370,865
Over twenty years 500,370 - 500,370
--------- ------ ---------
Total due after one year 1,231,855 30,409 1,262,264
--------- ------ ---------
Total $1,274,788 $34,926 $1,309,714
========= ====== =========
The following table sets forth at December 31, 1998, the dollar
amount of all loans due after December 31, 1999, and whether such
loans have fixed interest rates or adjustable interest rates.
Due After December 31, 1999
Fixed Adjustable Total
----- ---------- -----
(In thousands)
Mortgage loans:
One- to four-family $474,056 $388,921 $ 862,977
Multi-family 34,708 167,195 201,903
Commercial real estate 62,230 101,653 163,883
Cooperative 804 2,288 3,092
Other loans 9,643 20,766 30,409
------- ------- ---------
Total $581,441 $680,823 $1,262,264
======= ======= =========
5
The following table sets forth the Bank's loan originations, loan
purchases, sales and principal repayments for the periods
indicated:
Years Ended December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
Mortgage loans (gross):
At beginning of year $1,119,853 $814,278 $531,020 $483,232 $648,321
Mortgage loans originated:
One- to four-family 177,544 121,498 98,783 64,139 77,499
Multi-family 88,504 64,181 46,310 11,726 -
Commercial real estate 68,319 69,495 35,886 26,047 4,688
Cooperative (1) 34 - - 63 499
Construction and land loans 2,806 3,773 1,562 4,367 1,000
--------- ------- ------- ------- -------
Total mortgage loans
originated 337,207 258,947 182,541 106,342 83,686
Mortgage loans purchased 297,906 200,900 172,300 26,241 -
Transfer of mortgage loans
to REO (623) (1,695) (3,470) (4,638) (10,998)
Transfer of mortgage loans from/
(to) loans held for sale - - 10,594 (12,038) -
Principal repayments (269,164) (151,215) (78,209) (67,274) (64,686)
Sales of mortgage loans (2) (104,700) (1,362) (498) (845) (173,091)
Transfer of loans to MBSs (3) (105,691) - - - -
--------- --------- ------- ------- -------
At end of year $1,274,788 $1,119,853 $814,278 $531,020 $483,232
========= ========= ======= ======= =======
Other loans (gross):
At beginning of year $ 32,291 $ 34,094 $ 38,967 $ 41,025 $ 33,898
Other loans originated 16,413 11,491 8,735 10,746 21,533
Principal repayments (13,778) (13,294) (13,608) (12,804) (14,406)
------- ------- ------- ------- -------
At end of year $ 34,926 $ 32,291 $ 34,094 $ 38,967 $ 41,025
======= ======= ======= ======= =======
(1) Cooperative loans originated in the five years ended
December 31, 1998 were done solely to facilitate the
restructuring and the sale of delinquent cooperative loans and
cooperative units held by the Bank as REO.
(2) During 1998, the Bank sold $83.3 million of adjustable-rate
mortgage loans in several bulk sales transactions. Also during
1998, the Bank sold $14.0 million of cooperative apartment loans.
As part of a major bulk sales program in 1994, the Bank sold
$170.5 million of loans.
(3) During 1998, the Bank securitized $105.7 million in loans
with Fannie Mae ("FNMA"). The resulting securities were retained
and transferred to the Bank's securities available for sale
portfolio.
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both
fixed-rate and adjustable-rate mortgage ("ARM") loans secured by
one- to four-family residences located primarily in Long Island
(in the New York counties of Nassau and Suffolk Counties), the
New York City boroughs of Queens, Manhattan, Brooklyn and Staten
Island, the New York counties of Rockland and Westchester
Counties, as well as in Albany and Rochester, New York, New
Jersey, Pennsylvania and Connecticut.
6
Loan originations are generally obtained from existing or past
customers, members of the local communities, local real estate
brokers and attorney referrals. The substantial majority of the
Bank's loans are originated through efforts of Bank-employed
sales representatives who solicit loans from the communities
served by the Bank by calling on real estate attorneys, brokers
and individuals who have expressed an interest in obtaining a
mortgage loan. The Bank also originates loans from its customer
base in its branch offices. In 1995, the Bank also began
purchasing loans on a flow basis from correspondent mortgage
bankers in New York, New Jersey and Connecticut to supplement its
one- to four-family loan originations.
The Bank generally originates one- to four-family residential
mortgage loans in amounts up to 95% of the lower of the appraised
value or selling price of the property securing the loan.
Properties securing such loans are primarily owner-occupied
principal residences. One- to four-family mortgage loans may be
originated with loan-to-value ratios of up to 97% of the
appraised value of the property under the FNMA Community Home
Buyers Program, which targets low to low/moderate income
borrowers. Residential condominium loans are originated in
amounts up to a maximum of 95% of the appraised value of the
condominium unit. Private Mortgage Insurance ("PMI") is required
whenever loan-to-value ratios exceed 80% of the price or
appraised value of the property securing the loan. Loan amounts
generally conform to Freddie Mac ("FHLMC") limits. Mortgage
loans originated by the Bank generally include due-on-sale
clauses that provide the Bank with the contractual right to deem
the loan immediately due and payable in the event that the
borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of enabling
the Bank to redeploy funds at current rates thereby causing the
Bank's loan portfolio to be more interest rate sensitive. The
Bank has generally exercised its rights under these clauses.
The Bank currently offers fixed-rate loans up to $1,000,000 on
one- to four-family residences with terms up to 30 years. During
1996, the Bank introduced 30 year and 15 year fixed-rate bi-
weekly loans. Interest rates charged on fixed-rate mortgage
loans are competitively priced based on market conditions and the
Bank's cost of funds. Origination fees on fixed-rate loans
typically range from 0% to 3% of the principal amount of the
loan. Generally, the Bank's standard underwriting guidelines
conform to the FNMA/FHLMC guidelines.
The Bank currently offers ARM loans up to $1,000,000 which adjust
either annually, or in 3, 5, 7, 10 or 15 years with maximum loan
terms of 30 years. The Bank's ARM loans typically carry an
initial interest rate below the fully-indexed rate for the loan.
For one year ARMs, the Bank qualifies borrowers based upon a rate
7
of 2% over the initial rate. The initial discounted rate is
determined by the Bank in accordance with market and competitive
factors and, as of December 31, 1998, the discount offered by the
Bank on the one year ARM loan ranged from 126 basis points (with
0% origination fees) to 176 basis points (with 2% origination
fees) below the fully-indexed rate, which was 7.38% as of such
date. The discount offered by the Bank on the three year ARM
loan ranged from 88 basis points (with 0% origination fees) to
130 basis points (with 2% origination fees) below the fully-
indexed rate, which was 7.38% as of December 31, 1998. The
discount offered by the Bank on the five year ARM loan ranged
from 100 basis points (with 0% origination fees) to 150 basis
points (with 2% origination fees) below the fully-indexed rate,
which was 7.38% as of December 31, 1998. As of December 31,
1998, the discount offered by the Bank on the seven year ARM loan
ranged from 88 basis points (with 0% origination fees) to 138
basis points (with 2% origination fees) below the fully-indexed
rate, which was 7.38% as of such date. As of December 31, 1998,
the discount offered by the Bank on the ten year ARM loan ranged
from 63 basis points (with 0% origination fees) to 113 basis
points (with 2% origination fees) below the fully indexed rate,
which was 7.38% as of such date. Finally, as of December 31,
1998, the discount offered by the Bank on the fifteen year ARM
loan ranged from 13 basis points (with 0% origination fees) to 63
basis points (with 2% origination fees) below the fully-indexed
rate which was 7.38%. As of December 31, 1998, the Bank's ARM
loans, with the exception of the seven, ten and fifteen year ARM
loans, adjust by a maximum of 2.0% each adjustment period, with a
life-time cap of 6% over the initial note rate. The maximum
periodic rate adjustment on the seven year, ten year and fifteen
year ARM loans for the first adjustment period are 5% which
defaults to 2% for all adjustment periods thereafter. The Bank
currently charges origination fees ranging from 0% to 2.0% for
its one- to four-family ARM loans. ARM loans generally pose a
risk that as interest rates rise, the amount of a borrower's
monthly loan payment also rises, thereby increasing the potential
for delinquencies and loan losses. This potential risk is
mitigated by the Bank's policy of originating ARM loans with
annual and lifetime interest rate caps that limit the amount that
a borrower's monthly payment may increase. During 1998, the Bank
originated or purchased $363.3 million of one- to four-family ARM
loans for portfolio.
The Bank originates 30 year and 15 year fixed-rate loans for
immediate sale, primarily to private investors while generally
retaining ARM loans, 10, and 20 year fixed-rate loans, and 15 and
30 year bi-weekly fixed-rate loans for portfolio. The Bank
arranges for the sale of such loans at the acceptance of the
commitment by the applicant to the investor through "best
efforts" commitments. The Bank sells loans on a servicing-
released basis. For the year ended December 31, 1998, the Bank
8
originated and purchased approximately $570.0 million of
primarily fixed rate, one- to four-family loans for sale in the
secondary market, $515.8 million of which were sold in 1998.
COOPERATIVE APARTMENT LOANS. Until 1990, the Bank originated
loans secured by cooperative units. Since 1990, the Bank has not
originated any loans secured by cooperative units with the
exception of loans to facilitate the restructuring of a
classified asset or sale of REO. In 1994, the Bank was approved
as a seller/servicer in a FNMA pilot program, enabling it to
originate cooperative apartment loans for immediate sale to FNMA.
MULTI-FAMILY LENDING. The Bank originates multi-family loans
with contractual terms of up to 15 years where the interest rate
generally reprices during the term of the loan and is tied to
matching U.S. Treasury Notes plus a margin. These loans are
generally secured by apartment and mixed-use (commercial and
residential, with the majority of income coming from the
residential units) properties, located in the Bank's primary
market area and are made in amounts of up to 75% of the appraised
value of the property. In making such loans, the Bank bases its
underwriting decision primarily on the net operating income
generated by the real estate to support the debt service, the
financial resources credit history and ownership/ management
experience of the principals/guarantors, and the marketability of
the property. The Bank generally requires a debt service
coverage ratio of at least 1.20x and sometimes requires personal
guarantees from borrowers. As of December 31, 1998, $215.5
million, or 16.4% of the Bank's total loan portfolio, consisted
of multi-family residential loans.
Multi-family, commercial real estate and construction and land
lending are generally believed to involve a higher degree of
credit risk than one- to four-family lending because such loans
typically involve higher principal amounts and the repayment of
such loans generally is dependent on income produced by the
property to cover operating expenses and debt service. Economic
events that are outside the control of the borrower or lender
could adversely impact the value of the security for the loan or
the future cash flows from the borrower's property. In
recognition of these risks, the Bank applies stringent
underwriting criteria for all of its loans. The Bank originates
multi-family, commercial real estate and construction and land
loans on a conservative basis. See "Commercial Real Estate
Lending" and "Construction and Land Lending".
COMMERCIAL REAL ESTATE LENDING. The Bank originates commercial
real estate loans that are generally secured by properties used
exclusively for business purposes such as retail stores, mixed-
use properties (residential and retail or professional office
9
combined where the majority of the income from the property comes
from the commercial business), light industrial and small office
buildings located in the Bank's primary market area. The Bank's
commercial real estate loans are generally made in amounts up to
the lesser of 70% of the appraised value of the property or 65%
for owner occupied properties. Commercial real estate loans are
made on a negotiated basis for terms of up to 15 years where the
interest rate generally reprices during the term of the loan and
is tied to the prime rate or the U.S. Treasury Note rate matched
to the repricing frequency of the loan. The Bank's underwriting
standards and procedures are similar to those applicable to its
multi-family loans, whereby the Bank considers the net operating
income of the property and the borrower's expertise, credit
history and profitability. The Bank generally requires that the
properties securing commercial real estate loans have debt
service coverage ratios of not less than 1.30x and also generally
requires personal guarantees from the borrowers or the principals
of the borrowing entity. At December 31, 1998, the Bank's
commercial real estate loan portfolio totaled $163.9 million, or
12.5% of the Bank's total loan portfolio.
CONSTRUCTION AND LAND LENDING. The Bank's construction loans
primarily have been made to finance the construction of one- to
four-family residential properties, multi-family residential
properties and retail properties. The Bank's policies provide
that construction and land development loans may generally be
made in amounts up to 70% of the value when completed for
commercial properties and 75% for multi-family. The Bank
generally requires personal guarantees and evidence that the
borrower has invested an amount equal to and not less than 20% of
the estimated cost of the land and improvements. Construction
loans generally are made on a floating rate basis (subject to
daily adjustment) and a maximum term of 18 months, subject to
renewal. Construction loans are generally made based on pre-
sales or pre-leasing. Loan proceeds are disbursed in increments
as construction progresses and as inspections warrant. As of
December 31, 1998, the Bank had $2.7 million, or 0.2% of its
total loan portfolio invested in construction and land loans.
OTHER LOANS. During 1998, the Bank also offered home equity
loans, equity lines of credit, business lines of credit and
Government-guaranteed student loans. As of December 31, 1998,
other loans totaled $34.9 million, or 2.7% of the Bank's total
loan portfolio. Effective January 1, 1999, the Bank indefinitely
discontinued offering consumer loan products, including home
equity loans and home equity lines of credit due to shrinking
volume and spreads coupled with high origination costs.
LOAN APPROVAL PROCEDURES AND AUTHORITY. For one- to four-family
real estate loans each loan is reviewed and approved by an
underwriter and another departmental officer with credit
10
authority appropriate for the loan amount and type in accordance
with the policies approved by the Board of Directors. Multi-
family, commercial and construction loans are approved by
designated lending officers respective of the amounts within
their lending authorities which are approved by the Board of
Directors. Commercial loans up to $3,000,000 must be approved by
the Officers Loan Committee, whereas, loans between $3,000,000
and $5,000,000 must be approved by the Loan Committee of the
Board of Directors. Loans exceeding $5,000,000 must be approved
by the Board. Loans not secured by real estate as well as
unsecured loans, depending on the amount of the loan and the
loan-to-value ratio, where applicable, require the approval of at
least one lending officer and/or underwriter designated by the
Board.
For all loans originated by the Bank, upon receipt of a completed
loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by the Bank's
loan underwriters and, if necessary, additional financial
information is required. An appraisal of the real estate
intended to secure the proposed loan is performed, as required by
OTS regulations and prepared by an independent appraiser
designated and approved by the Bank. The Board annually approves
the independent appraisers used by the Bank and approves the
Bank's appraisal policy. It is the Bank's policy to obtain title
insurance on all real estate first mortgage loans. Borrowers
must also obtain hazard insurance prior to closing and flood
insurance and PMI where required. Borrowers generally are
required to advance funds on a monthly basis together with each
payment of principal and interest to a mortgage escrow account
from which the Bank makes disbursements for items such as real
estate taxes, and in some cases, hazard insurance premiums.
LOAN CONCENTRATIONS. As a result of OTS regulations, the Bank
may not extend credit to a single borrower or related group of
borrowers in an amount greater than 15% of the Bank's unimpaired
capital and surplus. An additional amount of credit may be
extended, equal to 10% of unimpaired capital and surplus, if the
loan is secured by readily marketable collateral, which does not
include real estate.
At December 31, 1998, the Bank's loans-to-one borrower limit was
$22.7 million. None of the Bank's borrowers exceeded this limit
in accordance with applicable regulatory requirements.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENT LOANS. The Bank entered into a sub-servicing
agreement with Norwest Mortgage, Inc. ("Norwest"), commencing on
November 16, 1998, under which Norwest performs all residential
mortgage loan servicing functions on behalf of the Bank for the
11
Bank's portfolio loans, as well as for loans serviced for third
party investors. Norwest's collection procedures for mortgage
loans include sending a notice after the loan is 16 days past
due. In the event that payment is not received after the late
notice, phone calls are made to the borrower by Norwest's
collection department. When contact is made with the borrower at
any time prior to foreclosure, the collection department attempts
to obtain full payment or the loss mitigation department attempts
to work out a repayment schedule with the borrower to avoid
foreclosure. Generally, foreclosure procedures are initiated
when a loan is over 95 days delinquent. Loss mitigation efforts
continue throughout the foreclosure process.
CLASSIFIED ASSETS. Federal regulations and the Bank's
Classification of Assets Policy provide for the classification of
loans and other assets considered by the Bank to be of lesser
quality as "substandard", "doubtful" or "loss" assets. An asset
is considered substandard if it is inadequately protected by the
current net worth and paying capacity of the obligor and/or of
the collateral pledged, if any. Substandard assets include those
characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard with the
added characteristic that the weaknesses present make "collection
or liquidation in full," on the basis of currently existing
facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is
not warranted. Pursuant to OTS guidelines, the Bank is no longer
required to classify assets as "special mention" if such assets
possess weaknesses but do not expose the Bank to sufficient risk
to warrant classification in one of the aforementioned
categories. However, the Bank continues to classify assets as
"special mention" for internal monitoring purposes.
Non-performing loans (consisting of non-accrual loans and
restructured loans) decreased from $28.3 million at December 31,
1994 to $16.9 million at December 31, 1995, $13.9 million at
December 31, 1996, $12.5 million at December 31, 1997 and $8.4
million at December 31, 1998. The continued decline in the
balance of non-performing loans during the five year period was
due to the Bank's ongoing efforts to reduce non-performing
assets, as well as to an improved economy. REO decreased each
year during the five years ended December 31, 1998 from $7.8
million at December 31, 1994 (net of an allowance for REO of
$717,000) to a balance at December 31, 1998 of $200,000 (net of
an allowance for REO of $25,000). The Bank intends to continue
12
its efforts to reduce non-performing assets in the normal course
of business, but it may continue to seek opportunities to dispose
of its non-performing assets through sales to investors or
otherwise. The Bank also has restructured loans, which has
enabled the Bank to avoid the costs involved with foreclosing on
the properties securing such loans while continuing to collect
payments on the loans under their modified terms. Troubled debt
restructurings ("TDRs") are loans for which certain concessions,
such as the reduction of interest rates or the deferral of
interest or principal payments, have been granted due to the
borrower's financial condition.
At December 31, 1998, the Bank had 13 restructured loans with
aggregate principal balances of $1.9 million. Of this amount,
34.7% were residential loans (including cooperative apartment
loans) and 65.3% were multi-family loans. Management is able to
avoid the costs of foreclosing on loans that it has restructured.
However, restructured loans have a higher probability of becoming
delinquent than loans that have no previous history of
delinquency. To the extent that the Bank is unable to return
these loans to performing status, the Bank will have to foreclose
on such loans, which will increase the Bank's REO.
The Bank's policy is to recognize income on a cash basis for
restructured loans for a period of six months, after which such
loans are returned to an accrual basis if they are performing in
accordance with their modified terms. At December 31, 1998, the
Bank had 11 restructured loans with principal balances of $1.9
million that were on accrual status. For restructured loans that
are 90 days or more past due, the loan is returned to non-accrual
status and previously accrued but uncollected interest is
reversed.
At December 31, 1998, the Bank's classified assets consisted of
$6.6 million of loans and REO of which $55,000 was classified as
doubtful. The Bank's assets classified as substandard at
December 31, 1998 consisted of $5.7 million of loans and $202,000
of gross REO. Classified assets in total declined $4.6 million,
or 41.1% since December 31, 1997. At December 31, 1998, the Bank
also had $5.6 million of commercial real estate loans that it had
designated special mention. The loans were performing in
accordance with their terms at December 31, 1998 but were deemed
to warrant close monitoring by management due to one or more
factors, such as the absence of current financial information
relating to the borrower and/or the collateral, financial
difficulties of the borrower or inadequate cash flow from the
security property.
13
At December 31, 1998, 1997 and 1996, delinquencies in the Bank's
loan portfolio were as follows:
At December 31, 1998 At December 31, 1997
-------------------------------- ---------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
---------------- --------------- ---------------- ----------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
------ -------- ------ --------- ------ -------- ------ ---------
(Dollars in thousands)
One- to four-family 50 $ 5,201 40 3,843 8 $ 1,339 42 $ 3,534
Multi-family 2 591 - - - - 9 2,362
Commercial 2 306 7 2,175 1 33 9 3,305
Cooperative - - 26 303 3 128 8 699
Construction and
land loans - - - - - - 1 100
Other loans 94 1,177 47 207 26 452 19 396
-- ------ --- ------ --- ------ --- ------
Total loans 148 $ 7,275 120 $ 6,528 38 $ 1,952 88 $10,396
== ====== === ====== === ====== === ======
Delinquent loans
to total loans (1) 0.56% 0.50% 0.17% 0.90%
==== ==== ==== ====
At December 31, 1996
---------------------------------
60-89 Days 90 Days or More
---------------- ----------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
------ --------- ------ ---------
(Dollars in thousands)
One- to four-family 9 $ 950 47 $ 4,083
Multi-family - - 6 1,463
Commercial - - 11 4,321
Cooperative 5 281 9 431
Construction and
land loans - - 1 60
Other loans 26 171 21 375
--- ------ --- ------
Total loans 40 $ 1,402 95 $10,733
=== ====== === ======
Delinquent loans
to total loans (1) 0.17% 1.27%
==== ====
(1) Restructured loans that have become seasoned for the
required six month period and are currently performing in
accordance with their restructured terms are not included in
delinquent loans. There was 1 residential restructured loan for
$183,000 that was included in loans delinquent 90 days or more at
December 31, 1998. At December 31, 1996, there was 1
restructured loan for $77,000 that was included in loans
delinquent 90 days or more because it had not yet performed in
accordance with its modified terms for the required six-month
seasoning period.
NON-PERFORMING ASSETS. The Bank does not accrue interest on
loans 90 days past due and restructured loans that have not yet
performed in accordance with their modified terms for at least
14
six months. If non-accrual loans had been performing in
accordance with their original terms, the Bank would have
recorded interest income from such loans of approximately
$425,000, $736,000 and $688,000 for the years ended December 31,
1998, 1997 and 1996, respectively, compared to $117,000, $146,000
and $220,000, which was recognized on non-accrual loans for such
periods, respectively. If all restructured loans, as of December
31, 1998, 1997 and 1996, had been performing in accordance with
their original loan terms (prior to being restructured), the Bank
would have recognized interest income from such loans of
approximately $396,000, $197,000 and $305,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The following
table sets forth information regarding all non-accrual loans
(which consist of loans 90 days or more past due and restructured
loans that have not yet performed in accordance with their
modified terms for the required six-month seasoning period),
restructured loans and REO.
At December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
Non-accrual mortgage loans $ 6,321 $ 10,000 $ 10,358 $ 9,116 $ 18,474
Restructured mortgage loans 1,857 2,136 3,160 7,072 9,550
Non-accrual other loans 207 396 375 689 275
------- ------- ------- ------- -------
Total non-performing loans 8,385 12,532 13,893 16,877 28,299
Real estate owned, net of
related reserves 200 455 1,038 2,033 7,844
------- ------- ------- ------- -------
Total non-performing assets $ 8,585 $ 12,987 $ 14,931 $ 18,910 $ 36,143
======= ======= ======= ======= =======
Non-performing loans to total loans 0.64% 1.09% 1.64% 2.97% 5.41%
Non-performing assets to total assets 0.36 0.66 0.94 1.28 2.85
Non-performing loans to total assets 0.35 0.63 0.88 1.15 2.23
ALLOWANCES FOR LOAN AND REO LOSSES
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Impaired loans
and related reserves have been identified and calculated in
accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan", and the amendment thereof, SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". The total allowance for loan
losses has been determined in accordance with the provisions of
SFAS No. 5, "Accounting for Contingencies". The Bank's allowance
for loan losses is intended to be maintained at a level
sufficient to absorb all estimable and probable losses inherent
in the loan portfolio. The Bank reviews the adequacy of the
allowance for loan losses on a monthly basis taking into account
past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
15
ability to repay, the estimated value of any underlying
collateral, current and prospective economic conditions and
current regulatory guidance.
During the five years ended December 31, 1998, the allowance for
loan losses as a percentage of non-performing loans increased
steadily to 166.7% at December 31, 1998. The increase is a
direct result of the steady decline in non-performing loans
during that five year period. Non-performing loans as a
percentage of total loans declined steadily from 5.41% at
December 31, 1994 to 0.64% at December 31, 1998. The decline is
due to the decrease in non-performing loans, as well as an
increase in total loans.
The Bank's provisions for loan losses has remainded relatively
stable over the last three years. Specifically, the Bank made
provisions for loan losses of $13.4 million, $2.8 million, $3.1
million, $2.8 million and $2.7 million for the five years ended
December 31, 1998, respectively.
The Bank will continue to monitor and modify its allowances for
loan and REO losses as conditions dictate. Although the Bank
maintains its allowances at levels that it considers adequate to
provide for potential losses, there can be no assurance that such
losses will not exceed the estimated amounts.
16
The following table sets forth the changes in the Bank's
allowance for loan losses at the dates indicated.
At or For the Years Ended December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
Balance at beginning of year $12,528 $10,704 $ 8,573 $10,847 $21,606
Charge-offs:
One- to four-family (435) (964) (771) (472) (264)
Cooperative (256) (370) (524) (2,142) (8,747)
Multi-family (708) - (30) (1,299) (7,932)
Non-residential and other (935) (352) (560) (1,541) (7,798)
------ ------ ------ ------ ------
Total charge-offs (1) (2,334) (1,686) (1,885) (5,454) (24,741)
Recoveries 1,119 760 891 405 582
------ ------ ------ ------ ------
Net charge-offs (1,215) (926) (994) (5,049) (24,159)
Provision for loan losses 2,665 2,750 3,125 2,775 13,400
------ ------ ------ ------ ------
Balance at end of year $13,978 $12,528 $10,704 $ 8,573 $10,847
====== ====== ====== ====== ======
Ratio of net charge-offs during
the year to average loans out-
standing during the year 0.09% 0.09% 0.15% 0.93% 3.83%
Ratio of allowance for loan
losses to total loans at
the end of year (2) 1.07 1.09 1.26 1.51 2.07
Ratio of allowance for loan
losses to non-performing loans
at the end of the year (3) 166.70 99.97 77.05 50.80 38.33
(1) Total charge-offs for the year ended 1994 were attributable
to bulk sale transactions.
(2) The steady decline in the ratio of allowance for loan losses
to total loans is attributable to a decline in non-performing
loans as previously mentioned coupled with growth in the Bank's
total loans outstanding.
(3) The ratio of allowance for loan losses to non-performing
loans has increased significantly over the last five years as
non-performing loans have declined.
17
The following table sets forth the Bank's allocation of its
allowance for loan losses to the total amount of loans in each of
the categories listed.
At December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
Mortgage loans:
Residential (1) $10,139 84.62% $7,039 84.09% $5,929 80.40% $3,838 72.67% $5,685 71.97%
Commercial 3,579 12.51 5,201 12.91 4,340 15.08 4,175 19.48 4,308 19.53
Construction - 0.21 - 0.20 - 0.50 69 1.00 248 0.66
Other loans 260 2.66 288 2.80 435 4.02 491 6.85 606 7.84
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total allowance for
loan losses (2) $13,978 100.00% $12,528 100.00% $10,704 100.00% $8,573 100.00% $10,847 100.00%
====== ====== ====== ====== ===== ====== ====== ====== ====== ======
(1) Includes one- to four-family, multi-family and cooperative
loans.
(2) In order to comply with certain regulatory reporting
requirements, management has prepared the above allocation of the
Bank's allowance for loan losses among various categories of the
loan portfolio for each of the years in the five-year period
ended December 31, 1998. In management's opinion, such
allocation has, at best, a limited utility. It is based on
management's assessment as of a given point in time of the risk
characteristics of each of the component parts of the total loan
portfolio and is subject to changes as and when the risk factors
of each such component changes. Such allocation is not
indicative of either the specific amounts or the loan categories
in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. In addition, by
presenting such allocation, management does not mean to imply
that the allocation is exact or that the allowance has been
precisely determined from such allocation.
INVESTMENT ACTIVITIES
The investment policy of the Bank, which is established by the
Board of Directors and implemented by the Bank's Asset/Liability
Committee, is designed primarily to provide and maintain
liquidity, to generate a favorable return on investments without
incurring undue interest rate and credit risks, and to complement
the Bank's lending activities. Federally chartered savings
institutions have the authority to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of
various federal agencies, certain certificates of deposit of
18
insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements and federal funds. Subject to
various restrictions, federally chartered savings institutions
may also invest their assets in commercial paper, investment
grade corporate debt securities and mutual funds whose assets
conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Additionally, the Bank must maintain minimum levels of
investments that qualify as liquid assets under OTS regulations.
See "Regulation and Supervision-Federal Savings Institution
Regulation-Liquidity." Historically, the Bank has maintained
liquid assets above the minimum OTS requirements and at a level
believed to be adequate to meet its normal daily activities. At
December 31, 1998, the Bank had money market investments and debt
and equity securities available for sale in the aggregate amount
of $1.7 million and $109.6 million, respectively, with fair
values of $1.7 million and $109.0 million, respectively.
On June 30, 1998, the Company transferred the then remaining
$138.2 million of MBSs and $45.4 million of debt securities held
to maturity to securities available for sale ("AFS"). The
transfer was done to enhance liquidity and take advantage of
market opportunities. At December 31, 1998, the securities AFS
portfolio totaled $889.3 million of which $266.3 million were
adjustable-rate securities and $623.0 million were fixed-rate
securities.
The following table sets forth certain information regarding the
carrying and market values of the Company's money market
investments, debt and equity securities and FHLB-NY stock at the
dates indicated:
At December 31,
1998 1997 1996
------ ------ ------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ -------- ------ ------- ------
(In thousands)
Debt and Equity Securities:
U.S. Government and
agency obligations $ 77,705 $ 77,705 $135,672 $135,715 $170,709 $169,849
Corporate debt securities 19,684 19,684 45,390 45,315 45,350 45,227
Preferred stock 11,590 11,590 4,123 4,123 27,329 27,329
------- ------- ------- ------- ------- -------
Subtotal 108,979 108,979 185,185 185,153 243,388 242,405
------- ------- ------- ------- ------- -------
Federal Funds sold - - - - 5,000 5,000
FHLB-NY stock 21,990 21,990 12,885 12,885 9,890 9,890
Money market investments 1,720 1,720 4,561 4,561 1,869 1,869
------- ------- ------- ------- ------- -------
Total $132,689(1) $132,689(1) $202,631(1) $202,599(1) $260,147(1) $259,164(1)
======= ======= ======= ======= ======= =======
(1) Includes debt and equity securities AFS totaling $109.0
million, $118.8 million and $146.1 million at December 31, 1998,
1997 and 1996, respectively, carried at fair value.
19
The table below sets forth certain information regarding the
carrying value, weighted average yields and maturities of the
Company's money market investments and debt and equity securities
at December 31, 1998.
At December 31, 1998
----------------------------------------------------------------------------------------------------------------
Total Money Market Investments
More than More than Five and Debt and Equity Securities
One Year or Less One to Five Years to Ten Years Due After 10 Years ---------------------------------------
----------------- ----------------- --------------- ------------------ Average
Weighted Weighted Weighted Weighted Remaining Estimated Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Years to Carrying Fair Average
Value Yield Value Yield Value Yield Value Yield Maturity Value Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- --------
(Dollars in thousands)
U.S. Government
securities and
agency
obligations $5,030 6.5% $ 9,944 5.4% $ - - % $ 62,731 7.0% 17.1 $ 77,705 $ 77,705 6.7%
Corporate debt
securities 18,670 5.3 - - - - 1,014 8.7 1.9 19,684 19,684 5.5
Money market
investments 1,720 4.4 - - - - - - - 1,720 1,720 4.4
------- ------- ------- ------- ------- -------
Total $ 25,420 5.5% $ 9,944 5.4% $ - - % $ 63,745 7.0% 13.8 $ 99,109 $ 99,109 6.4%
======= ======= ======= ======= ======= =======
Preferred Stock $ 11,590 $ 11,590 5.0%
FHLB-NY stock $ 21,990 $ 21,990 7.0%
======= =======
20
MORTGAGE-BACKED SECURITIES
The Bank also invests in mortgage-backed securities ("MBSs"). At
December 31, 1998, total MBSs, net, aggregated $780.3 million, or
32.6% of total assets. At December 31, 1998, 43.3% of the MBS
portfolio, including Collateralized Mortgage Obligations ("CMOs")
and Real Estate Mortgage Investment Conduits ("REMICs"), were
insured or guaranteed by either FNMA, FHLMC or the Ginnie Mae
("GNMA"). At December 31, 1998, $242.6 million, or 31.1% of
total MBSs were adjustable-rate and $537.7 million, or 68.9% of
total MBSs were fixed-rate.
The following table sets forth the carrying amount of the
Company's MBS portfolio in dollar amounts and in percentages at
the dates indicated.
At December 31,
1998 1997 1996
------ ------ ------
Percent Percent Percent
Carrying of Carrying of Carrying of
Value Total Value Total Value Total
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
MBSs(1):
CMOs and REMICS - Agency-backed(2) $106,552 13.66% $174,707 32.14% $117,969 27.96%
CMOs and REMICS - Non-agency(2) 442,352 56.69 169,480 31.17 94,877 22.48
FHLMC 52,167 6.69 91,110 16.76 97,953 23.21
FNMA 178,767 22.91 107,377 19.75 110,182 26.12
GNMA 434 0.05 982 0.18 983 0.23
------- ------ ------- ------ ------- ------
Net MBSs $780,272 100.00% $543,656 100.00% $421,964 100.00%
======= ====== ======= ====== ======= ======
(1) Includes MBSs AFS of $780.3 million, $380.6 million and
$224.0 million at December 31, 1998, 1997 and 1996, respectively.
(2) Included in total MBSs are CMOs and REMICs, which, at
December 31, 1998, had a gross carrying value of $548.9 million.
A CMO is a special type of pass-through debt in which the stream
of principal and interest payments on the underlying mortgages or
MBSs is used to create classes with different maturities and, in
some cases, amortization schedules, as well as a residual
interest, with each such class possessing different risk
characteristics. The Bank has in recent periods increased its
investment in REMICs and CMOs because these securities generally
exhibit a more predictable cash flow than mortgage pass-through
securities. The Bank's policy is to limit its purchases of
REMICs to non high-risk securities as defined by the OTS.
21
The following tables set forth certain information regarding the
carrying and market values and percentage of total carrying
values of the Bank's mortgage-backed and related securities
portfolio.
At December 31,
1998 1997 1996
------ ------ ------
Carrying % of Market Carrying % of Market Carrying % of Market
Value Total Value Value Total Value Value Total Value
-------- ----- ------ -------- ----- ------ -------- ----- ------
(Dollars in thousands)
Held to maturity:
MBSs:
FHLMC $ - - % $ - $ 27,472 5.05% $ 27,769 $ 39,889 9.45% $ 39,594
FNMA - - - 61,492 11.31 61,093 71,460 16.94 69,914
------- ----- ------- ------- ----- ------- ------- ----- -------
Total MBSs - - - 88,964 16.36 88,862 111,349 26.39 109,508
------- ----- ------- ------- ----- ------- ------- ----- -------
Mortgage-related securities:
CMOs and REMICS-Agency
backed - - - 21,217 3.90 21,101 24,449 5.79 24,142
CMOs and REMICS-
Non-agency - - - 52,876 9.73 53,363 62,142 14.73 62,032
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-related
securities - - - 74,093 13.63 74,464 86,591 20.52 86,174
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-backed and
related securities
held to maturity - - - 163,057 29.99 163,326 197,940 46.91 195,682
------- ----- ------- ------- ----- ------- ------- ----- -------
Available for sale:
MBSs:
GNMA 434 0.05 434 982 0.18 982 983 0.23 983
FHLMC 52,167 6.69 52,167 63,638 11.71 63,638 58,064 13.76 58,064
FNMA 178,767 22.91 178,767 45,885 8.44 45,885 38,722 9.18 38,722
------- ----- ------- ------- ----- ------- ------- ----- -------
Total MBSs 231,368 29.65 231,368 110,505 20.33 110,505 97,769 23.17 97,769
------- ----- ------- ------- ----- ------- ------- ----- -------
Mortgage-related securities:
CMOs and REMICs-Agency
backed 106,552 13.66 106,552 153,490 28.23 153,490 93,520 22.16 93,520
CMOs and REMICs-
Non-agency 442,352 56.69 442,352 116,604 21.45 116,604 32,735 7.76 32,735
------- ----- ------- ------- ----- ------- ------- ----- -------
Total mortgage-related
securities 548,904 70.35 548,904 270,094 49.68 270,094 126,255 29.92 126,255
------- ------ ------- ------- ----- ------- ------- ----- -------
Total mortgage-backed
and mortgage-related
securities available
for sale 780,272 100.00 780,272 380,599 70.01 380,599 224,024 53.09 224,024
------- ------ ------- ------- ----- ------- ------- ----- -------
Total mortgage-backed and
related securities $780,272 100.00% $780,272 $543,656 100.00% $543,925 $421,964 100.00% $419,706
======= ====== ======= ======= ====== ======= ======= ====== =======
22
The table below sets forth certain information regarding the
carrying value, weighted average yields and maturities of the
Company's mortgage-backed and related securities at December
31, 1998.
At December 31, 1998
Over One to Over Five to Mortgage-Backed
One Year or Less Five Years Ten Years Over Ten Years and Related Securities Totals
---------------- ----------- ------------ -------------- -----------------------------
Average
Weighted Weighted Weighted Weighted Remaining Estimated Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Years to Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Maturity Value Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- --------- -------- --------- --------
(Dollars in thousands)
Available for sale:
FNMA $ 797 7.50% $ - - % $10,417 5.80% $167,553 6.50% 18.1 $178,767 $178,767 6.46%
FHLMC 203 6.38 1,170 6.02 6,137 6.44 44,657 6.63 22.0 52,167 52,167 6.60
GNMA - - - - - - 434 6.33 25.3 434 434 6.33
CMOs and REMICs - - 3,534 5.84 - - 545,370 6.50 27.1 548,904 548,904 6.50
------ ---- ------ ---- ------ ---- ------- ---- ---- ------- ------- ----
Total mortgage-
backed and
related
securities $ 1,000 7.27 $ 4,704 5.89% $16,554 6.03% $758,014 6.51% 24.7 $780,272 $780,272 6.50%
====== ==== ====== ==== ====== ==== ======= ==== ==== ======= ======= ====
At December 31, 1998, the weighted average contractual maturity
of the Bank's mortgage-backed and related securities portfolio
was 24.7 years.
23
The following table shows the carrying value, maturity or period
to repricing of the Company's mortgage-backed and related
securities portfolio at December 31, 1998.
At December 31, 1998
Total
Fixed- Mortgage-
ARM Rate Backed
Fixed-Rate MBSs & CMOs & ARM and Related
MBSs REMICs REMICs CMOs Securities
---------- ---------- ------ ---- -----------
(In thousands)
Amounts due or repricing:
Within one year $ 990 $ 39,559 $ - $181,314 $221,863
------- ------- ------ ------- -------
After one year:
One to three years 6 20,671 3,521 - 24,198
Three to five years 4,973 - - - 4,973
Five to 10 years 12,563 - - - 12,563
10 to 20 years 99,266 - 14,365 - 113,631
Over 20 years 50,173 - 350,766 - 400,939
------- ------- ------- ------- -------
Total due or repricing
after one year 166,981 20,671 368,652 - 556,304
------- ------- ------- ------- -------
Total 167,971 60,230 368,652 181,314 778,167
Adjusted for:
Unamortized yield
adjustment 753 561 (1,752) 430 (8)
Unrealized gain(loss) 1,492 361 566 (306) 2,113
------- ------- ------- ------- -------
Total mortgage-backed and
related securities $170,216 $ 61,152 $367,466 $181,438 $780,272
======= ======= ======= ======= =======
24
The following table sets forth the carrying value and the
activity in the Company's mortgage-backed and related securities
portfolio during the periods indicated.
For the Years Ended December 31,
1998 1997 1996
------ ------ ------
(In thousands)
Mortgage-backed and related
securities:
At beginning of period $543,656 $421,964 $629,889
Loans securitized 105,691 - -
MBSs purchased - 56,941 41,647
MBSs sold (6,618) (18,932) (101,604)
CMOs and REMICs purchased 687,923 365,002 158,654
CMOs and REMICs sold (349,464) (206,901) (205,760)
Amortization and repayments (199,636) (76,771) (97,969)
Change in unrealized gain (loss) (1,280) 2,353 (2,893)
-------- ------- -------
Balance of mortgage-backed and
related securities at end
of period (1) $780,272 $543,656 $421,964
======= ======= =======
(1) Includes $780.3 million, $380.6 million and $224.0 million
of mortgage-backed and related securities AFS at December 31,
1998, 1997 and 1996, respectively, carried at fair value.
The Asset/Liability Committee determines when to make substantial
changes in the MBS portfolio. In 1998, the Company purchased
$687.9 million of CMOs and REMICs, of which $106.3 million were
adjustable-rate and $581.6 million were fixed-rate securities.
During 1998, the Bank continued to emphasize MBSs reflecting
management's strategy to improve duration and yield of the AFS
portfolio. Adjustable-rate securities as a percentage of total
MBSs was 31%, 48% and 42% at December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, $337.9 million, or 43.3% of
the Bank's MBS portfolio, was directly insured or guaranteed by
the FNMA, FHLMC or GNMA. FNMA and FHLMC provide the certificate
holder a guarantee of timely payments of interest and scheduled
principal payments, whether or not they have been collected. The
GNMA MBSs provide a guarantee to the holder of timely payments of
principal and interest and is backed by the full faith and credit
of the U.S. Government. The privately-issued CMOs and REMICs
contained in the Bank's AFS portfolio at December 31, 1998
totaling $442.4 million, or 56.7% of MBSs have generally been
underwritten by large investment banking firms with the timely
25
payment of principal and interest on these securities supported
(credit enhanced) in varying degrees by either insurance issued
by a financial guarantee insurer, letters of credit or
subordination techniques. Substantially all such securities are
rated AAA by one or more of the nationally recognized securities
rating agencies.
MBSs generally yield less than the loans that underlie such
securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. The MBS
portfolio had a weighted average yield of 6.50% for the year
ended December 31, 1998. In addition, MBSs are more liquid than
individual mortgage loans and may be used to collateralize
obligations of the Bank. In general, MBSs issued or guaranteed
by FNMA and FHLMC and certain AA-rated mortgage-backed pass-
through securities are weighted at no more than 20% for risk-
based capital purposes, and MBSs issued or guaranteed by GNMA are
weighted at 0% for risk-based capital purposes, compared to an
assigned risk weighting of 50% to 100% for whole residential
mortgage loans. These types of securities thus allow the Bank to
optimize regulatory capital to a greater extent than non-
securitized whole loans.
SOURCES OF FUNDS
GENERAL. Deposits, loan, mortgage-backed and debt securities
repayments, retained earnings and, to a lesser extent, FHLB
advances are the primary source of the Company's and the Bank's
funds for use in lending, investing and for other general
purposes.
DEPOSITS. The Bank offers a variety of deposit accounts having a
range of interest rates and terms. The Bank's deposits consist
of savings, NOW, checking, money market and certificate accounts.
The flow of deposits is influenced significantly by general
economic conditions, changes in money market rates, prevailing
interest rates and competition.
During 1996, the Bank implemented its supermarket banking
program. During September of 1996, the Bank and Pathmark Stores,
Inc. entered into an agreement to open approximately 44 full-
service bank branches in Pathmark supermarkets throughout New
York City, Long Island, Westchester and Rockland counties by
early 1999. By the end of 1996, the Bank had opened four
supermarket branches with deposits totaling $12.1 million.
During 1997, the Bank opened twenty-eight supermarket branches
resulting in a total of thirty-two locations at December 31, 1997
with deposits totaling $157.2 million. During 1998, the Bank
opened an additional twenty-five supermarket branches resulting
in a total of fifty-seven locations at December 31, 1998 with
deposits totaling $504.0 million. The supermarket branches are
26
located in the New York City boroughs of Queens, Brooklyn,
Manhattan and Staten Island, the New York counties of Nassau,
Suffolk, Rockland and Westchester and in New Jersey and
Connecticut. At December 31, 1998, the Bank had 35 branches in
Pathmark Stores, Inc., 14 in ShopRite Supermarket, Inc., 4 in
Edward Super Food Stores, 2 in Big Y Food Stores, 1 in Shaws and
1 mini-branch in The Grand Union Co. Core deposits equaled 54.0%
of total in-store branch deposits, compared to 45.5% in
traditional branches. Overall core deposits represented 47.7% of
total deposits at December 31, 1998 compared to 42.7% at December
31, 1997. The Bank believes that supermarket branching is a
cost-effective way to extend its franchise and put its sales
force in touch with a significant number of prospective
customers. The branches are open seven days a week and provide a
broad range of traditional banking services, as well as the full
package of financial services offered by CFS Investments, Inc.
("CFSI"). In 1999, the Bank has opened two additional
supermarket branches and is scheduled to open one more. The Bank
has established a relationship with ShopRite Stores under which
the Bank has the right to open in-store branches in all new or
renovated ShopRite Stores in New Jersey and Connecticut.
The Bank's deposits are obtained primarily from the areas in
which its branch offices are located. The Bank relies primarily
on customer service and long-standing relationships with
customers to attract and retain these deposits. Certificate
accounts in excess of $100,000 are not actively solicited by the
Bank nor does the Bank use brokers to obtain deposits. During
1998, the Bank continued to offer competitive rates without
jeopardizing the value of existing core deposits. During 1997,
the Bank experienced a shift in deposits from certificate of
deposit accounts into savings and checking accounts which
continued in 1998. Certificates of deposit decreased from 57.3%
of deposits at December 31, 1997 to 52.3% of deposits at December
31, 1998. During 1998, the Bank introduced a "Liquid Asset"
savings account in all supermarket branches which pays the
account holder a fixed-rate of interest in the first year on
account balances of $2,500 or more. The Liquid Asset account
currently pays 4.25% for the first year. The Company has been
able to maintain a substantial level of core deposits which the
Company believes helps to limit interest rate risk by providing a
relatively stable, low cost long-term funding base. The Company
expects to attract a higher percentage of core deposits from its
supermarket branch locations as these locations continue to grow
and mature.
27
The following table presents the deposit activity of the Bank for
the periods indicated.
Years Ended December 31,
1998 1997 1996
------ ------ ------
(In thousands)
Deposits $5,753,644 $3,208,355 $2,441,295
Withdrawals 5,458,274 3,031,457 2,428,315
--------- --------- ---------
Net deposits 295,370 176,898 12,980
Interest credited on deposits 62,328 50,326 41,362
--------- --------- ---------
Total increase in deposits $ 357,698 $ 227,224 $ 54,342
========= ========= =========
Time deposits by maturity at December 31, 1998 over $100,000 are
as follows:
Maturity Period Amount
--------------- ------
(In thousands)
Three months or less $24,244
Over three through six months 27,618
Over six through 12 months 18,605
Over 12 months 14,042
------
Total $84,509
======
28
The following table sets forth the distribution of the Bank's
deposit accounts for the periods indicated and the weighted
average nominal interest rates for each category of deposits
presented.
Years Ended December 31,
1998 1997 1996
------ ------ ------
Percent Weighted Percent Weighted Percent Weighted
of Average of Average of Average
Average Total Nominal Average Total Nominal Average Total Nominal
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars in thousands)
Savings accounts $441,759 28.22% 2.81% $371,872 30.01% 2.51% $373,337 33.46% 2.49%
Checking accounts 187,297 11.96 0.73 134,546 10.86 1.31 111,425 9.99 1.01
------- ----- ---- ------- ----- ----- ------- ----- -----
Total savings and checking
accounts 629,056 40.18 2.19 506,418 40.87 2.07 484,762 43.45 2.13
------- ----- ---- ------- ----- ----- ------- ----- -----
Money market accounts 57,597 3.68 3.54 54,107 4.37 3.37 58,108 5.21 3.32
------- ----- ---- ------- ----- ----- ------- ----- -----
Certificate accounts:
91 days 5,620 0.36 3.87 5,799 0.47 3.83 7,783 0.70 3.92
6 months 164,647 10.52 5.33 85,558 6.90 5.37 85,768 7.69 5.12
7 months 4,519 0.29 3.93 13,116 1.06 5.26 2,228 0.20 2.99
One year 382,497 24.43 5.62 265,891 21.45 5.69 203,259 18.22 5.51
13 months 27,514 1.76 5.53 21,314 1.72 5.79 11,036 0.99 5.12
18 months 33,985 2.17 5.77 34,321 2.77 5.79 23,407 2.10 5.98
2 to 4 years 160,667 10.26 5.99 145,081 11.71 6.04 131,931 11.82 5.87
Five years 93,898 5.99 6.23 101,972 8.23 6.23 101,690 9.11 6.30
7 to 10 years 5,644 0.36 6.31 5,547 0.45 6.31 5,666 0.51 6.28
--------- ------ ---- -------- ------ ---- ------- ------ ----
Total certificate accounts 878,991 56.14 5.68 678,599 54.76 5.79 572,768 51.34 5.66
--------- ------ ---- --------- ------ ---- --------- ------ ----
Total deposits $1,565,644 100.00% 4.20% $1,239,124 100.00% 4.16% $1,115,638 100.00% 4.00%
========= ====== ==== ========= ====== ==== ========= ====== ====
The following table presents, by various rate categories, the
amount of certificate accounts outstanding at December 31, 1998,
1997 and 1996 and the periods to maturity of the certificate
accounts outstanding at December 31, 1998.
Period of Maturity from December 31, 1998
-----------------------------------------
Within One to Two to Over
At December 31, One Two Three Three
1998 1997 1996 Year Years Years Years Total
------ ------ ------ ------ ------ ------ ----- -------
(In thousands)
Certificate accounts:
3.99% or less $ 31,712 $ 6,682 $ 10,396 $ 26,493 $ 3,592 $ 77 $ 1,550 $ 31,712
4.00% to 4.99% 131,330 6,942 18,545 121,015 7,774 1,467 1,074 131,330
5.00% to 5.99% 610,219 548,849 456,789 557,808 27,230 9,528 15,658 610,219
6.00% to 6.99% 123,436 211,302 104,732 62,068 19,600 41 41,727 123,436
7.00% to 7.99% 5,052 7,808 10,637 492 4,560 - - 5,052
------- ------- ------- ------- ------- ------ ------ -------
Total $901,749 $781,583 $601,099 $767,876 $62,756 $11,108 $60,009 $901,749
======= ======= ======= ======= ======= ====== ====== =======
29
BORROWINGS
Although deposits are the Bank's primary source of funds, the
Bank has from time to time utilized borrowings as an alternative
or less costly source of funds. The Bank's primary source of
borrowing is advances from the FHLB-NY. These advances are
collateralized by the capital stock of the FHLB-NY held by the
Bank and certain of the Bank's MBSs. See "Regulation and
Supervision-Federal Home Loan Bank System." Such advances are
made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum
amount that the FHLB-NY will advance to member institutions,
including the Bank, for purposes other than meeting withdrawals,
fluctuates from time to time in accordance with the policies of
the OTS and the FHLB-NY. At December 31, 1998, the Bank had
$325.2 million of advances outstanding from the FHLB-NY.
In addition, the Bank may, from time to time, enter into sales of
securities under agreements, generally for up to 30 days, to
repurchase ("reverse repurchase agreements") with nationally
recognized investment banking firms. Reverse repurchase
agreements are accounted for as borrowings by the Bank and are
secured by designated securities. The proceeds of these
transactions are used to meet cash flow or asset/liability needs
of the Bank. At December 31, 1998, the Bank had $88.7 million of
reverse repurchase agreements outstanding.
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware, issued $25 million of 10.46%
capital securities. The Company is the owner of all the
beneficial interests represented by common securities of the
Trust. The Trust used the proceeds from the sale of the capital
securities to purchase the Company's 10.46% junior subordinated
deferrable interest debentures due 2027. See Note 11 of Notes to
Consolidated Financial Statements in the Registrant's 1998 Annual
Report to Stockholders on page 37 which is incorporated herein by
reference.
The Bank has an ESOP loan from an unrelated third party lender
with an outstanding balance of $1.5 million and an interest rate
of 7.06% at December 31, 1998. See Note 14 of Notes to
Consolidated Financial Statements in the Registrant's 1998 Annual
Report to Stockholders on page 42 which is incorporated herein by
reference. The loan, as amended on December 29, 1995, is payable
in thirty-two equal quarterly installments beginning December
1995 through September 2003. The loan bears interest at a
floating rate based on the federal funds rate plus 250 basis
points.
30
The following table sets forth certain information regarding
borrowed funds for the dates indicated:
At or For the Years Ended December 31,
1998 1997 1996
------ ------ ------
(Dollars in thousands)
FHLB-NY Advances:
Average balance outstanding $301,557 $191,550 $152,005
Maximum amount outstanding at any
month-end during the period 431,000 247,000 195,000
Balance outstanding at end of period 325,200 247,000 178,450
Weighted average interest rate
during the period 5.19% 5.69% 5.54%
Weighted average interest rate
at end of period 5.13% 5.86% 4.72%
Securities Sold under Agreements to
Repurchase:
Average balance outstanding $142,348 $172,310 $128,677
Maximum amount outstanding at any
month-end during the period 191,291 229,280 142,906
Balance outstanding at end of period 88,690 193,028 142,906
Weighted average interest rate
during the period 5.71% 5.68% 5.65%
Weighted average interest rate
at end of period 5.50% 5.94% 5.09%
Other Borrowings (1):
Average balance outstanding $ 26,626 $ 25,231 $ 7,667
Maximum amount outstanding at any
month-end during the period 26,766 30,120 10,725
Balance outstanding at end of period 26,456 26,766 5,077
Weighted average interest rate
during the period 10.32% 8.15% 6.38%
Weighted average interest rate
at end of period 10.20% 10.29% 9.63%
Total Borrowings:
Average balance outstanding $470,531 $389,091 $285,951
Maximum amount outstanding at any
month-end during the period 649,057 466,794 348,631
Balance outstanding at end of period 440,346 466,794 326,433
Weighted average interest rate
during the period 5.95% 5.86% 5.84%
Weighted average interest rate
at end of period 5.51% 6.15% 5.11%
(1) Includes the CMO, ESOP loan and Holding Company Obligated
Mandatorily Redeemable Capital Securities.
31
SUBSIDIARY ACTIVITIES
COLUMBIA RESOURCES CORP ("Columbia Resources"). Columbia
Resources is a wholly owned subsidiary of the Bank and was formed
in 1984 for the sole purpose of acting as a conduit for a
partnership to acquire and develop a parcel of property in New
York City. Columbia Resources acquired the property, but never
developed it. The property was later sold. During 1996, two REO
commercial properties totaling $524,000 were transferred from the
Bank to Columbia Resources to limit exposure to the Bank from
unknown creditors. By December 31, 1996 the properties were
written down to a combined value of $440,000. The properties
were subsequently sold during 1997.
CFS INVESTMENTS, INC. ("CFSI"). CFSI is a wholly owned
subsidiary of the Bank organized in 1989 that is engaged in the
sale of tax deferred annuities, securities brokerage activities
and insurance. CFSI participates with FISERV Investor Services,
Inc., which is registered as a broker-dealer with the SEC, NASD,
and state securities regulatory authorities. All employees of
CFSI engaged in securities brokerage activities are dual
employees of FISERV. Products offered through FISERV include
debt and equity securities, mutual funds, unit investment trusts
and variable annuities. Fixed annuities, life and health
insurance, and long term nursing care products are offered
through CFSI; a licensed general agent with the New York State
Department of Insurance.
HAVEN CAPITAL TRUST I. On February 12, 1997, Haven Capital Trust
I, a statutory business trust formed under the laws of the State
of Delaware issued $25 million of 10.46% capital securities. See
Note 11 of Notes to Consolidated Financial Statements in the
Registrant's 1998 Annual Report to Stockholders on page 37 which
is incorporated herein by reference.
COLUMBIA PREFERRED CAPITAL CORPORATION ("CPCC"). On June 9,
1997, the Bank established a real estate investment trust
("REIT") subsidiary, CPCC. At December 31, 1998, the REIT held
$334.0 million of the Bank's residential loan portfolio. The
establishment of the REIT enables the Bank to achieve certain
business goals including providing the Bank with a contingency
funding mechanism without disrupting its investment policies and
enhancing the Bank's ability to track and manage the mortgage
portfolio transferred to CPCC since the transferred portion of
its mortgage loan portfolio is segregated into a separate legal
entity.
CFS TRAVEL SERVICES, INC. The Company, through its wholly owned
subsidiary, CFS Travel Services, Inc. ("CFS Travel"), established
February 28, 1998 offered customers and their families and
friends, organized, escorted day long excursions and overnight
trips. This subsidiary was subsequently dissolved on March 31,
1999.
32
CFS INSURANCE AGENCY, INC. On November 2, 1998, the Company
completed the purchase of 100% of the oustanding common stock of
CIA. CIA, headquartered in Centereach, New York, provides
automobile, homeowners and casualty insurance to individuals and
various lines of commercial insurance to businesses. CIA
operates as a wholly-owned subsidiary of the Company.
PERSONNEL
As of December 31, 1998, the Bank had 941 full-time employees and
65 part-time employees. Even though the employees are not
represented by a collective bargaining unit, the Bank considers
its relationship with its employees to be good.
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to regulation, examination and supervision by
the OTS, as its chartering agency, and the FDIC, as the deposit
insurer. The Bank is a member of the FHLB System and its deposit
accounts are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") managed by the FDIC. The
Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other financial
institutions. Periodic examinations by the OTS and the FDIC
monitor the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the
insurance fund and depositors.
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of federal savings
institutions are governed by the Home Owners' Loan Act, as
amended (the "HOLA") and, in certain respects, the Federal
Deposit Insurance Act ("FDI Act") and the regulations issued by
the agencies to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in
which federal associations may engage. In particular, many types
of lending authority for federal associations, (e.g., commercial,
non-residential real property loans, consumer loans), are limited
to a specified percentage of the institutions's capital or
assets.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one
borrower. Generally, this limit is 15% of the Bank's unimpaired
33
capital and surplus plus an additional 10% of unimpaired capital
and surplus if such loan is secured by readily-marketable
collateral, which is defined to include certain financial
instruments and bullion. At December 31, 1998, the Bank's
unimpaired capital and surplus was $151.1 million and its limit
on loans to one borrower was $22.7 million. At December 31,
1998, the Bank's largest aggregate amount of loans to one
borrower had an aggregate balance of $13.0 million.
QTL Test. The HOLA requires savings institutions to meet a
Qualified Thrift Lender ("QTL") test. Under the QTL test, a
savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out
of each 12 month period. A savings association that fails the
QTL test must either convert to a bank charter or operate under
certain restrictions. As of December 31, 1998, the Bank
maintained 72.06% of its portfolio assets in qualified thrift
investments and had more than 65% of its portfolio assets in
qualified thrift investments in each of the prior 12 months.
Therefore, the Bank met the QTL test.
Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings
institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged
against capital. Effective April 1, 1999, the OTS amended its
capital distribution regulations to reduce regulatory burdens on
savings associations. The regulations being replaced, which were
effective throughout 1998, established three tiers of
institutions, which are based primarily on an institution's
capital level. An institution that exceeded all fully phased-in
regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and had not been advised by
the OTS that it was in need of more than normal supervision,
could, after prior notice to, but without the approval of the
OTS, make capital distributions during a calendar year equal to
the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar
year; or (ii) 75% of its net earnings for the previous four
quarters. Any additional capital distributions would have
required prior OTS approval. In the event the Bank's capital
fell below its capital requirements or the OTS notified it that
it was in need of more than normal supervision, the Bank's
34
ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. Under the amendments
adopted by the OTS, certain savings associations will be
permitted to pay capital distributions during a calendar year
that do not exceed the association's net income for that year
plus its retained net income for the prior two years, without
notice to, or the approval of, the OTS.
If adopted as proposed, certain savings associations will be
permitted to pay capital distributions within the amounts
described above for Tier 1 institutions without notice to, or the
approval of, the OTS. However, a savings association subsidiary
of a savings and loan holding company, such as the Bank, will
continue to have to file a notice unless the specific capital
distribution requires an application.
Liquidity. The Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of
not less than a specified percentage (currently 4%) of its net
withdrawable deposit accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet the
liquidity requirements. The Bank's average liquidity ratio for
December 31, 1998 was 4.24% which exceeded the then applicable
requirement. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required by regulation to
pay assessments to the OTS to fund the agency's operations. The
general assessment, paid on a semi-annual basis, is computed upon
the savings institution's total assets, including consolidated
subsidiaries, as reported in the Bank's latest quarterly Thrift
Financial Report. The assessments paid by the Bank for the years
ended December 31, 1998 and 1997, totaled $322,000 and $285,000,
respectively. The OTS has adopted amendments to its regulations,
effective January 1, 1999, that are intended to assess savings
associations on a more equitable basis. The new regulations will
base the assessment for an individual savings association on
three components: the size of the association, on which the basic
assessment would be based; the association's supervisory
condition, which would result in an additional assessment based
on a percentage of the basic assessment for any savings
institution with a composite rating of 3,4 or 5 in its most
recent safety and soundness examination; and the complexity of
the association's operations, which would result in an additional
assessment based on a percentage of the basic assessment for any
savings association that managed over $1 billion in trust assets,
serviced for others loans aggregating more than $1 billion, or
had certain off-balance sheet assets aggregating more than $1
35
billion. In order to avoid a disproportionate impact on the
smaller savings institutions, which are those whose total assets
never exceeded $100 million, the new regulations provide that the
portion of the assessment based on assets size will be the lesser
of the assessment under the amended regulations or the
regulations before the amendment. Management believes that any
change in its rate of OTS assessments under the amended
regulations will not be material.
Branching. OTS regulations permit federally chartered savings
associations to branch nationwide under certain conditions.
Generally, federal savings associations may establish interstate
networks and geographically diversify their loan portfolios and
lines of business. The OTS authority preempts any state law
purporting to regulate branching by federal savings associations.
Transactions with Related Parties. The Bank's authority to
engage in transactions with related parties or "affiliates"
(i.e., any company that controls or is under common control with
an institution, including the Company and its non-savings
institution subsidiaries) is limited by Sections 23A and 23B of
the Federal Reserve Act ("FRA"). Section 23A limits the
aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions
with all affiliates to 20% of the savings institution's capital
and surplus. Certain transactions with affiliates are required
to be secured by collateral in an amount and of a type described
in Section 23A, and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B generally
requires that certain transactions with affiliates, including
loans and asset purchases, must be on terms and under
circumstances, including credit underwriting standards, that are
substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable
transactions with non-affiliated companies. Notwithstanding
Sections 23A and 23B, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are
not permissible for bank holding companies under Section 4(c) of
the Bank Holding Company Act ("BHC Act"). Further, no savings
institution may purchase the securities of any affiliate other
than a subsidiary.
The Bank's authority to extend credit to its executive officers,
directors and 10% shareholders, as well as to entities controlled
by such persons, is currently governed by Sections 22(g) and
22(h) of the FRA, and Regulation O thereunder. Among other
things, these regulations require that such loans to be made on
terms and conditions, including credit underwriting standards,
substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of
36
repayment. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to such persons
based, in part, on the Bank's capital position, and requires that
certain board approval procedures be followed. HOLA and the OTS
regulations, with certain minor variances, apply Regulation O to
savings institutions.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to
bring action against all "institution-affiliated parties,"
including controlling stockholders, and any stockholders,
attorneys, appraisers and accountants who knowingly or recklessly
participate in any violation of applicable law or regulation or
breach of fiduciary duty or certain other wrongful actions that
causes or is likely to cause a more than a minimal loss or other
significant adverse effect on an insured savings association.
Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of
officers or directors, receivership, conservatorship or
termination of deposit insurance. Civil penalties cover a wide
range of violations and can amount to $5,000 per day for less
serious violations, and up to $1 million per day in more
egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action
be taken with respect to a particular savings institution. If
action is not taken by the Director of the OTS, the FDIC has
authority to take such action under certain circumstances.
Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The FDI Act requires each
federal banking agency to prescribe for all insured depository
institutions standards relating to, among other things, internal
controls, information systems and audit systems, loan
documentation, credit underwriting, interest rate risk exposure,
asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems
appropriate. The OTS and the federal banking agencies have
adopted a final rule and Interagency Guidelines Prescribing
Standards for Safety and Soundness ("Guidelines") to implement
these safety and soundness standards. The Guidelines set forth
the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The
Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality;
earnings and compensation, fees and benefits. If the appropriate
federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may
require the institution to submit to the agency an acceptable
37
plan to achieve compliance with the standard, as required by the
FDI Act. The final rule establishes deadlines for the submission
and review of such safety and soundness compliance plans, when
such plans are required.
Capital Requirements. The OTS capital regulations require
savings institutions to meet three minimum capital standards: a
tangible capital ratio requirement of 1.5% of total assets as
adjusted under the OTS regulations, a core capital ratio
requirement of 3.0% of core capital to such adjusted total
assets, which ratio requirement will, effective April 1, 1999, be
3% only for those savings institutions who been assigned a
composite rating of 1 under the Uniform Financial Institutions
Rating System, and will be 4% for all other savings institutions,
and a risk-based capital ratio requirement of 8.0% of core and
supplementary capital to total risk-based assets. Tangible
capital is defined, generally, as common stockholders' equity
(including retained earnings), certain noncumulative perpetual
preferred stock and related earnings, minority interests in
equity accounts of fully consolidated subsidiaries, less
intangibles other than certain mortgage servicing rights and
investments in and loans to subsidiaries engaged in activities
not permissible for a national bank. Core capital (also called
"Tier 1" capital) is defined similarly to tangible capital, but
core capital also includes certain qualifying supervisory
goodwill and certain purchased credit card relationships. In
addition, the OTS prompt corrective action regulation provides
that a savings institution that has a core capital ratio of less
than 4% (3% for institutions receiving the highest rating under
the Uniform Financial Institutions Rating System, will be deemed
to be "undercapitalized" and may be subject to certain
restrictions). See "- Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires
the maintenance of total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of at
least 8%. In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS
capital regulation based on the risks OTS believes are inherent
in the type of asset. The components of core capital are
equivalent to those discussed earlier under the 3% leverage
standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible debt securities, subordinated debt
and intermediate preferred stock and, within specified limits,
the allowance for loan and lease losses. Overall, the amount of
supplementary capital included as part of total capital cannot
exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
38
regulatory capital rule. The final interest rate risk rule also
adjusts the risk-weighting for certain mortgage derivative
securities. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a
deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's
interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between
incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result
from a hypothetical 200-basis point increase or decrease in
market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with
guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under
the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by
the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement.
Under the rule, there is a two quarter lag between the reporting
date of an institution's financial data and the effective date
for the new capital requirement based on that data. A savings
association with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest
rate risk component, unless the OTS determines otherwise. The
rule also provides that the Director of the OTS may waive or
defer an association's interest rate risk component on a
case-by-case basis. The OTS has indefinitely deferred the
implementation of the interest rate risk component in the
computation of an institution's risk-based capital requirement.
The OTS continues to monitor the interest rate risk of individual
institutions and retains the right to impose additional capital
on individual institutions. If the Bank had been subject to an
interest rate risk capital component as of December 31, 1998,
there would have been no material effect on the Bank's
risk-weighted capital.
At December 31, 1998, the Bank met each of its capital
requirements, in each case on a fully phased-in basis. A chart
which sets forth the Bank's compliance with its capital
requirements appears in Note 17 to Notes to Consolidated
Financial Statements in the Registrant's 1998 Annual Report to
Stockholders on page 46, and is incorporated herein by reference.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is
required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon
39
the institution's degree of capitalization. Generally, a savings
institution that has a total risk-based capital of less than 8.0%
or either a leverage ratio or a Tier 1 risk-based capital ratio
that is less than 4.0% is considered to be undercapitalized. A
savings institution that has a total risk-based capital less than
6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a
leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2.0%
is deemed to be "critically undercapitalized." Subject to a
narrow exception, the banking regulator is required to appoint a
receiver or conservator for an institution that is critically
undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the
date an association receives notice that it is "under-
capitalized", "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed
by any parent holding company. In addition, numerous mandatory
supervisory actions become immediately applicable to the
institution depending upon its category, including, but not
limited to, increased monitoring by regulators, restrictions on
growth,and capital distributions and limitations on expansion.
The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and
directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system.
The FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as
of the reporting period ending seven months before the assessment
period, consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory
subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and
supervisory category to which it is assigned.
Assessment rates currently range from 0.0% of deposits for an
institution in the highest category (i.e., well-capitalized and
financially sound, with no more than a few minor weaknesses) to
0.27% of deposits for an institution in the lowest category
(i.e., undercapitalized and substantial supervisory concern).
The FDIC is authorized to raise the assessment rates as necessary
to maintain the required reserve ratio of 1.25%. As a result of
the Deposit Insurance Funds Act of 1996 (the "Funds Act"), both
40
the BIF and the SAIF currently satisfy the reserve ratio
requirement. If the FDIC determines that assessment rates should
be increased, institutions in all risk categories could be
affected. The FDIC has exercised this authority several times in
the past and could raise insurance assessment rates in the
future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of the Bank.
The Funds Act also amended the FDI Act to expand the assessment
base for the payments on the Financing Corporation ("FICO")
obligations. Beginning January 1, 1997, the assessment base
included the deposits of both BIF- and SAIF-insured institutions.
Until December 31, 1999, or any earlier date on which the last
savings association ceases to exist, the rate of assessment for
BIF-assessable deposits shall be one-fifth of the rate imposed on
SAIF-assessable deposits. The annual rate of assessments for the
payments on the FICO obligations for the quarterly semi-annual
period beginning on January 1, 1998 was 0.0156% for BIF-
assessable deposits and 0.0628% for SAIF-assessable deposits.
For the quarterly period beginning on July 1, 1998, the rates of
assessment for the FICO obligations are 0.0122% for BIF-
assessable deposits and 0.0610% for SAIF-assessable deposits.
Accordingly, as a result of the Funds Act, the Bank has seen a
decrease in the deposit assessments paid to the FDIC.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility
primarily for member institutions. The Bank, as a member of the
FHLB of New York, is required to acquire and hold shares of
capital stock in the FHLB in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or
1/20 of its advances (borrowings) from the FHLB, whichever is
greater. The Bank was in compliance with this requirement with
an investment in FHLB stock at December 31, 1998 of $22.0
million. FHLB advances must be secured by specified types of
collateral, and all long-term advances may only be obtained for
the purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds for the resolution of
insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also
result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31,
1998, 1997 and 1996, dividends from the FHLB to the Bank amounted
to $1.2 million, $710,000 and $571,000, respectively. If
dividends were reduced or interest on future FHLB advances
increased, the Bank's net interest income would likely also be
reduced. Further, there can be no assurance that the impact of
41
recent legislation on the FHLBs will not also cause a decrease in
the value of the FHLB stock held by the Bank.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require depository
institutions, including savings institutions, to maintain
non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The current
Federal Reserve Board regulations generally require that reserves
be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less (subject to
adjustment by the Federal Reserve Board) the reserve requirement
is 3%; and for accounts greater than $46.5 million, the reserve
requirement is $1,395,000 plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of
total transaction accounts in excess of $46.5 million. The first
$4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. The Bank is in compliance with the
foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the Federal Reserve Board, the
effect of this reserve requirement is to reduce the Bank's
interest-earning assets. FHLB System members are also authorized
to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all
FHLB sources before borrowing from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
The Company is a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company is
required to be registered with the OTS and is subject to OTS
regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority
over the Company and its non-savings institution subsidiaries.
Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to
the subsidiary savings institution. The Bank must notify the OTS
30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company
generally is not restricted under existing laws as to the types
of business activities in which it may engage, provided that the
Bank continues to be a QTL. See "- Federal Savings Institution
Regulation - QTL Test" for a discussion of the QTL requirements.
Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings
and loan holding company (if the acquired institution is held as
a separate subsidiary) and would be subject to extensive
limitations on the types of business activities in which it could
42
engage. The HOLA limits the activities of a multiple savings and
loan holding company and its non-insured institution subsidiaries
primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior
approval of the OTS, and to other activities authorized by OTS
regulation.
The HOLA prohibits a savings and loan holding company, directly
or indirectly, or through one or more subsidiaries, from
acquiring more than 5% of the voting stock of another savings
institution or holding company thereof, without prior written
approval of the OTS; and from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding
company, or a non-subsidiary company engaged in activities other
than those permitted by the HOLA; or acquiring or retaining
control of a depository institution that is not insured by the
FDIC. In evaluating applications by holding companies to acquire
savings institutions, the OTS must consider the financial and
managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk
to the insurance funds, the convenience and needs of the
community and competitive factors.
The OTS is prohibited from approving any acquisition that would
result in a multiple savings and loan holding company controlling
savings institutions in more than one state, except: (i) the
approval of interstate supervisory acquisitions by savings and
loan holding companies, and (ii) the acquisition of a savings
institution in another state if the laws of the state of the
target savings institution specifically permit such acquisitions.
The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
LEGISLATIVE DEVELOPMENTS
Congress continues to work toward passage of legislation to
modernize the financial services industries. Proposed
legislation being considered by committees of the House of
Representatives and of the Senate would permit affiliations
between banking, insurance and securities companies and, thereby,
expand significantly the financial services that could be offered
by bank holding companies. Such expanded financial activities
would be permissible for financial holding companies that
controlled subsidiary depository institutions that qualified as
well capitalized and well managed and that had satisfactory CRA
ratings. The proposed legislation would grandfather unitary
savings and loan holding companies in activities currently
permitted such holding companies. The outcome of such proposed
legislation is uncertain. Therefore, the Company is unable to
determine the extent to which such legislation, if enacted, would
affect the Company's business.
43
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the Securities and
Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the
Exchange Act.
The registration, under the Securities Act of 1933, as amended
(the "Securities Act") of shares of the Common Stock issued in
the Conversion does not cover the resale of such shares. Shares
of the Common Stock purchased by persons who are not affiliates
of the Company may be resold without registration. Shares
purchased by an affiliate of the Company will be subject to the
resale restrictions of Rule 144 under the Securities Act. If the
Company meets the current public information requirements of Rule
144 under the Securities Act, each affiliate of the Company who
complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of
certain other persons) would be able to sell in the public
market, without registration, a number of shares not to exceed,
in any three-month period, the greater of (i) 1% of the
outstanding shares of the Company or (ii) the average weekly
volume of trading in such shares during the preceding four
calendar weeks. Shares acquired through the Company's option
plans have been registered under the Securities Act and,
therefore, are not subject to resale restrictions. Provision may
be made in the future by the Company to permit affiliates to have
their shares registered for sale under the Securities Act under
certain circumstances.
THE YEAR 2000 PROBLEM
The information related to the Year 2000 problem is incorporated
herein by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Computer Issues
for the Year 2000" in the Registrant's 1998 Annual Report to
Stockholders on page 21.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Bank report their income on a
calendar year basis using the accrual method of accounting and
will be subject to federal income taxation in the same manner as
other corporations with some exceptions. The following
discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company. The Company and its
subsidiaries file a consolidated Federal income tax return on a
calendar-year basis. The Bank and the Company have not been
audited by the Internal Revenue Service during the last five
fiscal years.
44
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, the special rules for bad debt
reserves of thrift institutions no longer apply and, therefore,
the Bank cannot make additions to the tax bad debt reserves but
is permitted to deduct bad debts as they occur. Additionally,
under the 1996 Act, the Bank is required to recapture (that is,
include in taxable income) the excess of the balance of its bad
debt reserves as of December 31, 1995 over the balance of such
reserves as of December 31, 1987 ("base year"). The Bank's
federal tax bad debt reserves at December 31, 1995 exceeded its
base year reserves by $2.7 million which will be recaptured into
taxable income ratably over a six year period. This recapture
was suspended for 1996 and 1997, whereas, one-sixth of the excess
reserves was recaptured into taxable income for 1998. The base
year reserves will be subject to recapture, and the Bank could be
required to recognize a tax liability, if (i) the Bank fails to
qualify as a "bank" for Federal income tax purposes; (ii) certain
distributions are made with respect to the stock of the Bank (see
"Distributions"); (iii) the Bank uses the bad debt reserves for
any purpose other than to absorb bad debt losses; or (iv) there
is a change in Federal tax law. Management is not aware of the
occurrence of any such event.
Distributions. To the extent that the Bank makes "non-dividend
distributions" to stockholders, such distributions will be
considered as made from the Bank's base year reserve to the
extent thereof, and then from the supplemental reserve for losses
on loans and an amount based on the amount distributed will be
included in the Bank's taxable income. Non-dividend
distributions include distributions in excess of the Bank's
current and accumulated earnings and profits, distributions in
redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current
or accumulated earnings and profits, as calculated for federal
income tax purposes, will not be considered to result in a
distribution from the Bank's bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code of
1986, as amended, imposes a tax on alternative minimum taxable
income ("AMTI") at a rate of 20%. AMTI is increased by an amount
equal to 75% of the amount by which a corporation's adjusted
current earnings exceeds its AMTI (determined without regard to
this adjustment and prior to reduction for net operating losses).
Dividends Received Deduction and Other Matters. The Company may
exclude from its income 100% of dividends received from the Bank
as a member of the same affiliated group of corporations. The
corporate dividends received deduction is generally 70% in the
case of dividends received from unaffiliated corporations with
which the Company and the Bank will not file a consolidated tax
return, except that if the Company or the Bank owns more than 20%
45
of the stock of a corporation distributing a dividend, 80% of any
dividends received may be deducted.
STATE AND LOCAL TAXATION
New York State and New York City Taxation. The Bank and the
Company are subject to New York State and City franchise taxes on
net income or one of several alternative bases, whichever results
in the highest tax. "Net income" means Federal taxable income
with adjustments. The Company's annual tax liability for each
year is the greatest of a tax on allocated entire net income;
allocated alternative entire net income; allocated assets to New
York State and/or New York City; or a minimum tax. Operating
losses cannot be carried back or carried forward for New York
State or New York City tax purposes. The Bank is also subject to
the 17% Metropolitan Commuter District Surcharge on its New York
State tax after the deduction of credits. The Company is also
subject to taxes in New Jersey and Connecticut due to the
establishment of in-store branches.
In response to the 1996 Act, the New York State and New York City
tax laws have been amended to prevent the recapture of existing
tax bad debt reserves and to allow for the continued use of the
PTI method to determine the bad debt deduction in computing New
York City and New York State tax liability.
Delaware Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempted from Delaware
Corporate income tax but is required to file an annual report
with and pay an annual franchise tax to the State of Delaware.
ITEM 2. PROPERTIES
The Bank conducts its business through eight full-service banking
and fifty-nine supermarket banking facilities (two of which were
opened during the first quarter of 1999) located in the New York
City boroughs of Queens, Brooklyn, Manhattan and Staten Island,
the New York counties of Nassau, Suffolk, Rockland and
Westchester and in New Jersey and Connecticut. The Bank provides
residential mortgage banking services through its CFS Intercounty
Mortgage division operating from six loan origination offices in
New York, New Jersey and Pennsylvania. The Company provides
casualty insurance through its subsidiary, CIA from three offices
located in Long Island, New York. In December 1997, the Company
purchased an office building and land in Westbury, New York for
its new administrative headquarters. The purchase was
consummated under the terms of a lease agreement and Payment-in-
lieu-of-Tax ("PILOT") agreement with the Town of Hempstead
Industrial Development Agency ("IDA"). The Company completed
improvements to the building and began using the building as its
corporate headquarters in July 1998. The cost of the land and
building, including improvements was $12.8 million. The total
46
net book value of the Company's and the Bank's premises and
equipment was $39.2 million at December 31, 1998, which included
fifty-seven supermarket branches. The Company believes that the
Bank's current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company.
Net Book Value
of Property or
Leasehold
Date Improvements
Leased or Leased or Date of Lease at December 31,
Location Owned Acquired Expiration(1) 1998
-------- --------- --------- ------------- ---------------
(in thousands)
Main Office Complex(2):
93-22/93-30 & 94-09/94-13 Jamaica Avenue Owned 1957 - $2,208
& 87-14/86-35 94th St. Woodhaven, NY 11421
Traditional Branches:
80-35 Jamaica Avenue, Woodhaven, NY 11421 Owned 1979 - 251
82-10 153rd Avenue, Howard Beach, NY 11414 Owned 1971 - 561
98-16 101st Avenue, Ozone Park, NY 11416 Owned 1976 - 451
244-19 Braddock Avenue, Bellerose, NY 11426(3) Leased 1973 2003 117
106-17 Continental Ave, Forest Hills, NY 11375 Leased 1959 1999 13
343 Merrick Road, Amityville, NY 11701 Leased 1977 2001 416
104-08 Rockaway Beach Blvd., Rockaway
Beach, NY 11693 Leased 1996 1999 34
Supermarket Branches:
700-60 Patchogue Rd., Medford, NY 11763 Leased 1996 2001 173
1121 Jerusalem Avenue, Uniondale, NY 11553 Leased 1996 2001 192
533 Montauk Highway, Bayshore, NY 11708 Leased 1996 2001 223
625 Atlantic Avenue, Brooklyn, NY 11217 Leased 1996 2001 198
575 Montauk Highway, W. Babylon, NY 11704 Leased 1997 2002 203
2335 New Hyde Park Rd, New Hyde Park, NY 11040 Leased 1997 2002 223
1251 Deer Park Ave., N. Babylon, NY 11703 Leased 1997 2002 212
101 Wicks Road, Brentwood, New York 11717 Leased 1997 2002 222
3635 Hempstead Turnpike, Levittown, NY 11756 Leased 1997 2002 228
6070 Jericho Turnpike, Commack, NY 11726 Leased 1997 2002 226
2150 Middle Country Rd., Centereach, NY 11720 Leased 1997 2002 227
1897 Front Street, East Meadow, NY 11554 Leased 1997 2002 235
8101 Jericho Turnpike, Woodbury, NY 11796 Leased 1997 2002 227
92-10 Atlantic Avenue, Ozone Park, NY 11416 Leased 1997 2002 230
395 Route 112, Patchogue, NY 11772 Leased 1997 2002 219
1764 Grand Avenue, Baldwin, NY 11510 Leased 1997 2002 226
5145 Nesconset Hwy., Port Jefferson, NY 11776 Leased 1997 2002 248
31-06 Farrington Street, Whitestone, NY 11357 Leased 1997 2002 226
5801 Sunrise Highway, Sayville, NY 11741 Leased 1997 2002 220
531 Montauk Highway, W. Babylon, NY 11776 Leased 1997 2002 229
155 Islip Avenue, Islip, NY 11751 Leased 1997 2002 232
800 Montauk Highway, Shirley, NY 11967 Leased 1997 2002 237
253-01 Rockaway Turnpike, Woodmere, NY 11422 Leased 1997 2002 227
227 Cherry Street, New York, NY 10002 Leased 1997 2002 227
45 Route 59 Monsey, NY 10952 Leased 1997 2002 233
195 Rockland Center, Rte. 59, Nanuet, NY 10954 Leased 1997 2002 244
1905 Sunrise Highway, Bayshore, NY 11708 Leased 1997 2002 243
941 Carmens Road, Massapequa, NY 11758 Leased 1997 2002 84
500 South River Street, Hackensack, NJ 07470 Leased 1997 2002 180
1 Pathmark Plaza, Mount Vernon, NY Leased 1997 2002 268
2875 Richmond Avenue, Staten Island, NY 10306 Leased 1997 2002 257
111-10 Flatlands Avenue, Brooklyn, NY 11230 Leased 1997 2002 236
1245 61st Street, Boro Park, NY 11219 Leased 1998 2003 257
2650 Sunrise Highway, East Islip, NY 11730 Leased 1998 2003 172
492 E. Atlantic Avenue, E. Rockaway, NY 11554 Leased 1998 2003 245
1-37 12th Street, Brooklyn, NY 11205 Leased 1998 2003 243
130 Wheatley Plaza, Greenvale, NY 11548 Leased 1998 2003 258
335 Nesconset Highway, Hauppauge, NY 11788 Leased 1998 2003 162
360 No. Broadway, Jericho, NY 11753 Leased 1998 2003 244
42-02 Northern Blvd., L.I.C., NY 11100 Leased 1998 2003 237
2540 Central Park Ave, No. Yonkers, NY 10710 Leased 1998 2003 222
130 Midland Avenue, Portchester, NY 10573 Leased 1998 2003 285
1351 Forest Avenue, Staten Island, NY 10302 Leased 1998 2003 247
2424 Hylan Blvd., Staten Island, NY 10306 Leased 1998 2003 24
1757 Central Park Ave, Yonkers, NY 10710 Leased 1998 2003 293
47
Route 28 and Union Ave, Bound Brook, NJ 08805 Leased 1998 2003 201
Rte 70 & Chambers Bridge Rd, Bricktown, NJ 08723 Leased 1998 2003 213
367 Highway 22 West, Hillside, NJ 07205 Leased 1998 2003 327
201 Roosevelt Place, Palisades Park, NJ 07650 Leased 1998 2003 211
625 Hamburg Turnpike, Wayne, NJ 07470 Leased 1998 2003 189
145 Highway 36 West, Long Branch, NJ 07764 Leased 1998 2003 202
23 Marshall Hill Road, West Milford, NJ 07480 Leased 1998 2003 210
404 Main Street, Ansonia, CT 06401 Leased 1998 2003 173
500 Sylvan Avenue, Bridgeport, CT 06610 Leased 1998 2003 238
533 South Broad Street, Meridan, CT 06450 Leased 1998 2003 254
157 Cherry Street, Milford, CT 06460 Leased 1998 2003 177
6 Queen Street, Newtown, CT 06460 Leased 1998 2003 201
650 Wolcott Street, Waterbury, CT 06705 Leased 1998 2003 260
131 Campbell Avenue, West Haven, CT 06516 Leased 1998 2003 176
Corporate Headquarters:
615 Merrick Avenue, Westbury, NY Owned 1997 - 11,419
(1) Rent expense for the year ended December 31, 1998 was $1.7
million.
(2) On March 25, 1999, the Bank sold the properties, consisting
of land, buildings and building improvements located at 93-22 and
93-30 Jamaica Avenue, Woodhaven, New York. As of December 31,
1998, the Bank entered into a contract of sale for its properties
located at 94-09 and 94-13 Jamaica Avenue and 87-14 and 86-35
94th Street, Woodhaven, New York. These properties are expected
to be sold in the second quarter of 1999.
(3) Includes land that is adjacent to the branch office that was
acquired by the Bank in 1973.
ITEM 3. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
1998 and currently, the Bank has a class action lawsuit related
thereto pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 in unspecified damages. The Bank's ultimate
liability, if any, which might arise from the disposition of
these claims cannot presently be determined. Management believes
it has meritorious defenses against this action and has and will
continue to defend its position. Accordingly, no provision for
any liability that may result upon adjudication of this action
has been recognized in the accompanying consolidated financial
statements.
The Company is involved in various legal actions arising in the
ordinary course of business, which in the aggregate, are believed
by management to be immaterial to the financial position of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
48
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information relating to the market for Registrant's common equity
and related stockholder matters appears under "Common Stock
Information" in the Registrant's 1998 Annual Report to
Stockholders on page 53, and is incorporated herein by reference.
Information relating to the payment of dividends by the
Registrant appears in Note 17 to Notes to Consolidated Financial
Statements in the Registrant's Annual Report on page 45 and is
incorporated herein by reference.
The Company initiated a quarterly cash dividend of $0.05 per
share in the third quarter of 1995 paid on October 20, 1995. The
following schedule summarizes the cash dividends paid for 1996,
1997 and 1998:
Dividend Payment Dividend Paid
Date Per Share (1) Record Date
---------------- ------------- -----------
January 19, 1996 .05 January 2, 1996
April 29, 1996 .05 April 8, 1996
July 12, 1996 .075 June 27, 1996
October 28, 1996 .075 October 7, 1996
January 17, 1997 .075 December 30, 1996
April 24, 1997 .075 April 4, 1997
July 18, 1997 .075 June 30, 1997
October 17, 1997 .075 September 29, 1997
January 1998 .075 December 1998
April 1998 .075 March 1998
July 1998 .075 June 1998
October 1998 .075 September 1998
(1) As adjusted to reflect the 2-for-1 stock split effective
November 1997 ("stock split").
The following schedule summarizes the dividend payout ratio
(dividends declared per share divided by net income per share)
Dividends Net income
Year Paid per share per share Payout ratio
------ -------------- ---------- ------------
1996 $0.25 $1.13 .221%
1997 0.30 1.32 .227
1998 0.30 0.95 .316
49
ITEM 6. SELECTED FINANCIAL DATA
The above-captioned information appears in the Registrant's 1998
Annual Report to Stockholders on pages 6 and 7 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1998 Annual Report to
Stockholders on pages 8 through 22 and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management" and "- Interest Rate
Sensitivity Analysis" in the Registrant's 1998 Annual Report to
Stockholders on pages 9 through 11 and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Haven Bancorp, Inc. and
its subsidiaries, and the notes related thereto together with the
report thereon by KPMG LLP appears in the Registrant's 1998
Annual Report to Stockholders on pages 23 through 51 and are
incorporated herein by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers of
the Registrant is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 21, 1999, on pages 5 through 8.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is
incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on
50
April 21, 1999, on pages 9 through 22 (excluding the Report of
the Compensation Committee on pages 12 through 14 and the Stock
Performance Graph on page 15).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information relating to security ownership of certain
beneficial owners and management is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 21, 1999, on pages 3
through 4 and pages 6 through 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 21, 1999, on pages 22 and 23.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are
incorporated by reference to the following indicated pages of the
1998 Annual Report to Stockholders.
Pages
Consolidated Statements of Financial Condition
as of December 31, 1998 and 1997 ................... 23
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997 and 1996 ............. 24
Consolidated Statements of Changes In Stockholders'
Equity for the Three Years Ended December 31, 1998 . 25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 ............. 26
Notes to Consolidated Financial Statements ......... 27 - 50
Independent Auditors' Report ....................... 51
The remaining information appearing in the Annual Report to
Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
51
(3) Exhibits (filed herewith unless otherwise noted)
(a) The following exhibits are filed as part of this
report:
3.1 Amended Certificate of Incorporation of Haven
Bancorp, Inc.(1)
3.2 Certificate of Designations, Preferences and Rights
of Series A Junior Participating Preferred Stock(2)
3.3 Bylaws of Haven Bancorp, Inc.(3)
4.0 Rights Agreement between Haven Bancorp, Inc. and
Chase Manhattan Bank (formerly Chemical Bank)(2)
10.1(A) Employment Agreement between Haven Bancorp, Inc. and
Philip S. Messina(4)
10.1(B) Amendatory Agreement to the Employment Agreement
between Haven Bancorp, Inc. and Philip S. Messina(5)
10.1(C) Employment Agreement between CFS Bank and Philip S.
Messina (5)
10.2(A) Form of Change in Control Agreement between
Columbia Federal Savings Bank and certain executive
officers, as amended(4)
10.2(B) Form of Amendment to Change in Control Agreement
between CFS Bank and certain executive officers(5)
10.2(C) Form of Change in Control Agreement between Haven
Bancorp, Inc. and certain executive officers, as
amended(4)
10.2(D) Form of Amendment to Change in Control Agreement
between Haven Bancorp, Inc. and certain executive
officers (5)
10.2(E) Employment Agreement between Columbia Federal
Savings Bank and Andrew L. Kaplan (5)
10.2(F) Change in Control Agreement between Haven Bancorp,
Inc. and Mark A. Ricca dated as of April 10, 1998
(filed herewith)
10.2(G) Change in Control Agreement between CFS Bank
and Mark A. Ricca dated as of April 10, 1998
(filed herewith)
10.4 (a) Amended and Restated Columbia Federal Savings
Bank Recognition and Retention Plans and Trusts for
Officers and Employees(6)
10.4 (b) Amended and Restated Recognition and Retention
Plan and Trusts for Outside Directors(6)
10.5 Haven Bancorp, Inc. 1993 Incentive Stock Option
Plan(6)
10.6 Haven Bancorp, Inc. 1993 Stock Option Plan for
Outside Directors(6)
10.7 Columbia Federal Savings Bank Employee Severance
Compensation Plan, as amended(4)
10.8 Columbia Federal Savings Bank Consultation and
Retirement Plan for Non-Employee Directors(6)
10.9 Form of Supplemental Executive Retirement Plan(3)
10.10 Haven Bancorp, Inc. 1996 Stock Incentive Plan(4)
52
10.11 Purchase and Assumption Agreement, dated as of
March 11, 1998, by and amont Intercounty Mortgage,
Inc., CFS Bank and Resource Bancshares Mortgage
Group, Inc.(7)
11.0 Computation of earnings per share (filed herewith)
13.0 1998 Annual Report to Stockholders (filed herewith)
21.0 Subsidiary information is incorporated herein by
reference to "Part I - Subsidiaries"
23.0 Consent of Independent Auditors (filed herewith)
27.0 Financial Data Schedule (filed herewith)
99 Proxy Statement for 1999 Annual Meeting (filed
herewith)
_______________
(1) Incorporated by reference into this document from the
Exhibits to Form 10-Q for the quarter ended September 30, 1998,
filed on November 16, 1998.
(2) Incorporated by reference into this document from the
Exhibits to Form 8-K, Current Report, filed on January 30, 1996.
(3) Incorporated by reference into this document from the
Exhibits to Form S-1, Registration Statement and any amendments
thereto, filed on April 14, 1993, Registration No. 33-61048.
(4) Incorporated by reference into this document from the
Exhibits to Form 10-K for the year ended December 31, 1995, filed
on March 29, 1996.
(5) Incorporated by reference into this document from the
Exhibits to Form 10-K for the year ended December 31, 1997, filed
on March 31, 1998.
(6) Incorporated by reference into this document from the
Exhibits to Form 10-K for the year ended December 31, 1994, filed
on March 30, 1995.
(7) Incorporated by reference into this document from the
Exhibits to Form 8-K, Current Report, filed on July 2, 1998.
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company dated
October 9, 1998 relating to the Company's execution of a
definitive purchase agreement in connection with the purchase of
Century Insurance Agency, Inc.
53
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
HAVEN BANCORP, INC.
By: /s/ Philip S. Messina
---------------------
Philip S. Messina
Dated: March 30, 1999 Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Name Title Date
/s/ Philip S. Messina Chairman of the Board, March 30, 1999
- -------------------------- President and Chief
Philip S. Messina Executive Officer
/s/ George S. Worgul Director March 30, 1999
- --------------------------
George S. Worgul
/s/ Robert M. Sprotte Director March 30, 1999
- --------------------------
Robert M. Sprotte
/s/ Michael J. Fitzpatrick Director March 30, 1999
- --------------------------
Michael J. Fitzpatrick
/s/ William J. Jennings II Director March 30, 1999
- --------------------------
William J. Jennings II
/s/ Michael J. Levine Director March 30, 1999
- --------------------------
Michael J. Levine
54
/s/Msgr. Thomas J. Hartman Director March 30, 1999
- --------------------------
Msgr. Thomas J. Hartman
/s/ Catherine Califano Senior Vice President and March 30, 1999
- -------------------------- Chief Financial Officer
Catherine Califano
55
EX-10.2 (F)
EXHIBIT 10.2(F)
HAVEN BANCORP, INC.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of April 10, 1998, by and
between Haven Bancorp, Inc. (the "Company"), a corporation
organized under the laws of the State of Delaware, with its office
at 93-22 Jamaica Avenue, Woodhaven, New York 11421, and Mark A.
Ricca (the "Executive"). The term "Bank" refers to CFS Bank, the
wholly-owned subsidiary of the Company.
WHEREAS, the Company recognizes the substantial contribution the
Executive will make to the Company and wishes to protect his
position therewith for the period provided in this Agreement; and
WHEREAS, the Executive has been elected to, and has agreed to serve
in, the position of Senior Vice President and General Counsel for
the Company, a position of substantial responsibility;
NOW, THEREFORE, in consideration of the contribution and
responsibilities of the Executive, and upon the other terms and
conditions hereinafter provided, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
(a) The term of this Agreement shall be and remain in effect
during the period established under this Section 1 ("Term"). The
Term shall be for an initial period of three (3) years beginning on
the date of this Agreement and ending on the third anniversary of
the date of this Agreement, plus such extensions, if any, as are
provided pursuant to Section 1(b).
(b) Beginning on the date one day after the effective date of
this Agreement, the Term shall automatically be extended for one
(1) additional day each day, unless either the Company or the
Executive elects not to extend the Agreement further by giving
written notice to the other party, in which case the Term shall end
on the third anniversary of the date on which such written notice
is given. Prior to any written notice of non-renewal, the
Company's Board of Directors ("Board") will conduct a formal
performance evaluation of the Executive for purposes of determining
whether to terminate the Agreement, and the results thereof shall
be included in the minutes of the Board's meeting. Upon
termination of the Executive's employment with the Company for any
reason whatsoever, any daily extensions provided pursuant to this
Section 1(b), if not previously discontinued, shall automatically
cease.
2. PAYMENTS TO THE EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Company
(as herein defined) followed at any time during the term of this
Agreement by the voluntary or involuntary termination of the
Executive's employment, other than for Cause, as defined in Section
2(c) hereof, the provisions of Section 3 shall apply.
(b) Definition of a Change in Control. A "Change in Control"
of the Bank or the Company shall mean a change in control of a
nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Company within the meaning of
the Home Owners' Loan Act of 1933, as amended and the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof
(provided that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board
shall substitute its judgment for that of the OTS); or (iii)
without limitation, such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities or makes an offer to
purchase securities of the Bank or Company representing 20% or more
of the combined voting power of the Bank's or Company's outstanding
securities except for any securities purchased by the Bank's
employee stock ownership plan and trust; (B) individuals who
constitute the Board of Directors of the Company on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote
of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the Company's Nominating Committee,
shall be, for purposes of this clause (B), considered as though he
were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation or sale of all or
substantially all the assets of the Bank or Company or similar
transaction occurs in which the Bank or the Company is not the
resulting entity; or (D) a proxy statement shall be distributed
soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank with one or more corporations
as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged
for or converted into cash or property or securities not issued by
the Bank or the Company shall be distributed; or (E) a tender offer
is made for 20% or more of the voting securities of the Bank or
Company then outstanding.
(c) The Executive shall not have the right to receive
termination benefits pursuant to Section 3 hereof upon Termination
for Cause. The term "Termination for Cause" shall mean termination
upon intentional failure to perform stated duties, personal
dishonesty which results in loss to the Company or one of its
affiliates, willful violation of any law, rule, regulation (other
than traffic violations or similar offenses) or final cease and
desist order which results in substantial loss to the Company or
one of its affiliates, or any material breach of this Agreement.
For purposes of this Section, no act, or the failure to act, on the
Executive's part shall be "willful" unless done, or omitted to be
done, not in good faith and without reasonable belief that the
action or omission was in the best interest of the Company or its
affiliates. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of
the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to the Executive and an
opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, the
Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive
shall not have the right to receive compensation or other benefits
for any period after Termination for Cause. Any stock options or
limited rights granted to the Executive under any stock option plan
or any unvested awards granted under any other stock benefit plan
of the Bank, the Company or any subsidiary thereof, shall become
null and void effective upon the Executive's receipt of Notice of
Termination for Cause pursuant to Section 4 hereof and shall not be
exercisable by the Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at
any time during the term of this Agreement by the voluntary or
involuntary termination of the Executive's employment with the
Company and/or the Bank, other than for Termination for Cause, the
Company shall pay (or cause the Bank to pay) the Executive, or in
the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay
or liquidated damages, or both, a sum equal to the following:
(i) within thirty (30) days following his termination of
employment with the Company, a lump sum payment, in an amount equal
to the present value of the salary that the Executive would have
earned if the Executive had continued working for the Company and
the Bank during the three (3) year period immediately following the
Executive's Date of Termination (as defined in Section 4) at the
annual rate of salary in effect for Executive immediately prior to
the Change of Control or the Executive's Date of Termination
(whichever is greater), where such present value is to be deter-
mined using a discount rate equal to the applicable short-term
federal rate prescribed under Section 1274(d) of the Internal
Revenue Code of 1986 (the "Code"), compounded using the compounding
period corresponding to the Company's regular payroll periods for
its officers;
(ii) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to which the
Executive would be entitled under any and all qualified and non-
qualified defined benefit pension plans maintained by, or covering
employees of, the Company or the Bank, if the Executive were 100%
vested thereunder and had continued working for the Company and the
Bank for the three (3) year period following the Executive's Date
of Termination, such benefits to be determined as of the Date of
Termination by adding to the service actually recognized under such
plans an additional period equal to the three (3) year period
following the Executive's Date of Termination and by including in
the compensation recognized under such plans, all the amounts
payable under Sections 3(a) and (v) to the extent such amounts
would have been credited under such plans had they been paid over
such three (3) year period; over
(B) the present value of the benefits to which the Executive
is actually entitled under such defined benefit pension plans as of
his Date of Termination;
where such present values are to be determined using the mortality
tables prescribed under Section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC
Rate");
(iii) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal
to the present value of the additional employer contributions to
which the Executive would have been entitled under any and all
qualified and non-qualified defined contribution plans maintained
by, or covering employees of, the Company or the Bank, if the
Executive were 100% vested thereunder and had continued working for
the Company and the Bank during the three (3) year period following
the Executive's Date of Termination at the annual rate of
compensation in effect for the Executive immediately prior to the
Change in Control or the Executive's Date of Termination (whichever
is greater), and making the maximum amount of employee contribu-
tions, if any, required under such plan or plans, such present
value to be determined on the basis of a discount rate, compounded
using the compounding period that corresponds to the frequency with
which employer contributions are made to the relevant plan, equal
to the Applicable PBGC Rate;
(iv) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal
to the fair market value (determined as of his Date of Termination,
or, if his termination of employment occurs after a Change of
Control, on the date of such Change of Control, whichever value is
greater) of any stock that would have been allocated or awarded to
the Executive under any and all stock-based qualified or non-
qualified employee benefit plan or plans maintained by, or covering
employees of, the Company or the Bank, if the Executive were 100%
vested thereunder and continued working for the Company and the
Bank during the three (3) year period following the Executive's
Date of Termination at the annual rate of compensation in effect
for him immediately prior to the Change in Control or the
Executive's Date of Termination (whichever is greater);
(v) the payments that would have been made to the Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Company or the Bank, if the Executive had continued working for the
Company and the Bank during the three (3) year period following the
Executive's Date of Termination and had earned the maximum bonus or
incentive award in each calendar year that ends during such period,
such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive
during each such calendar year at the annual rate of salary in
effect for the Executive immediately prior to the Change in Control
or the Executive's Date of Termination (whichever is greater);
such payments to be made (without discounting for early payment)
within thirty (30) days following the Executive's termination of
employment.
(b) Upon the occurrence of a Change in Control, followed at
any time during the term of this Agreement by the Executive's
voluntary or involuntary termination of employment, other than for
Termination for Cause, the Company shall provide (or cause the Bank
to provide) the following for the three (3) year period following
the Executive's Date of Termination:
(i) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term
disability insurance benefits, if and to the extent necessary to
provide coverage for the Executive and his family equivalent to the
coverage to which the Executive would be entitled under the
applicable insurance benefit plans of the Company or the Bank as in
effect on his Date of Termination or on the date of such Change of
Control, whichever benefits are greater; and
(ii) the fringe benefits and perquisites made available or
provided to the Executive by the Company or the Bank immediately
prior to the Change of Control including, but not limited to, use
of any automobile provided to the Executive by the Company or the
Bank immediately prior to the Change of Control, and continued
payment of all membership fees, dues, capital contributions and
other expenses for membership in such clubs, associations or other
organizations which expenses were paid by the Company or the Bank
on behalf of the Executive prior to the Change of Control.
3A. TAX INDEMNIFICATION.
(a) This Section 3A shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined
in Section 2 of this Agreement); or (ii) a change "in the ownership
or effective control" of the Company or the Bank or "in the
ownership of a substantial portion of the assets" of the Company or
the Bank within the meaning of Section 280G of the Code. If this
Section 3A applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under Section 4999
of the Code with respect to any payment in the nature of
compensation made by the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company or the Bank to (or
for the benefit of) the Executive, the Company shall pay to the
Executive an amount equal to X determined under the following
formula:
E x P
X = ------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 3A;
FI = the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and local
laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is
made to (or for the benefit of) the Executive under the terms of
this Agreement, or otherwise, and on which an excise tax under Sec-
tion 4999 of the Code will be assessed, the payment determined
under this Section 3A(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company or the Bank is
required to withhold such tax, or (ii) the date the tax is required
to be paid by the Executive.
(b) Notwithstanding anything in this Section 3A to the contrary,
in the event that the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently
determined to be different than the amount determined by the
formula (X + P) x E, where X, P and E have the meanings provided in
Section 3A(a), the Executive or the Company, as the case may be,
shall pay to the other party at the time that the amount of such
excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under Section 3A(a), when
increased by the amount of the payment made to the Executive under
this Section 3A(b) by the Company, or when reduced by the amount of
the payment made to the Company under this Section 3A(b) by the
Executive, equals the amount that should have properly been paid to
the Executive under Section 3A(a). The interest paid under this
Section 3A(b) shall be determined at the rate provided under
Section 1274(b)(2)(B) of the Code. To confirm that the proper
amount, if any, was paid to the Executive under this Section 3A,
the Executive shall furnish to the Company a copy of each tax
return which reflects a liability for an excise tax payment made by
the Company, at least 20 days before the date on which such return
is required to be filed with the Internal Revenue Service.
4. NOTICE OF TERMINATION.
Any purported termination by the Company, or by the Executive shall
be communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated. "Date of Termination" shall mean the date specified in
the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such
Notice of Termination is given); provided that if, within thirty
(30) days after any notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that
a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by
a binding arbitration award, or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal
there from having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by
a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Company will continue to pay the Executive his
full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, annual base
salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the
notice of dispute was given, until the dispute is finally resolved
in accordance with the Agreement. Amounts paid under this Section
are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amount due under
this Agreement.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general
funds of the Company. The Company guarantees payment and provision
of all amounts and benefits due hereunder to the Executive and, if
such amount and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid and
provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supercedes any prior agreement between the
Company and the Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to
the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is
subject to receiving fewer benefits than those available to him
without reference to this Agreement.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, the Executive, the Company and their respective successor and
assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
In the event the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs
by a notice described in Section 9(b) of the Bank Change in Control
Agreement between the Executive and the Bank dated as of April 10,
1998 (the "Bank Agreement") during the term of this Agreement and
a Change in Control, as defined herein, occurs the Company will
assume its obligation to pay and the Executive will be entitled to
receive all of the termination benefits provided for under Section
3 of the Bank Agreement upon the notification of the Company of the
Bank's receipt of a dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER BANK AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits are paid to or received by the Executive
under the Bank Change in Control Agreement dated as of April 10,
1998, between the Executive and Bank, the amount of such payments
and benefits paid by the Bank will be subtracted from any amount
due simultaneously to the Executive under similar provisions of
this Agreement.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect
any other provision of this Agreement or any part of such provision
not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force
and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New York,
unless otherwise specified herein.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators sitting in a location selected
by the employee within fifty (50) miles from the location of the
Company, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid or reimbursed by the Company if the
Executive is successful pursuant to a legal judgment, arbitration
or settlement.
16. INDEMNIFICATION.
The Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard
directors' and officers' liability insurance policy at its expense,
or in lieu thereof, shall indemnify the Executive (including his
heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Company's
certificate of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of
his having been a director or officer of the Company (whether or
not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgements, court
costs and attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Bank or the
Company, expressly and unconditionally to assume and agree to
perform the Company's obligations under this Agreement, in the same
manner and to the extent that the Company would be required to
perform if no such succession or assignment had taken place.
IN WITNESS WHEREOF, Haven Bancorp, Inc. has caused this Change in
Control Agreement to be executed by its duly authorized officer,
and the Executive has signed this Agreement, all as of the date
first above written.
WITNESS:
- --------------------------- -----------------------
Executive
SEAL
ATTEST: HAVEN BANCORP, INC.
- --------------------------- BY: -------------------
SEAL
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1998, before me personally
came Mark A. Ricca, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that he resides at
______________________ and that he signed his name to the foregoing
instrument.
---------------------------
Notary Public
STATE OF NEW YORK)
: ss.:
COUNTY OF QUEENS )
On this day of , 1998, before me personally came
, to me known, who, being by me duly sworn, did depose and
say that he resides at , that he
is of HAVEN BANCORP, INC. the Delaware
corporation described in and which executed the foregoing instru-
ment; that he knows the seal of said corporation; that the seal
affixed to said instrument is such seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
EX-10.2 (G)
EXHIBIT 10.2(G)
CFS BANK
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of April 10, 1998, by and
between CFS Bank (the "Bank"), a Federally chartered savings
institution, with its office at 93-22 Jamaica Avenue, Woodhaven,
New York 11421, and Mark A. Ricca (the "Executive"). The Bank is
the wholly-owned subsidiary of Haven Bancorp, Inc. (the "Company"),
a corporation organized under the laws of the State of Delaware.
WHEREAS, the Bank recognizes the substantial contribution the
Executive will make to the Bank and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, the Executive has been elected to, and has agreed to serve
in the position of Senior Vice President and General Counsel for
the Bank, a position of substantial responsibility;
NOW, THEREFORE, in consideration of the contribution and
responsibilities of the Executive, and upon the other terms and
conditions hereinafter provided, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced
as of the date first above written and shall continue for a period
of twenty-four (24) full calendar months thereafter; provided,
however, commencing as of September 23, 1998, and continuing on
each anniversary of such date thereafter (each, an "Anniversary
Date") the Board of Directors of the Bank (the "Board") may extend
this Agreement to the second anniversary of such Anniversary Date
such that the remaining term of this Agreement shall be for a
period of twenty-four (24) full calendar months commencing as of
such Anniversary Date. The Board will review the Agreement and the
Executive's performance annually for purposes of determining
whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. PAYMENTS TO THE EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Bank or
the Company (as herein defined) followed at any time during the
term of this Agreement by the voluntary or involuntary termination
of the Executive's employment, other than for Cause, as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, the Executive shall have the
right to elect to voluntarily terminate his employment at any time
during the term of this Agreement following any demotion, loss of
title, office or significant authority, reduction in his annual
compensation or benefits, or relocation of his principal place of
employment by more than 30 miles from its location immediately
prior to the Change in Control.
(b) Definition of a Change in Control. A "Change in Control"
shall mean a change in control of a nature that: (i) would be
required to be reported in response to Item 1(a) of the Company's
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change of Control
of the Bank or Company within the meaning of the Change in Bank
Control Act and the rules and regulations promulgated thereunder by
the appropriate federal banking agency, as in effect on the date
hereof; or (iii) results in a transaction requiring prior Federal
Reserve Board ("FRB") approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB, as
in effect on the date hereof; or (iv) results in a transaction
requiring prior Office of Thrift Supervision ("OTS") (or its
predecessor agency) approval under the Home Owners' Loan Act and
the regulations promulgated thereunder by the OTS, as in effect on
the date hereof. Without limiting the foregoing, a Change in
Control shall be deemed to have occurred at such time as: (A) any
"person" (as the term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Company representing 20% or more of
the Bank's or the Company's outstanding securities, except for any
securities of the Bank purchased by the Company in connection with
the conversion of the Bank to the stock form and any securities
purchased by the Bank's employee stock ownership plan and trust;
(B) individuals who constitute the Board of Directors of the
Company or the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he
were a member of the Incumbent Board; (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets
of the Bank or the Company becomes effective or a similar
transaction occurs in which the Bank or Company is not the
resulting entity; (D) a plan of reorganization, merger or
consolidation of the Company or Bank or a similar transaction with
one or more corporations, which will result in the outstanding
shares of the class of securities then subject to such plan or
transaction being exchanged for or converted into cash or property
or securities not issued by the Bank or the Company, is approved by
the stockholders of the Company in response to a proxy statement
that was distributed, soliciting proxies from stockholders of the
Company, by someone other than the current management of the
Company; or (E) 20% or more of the voting securities of the Bank or
Company then outstanding are tendered and accepted by an offeror as
of the closing of a tender offer for such securities.
(c) The Executive shall not have the right to receive
termination benefits pursuant to Section 3 hereof upon Termination
for Cause. The term "Termination for Cause" shall mean termination
because of the Executive's personal dishonesty, incompetence,
willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or
material breach of any material provision of this Agreement. For
purposes of this Section, no act, or the failure to act, on the
Executive's part shall be "willful" unless done, or omitted to be
done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its
affiliates. Notwithstanding the foregoing, the Executive shall not
be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the
Board of Directors of the Bank at a meeting of the Board called and
held for that purpose (after reasonable notice to the Executive and
an opportunity for him, together with counsel, to be heard before
the Board at such meeting and which such meeting shall be held not
more than 30 days from the date of notice during which period the
Executive may be suspended with pay), finding that in the good
faith opinion of the Board, the Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars
thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after
Termination for Cause. Any stock options or limited rights granted
to the Executive under any stock option plan or any unvested awards
granted under any other stock benefit plan of the Bank, the Company
or any subsidiary thereof, shall become null and void upon the
Executive's receipt of Notice of Termination for Cause pursuant to
Section 4 hereof, and shall not be exercisable by the Executive at
any time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at
any time during the term of this Agreement by the voluntary or
involuntary termination of the Executive's employment with the
Bank, other than for Termination for Cause, the Bank shall pay the
Executive, or in the event of the Executive's subsequent death, the
Executive's beneficiary or beneficiaries, or the Executive's
estate, as the case may be, as severance pay or liquidated damages,
or both, a sum equal to the following:
(i) within thirty (30) days following the Executive's termi-
nation of employment with the Bank, a lump sum payment, in an
amount equal to the present value of the salary that the Executive
would have earned if the Executive had continued working for the
Bank during the two (2) year period immediately following the
Executive's Date of Termination (as defined in Section 4(b)) at the
annual rate of salary in effect for the Executive immediately prior
to the Change of Control or the Executive's Date of Termination
(whichever is greater), where such present value is to be deter-
mined using a discount rate equal to the applicable short-term
federal rate prescribed under Section 1274(d) of the Internal
Revenue Code of 1986 (the "Code"), compounded using the compounding
period corresponding to the Bank's regular payroll periods for its
officers;
(ii) within thirty (30) days following the Executive's termi-
nation of employment with the Bank, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which the
Executive would be entitled under any and all qualified and non-
qualified defined benefit pension plans maintained by, or covering
employees of, the Bank, if the Executive were 100% vested
thereunder and had continued working for the Bank for the two (2)
year period following the Executive's Date of Termination, such
benefits to be determined as of Date of Termination by adding to
the service actually recognized under such plans an additional
period equal to the two (2) year period following the Executive's
Date of Termination and by including in the compensation recognized
under such plans, all the amounts payable under Sections 3(a)(i)
and (v) to the extent such amounts would have been credited under
such plans had they been paid over such two (2) year period; over
(B) the present value of the benefits to which the Executive
is actually entitled under such defined benefit pension plans as of
his Date of Termination;
where such present values are to be determined using the mortality
tables prescribed under Section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC
Rate");
(iii) within thirty (30) days following the Executive's
termination of employment with the Bank, a lump sum payment in an
amount equal to the present value of the additional employer
contributions to which the Executive would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of the Bank, if the Executive
were 100% vested thereunder and had continued working for the
Company and the Bank during the two (2) year period following the
Executive's Date of Termination at the annual rate of compensation
in effect for the Executive immediately prior to the Change in
Control or the Executive's Date of Termination (whichever is
greater), and making the maximum amount of employee contributions,
if any, required under such plan or plans, such present value to be
determined on the basis of a discount rate, compounded using the
compounding period that corresponds to the frequency with which
employer contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(iv) within thirty (30) days following the Executive's
termination of employment with the Bank, a lump sum payment in an
amount equal to the fair market value (determined as of the
Executive's Date of Termination, or, if the Executive's termination
of employment occurs after a Change of Control, on the date of such
Change of Control, whichever value is greater) of any stock that
would have been allocated or awarded to the Executive under any and
all stock-based qualified or non-qualified employee benefit plan or
plans maintained by, or covering employees of the Bank, if the
Executive were 100% vested thereunder and continued working for the
Bank during the two (2) year period following the Executive's Date
of Termination at the annual rate of compensation in effect for him
immediately prior to the Change in Control or the Executive's Date
of Termination (whichever is greater);
(v) the payments that would have been made to the Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Bank, if the Executive had continued working for the Company and
the Bank during the two (2) year period following the Executive's
Date of Termination and had earned the maximum bonus or incentive
award in each calendar year that ends during such period, such
payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive
during each such calendar year at the annual rate of salary in
effect for the Executive immediately prior to the Change in Control
or the Executive's Date of Termination (whichever is greater);
such payments to be made (without discounting for early payment)
within thirty (30) days following the Executive's termination of
employment;
(b) Upon the occurrence of a Change in Control, followed at
any time during the term of this Agreement by the Executive's
voluntary or involuntary termination of employment, other than for
Termination for Cause, the Bank shall provide the following for the
two (2) year period following the Executive's Date of Termination:
(i) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term
disability insurance benefits, if and to the extent necessary to
provide coverage for the Executive and the Executive's family
equivalent to the coverage to which the Executive would be entitled
under the applicable insurance benefit plans of the Bank as in
effect on the Executive's Date of Termination or on the date of
such Change of Control, whichever benefits are greater; and
(ii) the fringe benefits and perquisites made available or
provided to the Executive by the Bank immediately prior to the
Change of Control including, but not limited to, use of any
automobile provided to the Executive by the Bank immediately prior
to the Change of Control, and continued payment of all membership
fees, dues, capital contributions and other expenses for membership
in such clubs, associations or other organizations which expenses
were paid by the Bank on behalf of the Executive prior to the
Change of Control.
(c) In the event that the Executive is receiving monthly
payments pursuant to Section 3(a) hereof, on an annual basis,
thereafter, the Executive shall elect whether the balance of the
amount payable under the agreement at that time shall be paid in a
lump sum or on a pro rata basis. Such election shall be
irrevocable for the year for which such election is made.
(d) Upon the occurrence of a Change in Control, the Executive
shall be entitled to receive benefits due him under, or contributed
by, the Bank on his behalf pursuant to any retirement, incentive,
profit sharing, bonus, performance, disability or other employee
benefit plan maintained by the Bank on the Executive's behalf to
the extent that such benefits are not otherwise paid to the
Executive upon a Change in Control.
(e) Notwithstanding the preceding paragraphs of this Section
3, in the event that:
(i) the aggregate payments or benefits to be made or afforded
to the Executive under said paragraph (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times the
Executive's "base amount," as determined in accordance with said
Section 280G, and the Non-Triggering Amount would be greater than
the aggregate value of the Termination Benefits (without such
reduction) minus the amount of tax required to be paid by the
Executive thereon by Section 499 of the Code, then the Termination
Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required by the preceding paragraphs of
this Section 3 shall be determined by the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Bank or by the Executive
shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean (A) if the Executive's
employment is terminated for Disability, thirty (30) days after a
Notice of Termination is given (provided that he shall not have
returned to the performance of the Executive's duties on a full-
time basis during such thirty (30) day period), and (B) if the
Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination which, in the instance of
Termination for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general
funds of the Bank. The Company guarantees payment and provision of
all amounts and benefits due hereunder to the Executive and, if
such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or
provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior agreement between the Bank
and the Executive, except that this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is
subject to receiving fewer benefits than those available to him
without reference to this Agreement.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the
benefit of, the Executive, the Bank and their respective successors
and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by
an instrument in writing signed by the parties hereto.
(b) No term or conditions of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Executive's employment at any
time, but any termination by the Bank, other than Termination for
Cause, shall not prejudice the Executive's right to compensation or
other benefits under this Agreement. The Executive shall not have
the right to receive compensation or other benefits for any period
after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or 8(g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3)
or (g)(1)), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay the Executive all or part of the
compensation withheld while their contract obligations were
suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all
obligations of the Bank under this contract shall terminate as of
the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1)
(12 USC 1813(x)(1)) of the Federal Deposit Insurance Act), all
obligations of the Bank under this contract shall terminate as of
the date of default, but this paragraph shall not affect any vested
rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of
the contract is necessary for the continued operation of the
institution, (i) by the Federal Deposit Insurance Corporation
("FDIC"), at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority
contained in Section 13(c) (12 USC Section 1823(c)) of the Federal
Deposit Insurance Act; or (ii) by the OTS at the time the OTS or
its District Director approves a supervisory merger to resolve
problems related to the operations of the Bank or when the Bank is
determined by the OTS or FDIC to be in an unsafe or unsound
condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon
compliance with 12 U.S.C. Section 1828(k).
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
In the event the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs
by a notice described in Section 9(b) hereof (the "Notice") during
the term of this Agreement and a Change in Control, as defined
herein, occurs, the Bank will assume its obligation to pay and the
Executive will be entitled to receive all of the termination
benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect
any other provision of this Agreement or any part of such provision
not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force
and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by New York law to the extent not
preempted by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators sitting in a location selected
by the employee within fifty (50) miles from the location of the
Bank, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
In the event any dispute or controversy arising or in
connection with the Executive's termination is resolved in favor of
the Executive, whether by judgment, arbitration or settlement, the
Executive shall be entitled to the payment of all back-pay,
including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due the Executive under
this Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid or reimbursed by the Bank if the
Executive is successful on the merits pursuant to a legal judgment,
arbitration or settlement, which payments are guaranteed by the
Company pursuant to Section 5 hereof.
16. INDEMNIFICATION.
The Bank shall provide the Executive (including the Executive's
legal representatives, successors and assigns) with coverage under
a standard directors' and officers' liability insurance policy at
its expense, or in lieu thereof, shall indemnify the Executive
(including the Executive's legal representatives, successors and
assigns) for reasonable costs and expenses incurred by the
Executive in defending or settling any judicial or administrative
proceeding, or threatened proceeding, whether civil, criminal or
otherwise, including any appeal or other proceeding for review.
Indemnification by the Bank shall be made only upon the final
judgment on the merits in favor of the Executive, in case of
settlement, in case of final judgment against the Executive or in
the case of final judgment in favor of the Executive other than on
the merits, if a majority of the disinterested directors of the
Bank determine the Executive was acting in good faith within the
scope of the Executive's employment or authority in accordance with
12 C.F.R. section 545.121(c)(iii).
Any such information of the Executive must conform with the notice
provisions of 12 C.F.R. part 545.121(c)(iii) to indemnify the
Executive to the fullest for such expenses and liabilities to
include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board of Directors of the Bank,
if such action is brought against the Executive in the Executive's
capacity as an officer or director of the Bank, however, shall not
extend to matters as to which the Executive is finally adjudged to
be liable for willful misconduct in the performance of the
Executive's duties.
17. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Bank or the
Company, expressly and unconditionally to assume and agree to
perform the Bank's obligations under this Agreement, in the same
manner and to the extent that the Bank would be required to perform
if no such succession or assignment had taken place.
IN WITNESS WHEREOF, CFS Bank and Haven Bancorp, Inc. have caused
this Agreement to be executed by their duly authorized officers,
and the Executive has signed this Agreement, all as of the date
first above written.
WITNESS:
- --------------------------- -----------------------
Executive
ATTEST: CFS BANK
- --------------------------- BY: -------------------
SEAL
ATTEST: HAVEN BANCORP, INC.
- --------------------------- BY: -------------------
SEAL
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this ________ day of ______________, 1998, before me personally
came Mark A. Ricca, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me
duly sworn, did depose and say that he resides at
______________________ and that he signed his name to the foregoing
instrument.
---------------------------
Notary Public
STATE OF NEW YORK)
: ss.:
COUNTY OF QUEENS )
On this day of , 1998, before me personally came
, to me known,
who, being by me duly sworn, did depose and say that he resides at
, that he is
of CFS BANK, the savings bank described in and which
executed the foregoing instrument; that he knows the seal of said
savings bank; that the seal affixed to said instrument is such
seal; that it was so affixed by order of the Board of Directors of
said savings bank; and that he signed his name thereto by like
order.
-----------------------
Notary Public
EX-11
Exhibit No. 11 Statement re Computation of Earnings Per Share
Year Ended
December 31, 1998
Net income $ 8,150,044
==========
Weighted average shares outstanding 8,596,884
=========
Basic earnings per share $ 0.95
=========
Weighted average shares outstanding 8,596,884
Additional diluted shares from assumed
conversions of options and warrants 561,919
---------
Adjusted weighted average shares
outstanding 9,158,803
=========
Diluted earnings per share $ 0.89
=========
EX-13
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share data) 1998 1997
At Year End
Total Assets $2,395,523 1,974,890
Loans Receivable, Net 1,296,702 1,138,253
Securities Available for Sale 889,251 499,380
Loans Held For Sale 54,188 -
Debt Securities Held to Maturity - 66,404
Mortgage-Backed Securities Held to Maturity - 163,057
Real Estate Owned, Net 200 455
Deposits 1,722,710 1,365,012
Borrowed Funds 440,346 466,794
Stockholders' Equity 119,867 112,865
Non-Performing Assets 8,585 12,987
For the Year 1998 1997 1996
Net Interest Income $ 57,909 51,906 47,885
Provision for Loan Losses 2,665 2,750 3,125
Non-Interest Income 33,146 13,912 9,554
Real Estate Operations, Net 8 352 277
SAIF Assessment Charge -- -- 6,800
Other Non-Interest Expense 77,306 45,495 31,378
Income Tax Expense 2,926 6,138 6,434
Net Income(1) 8,150 11,083 9,425
Net Income per common share(1):
Basic 0.95 1.32 1.13
Diluted 0.89 1.24 1.08
Performance Ratios
Return on Average Assets 0.37% 0.62% 0.62%
Return on Average Assets excluding
SAIF Assessment Charge 0.37 0.62 0.89
Return on Average Equity 6.92 10.41 9.83
Return on Average Equity excluding
SAIF Assessment Charge 6.92 10.41 14.04
Net Interest Margin 2.78 3.06 3.29
Non-Performing Assets to Total Assets 0.36 0.66 0.94
Allowance for Loan Losses to
Non-Performing Loans 166.70 99.97 77.05
Net income for 1996 excluding the SAIF assessment charge would have
been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
Haven Bancorp, Inc. is the holding company for CFS Bank ("CFS" or
the "Bank"), its wholly owned subsidiary which converted from a
federally chartered mutual to a federally chartered stock savings
bank on September 23, 1993, whose principal business is the
operation of the Bank. The Bank, which was organized in 1889, is a
community oriented institution offering deposit products,
residential and commercial real estate loans and a full range of
financial services including discount brokerage, mutual funds,
annuities and insurance. Headquartered in Westbury, New York, the
Bank serves its customers through eight full-service banking and
fifty-nine supermarket banking facilities located in the New York
City Boroughs of Queens, Brooklyn, Manhattan and Staten Island and
in Nassau, Suffolk, Rockland and Westchester Counties, New York, New
Jersey and Connecticut. The Bank's deposits are insured up to the
maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank provides residential mortgage
banking services through its CFS Intercounty Mortgage division
operating from six loan origination offices in New York, New Jersey
and Pennsylvania. The Company provides property and casualty
insurance through its subsidiary, CFS Insurance Agency, Inc.
Dear Fellow Stockholders,
I am pleased to report that during 1998 Haven Bancorp successfully
completed several initiatives that form a solid foundation for our
future. We opened twenty-five new supermarket branches in 1998 and
two earlier this year, bringing our total of in-store branches to
fifty-nine. In May, we acquired the production franchise of
Intercounty Mortgage, Inc., and in November, we purchased Century
Insurance Agency, Inc. (CIA). Although each of these actions
required an initial investment and had some negative impact on this
year's earnings, CFS Bank now possesses a high quality distribution
platform and a comprehensive package of financial products and
services, resulting in a much more valuable franchise. In addition
to our eight traditional branches, we now operate forty-four in-
store branches in New York State, eight in New Jersey and seven in
Connecticut. Additionally, we offer loan products from six
origination offices and insurance products from three free-standing
insurance agency offices.
Haven reported net income of $8.2 million for the year ended
December 31, 1998 compared to net income of $11.1 million for the
prior year. The fourth quarter of 1998 established a solid
foundation and we expect significant performance improvements in
1999. The growth in non-interest income in 1998 reflects the impact
of the continued maturation of our in-store branch network and
significant progress in the integration of our mortgage banking
business. The stabilization of non-interest expenses as supermarket
branches mature should allow us to profit from the increasing level
of gross income and provide the opportunity for us to enjoy
substantial asset and revenue growth on a relatively stable expense
platform.
The most significant factor in Haven's financial results continues
to be the opening and operating of supermarket branches. We have
plans to open one additional branch prior to the end of the first
quarter of 1999 which will bring our total number of in-store
branches to sixty. At that point, we'll pause in our expansion and
allow the economic value of the program to emerge. We're in New York
City, Nassau, Suffolk, Westchester and Rockland counties, New Jersey
and Connecticut giving us a true tri-state franchise. As of December
31, 1998, in-store branch deposits totaled $504.0 million. For
perspective, in-store deposits were only $157.2 million at year-end
1997. Core deposits equaled 54.0% of total in-store branch deposits
at December 31, 1998. Core deposits for the in-store branches
included $158.8 million of "Liquid Asset" account balances at
December 31, 1998. This account was introduced in the second quarter
of 1998 and currently pays an initial rate of 4.25% for balances
over $2,500. The in-store branches added approximately 79,000 new
accounts in 1998 bringing the total number of in-store accounts to
147,000 at year-end 1998. A key objective in the supermarket
program, along with generating fee income, is to expand our deposit
gathering capability and customer base to whom we can cross-sell our
entire array of products and services. This objective was bolstered
by the acquisitions of both Intercounty and CIA. For 1998, non-
interest income from in-store branches totaled $8.8 million and non-
interest expenses directly attributable to the branches were $21.8
million.
Although the supermarket branching program as a whole is not yet
profitable, largely because of the large number of immature
locations, some of our more mature branches are producing terrific
returns. We've said that as a rough rule of thumb a branch will
become profitable when it reaches $8 million in deposits. Because of
a relatively flat yield curve over the course of the last two years,
the branches are reaching profitability on a direct cost basis about
three to six months later than originally anticipated. At December
31, 1998 the twenty-one branches that had been open 18 months or
longer were, in aggregate, operating profitably on a direct cost
basis. The average deposit total for these branches is just under
$12 million. Our four in-store branches open more than 2 years are
earning, after direct costs, on average, 125 basis points on average
liabilities and 20.43% on average equity. The number of branches
reaching profitability continues to increase with the passage of
time.
Our two main engines of retail fee income are CFS Investment
Services and deposit products. CFSI had gross revenues of $5.8
million in 1998 compared to $3.8 million in 1997. Total sales were
$101.8 million in 1998 compared to $71.7 million in 1997. The
supermarket branches contributed $31.1 million, or approximately 31%
of CFSI's total sales in 1998. Deposit fees increased 79.3% to $9.8
million in 1998 from $5.5 million in 1997. Deposit fees at the in-
store branches have been considerably higher than we originally
anticipated. The supermarket branches accounted for approximately
58% of deposit fees in 1998. "Positively Free Checking" continues to
be CFS Bank's most popular deposit product and is our lead product
at the supermarket branches.
The Bank Insurance Market Research Group, a provider of market
research and investment sales data to the bank and insurance
industries, conducted a benchmarking study of CFS Bank's investment
and insurance programs. CFS Bank ranked very well in all products
and categories measured, even life insurance, a relatively new sales
area for the Bank. In three sales areas reviewed: annuities, mutual
funds, and "investment sales", (the sum of these two categories),
CFS Bank ranked in the top 6 percent among the 2,000 banks and
thrifts that sell these products. We performed particularly well in
annuities as a percentage of deposits, where we ranked in the top
3%. We were also exceptionally strong in investment income to
deposits, ranking in the top 3%. Adjusted for size, CFS Bank is
reaping more fee income from investment sales than all but 2% of
depository institutions nationally and 3% of institutions in the
Northeast.
On May 1st, we acquired the production franchise of Intercounty
Mortgage, Inc., which primarily produced agency-eligible residential
mortgages. Combined with CFS Bank's residential production, we
originated over a billion dollars in residential loans in 1998. The
strong deposit inflows we've experienced at the in-store branches
have made the reality of a bigger production pipeline even more
compelling. We believe that Intercounty with six offices located in
Westbury, Long Island; Albany, Rochester and Fishkill, New York;
Woodbridge, New Jersey; and Fort Washington, Pennsylvania is a
perfect geographic fit with our multi-state, in-store program. We've
supplemented their prior loan product mix with CFS Bank's broader
range of mortgage products, including adjustable rate mortgages and
jumbo mortgages. Expanding the product line results in increased
mortgage origination opportunities.
In November, we closed on Haven's acquisition of Century Insurance
Agency, which specializes in providing automobile, property and
casualty and various lines of commercial insurance. CIA operates as
a subsidiary of Haven Bancorp and represents more than twelve
insurance companies as an independent agency. CIA's insurance
business integrates well with the life, health and disability
business of CFSI. Our branch sales force is prepared and eager to
sell this expanded product line. We expect to add further to CIA's
current business through our existing customer base, including CFS
Intercounty and commercial real estate originations.
For 1998, our commercial real estate department originated $159.6
million in multi-family and commercial real estate loans.
Residential mortgage delinquencies are at an all-time low and no
commercial real estate loans originated since January 1995 are in
default. We've developed a solid reputation in the commercial real
estate market and that allows us to be selective in accepting
applications that meet our criteria.
At year-end 1998, our ratio of non-performing assets to total assets
was 0.36%, down from 0.66% in 1997. The allowance for loan losses
was equal to 166.7% of non-performing loans. We remain steadfastly
committed to maintaining a high level of asset quality.
In February 1997, we raised $25 million of capital to support our
supermarket banking expansion program. As our growth continues, we
will monitor our capital requirements and if appropriate, will
finance additional growth and profit opportunities prudently.
In January 1999, after 31 years of service Robert L. Koop announced
his retirement from the Board. A medical condition required that Mr.
Koop modify his schedule. In January 1999, after 20 years of
service, Joseph A. Ruggiere also announced his retirement from the
Board due to demands on his time by other business interests. Both
of these gentleman contributed significantly to Haven's success. I
thank them for the guidance they provided and wish them well.
We believe our growth and expansion strategies have and will
continue to enhance Haven's long-term shareholder value. We have
strong and still growing core earnings. Our supermarket program
continues to improve its returns. Our lending and insurance programs
are well positioned. The quality of our assets is excellent and we
see additional opportunities to further improve asset yields. Our
growing stream of non-interest income is an enriching factor in
earnings quality and we remain committed to reducing expenses to
achieve improved efficiencies and financial performance.
I offer my sincere gratitude to our loyal shareholders who continue
to demonstrate their confidence and support in Haven Bancorp, to our
customers, to whom we strive to provide the best financial products
and services available, and finally to our dedicated and tireless
staff, without whom we would not have succeeded thus far nor be so
well poised for the future.
Sincerely,
Philip S. Messina
Chairman and Chief Executive Officer
March 10, 1999
SELECTED CONSOLIDATED FINANCIAL DATA
December 31,
(In thousands) 1998 1997 1996 1995 1994
Total assets $2,395,523 1,974,890 1,583,545 1,472,816 1,268,774
Loans receivable, net 1,296,702 1,138,253 836,882 560,385 512,035
Securities available for sale 889,251 499,380 370,105 503,058 48,189
Debt securities held to maturity - 66,404 97,307 127,796 130,706
Mortgage-backed securities held to maturity - 163,057 197,940 190,714 495,111
Real estate owned, net 200 455 1,038 2,033 7,844
Deposits 1,722,710 1,365,012 1,137,788 1,083,446 1,013,162
FHLB advances 325,200 247,000 178,450 134,175 86,000
Other borrowed funds 115,146 219,794 147,983 136,408 39,081
Stockholders' equity 119,867 112,865 99,384 98,519 86,235
SELECTED FINANCIAL RATIOS AND OTHER DATA
At or For the Years Ended December 31,
(Dollars in thousands,
except share and per share data) 1998 1997 1996 1995 1994
Performance Ratios:
Return on average assets 0.37% 0.62 0.62 0.63 (0.35)
Return on average assets excluding SAIF
assessment charge(1) 0.37 0.62 0.89 0.63 (0.35)
Return on average equity 6.92 10.41 9.83 9.27 (4.90)
Return on average equity excluding SAIF
assessment charge(1) 6.92 10.41 14.04 9.27 (4.90)
Stockholders' equity to total assets 5.00 5.72 6.28 6.69 6.80
Net interest spread 2.67 2.89 3.12 2.99 3.34
Net interest margin(2) 2.78 3.06 3.29 3.17 3.48
Average interest-earning assets to
average interest-bearing liabilities 102.28 104.02 103.95 104.23 104.42
Operating expenses to average assets(3) 3.49 2.54 2.04 2.18 2.26
Stockholders' equity per share(4) $ 13.53 12.85 11.49 10.92 9.47
Asset Quality Ratios:
Non-performing loans to total loans(5) 0.64% 1.09 1.64 2.97 5.41
Non-performing assets to total assets 0.36 0.66 0.94 1.28 2.85
Allowance for loan losses to non-
performing loans(5) 166.70 99.97 77.05 50.80 38.33
Allowance for loan losses to total loans 1.07 1.09 1.26 1.51 2.07
Other Data:
Number of deposit accounts $323,794 234,183 171,382 155,424 140,701
Mortgage loans serviced for others $269,089 174,866 197,017 219,752 239,844
Loan originations and purchases $1,221,526 471,338 363,576 143,329 105,219
Facilities:
Full service offices 65 40 14 9 9
(1) Excludes the SAIF assessment charge in 1996 of $6.8 million.
(2) Calculation is based on net interest income before provision
for loan losses divided by average interest-earning assets.
(3) For purposes of calculating these ratios, operating expenses
equal non-interest expense less real estate operations, net, non-
performing loan (income) expense, amortization of goodwill, and non-
recurring expenses. Real estate operations, net was $8,000, $0.4
million, $0.3 million, $1.4 million and $12.3 million for the five
years ended December 31, 1998, respectively. For the five years
ended December 31, 1998, non-performing loan (income) expense was
$(1.0) million, $0.2 million, $0.4 million, $0.6 million and $0.9
million, respectively. Amortization of goodwill for the five years
ended December 31, 1998 was $0.8 million, $0.1 million, $0.1
million, $40,000, and $0, respectively. For the year ended December
31, 1996, the SAIF assessment charge of $6.8 million was also
excluded.
(4) Based on 8,859,692, 8,784,700, 8,650,814, 9,022,914 and
9,102,812 shares outstanding at December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
(5) For purposes of calculating these ratios, non-performing loans
consist of all non-accrual loans and restructured loans.
SELECTED CONSOLIDATED OPERATING DATA
Years Ended December 31,
(Dollars in thousands,
except per share data) 1998 1997 1996 1995 1994
Interest income $ 151,685 126,306 109,253 96,434 81,491
Interest expense 93,776 74,400 61,368 55,115 40,289
Net interest income 57,909 51,906 47,885 41,319 41,202
Provision for loan losses 2,665 2,750 3,125 2,775 13,400
Net interest income after provision
for loan losses 55,244 49,156 44,760 38,544 27,802
Non-interest income:
Loan fees and servicing income 1,627 3,110 1,807 2,241 790
Servicing released premiums and fees
on loans sold 10,301 - - - -
Savings/checking fees 9,822 5,478 3,378 2,861 2,282
Net gain (loss) on sales of
interest-earning assets 2,926 (5) 140 126 372
Insurance, annuity and mutual fund fees 5,874 3,758 3,114 2,525 2,025
Other 2,596 1,571 1,115 1,269 1,060
Total non-interest income 33,146 13,912 9,554 9,022 6,529
Non-interest expense:
Compensation and benefits 41,204 24,251 15,737 14,889 13,605
Occupancy and equipment 11,005 6,334 3,478 3,334 3,238
Real estate operations, net 8 352 277 1,405 12,253
SAIF recapitalization charge - - 6,800 - -
Federal deposit insurance premiums 870 736 2,327 2,653 2,709
Other 24,227 14,174 9,836 9,511 9,336
Total non-interest expense 77,314 45,847 38,455 31,792 41,141
Income (loss) before income
tax expense (benefit) 11,076 17,221 15,859 15,774 (6,810)
Income tax expense (benefit) 2,926 6,138 6,434 7,230 (2,475)
Net income (loss) $ 8,150 11,083 9,425(1) 8,544 (4,335)
Net income (loss) per common share:
Basic $ 0.95 1.32 1.13(1) 0.99 (0.48)
Diluted $ 0.89 1.24 1.08(1) 0.96 (0.47)
(1) Net income for 1996 excluding the SAIF assessment charge would
have been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was formed on
March 25, 1993 as the Holding Company for CFS Bank ("CFS" or the
"Bank") in connection with the Bank's conversion from a federally
chartered mutual savings bank to a federally chartered stock savings
bank. The Company is headquartered in Westbury, New York and its
principal business currently consists of the operation of its wholly
owned subsidiary, CFS Bank.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one- to four-family, owner occupied residential
mortgage loans. In addition, the Bank will invest in debt, equity
and mortgage-backed securities to supplement its lending portfolio.
The Bank also invests, to a lesser extent, in multi-family
residential mortgage loans, commercial real estate loans and other
marketable securities.
The Bank's results of operations are dependent primarily on its net
interest income, which is the difference between the interest income
earned on its loan and securities portfolios and its cost of funds,
which consist of the interest paid on its deposits and borrowed
funds. The Bank's net income also is affected by its non-interest
income, including, beginning May 1, 1998, the results of the
acquisition of the loan production franchise of Intercounty
Mortgage, Inc., its provision for loan losses and its operating
expenses consisting primarily of compensation and benefits,
occupancy and equipment, real estate operations, net, federal
deposit insurance premiums and other general and administrative
expenses. The earnings of the Bank are significantly affected by
general economic and competitive conditions, particularly changes in
market interest rates, and to a lesser extent by government policies
and actions of regulatory authorities.
FINANCIAL CONDITION
The Company had total assets of $2.40 billion at December 31, 1998
compared to $1.97 billion at December 31, 1997, an increase of
$420.6 million, or 21.3%.
The Company's portfolio of debt and equity securities and mortgage-
backed securities ("MBSs") available for sale ("AFS") totaled $889.3
million, an increase of $389.9 million, or 78.1% at December 31,
1998 compared to $499.4 million at December 31, 1997. At December
31, 1998, $266.3 million of the AFS securities portfolio were
adjustable-rate securities and $623.0 million were fixed-rate
securities. At June 30, 1998, the Company transferred its remaining
debt and MBSs held to maturity portfolios totaling $183.6 million to
securities AFS. The transfer was done to enhance liquidity and take
advantage of market opportunities. In the third quarter of 1998,
the Bank completed the securitization of $105.7 million of
residential mortgages with the Fannie Mae ("FNMA") and the
underlying securities were transferred to securities available for
sale. This provided the Bank with additional collateral for
borrowings, and the ability to sell the securitized loans. The
remaining growth in the AFS portfolio in 1998 was primarily due to
securities purchased with the investment of deposit flows during the
year not utilized for portfolio loan originations. During 1998, the
Company purchased $749.0 million of debt and equity securities and
MBSs for its AFS portfolio, of which $106.3 million were adjustable-
rate and $642.7 million were fixed-rate. Principal repayments,
calls and proceeds from sales of AFS securities totaled $650.1
million.
Net loans increased by $158.4 million, or 13.9% during 1998 to $1.30
billion at December 31, 1998 from $1.14 billion at December 31,
1997. Loan originations and purchases during 1998 totaled $1.22
billion (comprised of $1.04 billion of residential one- to four-
family mortgage loans, $156.8 million of commercial and multi-family
real estate loans, $2.8 million of construction loans and $16.4
million of consumer loans). One-to four-family mortgage loan
originations included $570.0 million of loans originated and
purchased for sale in the secondary market during 1998. During
1998, the Bank sold $515.8 million of one- to four-family mortgage
loans in the secondary market on a servicing released basis. At
December 31, 1998, loans held for sale were $54.2 million.
Commercial and multi-family real estate loan originations increased
by $23.2 million to $156.8 million in 1998 from $133.6 million in
1997, or 17.4% comprised of $88.5 million of multi-family loans and
$68.3 million of commercial real estate loans. Total loans increased
substantially while the Company continued towards its objective to
invest in adjustable-rate loans. At December 31, 1998, total loans
were comprised of $708.7 million adjustable-rate loans and $602.0
million fixed-rate loans. During 1998, principal repayments and
satisfactions totaled $279.4 million and $0.6 million was
transferred to real estate owned ("REO"). In the third quarter of
1998, the Company securitized $105.7 million in one-to four-family
mortgage loans with the FNMA. The resulting securities were
retained and are included in the Company's securities AFS portfolio.
Not withstanding the Company's objective of investing in adjustable-
rate loans, the Company, during the fourth quarter of 1998, sold
$83.3 million of adjustable-rate mortgage loans previously held in
portfolio in several bulk-sale transactions. These loans had become
less desireable in the current market due to their high level of
prepayments.
In 1998, the Company also sold $14.0 million of cooperative
apartment loans as part of its ongoing efforts to dispose of this
portion of its portfolio.
Deposits totaled $1.72 billion at December 31, 1998, an increase of
$357.7 million, or 26.2% from $1.37 billion at December 31, 1997.
Interest credited totaled $65.2 million in addition to deposit
growth of $292.5 million. As of December 31, 1998, the Bank had
fifty-seven supermarket branches with total deposits of $504.0
million compared to thirty-two locations with deposits totaling
$157.2 million at December 31, 1997. The supermarket branches are
located in the New York City boroughs of Queens, Brooklyn,
Manhattan, Staten Island, the New York counties of Nassau, Suffolk,
Rockland and Westchester and in Connecticut and New Jersey. Core
deposits equaled 54.0% of total in-store branch deposits, compared
to 45.5% in traditional branches. Overall, core deposits
represented 47.7% of total deposits at December 31, 1998 compared to
42.7% at December 31, 1997.
Borrowed funds decreased 5.7% to $440.3 million at December 31, 1998
from $466.8 million at December 31, 1997. The decrease in borrowings
resulted from the pay-down of short-term borrowings as a result of
deposit growth during 1998. In addition, at December 31, 1998 and
1997, the Company had $97.5 million and $10.0 million, respectively,
in securities purchased, net of securities sold, against commitments
to brokers. At December 31, 1998 and 1997, these respective amounts
were reflected as due to broker in the statements of financial
condition, with the related securities included in securities AFS.
These transactions settled in January 1999 and 1998, respectively,
and the Company utilized borrowed funds to repay the obligations to
brokers. Including the effect of these transactions, borrowed funds
and due to broker increased by $61.0 million, or 12.8%, from
December 31, 1997 to December 31, 1998.
Stockholders' equity totaled $119.9 million, or 5.0% of total assets
at December 31, 1998, an increase of $7.0 million, or 6.2% from
$112.9 million, or 5.7% of total assets at December 31, 1997. The
increase reflects net income of $8.2 million, an increase of $1.7
million related to the allocation of ESOP stock, amortization of
awards of shares of common stock by the Bank's Recognition and
Retention Plans and Trusts ("RRPs") and amortization of deferred
compensation plan and $0.5 million related to stock options
exercised, and related tax effect. These were partially offset by
dividends declared of $2.6 million and a decrease in unrealized
gains on securities AFS, net of tax effect, of $0.7 million.
ASSET/LIABILITY MANAGEMENT
As a financial institution, the Company's primary component of
market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense
recorded on a large portion of the Bank's assets and liabilities,
and the market value of all interest-earning assets, other than
those which possess a short term to maturity. Since virtually all of
the Company's interest-bearing liabilities and interest- earning
assets are at the Bank, virtually all of the Company's interest-rate
risk exposure lies at the Bank level. As a result, all significant
interest rate risk management procedures are performed at the Bank
level. Based upon the Bank's nature of operations, the Bank is not
subject to foreign currency exchange or commodity price risk. The
Bank's real estate loan portfolio, concentrated primarily within the
New York metropolitan area, is subject to risks associated with the
local economy. The Bank does not own any trading assets. The Bank's
interest rate management strategy is designed to stabilize net
interest income and preserve capital over a broad range of interest
rate movements.
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning
assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within
the same period. A gap is considered positive when the amount of
interest-earning assets maturing or repricing exceeds the amount of
interest-bearing liabilities maturing or repricing within the same
period. A gap is considered negative when the amount of interest-
bearing liabilities maturing or repricing exceeds the amount of
interest- earning assets maturing or repricing within the same
period.
Accordingly, in a rising interest rate environment, an institution
with a positive gap would be in a better position to invest in
higher yielding assets which would result in the yield on its assets
increasing at a pace closer to the cost of its interest-bearing
liabilities, than would be the case if it had a negative gap. During
a period of falling interest rates, an institution with a positive
gap would tend to have its assets repricing at a faster rate than
one with a negative gap, which would tend to restrain the growth of
its net interest income.
The Company closely monitors its interest rate risk as such risk
relates to its operational strategies. The Company's Board of
Directors has established an Asset/Liability Committee, responsible
for reviewing its asset/liability policies and interest rate risk
position, which generally meets weekly and reports to the Board on
interest rate risk and trends on a quarterly basis.
The following table ("gap table") sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding
at December 31, 1998 which are anticipated by the Company, based
upon certain assumptions described below, to reprice or mature in
each of the future time periods shown. Adjustable-rate assets and
liabilities are included in the table in the period in which their
interest rates can next be adjusted. For purposes of this table,
prepayment assumptions for fixed interest-rate assets are based upon
industry standards as well as the Company's historical experience
and estimates. The Company has assumed an annual prepayment rate of
approximately 24% for its fixed-rate MBS portfolio. The computation
of the estimated one-year gap assumes that the interest rate on
savings account deposits is variable and, therefore, interest
sensitive. During the falling interest rate environment throughout
1998, these funds were maintained at an average rate of 2.81%. The
Company has assumed that its savings, NOW and money market accounts,
which totaled $736.5 million at December 31, 1998, are withdrawn at
the annual percentages of approximately 9%, 5% and 15%,
respectively.
More Than More Than More Than More Than
Three One Year Three Five Years Ten Years
Months Three to to Years to to to More Than
(Dollars in thousands) or Less Twelve Months Three Years Five Years Ten Years Twenty Years Twenty Years Total
Interest-earning assets:
Mortgage loans (1) $164,423 185,609 465,865 450,661 1,273 636 - 1,268,467
Other loans (1) 12,434 9,042 1,885 2,438 4,138 4,782 - 34,719
Loans held for sale 54,188 - - - - - - 54,188
Securities available for sale 889,251 - - - - - - 889,251
Money market investments 1,720 - - - - - - 1,720
Total interest-earning assets 1,122,016 194,651 467,750 453,099 5,411 5,418 - 2,248,345
Premiums, net of unearned
discount and deferred fees (2) 852 148 355 344 4 5 - 1,708
Net interest-earning assets 1,122,868 194,799 468,105 453,443 5,415 5,423 - 2,250,053
Interest-bearing liabilities:
Savings accounts 12,040 36,557 155,204 101,244 128,498 88,821 24,900 547,264
NOW accounts 1,511 4,521 66,786 17,862 23,817 13,315 2,476 130,288
Money market accounts 2,177 6,524 26,348 12,387 9,691 1,757 100 58,984
Certificate accounts 296,671 471,205 74,786 57,598 1,489 - - 901,749
Borrowed funds 151,567 25,233 82,620 56,942 99,000 - 24,984 440,346
Due to broker 97,458 - - - - - - 97,458
Total interest-bearing liabilities $ 561,424 544,040 405,744 246,033 262,495 103,893 52,460 2,176,089
Interest sensitivity gap $ 561,444 (349,241) 62,361 207,410 (257,080) (98,470) (52,460) 73,964
Cumulative interest sensitivity gap $ 561,444 212,203 274,564 481,974 224,894 126,424 73,964
Cumulative interest sensitivity gap
as a percentage of total assets 23.44% 8.86% 11.46% 20.12% 9.39% 5.28% 3.09%
Cumulative net interest-earning
assets as a percentage of
interest-sensitive liabilities 200.00% 119.20% 118.17% 127.43% 111.13% 105.95% 103.40%
(1) For purposes of the gap analysis, mortgage and other loans are
reduced for non-accural loans but are not reduced for the allowance
for loan losses.
For purposes of the gap analysis, premiums, unearned discount and
deferred fees are pro-rated.
At December 31, 1998, the Company's total interest-earning assets
maturing or repricing within one year exceeded its total interest-
bearing liabilities maturing or repricing within the same time
period by $212.2 million, representing a one year cumulative gap
ratio of 8.86%.
In order to reduce its sensitivity to interest rate risk, the
Company's current strategy includes emphasizing the origination or
purchase for portfolio of adjustable-rate loans, debt securities and
MBSs and maintaining an AFS securities portfolio. During 1998, the
Company purchased $106.3 million of adjustable-rate MBSs which are
expected to help protect net interest margins during periods of
rising interest rates. In 1998, the Company originated or purchased
$363.3 million of adjustable-rate mortgage loans for portfolio.
Historically, the Company has been able to maintain a substantial
level of core deposits which the Company believes helps to limit
interest rate risk by providing a relatively stable, low cost long-
term funding base. At December 31, 1998, core deposits represented
47.7% of deposits compared to 42.7% of deposits at December 31,
1997. Core deposits included $158.8 million of "liquid asset"
account balances at December 31, 1998. This account was introduced
in the second quarter of 1998 and currently pays an initial rate of
4.25% for balances over $2,500. The Company expects to attract a
higher percentage of core deposits from its supermarket branch
locations as these locations continue to grow and mature.
The Company's interest rate sensitivity is also monitored by
management through the use of a model which internally generates
estimates of the change in net portfolio value ("NPV") over a range
of interest rate change scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off- balance sheet
contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of
assets in the same scenario. The Office of Thrift Supervision
("OTS") also produces a similar analysis using its own model, based
upon data submitted on the Bank's quarterly Thrift Financial
Reports, the results of which may vary from the Company's internal
model primarily due to differences in assumptions utilized between
the Company's internal model and the OTS model, including estimated
loan prepayment rates, reinvestment rates and deposit decay rates.
For purposes of the NPV table, prepayment speeds similar to those
used in the Gap table were used. The following table sets forth the
Company's NPV as of December 31, 1998.
Changes Net Portfolio Value
in Rates Net Portfolio Value as a % of Assets
in Basis Dollar Percentage NPV Percentage
Points Amount Change Change Ratio Change(1)
(Dollars in thousands)
200 $ 96,950 $(71,307) (42.38)% 4.43% (38.64)%
100 143,950 (24,307) (14.45) 6.36 (11.91)
Base case 168,257 - - 7.22 -
(100) 209,554 41,297 24.54 8.76 21.33
(200) 242,294 74,037 44.00 9.91 37.26
Based on the portfolio value of the Company's assets in the base
case scenario.
As in the case with the Gap table, certain shortcomings are inherent
in the methodology used in the above interest rate risk
measurements. Modeling changes in NPV requires the making of
certain assumptions which may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates.
In this regard, the NPV model presented assumes that the composition
of the Company's interest-sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates
is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements provide an
indication of the Company's interest rate risk exposure at a
particular point in time, such measurements are not intended to and
do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net portfolio value and will differ
from actual results.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net interest
income, which represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net
interest income is dependent on the average balances and rates
received on interest-earning assets, and the average balances and
rates paid on interest-bearing liabilities. Net income is further
affected by non-interest income, non-interest expense, the provision
for loan losses, and income taxes.
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition and
consolidated statements of income for the three years ended December
31, 1998 and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The average
balance of loans includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees
which are considered adjustments to yields.
1998 1997 1996
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
Assets:
Interest-earning assets:
Mortgage loans $1,265,803 $96,146 7.60% $956,819 $75,266 7.87% $647,516 $53,110 8.20%
Other loans 33,444 3,303 9.88 32,639 3,220 9.87 35,952 3,638 10.12
MBSs(1) 628,556 42,040 6.69 482,523 32,755 6.79 543,810 37,517 6.90
Money market investments 3,499 186 5.32 5,743 343 5.97 2,175 176 8.09
Debt and equity securities (1) 151,217 10,010 6.62 215,926 14,722 6.82 227,521 14,812 6.51
Total interest-earning assets 2,082,519 151,685 7.28 1,693,650 126,306 7.46 1,456,974 109,253 7.50
Non-interest earning assets 133,494 88,231 61,120
Total assets 2,216,013 1,781,881 1,518,094
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 441,759 12,415 2.81 371,872 9,338 2.51 373,337 9,314 2.49
Certificate accounts 878,991 49,965 5.68 678,599 39,309 5.79 572,768 32,436 5.66
NOW accounts 187,297 1,364 0.73 134,546 1,130 0.84 111,425 999 0.90
Money market accounts 57,597 2,041 3.54 54,107 1,823 3.37 58,108 1,929 3.32
Borrowed funds 470,531 27,991 5.95 389,091 22,800 5.86 285,951 16,690 5.84
Total interest-bearing liabilities 2,036,175 93,776 4.61 1,628,215 74,400 4.57 1,401,589 61,368 4.38
Other liabilities 62,121 47,247 20,628
Total liabilities 2,098,296 1,675,462 1,422,217
Stockholders' equity 117,717 106,419 95,877
Total liabilities and stockholders'
equity $2,216,013 $1,781,881 $1,518,094
Net interest income/net interest rate
spread (2) $57,909 2.67% $51,906 2.89% $47,885 3.12%
Net interest-earning assets/net
interest margin (3) $46,344 2.78% $65,435 3.06% $55,385 3.29%
Ratio of interest-earning assets
to interest-bearing liabilities 102.28% 104.02% 103.95%
(1) Includes AFS securities and securities held to maturity.
(2) Net interest rate spread represents the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income before
provision for loan losses divided by average interest-earning
assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1998 AND 1997
GENERAL
The Company reported net income of $8.2 million, or $0.95 per basic
share for 1998 compared to net income of $11.1 million, or $1.32 per
basic share for 1997. The $2.9 million decrease in earnings was
primarily attributable to an increase of $31.5 million in non-
interest expense and an increase of $19.4 million in interest
expense. These factors were substantially offset by interest income
which increased by $25.4 million and non-interest income which
increased by $19.2 million, combined with decreases of $3.2 million
in income tax expense and $85,000 in the provision for loan losses.
INTEREST INCOME
Interest income increased by $25.4 million, or 20.1% to $151.7
million in 1998 from $126.3 million in 1997. The increase in
interest income was primarily attributable to a $388.9 million
increase in average interest-earning assets, partially offset by an
18 basis point decrease in the overall average yield on interest-
earning assets.
Interest income on mortgage loans increased by $20.9 million, or
27.7% to $96.1 million in 1998 from $75.3 million in 1997 primarily
as a result of an increase in the average mortgage loan balance of
$309.0 million, partially offset by a decrease in the average yield
on mortgage loans of 27 basis points. During 1998, the Bank
originated or purchased $635.1 million of mortgage loans for
portfolio. Mortgage loans were originated at an average rate of
7.08% for 1998 compared to 7.52% for 1997. The decline in the
average rate for originations was primarily due to decreases in the
rate indices used for residential and commercial real estate loans
and the increasing percentage of relatively lower yielding
residential mortgages. These indices, which are the 30 year
treasury bond and the 5 year treasury note, declined 83 and 116
basis points, respectively, during 1998 when compared to December
31, 1997. In addition, loan principal repayments and satisfactions
during 1998 totaled $265.7 million in 1998 compared to $151.2
million in 1997. Also during 1998, the Bank sold approximately
$104.7 million in loans previously held in protfolio, including
$83.3 million of adjustable-rate mortgage loans in several bulk sale
transactions, and $14.0 million of cooperative apartment loans, and
securitized $105.7 million of one- to four-family mortgage loans
with FNMA. Interest income on other loans increased by $83,000, or
2.6% to $3.3 million in 1998 from $3.2 million in 1997 due to an
increase of $0.8 million in average balance and an increase of 1
basis point in the average yield.
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the
changes due to rate.
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
Interest-earning assets:
Mortgage loans $23,545 (2,665) 20,880 24,376 (2,220) 22,156
Other loans 80 3 83 (329) (89) (418)
MBSs(1) 9,775 (490) 9,285 (4,172) (590) (4,762)
Money market investments (123) (34) (157) 223 (56) 176
Debt and equity securities(1) (4,292) (420) (4,712) (776) 686 (90)
Total 28,985 (3,606) 25,379 19,322 (2,269) 17,053
Interest-bearing liabilities:
Savings accounts 1,880 1,197 3,077 (41) 65 24
Certificate accounts 11,414 (758) 10,656 6,113 760 6,873
NOW accounts 397 (163) 234 200 (69) 131
Money market accounts 123 95 218 (135) 29 (106)
Borrowed funds 4,836 355 5,191 6,053 57 6,110
Total 18,650 726 19,376 12,190 842 13,032
Net change in net interest income $10,335 (4,332) 6,003 7,132 (3,111) 4,021
(1) Includes AFS securities and securities held to maturity.
Interest income on MBSs was $42.0 million for 1998, an increase of
$9.3 million, or 28.3% over the $32.8 million earned in 1997. This
reflects a $146.0 million increase in the average balance of MBSs
for 1998 to $628.6 million from $482.5 for 1997, partially offset by
a decrease in the average yield on the MBS portfolio of 10 basis
points to 6.69% for 1998 from 6.79% in 1997. During 1998, the
Company purchased $687.9 million of MBSs for its AFS portfolio which
were partially offset by sales totaling $357.3 million and principal
repayments of $199.6 million. Also during 1998, the Bank
securitized $105.7 million in residential real estate loans and
retained the underlying securities in its AFS portfolio.
Interest income on money market investments decreased by $157,000,
or 45.8% to $186,000 in 1998 from $343,000 in 1997, primarily as a
result of a decrease in average balances of $2.2 million from $5.7
million in 1997 to $3.5 million in 1998. Interest on debt and equity
securities decreased by $4.7 million, or 32.0% to $10.0 million in
1998 from $14.7 million in 1997, primarily as a result of a decrease
in the average balance of $64.7 million, coupled with a decrease in
the average yield of 20 basis points. The decrease in the average
balance of debt and equity securities during 1998 is due primarily
to sales of $97.7 million, partially offset by purchases fo $36.1
million.
INTEREST EXPENSE
Interest expense increased by $19.4 million, or 26.0% to $93.8
million in 1998 from $74.4 million in 1997. The increase was
primarily attributable to an increase in interest on deposits of
$14.2 million, or 27.5% to $65.8 million in 1998 from $51.6 million
in 1997. The increase in interest on deposits was due to an increase
of $326.5 million, or 26.3% in average deposits to $1.57 billion in
1998 from $1.24 billion in 1997, coupled with a 4 basis point
increase in the average cost of deposits. Interest expense on
borrowed funds increased by $5.2 million, or 22.8% during 1998, due
to an increase of $81.4 million in the average balance, coupled with
a 9 basis point increase in the average cost of borrowed funds.
The increase in the average balance of deposits is primarily
attributable to the Bank's continuing expansion of the in-store
banking program. As of December 31, 1998, the Bank had fifty- seven
in-store branches with deposits totaling $504.0 million, as compared
to thirty-two branches with deposits totaling $157.2 million as of
December 31, 1997. Interest expense on certificate accounts
increased by $10.7 million, or 27.1% from 1997 to 1998. The in-
store banking expansion contributed to the increase in the average
balance of certificate accounts of $200.4 million, or 29.5%,
partially offset by a 11 basis point decrease in the average cost of
certificate accounts. Interest expense on savings accounts
increased by $3.1 million, or 33.0%, from 1997 to 1998. The
increase was also due to the in-store banking expansion, as well as
the introduction of a "Liquid Asset" account in the in-store
branches during the second quarter of 1998. As of December 31,
1998, the balance of these accounts was $158.8 million. This
account currently pays 4.25% for the first year on account balances
of $2,500 or more. Overall, the average balance of savings accounts
experienced a net increase of $69.9 million, or 18.8%, coupled with
a 30 basis point increase in the average cost, which is attributable
to the aforementioned Liquid Asset account. Interest expense on NOW
accounts and money market accounts increased by $234,000 and
$218,000, respectively, in 1998 over 1997, primarily as a result of
the increase in the average balance of such accounts. The average
yield paid on money market accounts increased by 17 basis points to
3.54% for 1998, primarily as a result of a shift in the average
balance of such deposits from traditional branches to the in-store
locations, which paid comparatively higher money market rates.
Interest expense on borrowed funds increased by $5.2 million, or
22.8%, primarily as a result of the increase in the average balance
of borrowed funds of $81.4 million, or 20.9%, coupled with a 9 basis
point increase in the average cost of borrowed funds from 5.86% in
1997 to 5.95% in 1998. The increase in the average balance of
borrowed funds is due primarily to fund the increase in residential
loan originations and purchases by CFS Intercounty Mortgage, the
Bank's residential lending division, as well as to fund purchases of
securities for the Company's AFS portfolio.
NET INTEREST INCOME
Net interest income increased by $6.0 million, or 11.6% to $57.9
million in 1998 from $51.9 million in 1997. The average yield on
interest-earning assets decreased to 7.28% in 1998 from 7.46% in
1997, as a result of an overall decline in market indices which
serve as leading indicators for mortgage loan rates and rates on
securities. The average cost of liabilities increased by 4 basis
points to 4.61% in 1998 from 4.57% in 1997 primarily due to the
growth in certificate accounts and the introduction of the Liquid
Asset savings account in 1998. The net interest rate spread was
2.67% in 1998 compared to 2.89% in 1997.
PROVISION FOR LOAN LOSSES
The Bank provided $2.7 million for loan losses in 1998, which was
virtually flat as compared to 1997. The provision for loan losses
reflects management's periodic review and evaluation of the loan
portfolio. The slight decrease in the provision for loan losses was
mainly due to the continued decline in non-performing loans to $8.4
million at December 31, 1998 from $12.5 million at December 31,
1997. As of December 31, 1998, the allowance for loan losses was
$14.0 million compared to $12.5 million at December 31, 1997. As of
December 31, 1998, the allowance for loan losses was 1.07% of total
loans compared to 1.09% of total loans at December 31, 1997. The
slight decrease was attributable to the substantial growth in the
loan portfolio. The allowance for loan losses was 166.70% of non-
performing loans at December 31, 1998 compared to 99.97% at December
31, 1997. The increase is the result of the significant decline in
non-performing loans from December 31, 1997 to December 31, 1998.
NON-INTEREST INCOME
Non-interest income increased by $19.2 million, or 138.3%, from
$13.9 million in 1997 to $33.1 million in 1998. More than half of
the increase in non-interest income is attributable to the $10.3
million in servicing released premiums and fees on loans sold in the
secondary market. Savings and checking fees were $9.8 million in
1998, a $4.3 million, or 79.3% increase over 1997. Net gains on
sales of interest-earning assets were $2.9 million in 1998. In
1997, the Company reported a net loss on such sales of $5,000.
Insurance, annuity and mutual fund fees generated in 1998 were $5.9
million, a $2.1 million, or 56.3% increase over the $3.8 million
earned in 1997. Other non- interest income increased by $1.0
million, or 65.2%, to $2.6 million in 1998, from $1.6 million in
1997, primarily as a result of the Bank's in-store banking
expansion.
On May 1, 1998 the Bank completed the purchase of the loan
production franchise of Intercounty Mortgage, Inc. ("IMI"). The
Bank's prior residential lending operations and the newly acquired
production franchise of IMI operate under the name CFS Intercounty
Mortgage Company, originating and purchasing residential loans for
the Bank's portfolio and for sale in the secondary market. In 1998
the Bank originated $1.04 billion in residential mortgage loans,
$570.0 million of which were originated for sale in the secondary
market. During 1998, the Bank sold $515.8 million to investors in
the secondary market on a servicing released basis, and recognized
$10.3 million in related servicing released premiums and fees.
The increase in savings and checking fees and fees generated from
the sale of insurance, annuities, and mutual funds were primarily a
result of the Bank's in-store banking expansion. During 1998, the
Bank opened twenty-five in-store branches, contributing to the
increase in in-store deposits of $346.8 million, or 220.6% from
December 31, 1997 to December 31, 1998. During 1998, the Company
sold $453.7 million in securities available for sale, resulting in
net gains of $1.2 million. During the third quarter of 1998, the
Bank sold $14.0 million of cooperative apartment loans in a bulk
transaction as part of its ongoing effort to divest itself of this
portion of the portfolio, resulting in a $1.0 million gain. During
the fourth quarter of 1998, the Bank realized $0.7 million in gains
on bulk sales of adjustable-rate residential mortgage loans
previously held in portfolio. The loans were sold in response to the
high level of prepayments experienced with these loans. Other non-
interest income increased primarily as a result of ATM surcharge
fees which increased by $0.9 million, or 517.9% from $0.2 million in
1997, to $1.1 million in 1998. ATM surcharge fees, which are fees
charged to non-customers who use the Bank's ATM network, increased
primarily as a result of the Bank's in-store branch expansion, as
well as increases in the fees charged for such transactions.
NON-INTEREST EXPENSE
Non-interest expense increased by $31.5 million, or 68.6%, from
$45.8 million in 1997 to $77.3 million in 1998. Compensation and
benefits expense increased by $17.0 million, or 69.9%, from $24.3
million in 1997 to $41.2 million in 1998. Occupancy and equipment
expense increased by $4.7 million, or 73.7% from $6.3 million in
1997 to $11.0 million in 1998. The increases in compensation and
benefits, occupancy and equipment, and advertising and promotion
expenses were due primarily to the Bank's in-store banking
expansion, as well as the expansion of the Bank's residential
lending function with the acquisition of the loan production
franchise of IMI. During 1998, the Bank opened twenty-five new in-
store branches, while the acquisition of the loan production
franchise of IMI added 6 primary loan origination offices and
several smaller satellite offices to the Company's facilities.
Occupancy and equipment expense also increased as a result of the
purchase of the Company's new headquarters, which was completed in
the third quarter of 1998.
Federal deposit insurance premiums increased by $134,000, or 18.2%,
from $736,000 in 1997 to $870,000 in 1998, due to the increase in
insurable deposits as a result of the in-store banking expansion.
Other non-interest expenses increased by $10.0 million, or 70.9%,
from $14.2 million in 1997 to $24.2 million in 1998. $1.4 million
of the increase is due to the increase in data processing expenses
which increased as a result of the in-store banking expansion and
the increase in the number of transactions processed. Advertising
and promotion expense increased by $1.1 million, or 64.7% from $1.7
million in 1997 to $2.8 million in 1998. Other items that
contributed to the increase in other non-interest expense were
telephone expense, which increased by $925,000, stationary,
printing, and office supplies expense, which increased by $570,000,
and ATM transaction expenses, which increased by $540,000. These
increases were directly related to the in-store banking expansion
and the operations of CFS Intercounty Mortgage. Amortization of
goodwill increased by $710,000, primarily as a result of the
acquisition of IMI, while mortgage tax expense and appraisal
expenses related to loans sold in the secondary market increased by
$540,000 and $820,000, respectively. The balance of the increase in
other non-interest expenses were generally related to the Bank's in-
store branch expansion and the expansion of the residential lending
operations as a result of the acquisition of IMI. These increases
were partially offset by a $1.2 million reduction in non-performing
loan expense due to the recapture of reserves established for the
bulk sales on REO and non-performing loans in 1994. The increase in
non-interest expense was partially offset by a $344,000 decrease in
REO operations, net.
INCOME TAX EXPENSE
Income tax expense was $2.9 million in 1998, compared to $6.1
million in 1997. The effective tax rate for 1998 was 26.4% compared
to 35.6% in 1997. The decrease in the effective tax rate was
primarily due to the establishment of Columbia Preferred Capital
Corp. ("CPCC"), the Bank's real estate investment trust ("Reit")
subsidiary, during the second quarter of 1997. The tax provision
for 1998 includes the effect of CPCC's operations for the full year
of 1998 compared to one quarter in 1997. The lower tax rate was
also due to an adjustment of the Bank's tax accrual upon the filing
of the Company's Federal, New York State and City tax returns for
1997 during September 1998, as well as a state tax credit recognized
for mortgage recording taxes paid on loans originated in certain
counties of New York State.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1996
GENERAL
The Company reported net income of $11.1 million for 1997 compared
to net income of $9.4 million for 1996. The $1.7 million increase in
earnings was primarily attributable to an increase of $17.1 million
in interest income, an increase of $4.4 million in non-interest
income, a decrease of $0.4 million in the provision for loan losses
and a decrease of $0.3 million in income tax expense. These factors
were mainly offset by interest expense which increased by $13.0
million and non-interest expense which increased by $7.4 million
primarily due to the Bank's in- store branch expansion.
INTEREST INCOME
Interest income increased by $17.1 million, or 15.6% to $126.3
million in 1997 from $109.3 million in 1996. The increase was
primarily the result of an increase in interest income on mortgage
loans which was partially offset by a decrease in interest income on
MBSs and other loans.
Interest income on mortgage loans increased by $22.2 million, or
41.7% to $75.3 million in 1997 from $53.1 million in 1996 primarily
as a result of an increase in the average mortgage loan balance of
$309.3 million partially offset by a decrease in average yield on
mortgage loans of 33 basis points. During 1997, the Bank originated
or purchased $459.8 million of mortgage loans. Mortgage loans were
originated at an average rate of 7.52% for 1997 compared to 7.56%
for 1996. The decline in the average rate for originations was
primarily due to decreases in the rate indices used for residential
and commercial real estate loans and the increasing percentage of
relatively lower yielding residential mortgages. These indices
which are the 30 year treasury bond and the 5 year treasury note
declined 71 and 50 basis points, respectively, during 1997 when
compared to December 31, 1996. In addition, loan satisfactions
during 1997 totaled $134.1 million, some of which were at higher
interest rates than current originations. Principal repayments
totaled $151.2 million in 1997 compared to $78.2 million in 1996.
Interest income on other loans decreased by $418,000, or 11.5% to
$3.2 million in 1997 from $3.6 million in 1996 due to a decrease of
$3.3 million in average balances and a decline of 25 basis points in
the average yield. The Bank's consumer loan products with the
exception of equity loan/lines were discontinued in November 1996.
However, during the fourth quarter of 1997, the Bank added unsecured
loans to its list of consumer loan products to expand the array of
products available to its customers.
Interest income on MBSs was $32.8 million for 1997 compared to $37.5
million in 1996. The average balance for 1997 decreased by $61.3
million, or 11.3% to $482.5 million from $543.8 for 1996. In
addition, the average yield on the MBS portfolio decreased by 11
basis points to 6.79% for 1997 from 6.90% in 1996. During 1997, the
Bank purchased $421.9 million of MBSs for its AFS portfolio which
were partially offset by sales totaling $226.3 million. The MBS
securities purchased for the AFS portfolio during 1997 represented
82.5% of total purchases for the AFS portfolio because these
securities allow the Bank to shorten its duration exposure for net
interest margin purposes and also provide a better cash flow for
reinvestment purposes. The sales from the AFS portfolio were used
to fund mortgage loan originations, purchases of loans in the
secondary market and also for managing the AFS portfolio to improve
overall yield and shorten duration of various securities.
Interest income on money market investments increased by $167,000,
or 94.9% to $343,000 in 1997 from $176,000 in 1996 primarily as a
result of an increase in average balances of $3.6 million in 1997.
Interest on debt and equity securities decreased by $90,000, or 0.6%
to $14.7 million in 1997 from $14.8 million in 1996 primarily as a
result of a decrease in the average balance of $11.6 million
partially offset by an increase in average yield of 31 basis points.
During 1997, the Company purchased $89.2 million of debt and equity
securities for its AFS portfolio which were offset by sales totaling
$111.4 million. The increase in the overall yield to 6.82% from
6.51% was due to the purchase of callable agency securities and
sales of FNMA preferred stock.
INTEREST EXPENSE
Interest expense increased by $13.0 million, or 21.2% to $74.4
million in 1997 from $61.4 million in 1996. The increase was
partially attributable to an increase in interest on deposits of
$6.9 million, or 15.5% to $51.6 million in 1997 from $44.7 million
in 1996. The increase in interest on deposits was due to an increase
of $123.5 million, or 11.1% in average deposits to $1.24 billion in
1997 from $1.12 billion in 1996. The increase in average deposits
was due to inflows of $145.1 million in the supermarket branches and
$104.4 million in the traditional branches. The overall cost of
deposits was 4.16% in 1997 compared to 4.00% in 1996.
Interest expense on certificate accounts increased by $6.9 million,
or 21.2% to $39.3 million in 1997 from $32.4 million in 1996. The
average balance of certificate accounts increased by $105.8 million,
or 18.5% to $678.6 million in 1997 from $572.8 million in 1996. The
increase in average balances of certificate accounts was primarily
due to inflows of $98.4 million in the supermarket branches and
$82.1 million in the traditional branches. The average cost of
certificates increased to 5.79% in 1997 from 5.66% in 1996. In
1997, passbook accounts experienced an excess of deposits over
withdrawals of $14.0 million primarily due to inflows into the
supermarket branches of $28.7 million. Certificates of deposit
experienced an excess of deposits over withdrawals of $141.3
million. The Company's in-store branch program accounted for $98.4
million of the increase in deposit balances for certificates of
deposit. Money market accounts decreased by $3.9 million during
1997.
Interest on borrowed funds increased by $6.1 million, or 36.6% to
$22.8 million in 1997 compared to $16.7 million in 1996. Borrowed
funds on an average basis increased by $103.1 million in 1997 due to
the addition of $25.0 million of capital securities issued by Haven
Capital Trust I and the addition of an $85.0 million leverage
program which was implemented during the first quarter to offset the
additional interest expense resulting from the issuance of the
capital securities. The average cost of borrowings increased to
5.86% in 1997 from 5.84% in 1996.
NET INTEREST INCOME
Net interest income increased by $4.0 million, or 8.4% to $51.9
million in 1997 from $47.9 million in 1996. The average yield on
interest-earning assets decreased to 7.46% in 1997 from 7.50% in
1996, and the average cost of liabilities increased by 19 basis
points to 4.57% in 1997 from 4.38% in 1996 primarily due to the
growth in certificate of deposit accounts and the issuance of the
trust preferred securities. The net interest rate spread was 2.89%
in 1997 compared to 3.12% in 1996.
PROVISION FOR LOAN LOSSES
The Bank provided $2.7 million for loan losses in 1997 compared to
$3.1 million in 1996. The provision for loan losses reflects
management's periodic review and evaluation of the loan portfolio.
The decrease in the provision for loan losses was mainly due to the
continued decline in non-performing loans to $12.5 million at
December 31, 1997 from $13.9 million at December 31, 1996. As of
December 31, 1997, the allowance for loan losses was $12.5 million
compared to $10.7 million at December 31, 1996. As of December 31,
1997, the allowance for loan losses was 1.09% of total loans
compared to 1.26% of total loans at December 31, 1996. The decrease
was attributable to the growth in the loan portfolio and a decline
in non-performing loans. The allowance for loan losses was 99.97% of
non-performing loans at December 31, 1997 compared to 77.05% at
December 31, 1996.
NON-INTEREST INCOME
Non-interest income increased by $4.4 million, or 45.6% to $13.9
million in 1997 from $9.6 million in 1996. Fee income on savings and
checking accounts increased by $2.1 million, or 62.2% primarily due
to an increase of approximately 53,000 in the number of savings and
checking accounts. This growth was primarily due to the Company's
in-store branch program which added approximately 48,000 savings and
checking accounts during 1997. Insurance, annuity and mutual fund
fees increased by $644,000, or 20.7% due to an increase of $185,000
in annuity income and an increase of $471,000 in mutual fund income.
The increase in sales of annuity and mutual fund products by CFS
Investment Services, Inc. (formerly Columbia Investment Services,
Inc.) ("CFSI"), the Bank's wholly-owned subsidiary, is partially due
to the increased demand for alternative sources of investments by
the Bank's depositors and the addition of the supermarket branches.
Approximately 63% of CFSI sales were external. Loan fees and
servicing income increased by $1.3 million, or 72.1% to $3.1 million
in 1997 from $1.8 million in 1996. The increase was attributable to
a prepayment fee of $2.0 million on a commercial real estate loan
during the fourth quarter of 1997. During 1997, the Company
realized a net loss of $5,000 on the sales of interest-earning
assets. Miscellaneous income increased by $456,000, or 40.9% to
$1.6 million in 1997 from $1.1 million in 1996. The increase is
primarily due to an increase of $186,000 in fees on ATM surcharges
and $142,000 due to the close-out of CFSB Funding, Inc., the Bank's
finance subsidiary during 1997. Also, fee income on refinance
transactions increased by $67,000 from 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $7.4 million, or 19.2% to $45.8
million in 1997 from $38.5 million in 1996. Non-interest expense for
1996 included a one-time SAIF recapitalization charge of $6.8
million which was paid during the fourth quarter of 1996. Excluding
this special assessment, non-interest expense increased by $14.2
million, or 44.8% in 1997. The Company's in-store branch expansion
program accounted for $11.5 million of the increase in 1997.
Compensation and benefit costs increased by $8.5 million, or 54.1%
to $24.3 million in 1997 from $15.7 million in 1996. The in-store
branch expansion accounted for $5.3 million of the increase in
compensation costs since the Bank added 226 employees for its
supermarket branches in 1997. Salary costs for the Bank's
subsidiary, CFSI, also increased by $540,000 due to higher sales
volume. Federal social security taxes increased by $537,000 and the
cost incurred for hospitalization, group life insurance, federal and
NYS unemployment insurance increased by $431,000 from the prior year
due to the increase in staff. ESOP compensation increased by
$201,000 from 1996 due to the increase in the average price of Haven
Bancorp common stock for the year. Occupancy and equipment costs
increased by $2.9 million, or 82.1% to $6.3 million in 1997 from
$3.5 million in 1997 primarily due to the addition of 28 supermarket
branches during 1997 and a $150,000 charge for obsolete signage in
connection with the name change to CFS Bank. REO operations, net
increased by $75,000, or 27.1% to $352,000 for 1997 from $277,000
for 1996. The increase is due to a decline in profits realized on
the sale of REO properties since the REO portfolio, exclusive of
reserves, decreased to $542,000 at December 31, 1997 from $1.1
million at December 31, 1996. The significant decrease in the
federal deposit insurance premium costs of $1.6 million was due to
a decrease in the assessment rate from 23 basis points in 1996 to
6.48 basis points in 1997. Miscellaneous operating costs increased
by $4.3 million, or 44.1% to $14.2 million in 1997 from $9.8 million
in 1996. Operating expenses including stationery, telephone,
postage and insurance increased by $1.6 million and professional
consulting fees increased by $555,000 from 1996 primarily due to the
in-store branch program and services related to the formation of
CPCC. In addition, the Bank incurred staff placement costs of
$184,000 primarily for in-store branches in New Jersey and
Connecticut. Advertising costs increased by $430,000 due to the
growth in both the loan portfolio and deposit base. NYCE and PLUS
fees increased by $122,000 also due to the growth in the deposit
base. Appraisal and credit costs increased by $162,000 during 1997
due to the growth in the loan portfolio. Miscellaneous operating
losses increased by $416,000 because the results for 1996 included
the reversal of a reserve regarding claims subsequently paid by a
check collection service. Operating expenses for CFSI increased by
$209,000 due to higher sales volume.
INCOME TAX EXPENSE
Income tax expense was $6.1 million in 1997 compared to $6.4 million
in 1996. The effective tax rate for 1997 was 35.6% compared to
40.6% for 1996. The decrease in the effective tax rate is due to
several factors: first, during the first quarter of 1996, a deferred
tax liability of $330,000 was reversed related to the potential
recapture of the New York City tax bad debt reserve which was no
longer necessary due to New York City tax legislation enacted
earlier this year. The New York City tax law was amended in the
first quarter of 1996 to conform to the New York State tax treatment
for bad debt reserve. The legislation "decouples" New York State's
and New York City's thrift bad debt provisions from the federal tax
law and allows for the use of the percentage of taxable income
method ("PTI") for computing the tax bad debt reserves. The second
factor which contributed to the tax savings when compared to the
prior period was the switch to the PTI method for calculating the
bad debt deduction for New York City. The final factor contributing
to the decline in the effective tax rate for 1997 was the
establishment of CPCC during the second quarter of 1996 which
resulted in certain tax savings. (See Note 12 to Notes to
Consolidated Financial Statements.)
NON-PERFORMING ASSETS
The following table sets forth information regarding non- performing
assets which include all non-accrual loans (which consist of loans
90 days or more past due and restructured loans that have not yet
performed in accordance with their modified terms for the required
six-month seasoning period), accruing restructured loans and real
estate owned.
December 31,
(In thousands) 1998 1997 1996
Non accrual loans:
One-to four-family $ 3,779 3,534 4,083
Cooperative 367 698 431
Multi-family 308 2,531 1,463
Non-residential and other 2,074 3,633 4,756
Total non-accrual loans 6,528 10,396 10,733
Restructured loans:
One-to four-family 544 679 887
Cooperative 183 290 486
Multi-family 1,130 1,167 1,427
Non-residential and other - - 360
Total restructured loans 1,857 2,136 3,160
Total non-performing loans 8,385 12,532 13,893
REO, net:
One-to four-family 66 126 266
Cooperative 38 295 292
Non-residential and other 121 121 561
Total REO 225 542 1,119
Less allowance for REO (25) (87) (81)
REO, net 200 455 1,038
Total non-performing assets $ 8,585 12,987 14,931
The Company's expanded loan workout/resolution efforts have
successfully contributed toward reducing non-performing assets to
manageable levels. Since year-end 1996, non-performing assets have
declined by $6.3 million, or 42.5%, from a level of $14.9 million to
$8.6 million at year-end 1998. The decrease in non-performing assets
is reflected in the following ratios: the ratio of non-performing
loans to total loans ratio was 0.64% for 1998 compared to 1.09% for
1997 and 1.64% for 1996; the ratio of non-performing assets to total
assets was 0.36% for 1998 compared to 0.66% for 1997 and 0.94% for
1996; and, the ratio of non-performing loans to total assets was
0.35% for 1998 compared to 0.63% for 1997 and 0.87% for 1996. There
can be no assurance that non-performing assets will continue to
decline.
The decrease in non-performing assets in 1998 was primarily due to
the continued decline in non-performing loans and sales of REO
properties. During 1998, the Company sold 21 REO properties with a
fair value of $0.7 million. Total restructured loans decreased by
$0.3 million during 1998 due to transfers to classified loan status
and the REO portfolio. Total non-accrual loans decreased by $3.9
million during 1998.
The decrease in non-performing assets in 1997 was primarily due
continued sales of REO properties and a the continued decline in
non-performing loans. During 1997, the Company sold 37 REO
properties with a fair value of $1.4 million. Total restructured
loans decreased by $1.0 million during 1997 due to transfers to
classified loan status and the REO portfolio. Total non-accrual
loans decreased by $337,000 during.1997.
LIQUIDITY
The Bank is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. This requirement, which may be
varied by the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of withdrawable deposits and
short-term borrowings. The required ratio is currently 4%. The
Bank's ratio was 4.24% at December 31, 1998 compared to 8.94% at
December 31, 1997.
The Company's primary sources of funds are deposits, principal and
interest payments on loans, debt securities and MBSs, retained
earnings and advances from FHLB and other borrowings. Proceeds from
the sale of AFS securities and loans held for sale are also a source
of funding, as are, to a lesser extent, the sales of annuities,
insurance products and securities brokerage activities conducted by
the Bank's wholly owned subsidiary, CFSI and the Company's wholly
owned subsidiary, CIA. While maturities and scheduled amortization
of loans and securities are somewhat predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions, competition and
regulatory changes.
The Company's most liquid assets are cash and short term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At December 31, 1998 and December 31, 1997,
cash and short term investments totaled $44.8 million and $40.3
million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year and AFS securities.
Other sources of funds include FHLB advances, which at December 31,
1998, totaled $325.2 million. If needed, the Bank may borrow an
additional $106.8 million from the FHLB.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities; investing
activities and financing activities. Net cash provided by operating
activities, consisting primarily of interest and dividends received
less interest paid on deposits were $16.2 million, $24.6 million and
$12.1 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Net cash used in investing activities, consisting
primarily of disbursements of loan originations and securities
purchases, offset by principal collections on loans and proceeds
from maturities of securities held to maturity or sales of AFS
securities or disposition of assets including REO were $340.7
million, $385.8 million and $117.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Net cash provided by
financing activities, consisting primarily of net activity in
deposits and borrowings, purchases of treasury stock, payments of
common stock dividends and proceeds from stock options exercised was
$329.0 million, $365.7 milliion.
CAPITAL RESOURCES
See Note 17 to Notes to Consolidated Financial Statements.
INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of
money over time and changes due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's
operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Bank are monetary. As a result, interest
rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
price of goods and services.
COMPUTER ISSUES FOR THE YEAR 2000
Many of the Company's existing computer systems use two digits to
identify the year in the date fields. As a result, these systems may
not be able to distinguish the year 2000 from the year 1900.
Software, hardware and equipment both within and outside the
Company's direct control and with which the Company electronically
or operationally interfaces (e.g. third party vendors providing data
processing, information system management, maintenance of computer
systems, and credit bureau information) are likely to be affected.
Further, if computer systems are not adequately changed to identify
the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on the
date field information, such as interest, payment or due dates and
other operating functions, could generate results which could be
significantly misstated, and the Company could experience a
temporary inability to process transactions, send invoices or engage
in similar normal business activities. If not corrected, these
computer systems could fail by or at the year 2000.
The Company primarily uses a third party vendor to process its
electronic data. This vendor has made modifications or replacements
of its computer applications and systems necessary to correct the
year 2000 date issue. Management has substantially completed the
testing of the modifications to these systems and applications. The
Company also utilizes a combination of purchased and contract-based
software as well as other third party vendors for a variety of data
processing needs. The Company's assessment of potential computer
issues for the year 2000 have been substantially completed. Where
potential computer issues have been identified, the vendors have
committed to definitive dates to resolve such issues. Under
regulatory guidelines issued by the federal banking regulators, the
Bank and the Company must substantially complete testing of both
internally and externally supplied systems and all renovations, by
June 30, 1999. In the event that the Company's significant vendors
do not achieve year 2000 compliance, the Company's operations could
be adversely affected.
The Company has established contingency plans for these systems for
which year 2000 issues will not be corrected. The OTS, the
Company's primary federal bank regulatory agency, along with the
other federal bank regulatory agencies has published guidance on the
year 2000 compliance and has identified the year 2000 issue as a
substantive area of examination for both regularly scheduled and
special bank examinations. These publications, in addition to
providing guidance as to examination criteria, have outlined
requirements for creation and implementation of a compliance plan
and target dates for testing and implementation of corrective
action, as discussed above. As a result of the oversight by and
authority vested in the federal bank regulatory agencies, a
financial institution that does not become year 2000 compliant could
become subject to administrative remedies similar to those imposed
on financial institutions otherwise found not to be operating in a
safe and sound manner, including remedies available under prompt
corrective action regulations.
There has been limited litigation filed against corporations
regarding the year 2000 problem and such corporations' compliance
efforts. To date, no such litigation has resulted in a decided case
imposing liability on the corporate entity. Nonetheless, the law in
this area will likely continue to develop well into the new
millennium. Should the Company experience a year 2000 failure,
exposure of the Company could be significant and material, unless
there is legislative action to limit such liability. Legislation
has been introduced in several jurisdictions regarding the year 2000
problem. However, no assurance can be given that legislation will
be enacted in jurisdictions where the Company does business that
will have the effect of limiting any potential liability. Through
December 31, 1998, the Company had incurred approximately $126,000
in costs associated with achieving year 2000 compliance. The
Company expects to incur approximately $450,000 in additional costs
to achieve year 2000 compliance during 1999.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to Notes to Consolidated Financial Statements.
STOCK DATA
Haven common stock, listed under the symbol HAVN is publicly traded
on the Nasdaq Stock Market. As of March 3, 1999, the Company had
approximately 428 stockholders of record (not including the number
of persons or entities holding stock in nominee or street name
through various brokerage firms) and 8,861,184 outstanding shares of
common stock (excluding treasury shares). The common stock traded in
a high and low range of $29.75 and $9.125 during the year ended
December 31, 1998.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31,
(Dollars in thousands, except for share data) 1998 1997
ASSETS
Cash and due from banks $ 43,088 35,745
Money market investments 1,720 4,561
Securities available for sale (notes 3 and 11) 889,251 499,380
Loans held for sale (note 6) 54,188 -
Debt securities held to maturity (estimated
fair value of $66,372 in 1997) (note 4) - 66,404
Federal Home Loan Bank of NY Stock, at cost 21,990 12,885
Mortgage-backed securities held to maturity
(estimated fair value of $163,326 in 1997)
(notes 5 and 11) - 163,057
Loans receivable (note 6):
First mortgage loans 1,271,784 1,098,894
Cooperative apartment loans 3,970 19,596
Other loans 34,926 32,291
Total loans receivable 1,310,680 1,150,781
Less allowance for loan losses (note 7) (13,978) (12,528)
Loans receivable, net 1,296,702 1,138,253
Premises and equipment, net (note 8) 39,209 27,062
Accrued interest receivable (notes 3, 4, 5 and 6) 12,108 12,429
Other assets (note 9) 37,267 15,114
Total assets $2,395,523 1,974,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 10) $1,722,710 1,365,012
Borrowed funds (note 11) 440,346 466,794
Due to broker 97,458 10,000
Other liabilities 15,142 20,219
Total liabilities 2,275,656 1,862,025
Commitments and contingencies (notes 7 and 16)
Stockholders' Equity (note 17):
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 30,000,000 shares
authorized, 9,918,750 issued; 8,859,692 and
8,784,700 shares outstanding in 1998 and 1997,
respectively 100 100
Additional paid-in capital 51,383 50,065
Retained earnings, substantially restricted (note 17) 79,085 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available for
sale, net of tax effect (note 3) 945 1,671
Treasury stock, at cost (1,059,058 and 1,134,050
shares in 1998 and 1997, respectively) (9,800) (10,246)
Unallocated common stock held by ESOP (note 14) (1,222) (1,529)
Unearned common stock held by Bank's Recognition
Plans and Trusts (note 14) (263) (364)
Unearned compensation (note 14) (361) (399)
Total stockholders' equity 119,867 112,865
Total liabilities and stockholders' equity $2,395,523 1,974,890
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in thousands, except per share data) 1998 1997 1996
Interest income:
Mortgage loans $ 96,146 75,266 53,110
Other loans 3,303 3,220 3,638
Mortgage-backed securities 42,040 32,755 37,517
Money market investments 186 343 176
Debt and equity securities 10,010 14,722 14,812
Total interest income 151,685 126,306 109,253
Interest expense:
Deposits:
Savings accounts 12,415 9,338 9,314
NOW accounts 1,364 1,130 999
Money market accounts 2,041 1,823 1,929
Certificate accounts 49,965 39,309 32,436
Borrowed funds 27,991 22,800 16,690
Total interest expense 93,776 74,400 61,368
Net interest income before provision for loan losses 57,909 51,906 47,885
Provision for loan losses (note 7) 2,665 2,750 3,125
Net interest income after provision for loan losses 55,244 49,156 44,760
Non-interest income:
Loan fees and servicing income 1,627 3,110 1,807
Servicing released premiums and fees on loans sold 10,301 - -
Savings/checking fees 9,822 5,478 3,378
Net gain (loss) on sales of interest-earning assets 2,926 (5) 140
Insurance, annuity and mutual funds fees 5,874 3,758 3,114
Other 2,596 1,571 1,115
Total non-interest income 33,146 13,912 9,554
Non-interest expense:
Compensation and benefits (notes 13 and 14) 41,204 24,251 15,737
Occupancy and equipment (notes 8 and 16) 11,005 6,334 3,478
Real estate owned operations, net 8 352 277
SAIF recapitalization charge (note 10) - - 6,800
Federal deposit insurance premiums 870 736 2,327
Other 24,227 14,174 9,836
Total non-interest expense 77,314 45,847 38,455
Income before income tax expense 11,076 17,221 15,859
Income tax expense (note 12) 2,926 6,138 6,434
Net income $ 8,150 11,083 9,425
Net income per common sharE:
Basic $ 0.95 1.32 1.13
Diluted $ 0.89 1.24 1.08
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
The three years ended December 31, 1998
Unrealized
Gain (Loss) Unallocated Unearned
Additional on Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
Total Stock Capital Earnings for Sale Stock by ESOP by RRPs Compensation
(In thousands of dollars, except for share data)
Balance at December 31, 1995 $ 98,519 100 47,281 57,919 2,083 (6,023) (2,197) (644) -
Comprehensive income:
Net income 9,425 - - 9,425 - - - - -
Other comprehensive income, net
of tax
Net unrealized depreciation on
securities available for sale,
net of reclassification
adjustment (1) (2,923) - - - (2,923) - - - -
Comprehensive income 6,502
Dividends declared (2,229) - - (2,229) - - - - -
Purchase of treasury stock
(451,074 shares) (5,516) - - - - (5,516) - - -
Treasury stock issued for deferred
compensation plan (60,162 shares) - - 410 - - 372 - - (782)
Stock options exercised and
related tax effect (18,812 shares) 199 - 104 (23) - 118 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,719 - 999 - - - 343 377 -
Amortization of deferred
compensation plan 190 - - - - - - - 190
Balance at December 31, 1996 99,384 100 48,794 65,092 (840) (11,049) (1,854) (267) (592)
Comprehensive income:
Net income 11,083 - - 11,083 - - - - -
Other comprehensive income,
net of tax
Net unrealized appreciation on
securities available for
sale, net of reclassification
adjustment (1) 2,511 - - - 2,511 - - - -
Comprehensive income 13,594
Dividends declared (2,608) - - (2,608) - - - - -
Treasury stock issued for RRP and
deferred compensation plan
(18,904 shares) - - 236 - - 113 - (206) (143)
Stock options exercised and related
tax effect (114,982 shares) 806 - 116 - - 690 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,353 - 919 - - - 325 109 -
Amortization of deferred
compensation plan 336 - - - - - - - 336
Balance at December 31, 1997 112,865 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399)
Comprehensive income:
Net income 8,150 - - 8,150 - - - - -
Other comprehensive income,
net of tax
Net unrealized depreciation on
securities available for
sale, net of reclassification
adjustment (1) (1,607) - - - (1,607) - - - -
Net unrealized appreciation on
securities transferred from
held to maturity to available
for sale (note 3) 881 - - - 881 - - - -
Comprehensive income 7,424
Dividends declared (2,632) - - (2,632) - - - - -
Treasury stock issued for deferred
compensation plan (14,384 shares) - - 280 - - 86 - - (366)
Stock options exercised and related
tax effect (60,608 shares) 516 - 156 - - 360 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,290 - 882 - - - 307 101 -
Amortization of deferred compensation
plan 404 - - - - - - - 404
Balance at December 31, 1998 $119,867 100 51,383 79,085 945 (9,800) (1,222) (263) (361)
(1) Disclosure of reclassification adjustment:
For the years ended
(In thousands) 1998 1997 1996
Net unrealized holding
(losses) gains arising during the year $ (10) 2,499 (2,707)
Reclassificaton adjustment for net gains
(losses) included in net income 716 (12) 216
Net unrealized (losses) gains on securities
available for sale (726) 2,511 (2,923)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in thousands) 1998 1997 1996
Cash flows from operating activities:
Net income $ 8,150 11,083 9,425
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of cost of stock benefit plans 1,526 1,689 1,909
Amortization of net deferred loan origination fees (1,546) (231) (245)
Premiums and discounts on loans, mortgage-backed
and debt securities (1,503) 210 233
Provision for loan losses 2,665 2,750 3,125
Provision for losses on real estate owned 35 251 291
Deferred income taxes 1,139 (1,540) 230
Origination and purchases of loans held for sale,
net of proceeds from sales (54,188) - -
Net (gain) loss on sales of interest-earning assets (2,926) 5 (140)
Depreciation and amortization 3,087 1,592 878
Decrease (increase) in accrued interest receivable 321 (257) (1,436)
Increase (decrease) in due to broker 87,458 9,000 (4,000)
(Decrease) increase in other liabilities (5,077) 1,315 3,672
Increase in other assets (22,930) (1,265) (1,804)
Net cash provided by operating activities 16,211 24,602 12,138
Cash flows from investing activities:
Net increase in loans receivable (264,136)(306,328) (269,343)
Proceeds from disposition of assets (including REO) 721 2,785 4,313
Purchases of securities available for sale (749,013)(511,075) (321,162)
Principal repayments on securities available for sale 195,118 48,377 73,472
Proceeds from sales of securities available for sale 454,971 337,696 374,840
Purchases of debt securities held to maturity - - (6,989)
Principal repayments, maturities and calls on debt
securities held to maturity 21,020 30,954 37,511
Purchases of mortgage-backed securities held to maturity - - (38,357)
Principal repayment on mortgage-backed securities held
to maturity 24,834 34,660 32,004
Purchases of Federal Home Loan Bank Stock, net (9,105) (2,995) (1,752)
Net increase in premises and equipment (15,102) (19,834) (2,108)
Net cash used in investing activities (340,692)(385,760) (117,571)
Cash flows from financing activities:
Net increase in deposits 357,698 227,224 54,342
Net (decrease) increase in borrowed funds (26,448) 140,361 55,850
Purchase of treasury stock - - (5,516)
Payment of common stock dividends (2,627) (2,598) (2,475)
Stock options exercised 360 760 95
Net cash provided by financing activities 328,983 365,747 102,296
Net increase (decrease) in cash and cash equivalents 4,502 4,589 (3,137)
Cash and cash equivalents at beginning of year 40,306 35,717 38,854
Cash and cash equivalents at end of year $ 44,808 40,306 35,717
Supplemental information:
Cash paid during the year for:
Interest $ 93,751 73,757 60,187
Income taxes 1,699 5,893 7,824
Additions to real estate owned 623 1,695 3,470
Loans transferred from loans held for sale - - (10,594)
Securities purchased not yet received, net 97,458 10,000 1,000
Loans securitized 105,691 - -
Mortgage-backed securities and debt securities
held to maturity transferred to securities
available for sale 183,639 - -
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Haven Bancorp, Inc. (the "Holding Company") was formed on March 25,
1993, as the holding company for CFS Bank, (the "Bank"). On
September 23, 1993, the Holding Company completed its initial
public offering of 9,918,750 shares of common stock in connection
with the Bank's conversion from a federally chartered mutual
savings bank to a federally chartered stock savings bank (the
"Conversion"). Concurrent with the conversion process, the Holding
Company acquired all of the issued and outstanding stock of the
Bank with a portion of the net proceeds.
The accounting and reporting policies of the Holding Company and
the Bank and its subsidiaries (the "Company") conform to generally
accepted accounting principles and to general practices within the
banking industry. The following summarizes the significant policies
and practices:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Holding Company and its subsidiary, the Bank, and
its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of each
consolidated statement of financial condition and revenues and
expenses for the year then ended. Actual results could differ from
those estimates. Certain reclassification adjustments have been
made to prior year amounts to conform to the current year
presentation.
On October 23, 1997, the Company's Board of Directors approved a
two-for-one common stock split. The additional shares were issued
on November 28, 1997 to shareholders of record on October 31, 1997.
The par value of the Company's common stock remains unchanged at
$.01. Accordingly, all information with respect to shares of common
stock fully reflects the stock split.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and money market investments.
Money market investments represent instruments with maturities of
ninety days or less. These investments are carried at cost,
adjusted for premiums and discounts which are recognized in
interest income over the period to maturity.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES
Debt and mortgage-backed securities ("MBSs") which the Company has
the positive intent and ability to hold until maturity are carried
at cost, adjusted for amortization of premiums and accretion of
discounts on a level yield method over the remaining period to
contractual maturity, adjusted, in the case of MBSs, for actual
prepayments. Debt and equity securities and MBSs to be held for
indefinite periods of time and not intended to be held to maturity
are classified as available for sale securities and are recorded at
fair value, with unrealized gains (losses), net of tax, reported as
accumulated other comprehensive income, a separate component of
stockholders' equity. Gains and losses on the sale of securities
are determined using the specific identification method and are
included in non-interest income.
LOANS RECEIVABLE AND LOANS HELD FOR SALE
Loans receivable are carried at their unpaid principal balances,
less unearned discounts, net deferred loan origination fees and the
allowance for loan losses. Loans held for sale are carried at the
aggregate lower of cost or market value. Loan origination fees,
less certain direct loan origination costs, are deferred and
amortized as an adjustment of the loan's yield over the life of the
loan by the interest method. When loans are sold, any remaining
unaccreted net deferred fees (costs) are recognized as income at
the time of sale. Purchased loans are recorded at cost. Related
premiums or discounts are amortized (accreted) to interest income
using the level-yield method over the estimated life of the loans.
Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" and the
amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" require
that impaired loans that are within their scope be measured based
on the present value of expected future cash flows discounted at
the loan's effective interest rate or as a practical expedient, at
the loan's current observable market price, or the fair value of
the collateral if the loan is collateral dependent. The amount by
which the recorded investment of an impaired loan exceeds the
measurement value is recognized by creating a valuation allowance
through a charge to the provision for loan losses. SFAS No. 114
does not apply to those large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment, which, for
the Company, include one-to four-family first mortgage loans and
cooperative apartment loans ("residential loans") and consumer
loans.
Loans individually reviewed for impairment by the Company within
the scope of SFAS No. 114 are limited to loans modified in a
troubled debt restructuring ("TDR") and commercial and multi-family
first mortgage loans. The measurement value of the Company's
impaired loans was based on the fair value of the underlying
collateral. The Company's impaired loan identification and
measurement process are conducted in conjunction with the Company's
review of the adequacy of its allowance for loan losses. Specific
factors utilized in the impaired loan identification process
include, but are not limited to, delinquency status, loan-to-value
ratio, the condition of the underlying collateral, credit history
and debt coverage. At a minimum, such loans are classified as
impaired by the Company when they become 90 days past due.
The Company places loans, including impaired loans, on non-accrual
status when they become 90 days past due. All interest previously
accrued and not collected is reversed against interest income and
income is subsequently recognized only to the extent cash is
received until, in management's judgement, a return to accrual
status is warranted.
Cash receipts on impaired loans are applied to principal and
interest in accordance with the contractual terms of the loan
unless full payment of principal is not expected, in which case,
both principal and interest payments received are applied as a
reduction of the carrying value of the loan. For non-performing
impaired loans, interest income is recognized to the extent
received in cash and not otherwise utilized to reduce the carrying
value of the loan. For impaired loans not classified as non-
performing by the Company, interest income is recognized on an
accrual basis as the Company anticipates the full payment of
principal and interest due. The Company's policy is to recognize
income on a cash basis for TDRs for a period of six months, after
which such loans are returned to an accrual status.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Impaired loans and
related reserves have been identified and calculated in accordance
with the provisions of SFAS No. 114. The total allowance for loan
losses has been determined in accordance with the provisions of
SFAS No. 5, "Accounting for Contingencies." The Company's allowance
for loan losses is intended to be maintained at a level sufficient
to absorb all estimable and probable losses inherent in the loan
portfolio. The Company reviews the adequacy of the allowance for
loan losses on a monthly basis taking into account past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, current and
prospective economic conditions and current regulatory guidance.
Management believes that the allowance for loan losses is adequate.
While Management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions and the reviews of various
regulatory agencies.
The Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,"
effective January 1, 1997. Under this statement, after transfers
of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
if any, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
In accordance with SFAS No. 125, the Company recognizes servicing
assets on loans that have been originated or purchased, and where
the loans are subsequently sold or securitized with the servicing
rights retained. The total cost of the mortgage loans is allocated
between the loans and the servicing assets based on their
relative fair values. The statement also requires that servicing
assets be assessed for impairment based on the current fair values
of those assets with any impairment recognized through a valuation
allowance.
Fees earned for servicing loans for others are reported as income
when the related mortgage loan payments are collected. Servicing
assets are amortized as a reduction to loan servicing fee income
using the interest method over the estimated remaining life of the
underlying mortgage loans.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements,
furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Premises and equipment
are depreciated using the straight-line method over the estimated
useful lives of the respective assets except for leasehold
improvements which are amortized over the related lease term or
estimated useful life.
REAL ESTATE OWNED
Real estate properties acquired through loan foreclosure are
recorded at the lower of cost or estimated fair value less
estimated selling costs at the time of foreclosure. Subsequent
valuations are periodically performed by management and the
carrying value may be adjusted by a valuation allowance,
established through charges to income and included in real estate
operations, net to reflect subsequent declines in the estimated
fair value of the real estate. Real estate owned ("REO") is shown
net of the allowance. Operating results of REO, including rental
income, operating expenses, and gains and losses realized from the
sales of properties owned, are also recorded in real estate
operations, net.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing
transactions. Accordingly, the collateral securities continue to be
carried as assets and a borrowing liability is established for the
transaction proceeds.
INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment
date. Additionally, the recognition of net deferred tax assets is
based upon the likelihood of realization of tax benefits in the
future. A valuation allowance would be provided for deferred tax
assets which are determined more than likely not to be realized.
BENEFIT PLANS
The Company maintains various pension, savings, employee stock
ownership and other benefit plans and programs for its employees,
including the Bank's Retirement Plan covering substantially all
employees who have attained minimum service requirements. The
Bank's funding policy is to make contributions to the plan at least
equal to the amounts required by applicable Internal Revenue
Service regulations. The Bank periodically evaluates the overall
effectiveness and economic value of such programs, in the interest
of maintaining a comprehensive benefit package for employees. Based
on an evaluation of the Retirement Plan in 1996, the Bank concluded
that future benefit accruals under the Retirement Plan would cease,
or "freeze" on July 1, 1996. Although the benefit accruals are
frozen, the Bank will continue to maintain and provide benefits
under its Employee Stock Ownership Plan ("ESOP") and Employee
401(k) Thrift Incentive Savings Plan ("401(k) Plan"). In connection
with the Retirement Plan "freeze," the Bank resumed its matching of
contributions to the 401(k) Plan on July 1, 1996.
Post-retirement and post-employment benefits are recorded on an
accrual basis with an annual provision that recognizes the expense
over the service life of the employee, determined on an actuarial
basis.
Effective January 1998, the Company adopted SFAS No. 132,
"Employers Disclosures about Pensions and Other Post Retirement
Benefits". SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans, but does not change
the measurement or recognition of those plans. SFAS No. 132 also
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis,
and eliminates certain disclosures that are no longer useful. As
the requirements of SFAS No. 132 are disclosure related, its
implementation did not have any impact on the Company's financial
condition or results of operations.
STOCK COMPENSATION PLANS
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 permits
either the recognition of compensation cost for the estimated fair
value of employee stock-based compensation arrangements on the date
of grant, or the continued application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") in
accounting for its plans with disclosure in the notes to the
financial statements of the pro forma effects on net income and
earnings per share, determined as if the fair value-based method
had been applied in measuring compensation cost. The Company has
adopted the disclosure option. Accordingly, no compensation cost
has been recognized for the Company's stock option plans.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company has utilized interest rate caps to manage its interest
rate risk. Generally, the net settlements on such transactions used
as hedges of non-trading liabilities are accrued as an adjustment
to interest expense over the life of the agreements.
EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Accounting for Earnings Per
Share" effective December 15, 1997 and restated all prior-period
earnings per share ("EPS") data. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the
relevant period. The weighted average number of shares outstanding
does not include shares which are unallocated by the ESOP in
accordance with American Institute of CPAs ("AICPA") Statement of
Position ("SOP") 93-6, "Employers Accounting for ESOPs." Diluted
EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or
converted into common stock that then shares in the earnings of the
entity.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. The Statement establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources. Under SFAS No. 130 the Company is required to: (a)
classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position; and (c) reclassify all prior periods presented.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Statement establishes
standards for the way an enterprise reports information about
operating segments in annual financial statements and requires
that enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
Operating segments are components of an enterprise that engage in
business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to
allocate resources and in assessing performance, and for which
discrete financial information is available. The Statement
requires a reconciliation of total segment revenue and expense
items and segment assets to the amounts in the enterprise's
financial statements. The Statement also requires a descriptive
report on how the operating segments were determined, the products
and services provided by the operating segments, and any
measurement differences used for segment reporting and financial
statement reporting. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be
restated. The Company currently does not manage its various
business activities as separate operating segments and does not
readily produce meaningful discrete financial information for any
such business activity. Therefore, under the Company's current
operating and reporting structure, SFAS No. 131 disclosures are not
applicable.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at
fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999 and does
not require restatement of prior periods. Management of the Company
currently believes the implementation of SFAS No. 133 will not have
a material impact on the Company's financial condition or results
of operations.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise".
SFAS No. 134 changes the way mortgage banking firms account for
certain securities and other interests they retain after
securitizing mortgage loans that were held for sale. Under current
practice, a bank that securitizes credit card receivables has a
choice in how it classifies any retained securities based on its
intent and ability to hold or sell those investments. SFAS No. 134
gives the mortgage banking firms the opportunity to apply the same
intent-based accounting that is applied by other companies. SFAS
No. 134 is effective for the fiscal quarter beginning after
December 15, 1998. Management of the Company anticipates that the
implementation of SFAS No. 134 will not have a material impact on
the Company's financial condition or results of operations.
2. BUSINESS COMBINATIONS
ACQUISITION OF INTERCOUNTY MORTGAGE, INC.
On May 1, 1998, the Bank completed the purchase of the production
franchise of Intercounty Mortgage, Inc. ("IMI") from Resource
Bancshares Mortgage Group, Inc. ("RBMG"). The Bank paid
approximately $5.6 million for IMI's production franchise and fixed
assets. The business operates as a division of the Bank under the
name CFS Intercounty Mortgage Company originating and purchasing
residential loans for the Bank's portfolio and for sale in the
secondary market, primarily through six loan origination offices
located in New York, New Jersey, and Pennsylvania. Loan sales in
the secondary market are primarily on a servicing-released basis,
for which the Company earns servicing released premiums.
The transaction was accounted for under the purchase method. The
excess of cost over the fair value of net assets acquired
(goodwill) of approximately $5.1 million is being amortized over 5
years. The Company will assess the recoverability of goodwill by
determining whether the amortization of the goodwill over its
remaining life can be recovered through future operating cash flow
of the production franchise. The unamortized balance of goodwill
relating to the acquisition of IMI was approximately $4.4 million
at December 31, 1998.
ACQUISITION OF CENTURY INSURANCE AGENCY
On November 2, 1998 the Company completed the purchase of 100% of
the outstanding common stock of Century Insurance Agency, Inc.
("CIA") for approximately $1.2 million. CIA, which is headquartered
in Centereach, New York, provides automobile, homeowners and
casualty insurance to individuals and various lines of commercial
insurance to businesses. CIA operates as a wholly owned subsidiary
of the Company. The transaction was accounted for under the
purchase method. Goodwill of approximately $1.6 million is being
amortized over 10 years. The Company will assess the recoverability
of goodwill by determining whether the amortization of the goodwill
over its remaining life can be recovered through future operating
cash flow of CIA. The unamortized balance of goodwill relating to
the acquisition of CIA was approximately $1.6 million at December
31, 1998.
3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at December 31, are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
1998
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 78,017 141 (453) 77,705
Preferred stock 11,700 30 (140) 11,590
Corporate debt securities 19,850 - (166) 19,684
109,567 171 (759) 108,979
MBSs available for sale:
GNMA Certificates 430 4 - 434
FNMA Certificates 177,495 1,530 (258) 178,767
FHLMC Certificates 51,590 689 (112) 52,167
CMOs and REMICs 548,644 2,218 (1,958) 548,904
778,159 4,441 (2,328) 780,272
Total $ 887,726 4,612 (3,087) 889,251
1997
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 115,466 285 (1,093) 114,658
Preferred stock 4,095 38 (10) 4,123
119,561 323 (1,103) 118,781
MBSs available for sale:
GNMA Certificates 943 39 - 982
FNMA Certificates 45,860 556 (531) 45,885
FHLMC Certificates 62,649 1,074 (85) 63,638
CMOs and REMICs 267,754 3,228 (888) 270,094
377,206 4,897 (1,504) 380,599
Total $ 496,767 5,220 (2,607) 499,380
Gross gains of approximately $1,737,000, $1,044,000 and
$1,948,000 for the years ended December 31, 1998, 1997 and 1996,
respectively, were realized on sales of securities available for
sale. Gross losses amounted to approximately $505,000, $1,064,000
and $1,577,000 for the years ended December 31, 1998, 1997, and
1996 respectively.
The Company's portfolio of MBSs available for sale has an
estimated weighted average expected life of approximately 5.5
years at December 31, 1998. At December 31, 1998, $242.6 million
of MBSs available for sale were adjustable-rate securities.
The Company's privately-issued CMOs and REMICs have generally
been underwritten by large investment banking firms with the
timely payment of principal and interest on these securities
supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of
credit or subordination techniques. Substantially all such
securities are rated AAA by one or more of the nationally
recognized securities rating agencies. These securities are
subject to certain credit-related risks normally not associated
with U.S. Government and agency mortgage- backed securities.
Among such risks is the limited loss protection generally
provided by the various forms of credit enhancements as losses in
excess of certain levels are not protected. Furthermore, the
credit enhancement itself is subject to the credit worthiness of
the enhancer. Thus, in the event a credit enhancer does not
fulfill its obligations, the MBS holder could be subject to risk
of loss similar to the purchaser of a whole loan pool. Management
believes that the credit enhancements are adequate to protect the
Company from losses, and therefore the Company has not provided
an allowance for losses on its privately issued MBSs.
U.S. Government and agency obligations at December 31, 1998 had
contractual maturities between April 30, 1999 and June 25, 2024.
Accrued interest receivable on securities available for sale
amounted to approximately $4,901,000 and $4,286,000 at December
31, 1998 and 1997, respectively.
Corporate debt securities at December 31, 1998 had contractual
maturities between March 22, 1999 and July 26, 1999.
On June 30, 1998, the Company transferred the then remaining
$138.2 million of MBSs and $45.4 million of debt securities held
to maturity to securities available for sale.
In August 1998, the Company securitized $105.7 million of
residential mortgage loans with FNMA. The resulting MBSs were
retained and are included in securities available for sale as of
December 31, 1998.
4. DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of debt securities held to maturity at
December 31, 1997 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
U.S. Government and agency obligations $ 21,014 70 (27) 21,057
Corporate debt securities 45,390 31 (106) 45,315
Total $ 66,404 101 (133) 66,372
Accrued interest receivable on debt securities held to maturity
amounted to approximately $667,000 at December 31, 1997.
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of MBSs held to maturity at December 31,
1997 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized Fair
(In thousands) Cost gains losses value
FNMA Certificates $ 61,492 258 (657) 61,093
FHLMC Certificates 27,472 465 (168) 27,769
CMOs and REMICs 74,093 821 (450) 74,464
Total $ 163,057 1,544 (1,275) 163,326
At December 31, 1997, $8.8 million, of the MBSs held to maturity
portfolio consists of adjustable-rate securities. Such securities
had an estimated fair value of $8.8 million.
Accrued interest receivable on MBSs held to maturity amounted to
approximately $1,025,000 at December 31, 1997.
6. LOANS receivable and loans held for sale
Loans receivable, net at December 31, are summarized as follows:
(In thousands) 1998 1997
First mortgage loans:
Principal balances:
One- to four-family $ 886,405 802,766
Multi-family 215,542 143,559
Commercial 163,935 148,745
Construction 2,731 2,263
Partially guaranteed by VA or insured by FHA 2,205 2,924
1,270,818 1,100,257
Less net deferred loan origination fees,
unearned discounts and unamortized premiums 966 (1,363)
Total first mortgage loans 1,271,784 1,098,894
Cooperative apartment loans, net 3,970 19,596
Other loans:
Consumer loans 17,473 14,413
Home equity loans 15,173 15,449
Other 2,280 2,429
Total other loans 34,926 32,291
1,310,680 1,150,781
Less allowance for loan losses (13,978) (12,528)
Total $1,296,702 1,138,253
Included in total loans are loans on which interest is not being
accrued and loans which have been restructured and for which
interest has been reduced or foregone. The principal balances of
these loans at December 31 are summarized as follows:
(In thousands) 1998 1997
Non-accrual loans $ 6,528 10,396
Restructured loans 1,857 2,136
Total $ 8,385 12,532
If interest income on non-accrual loans had been current in
accordance with the original terms, approximately $425,000,
$736,000 and $688,000 of interest income would have been recorded
for the years ended December 31, 1998, 1997 and 1996,
respectively. Approximately $117,000, $146,000 and $220,000 of
interest income was recognized on non-accrual loans for the years
ended December 31, 1998, 1997 and 1996, respectively. The Bank
has no obligation to fund any additional monies on these loans.
The amount of interest income that would have been recorded if
restructured loans had been performing in accordance with their
original terms (prior to being restructured) was approximately
$396,000, $197,000 and $305,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
In 1998, the Company sold $83.3 million of adjustable-rate
mortgage (ARM) loans previously held in portfolio in two separate
bulk sale transactions, which settled on December 30, 1998. The
Company recognized a net gain of $670,000 as a result of these
transactions. The Company sold $68.6 million of the ARM loans
servicing released, while $14.7 million of the ARM loans were
sold servicing retained. In connection with the latter
transaction, the Company recognized a servicing asset of
$168,000, which is included in other assets at December 31, 1998.
The servicing asset will be amortized in proportion to and over
the period of estimated net servicing income. The servicing
asset will be periodically assessed for impairment based on its
fair value.
In 1998, the Company securitized $105.7 million of residential
mortgage loans with FNMA. The Company retained all of the
securities in its available for sale portfolio, and is servicing
the underlying loans for FNMA. In 1998, the Company also sold
$14.0 million of cooperative apartment loans as part of its
ongoing efforts to dispose of this portion of its portfolio. The
Company recognized a $968,000 gain as a result of this
transaction.
Loans held for sale, which consisted of, primarily fixed-rate,
one-to four-family loans, were $54.2 million at December 31,
1998. The Bank originates most fixed rate loans for immediate
sale, primarily to private investors on a servicing released
basis. Generally, the sale of such loans is arranged at the time
of application through best effort commitments. During 1998, the
Company sold $515.8 million in residential mortgage loans to
third party investors on a servicing released basis. The Company
recognized $10.3 million in servicing released premiums, fees,
and net gains, related to these sales.
The Bank services for investors first mortgage loans which are
not included in the accompanying consolidated statements of
financial condition. The unpaid principal balances of such loans
were approximately $269.1 million and $174.9 million at December
31, 1998 and 1997, respectively.
The geographical location of the Bank's loan portfolio is
primarily within the New York metropolitan area.
Accrued interest receivable on loans amounted to approximately
$7,207,000 and $6,443,000 at December 31, 1998 and 1997,
respectively.
7. ALLOWANCE FOR LOAN LOSSES
Impaired loans and related reserves have been identified and
calculated in accordance with the provisions of SFAS No. 114. The
total allowance for loan losses has been determined in accordance
with the provisions of SFAS No. 5, "Accounting for
Contingencies." As such, the Company has provided amounts for
anticipated losses that exceed the immediately identified losses
associated with loans that have been deemed impaired. Provisions
have been made and reserves established accordingly, based upon
experience and expectations, for losses associated with the
general population of loans, specific industry and loan types,
including residential and consumer loans which are not subject to
the provisions of SFAS No. 114.
The following table summarizes information regarding the
Company's impaired loans at December 31:
1998 1997
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
Residential loans:
With a related allowance $ 982 51 931 - - -
Without a related allowance 3,164 - 3,164 4,232 - 4,232
Total residential loans 4,146 51 4,095 4,232 - 4,232
Multi-family and non-residential loans:
With a related allowance 1,128 247 881 970 207 763
Without a related allowance 1,254 - 1,254 5,194 - 5,194
Total multi-family and non-residential
loans 2,382 247 2,135 6,164 207 5,957
Total impaired loans $ 6,528 298 6,230 10,396 207 10,189
The Company's average recorded investment in impaired loans for
the years ended December 31, 1998 and 1997 was $7.9 million and
$10.3 million, respectively. Interest income recognized on
impaired loans, which was not materially different from cash-
basis interest income, amounted to approximately $117,000,
$146,000 and $220,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
Activity in the allowance for loan losses for the years ended
December 31, is as follows:
(In thousands) 1998 1997 1996
Balance at beginning of year $ 12,528 10,704 8,573
Charge-offs:
One- to four-family (435) (964) (771)
Cooperative (256) (370) (524)
Multi-family (708) - (30)
Non-residential and other (935) (352) (560)
Total charge-offs (2,334) (1,686) (1,885)
Recoveries 1,119 760 891
Net charge-offs (1,215) (926) (994)
Provision for loan losses 2,665 2,750 3,125
Balance at end of year $ 13,978 12,528 10,704
8. PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
(In thousands) 1998 1997
Land $ 1,720 720
Buildings and improvements 18,679 7,234
Leasehold improvements 17,136 19,921
Furniture, fixtures and equipment 13,128 7,554
Accumulated depreciation (11,454) (8,367)
Total $39,209 27,062
In December 1997, the Company purchased an office building and
land in Westbury, New York for its new administrative
headquarters. The purchase was consummated under the terms of a
lease agreement and Payment-in-lieu-of-Tax ("PILOT") agreement
with the Town of Hempstead Industrial Development Agency ("IDA")
(see note 16). The Company completed improvements to the building
and began using the building as its corporate headquarters in
July 1998. The cost of the land and building, including
improvements was $12.8 million. The building and improvements
are being depreciated on a straight-line basis over thirty-nine
years.
In December 1998 the Bank entered into a contract of sale for its
former administrative headquarters, located in Woodhaven, New
York. The sale is expected to close in the first quarter of
1999. Concurrent with the sale of the property, which consists of
land, buildings and building improvements, the Bank will lease
back a portion of the building to continue its current use as a
traditional retail banking branch office and certain
administrative functions. Upon consummation, the transaction will
be accounted for as a sale-leaseback, and the lease is expected
to be accounted for as an operating lease. At December 31, 1998,
the carrying amount of the land, buildings and building
improvements was approximately $1.7 million.
In January 1999 the Bank also entered into a contract of sale for
another administrative office, consisting of land, buildings, and
building improvements, located in Woodhaven, New York. The sale
is also expected to close in the first quarter of 1999. At
December 31, 1998, the carrying amount of the land, buildings and
building improvements was approximately $768,000.
Depreciation and amortization of premises and equipment, included
in occupancy and equipment expense, was approximately $3.1
million, $1.6 million, and $878,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
9. OTHER ASSETS
Other assets at December 31, are summarized as follows:
(In thousands) 1998 1997
Remittances due from custodians $10,037 2
Net deferred tax asset (note 12) 5,424 6,201
Excess of cost over the fair value of
net assets acquired 6,193 321
Other 15,613 8,590
Total $37,267 15,114
10. DEPOSITS
Deposits at December 31, are summarized as follows:
Weighted
average
(Dollars in thousands) Amount Percent rates
1998
Savings accounts $ 547,264 31.8% 3.30%
Money market 58,984 3.4 3.21
NOW 130,288 7.6 1.28
Demand 84,425 4.9 -
820,961 47.7 2.63
Certificates of deposit 901,749 52.3 5.60
Total $1,722,710 100.0% 4.18%
1997
Savings accounts $ 378,745 27.7% 2.58%
Money market 51,128 3.7 3.44
NOW 98,108 7.2 1.40
Demand 55,448 4.1 -
583,429 42.7 2.21
Certificates of deposit 781,583 57.3 6.05
Total $1,365,012 100.0% 4.41%
The aggregate amount of certificates of deposit in denominations
of $100,000 or more amounted to approximately $84,509,000 and
$64,544,000 at December 31, 1998 and 1997, respectively.
Scheduled maturities of certificates of deposit at December 31,
are summarized as follows:
1998 1997
(Dollars in thousands) Amount Percent Amount Percent
Within six months $553,835 61.4% $345,302 44.2%
Six months to one year 214,041 23.7 250,405 32.0
One to two years 62,756 7.0 105,903 13.6
Over two years 71,117 7.9 79,973 10.2
Total $901,749 100.0% $781,583 100.0%
The deposits of the Bank are insured up to $100,000 per depositor
(as defined by law and regulation) by the Savings Association
Insurance Fund ("SAIF") which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). Deposits of certain other
financial institutions are insured by the Bank Insurance Fund
("BIF"). On September 30, 1996, Congress passed and the President
signed legislation that recapitalized the SAIF. The legislation
required SAIF-insured institutions to pay a special one-time
assessment to recapitalize the SAIF. The Bank's special one-time
insurance assessment amounted to $6.8 million. Beginning January
1, 1997, the schedule of SAIF assessment rates became the same as
the schedule of BIF assessment rates. The Act also required BIF-
insured institutions to pay a portion of the interest due on
Financial Corporation ("FICO") bonds beginning January 1, 1997.
Beginning January 1, 2000, or the date at which no thrift
institution continues to exist, BIF-insured institutions will be
required to pay their full pro rata share of FICO payments.
11. BORROWED FUNDS
Borrowed funds at December 31, are summarized as follows:
(Dollars in thousands) 1998 1997
Fixed-rate advances from the FHLB of New York:
5.74% to 6.19% due in 1998 $ - 227,000
4.25% to 5.36% due in 1999 104,200 20,000
5.17% to 5.74% due in 2000 62,000 -
5.29% due in 2001 20,000 -
5.66% due in 2002 20,000 -
5.62% due in 2003 20,000 -
5.00% to 5.38% due in 2008 99,000 -
325,200 247,000
Securities sold under agreements to repurchase:
Fixed rate agreements:
5.72% to 6.250% due in 1998 - 176,628
5.25% to 5.45% due in 1999 72,290 -
6.27% due in 2002 16,400 16,400
88,690 193,028
Holding Company Obligated Mandatorily
Redeemable Capital Securities of Haven
Capital Trust I at 10.46% due 02/01/27 24,984 24,984
Debt of Employee Stock Ownership
Plan (note 14) 1,472 1,782
Total $440,346 466,794
At December 31, 1998 and 1997, pursuant to a physical pledge
collateral agreement, advances from the FHLB of New York were
collateralized by MBSs with an estimated fair value of
approximately $467,626,000 and $231,131,000, respectively. At
December 31, 1998 and 1997, advances from the FHLB of New York
were also collateralized by U.S. Government and agency
obligations with an estimated fair value of approximately
$6,241,000 and $81,446,000, respectively. At December 31, 1998
the Bank has unused lines of credit totalling $106.8 million with
the FHLB of New York.
At December 31, 1998, all securities sold under agreements to
repurchase were delivered to primary dealers who arranged the
transactions. The securities will remain registered in the name
of the Bank and will be returned at maturity. During the years
ended December 31, 1998 and 1997, securities sold under
agreements to repurchase averaged $142,348,000 and $172,310,000,
respectively. The maximum amounts outstanding at any month-end
were $191,291,000 and $229,280,000, respectively. The average
interest rate paid during the years ended December 31, 1998 and
1997 were 5.71% and 5.68%, respectively. MBSs with an estimated
fair value of approximately $99,966,000 and $194,227,000 were
pledged as collateral at December 31, 1998 and 1997,
respectively.
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware (the "Trust"), issued $25
million of 10.46% capital securities. The Holding Company is the
owner of all the beneficial interests represented by common
securities of the Trust. The Trust exists for the sole purpose
of issuing the Trust securities (comprised of the capital
securities and the common securities) and investing the proceeds
thereof in the 10.46% junior subordinated deferrable interest
debentures issued by the Holding Company on February 12, 1997,
which are scheduled to mature on February 1, 2027. Interest on
the capital securities is payable in semiannual installments,
commencing on August 2, 1997. The Trust securities are subject to
mandatory redemption (i) in whole, but not in part upon repayment
in full, at the stated maturity of the junior subordinated
debentures at a redemption price equal to the principal amount
of, plus accrued interest on, the junior subordinated debentures,
(ii) in whole but not in part, at any time prior to February 1,
2007, contemporaneously with the occurrence and continuation of a
special event, defined as a tax event or regulatory capital
event, at a special event redemption price equal to the greater
of 100% of the principal amount of the junior subordinated
debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional redemption
of the junior subordinated debentures on the initial optional
repayment date to and including the initial optional prepayment
date, discounted to the prepayment date plus accrued and unpaid
interest thereon, and (iii) in whole or in part, on or after
February 1, 2007, contemporaneously with the optional prepayment
by the Holding Company of the junior subordinated debentures at a
redemption price equal to the optional prepayment price. Subject
to prior required regulatory approval, the junior subordinated
debentures are redeemable during the 12-month periods beginning
on or after February 1, 2007, at 105.230% of the principal
amounts outstanding, declining ratably each year thereafter to
100%, plus accrued and unpaid interest thereon to the date of
redemption. Deferred issuance costs are being amortized over ten
years.
12. FEDERAL, STATE AND LOCAL TAXES FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return on a calendar-year basis. Under Section 593 of
the Internal Revenue Code of 1986, as amended ("Code"), prior to
January 1, 1997 thrift institutions such as the Bank which met
certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish a tax
reserve for bad debts. Such thrift institutions were also
permitted to make annual additions to the reserve, to be deducted
in arriving at their taxable income within specified limitations.
The Bank's deduction was computed using an amount based on the
Bank's actual loss experience ("experience method"), or a
percentage equal to 8% of the Bank's taxable income ("PTI
method"). Similar deductions for additions to the Bank's bad
debt reserve were also permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, Section 593 of the Code was
amended. The Bank will be unable to make additions to the tax
bad debt reserves but will be permitted to deduct bad debts as
they occur. Additionally, the 1996 Act required institutions to
recapture (that is, include in taxable income) the excess of the
balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987 ("base year").
The Bank's federal tax bad debt reserves at December 31, 1995
exceeded its base year reserves by $2.7 million which will be
recaptured into taxable income ratably over a six year period.
This recapture was frozen for 1996 and 1997, whereas, one-sixth
of the excess reserves was recaptured into taxable income for
1998. The base year reserves will be subject to recapture, and
the Bank could be required to recognize a tax liability, if (i)
the Bank fails to qualify as a "bank" for Federal income tax
purposes; (ii) certain distributions are made with respect to the
stock of the Bank; (iii) the Bank uses the bad debt reserves for
any purpose other than to absorb bad debt losses; and (iv) there
is a change in Federal tax law. Management is not aware of the
occurrence of any such event.
In response to the Federal legislation, the New York State and
New York City tax law has been amended to prevent the recapture
of existing tax bad debt reserves and to allow for the continued
use of the PTI method to determine the bad debt deduction in
computing New York State and City tax liability.
The components of the net deferred tax assets at December 31, are
as follows:
(In thousands) 1998 1997
Deferred tax assets:
Difference between financial statement
credit oss provision and tax
bad-debt deduction $ 5,952 5,872
Non-accrual interest and non-performing
loan expense 762 1,268
Other 2,128 1,211
Total deferred tax assets 8,842 8,351
Deferred tax liabilities:
Recapture of Tax Bad Debt Reserve (781) (937)
Securities marked to market for
financial statement purposes (580) (942)
Basis difference of fixed assets (131) (145)
Other (1,926) (126)
Total deferred tax liabilities (3,418) (2,150)
Net deferred tax assets $ 5,424 6,201
Income tax expense for the years ended December 31, are
summarized as follows:
(In thousands) 1998 1997 1996
Current:
Federal $ 1,486 6,433 3,391
State and local 301 1,245 2,813
1,787 7,678 6,204
Deferred:
Federal 741 (760) 906
State and local 398 (780) (676)
1,139 (1,540) 230
Total income tax expense $ 2,926 6,138 6,434
The following is a reconciliation of statutory Federal income tax
expense to the combined effective tax expense for the years ended
December 31:
(In thousands) 1998 1997 1996
Statutory Federal income tax expense $ 3,877 6,027 5,392
State and local income taxes, net of
Federal income tax benefit 455 301 1,410
Change in deferred tax asset
valuation allowance - - (800)
Reversal of prior years taxes (785) - -
Other, net (621) (190) 432
Total income tax expense $ 2,926 6,138 6,434
The Company had an $800,000 valuation allowance for its deferred
tax asset as of December 31, 1995, related to potential New York
State and New York City deferred tax assets. Upon review of the
Company's deferred tax assets as of December 31, 1996, the
Company determined that the valuation allowance was no longer
required. The Company will continue to review the recognition
criteria as set forth in SFAS No. 109, "Accounting for Income
Taxes" on a quarterly basis and determine the need for a
valuation allowance accordingly.
STATE AND LOCAL TAXES
The Company and subsidiaries file combined New York State
franchise tax and New York City financial corporation tax returns
on a calendar-year basis. The Company's annual tax liability for
each year is the greater of a tax on (i) allocated entire net
income; (ii) located alternative entire net income; (iii)
allocated assets to New York State and/or New York City; or (iv)
a minimum tax. Operating losses cannot be carried back or
carried forward for New York State or New York City tax purposes.
The Company expects to determine its 1998 New York State and New
York City tax liability based on alternative entire net income.
The Company has provided for New York State and New York City
taxes based on entire net income for the years ended December 31,
1997 and 1996. The Company will also file a New Jersey and
Connecticut tax return for 1998 due to the opening of in-store
supermarket branches.
13. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
RETIREMENT PLAN
The Company has a qualified, non-contributory defined benefit
pension plan covering substantially all of its eligible
employees. The Company's policy is to fund pension costs in
accordance with the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, and to provide the plan
with sufficient assets with which to pay pension benefits to plan
participants. Based on an evaluation of the Retirement Plan in
1996, the Bank concluded that future benefit accruals under the
Retirement Plan would cease or "freeze" effective July 1, 1996.
The Bank recognized a curtailment gain of approximately $266,000
as of July 1, 1996. The Bank made a cash contribution of $352,000
to the plan in 1997. There were no contributions to the Plan in
1998.
The following are disclosures related to the Plan as determined
by the Plan's actuary in accordance with SFAS No. 87 and SFAS No.
132.
The following is a reconciliation of the projected benefit
obligation for the years ended December 31, 1998 and 1997,
respectively:
(In thousands) 1998 1997
Projected benefit obligation,
beginning of year $ 8,519 7,649
Interest cost 569 557
Actuarial loss 202 761
Benefits paid (532) (448)
Projected benefit obligation,
end of year $ 8,758 8,519
The following is a reconciliation of the change in fair value of
plan assets for the years ended December 31, 1998 and 1997,
respectively:
(In thousands) 1998 1997
Fair value of plan assets,
beginning of year $ 8,819 8,169
Actual return on plan assets 1,228 747
Contributions - 351
Benefits paid (532) (448)
Fair value of plan assets, end
of year $ 9,515 8,819
The following is a reconciliation of the funded status of the
plan as of December 31, 1998 and 1997, respectively:
(In thousands) 1998 1997
Pension benefit obligation
Accumulated benefit obligation $ 8,758 8,519
Additional benefits based on
estimated future salary levels - -
Projected benefit obligation 8,758 8,519
Fair value of plan assets 9,515 8,819
Funded status 757 300
Unrecognized net gain (261) (4)
Prepaid pension cost $ 496 296
The following is a reconciliation of net periodic pension
(benefit) cost for the years ended December 31, 1998, 1997 and
1996:
(In thousands) 1998 1997 1996
Service cost $ - - 211
Interest cost 569 557 597
Expected return on plan assets (768) (746) (714)
Net amortization and deferral - - 2
Net periodic pension (benefit) cost $ (199) (189) 96
Actuarial assumptions used to account for the plan include the
following:
1998 1997 1996
Discount rate 6.75% 6.75% 7.00%
Expected long-term rate of return 9.00% 9.00% 9.00%
Rate of increase in compensation levels NA NA 5.00%
THRIFT INCENTIVE SAVINGS PLAN
The Bank maintains a 401(k) thrift incentive savings plan which
provides for employee contributions on a pre-tax basis up to a
maximum of 16% of total compensation, with matching contributions
to be made by the Bank equal to 25% of employee contributions,
not to exceed employee contributions greater than 6% of total
compensation. The Bank matched employee contributions which
totaled $234,000 and $199,000 for the years ended December 31,
1998 and 1997, and $120,000 for the period July 1, 1996
(resumption of employer match) to December 31,1996.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1996, the Bank implemented a non-qualified supplemental
executive retirement plan ("SERP") for the President and Chief
Executive Officer. This plan provides supplemental benefits for
the President and Chief Executive Officer equal to the benefits
he would have received under the Bank's Retirement Plan, 401(k)
Plan and ESOP, had the federal income tax law limitations on the
accrual of benefits under these plans not been applicable. The
SERP is an unfunded plan. During 1998, 1997 and 1996, the Bank
accrued $180,000, $50,000 and $132,000, respectively, for the
SERP. At January 1, 1998 and 1997, the accumulated benefit
obligation was $332,000 and $245,000, respectively. At January 1,
1998 and 1997, the projected benefit obligation of the plan was
$1,320,000 and $1,233,000, respectively.
The Bank also maintains a non-qualified defined benefit SERP for
the former Chairman of the Board. The SERP is an unfunded plan.
The SERP provides for an annual retirement benefit of $120,000
for 10 years after retirement which occurred in 1995. The SERP
also provides for a lump sum benefit of $1.2 million payable to
the estate of the former Chairman of the Board in the event of
his death prior to retirement, or in the event of a hostile
change in control after retirement but prior to the payment of
the entire benefit; any unpaid benefit shall be paid in a lump
sum. The Company had accrued the entire $1.2 million liability
under the unfunded plan through December 31, 1995.
POST-RETIREMENT LIFE INSURANCE BENEFITS
The Company provides life insurance coverage to retirees under an
unfunded plan. Life insurance coverage in the first year of
retirement is equal to three times annual pay at retirement,
reduced by 10% (the "reduction amount"). For the next four
consecutive years, life insurance coverage will be reduced each
year by the reduction amount. The maximum benefit will be $50,000
on the earlier of: a) the fifth anniversary of retirement; or b)
attaining age 70.
The following are disclosures related to the Company's post-
retirement plan as provided by the Plan's actuary in accordance
with SFAS No.s 106 and 132.
The following is a reconciliation of the accumulated post-
retirement benefit obligation ("APBO") for the years ended
December 31, 1998 and 1997:
(In thousands) 1998 1997
APBO, beginning of year $ 1,268 852
Service cost 63 55
Interest cost 85 77
Actuarial loss 38 293
Benefits paid (9) (9)
APBO, end of year $ 1,445 1,268
The following is a reconciliation of the funded status of the
plan as of December 31, 1998 and 1997, respectively:
(In thousands) 1998 1997
APBO - Retirees and dependents $ 632 598
APBO - Actives fully eligible to retire 278 251
APBO - Actives not yet fully eligible
to retire 535 419
Projected benefit obligation 1,445 1,268
Fair value of plan assets - -
Funded status (1,445) (1,268)
Unrecognized transition liability 278 303
Unrecognized net loss 563 555
Unrecognized prior service cost (78) (88)
Accrued post-retirement benefit liability $ (682) (498)
The following is a reconciliation of net periodic post-retirement
benefit cost for the years ended December 31, 1998, 1997 and
1996:
(In thousands) 1998 1997 1996
Service cost $ 63 55 29
Interest cost 85 77 59
Amortization of transition obligation 25 25 25
Amortization of unrecognized gain or loss 31 28 9
Amortization of unrecognized prior service
liability (10) (4) -
Net periodic post-retirement cost $ 194 181 122
Actuarial assumptions used to account for the plan include the
following:
1998 1997 1996
Discount rate 6.50% 6.75% 7.50%
Rate of increase in compensation
levels 4.50% 4.50% 5.00%
14. STOCK PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Bank established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the Conversion. The
ESOP borrowed $3.5 million from an unrelated third party lender
and purchased 694,312 common shares issued in the Conversion. The
Bank is expected to make scheduled cash contributions to the ESOP
sufficient to service the amount borrowed over a period not to
exceed 10 years. The unpaid balance of the ESOP loan is included
in borrowed funds and the unamortized balance of unearned
compensation is shown as unallocated common stock held by the
ESOP reflected as a reduction of stockholders' equity. As of
December 31, 1998, total contributions to the ESOP which were
used to fund principal and interest payments on the ESOP debt
totaled approximately $2,967,000. At December 31, 1998, the loan
had an outstanding balance of $1,472,000 and an interest rate of
7.06%. The loan, as amended on December 29, 1995, is payable in
thirty-two equal quarterly installments beginning December 1995
and ending September 2003. The loan bears interest at a floating
rate based on the federal funds rate plus 250 basis points.
Dividends declared on common stock held by the ESOP which have
been allocated to the account of a participant are allocated to
the account of such participant. Dividends declared on common
stock held by the ESOP and not allocated to the account of a
participant are used to repay the ESOP loan. The Company recorded
$922,000, $1,184,000 and $983,000 of ESOP expense for the years
ended December 31, 1998, 1997 and 1996, respectively. For the
years ended December 31, 1998, 1997 and 1996, ESOP expense was
based on the fair market value of the shares allocated in
accordance with the AICPA SOP 93-6. At December 31, 1998, there
were 305,810 shares remaining for future allocation, of which
61,445 shares will be allocated for the 1998 year in the first
quarter of 1999.
RECOGNITION AND RETENTION PLANS
The Bank has established several Recognition and Retention Plans
("RRPs") which purchased in the aggregate 297,562 shares of
common stock in the Conversion. The Bank contributed $1.5 million
to fund the purchase of the RRP shares. In 1995, the RRP for
officers and other key employees was amended to increase the
number of shares of common stock which may be granted by 19,836
shares and such shares were contributed to the RRP from treasury
stock. During 1996, the remaining previously unallocated shares
totaling 17,202 were awarded to directors and officers. In 1997,
the RRP for directors was amended to increase the number of
shares of common stock which may be granted by 9,916 shares and
such shares were contributed to the RRP from treasury stock. The
fair market value of these shares at the dates of the awards will
be amortized as compensation expense as participants become
vested. Participants generally become vested over a three or
five year period beginning on the date of the award. The
unamortized cost, which is comparable to deferred compensation,
is reflected as a reduction of stockholders' equity. For the
years ended December 31, 1998, 1997 and 1996, respectively,
$200,000, $168,000 and $409,000 of expense has been recognized.
STOCK OPTION AND INCENTIVE PLANS
In 1993, the Holding Company adopted stock option plans for the
benefit of directors (the "1993 Directors Plan") and for officers
and other key employees (the "1993 Stock Plan") of the Bank. The
number of shares of common stock reserved for issuance under the
stock option plans was equal to 10% of the total number of shares
of common stock issued pursuant to the Bank's Conversion to the
stock form of ownership. In 1995, the 1993 Stock Plan was amended
to increase the number of shares for which stock options may be
granted by 69,430 shares. All options awarded to employees vest
over a three year period beginning one year from the date of
grant. The option exercise price cannot be less than the fair
market value of the underlying common stock as of the date of the
option grant, and the maximum option term cannot exceed ten
years. The stock options awarded to directors become exercisable
one year from the date of grant. In 1996, the remaining 11,770
options were granted from the 1993 Stock Plan and the remaining
37,204 options were granted from the 1993 Directors Plan. In
1997, the 1993 Directors Plan was amended to increase the number
of shares for which stock options may be granted by 29,754
shares. None of these shares have been granted as of December
31, 1998.
In 1996, the Holding Company adopted the 1996 Stock Incentive
Plan which provided 420,000 shares for the grant of options and
restricted stock awards. On April 24, 1996, an aggregate of 3,952
shares of restricted stock were granted to directors which vested
six months from the date of grant and an aggregate of 55,978
shares were granted to officers and employees on May 23, 1996,
which vest over a three year period beginning one year from the
date of grant. In addition, an aggregate of 232 shares were
granted to two new directors on October 1, 1996 which vested on
December 31, 1996. In 1997, an aggregate of 3,648 shares of
restricted stock were granted to directors which vested six
months from the date of grant and an aggregate of 5,340 shares
were granted to officers and employees which vest over a three
year period beginning one year from the date of grant. In 1998,
an aggregate of 14,384 shares were granted to officers and
employees which vest over a three-year period beginning one year
from the date of grant. Such shares were recorded as unearned
compensation at their fair market value on the date of the award
(which is reflected as a reduction of stockholders' equity), to
be amortized to expense over the vesting period. During 1998,
1997 and 1996, an aggregate of 134,200, 34,100 and 321,600
options, respectively, were granted to directors and officers
under the 1996 Stock Incentive Plan, which vest over a three year
period beginning one year from the date of grant. In 1997,
effective upon shareholder approval, the 1996 Stock Incentive
Plan was amended to increase the number of shares for which
options and restricted stock awards may be granted by 41,998
shares.
The following table summarizes certain information regarding the
stock option plans:
Number of shares of
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
Balance outstanding at December 31, 1995 252,236 448,332 260,358 5.42
Granted 182,470 38,900 149,204 12.92
Forfeited - - - -
Exercised (18,812) - - 5.00
Balance outstanding at December 31, 1996 415,894 487,232 409,562 7.54
Granted 14,100 - 20,000 17.09
Forfeited - - (12,000) 12.14
Exercised (16,594) - (98,388) 6.61
Balance outstanding at December 31, 1997 413,400 487,232 319,174 7.90
Granted 134,200 - - 22.91
Forfeited - - - -
Exercised (23,414) - (37,194) 8.01
Balance outstanding at December 31, 1998 524,186 487,232 281,980 9.44
Shares exercisable at December 31, 1998 327,672 487,232 217,943 7.12
The fair value of each share grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998,
1997 and 1996, respectively: dividend yield of 2.14% in 1998,
1.45% in 1997 and 1.93% in 1996; expected volatility rates of
28.05% to 39.24% in 1998, 26.95% in 1997 and 16.85% in 1996;
risk-free interest rates of 4.59% in 1998, 5.68% to 5.81% in 1997
and 6.38% in 1996; and expected lives of 3 years for the 1993
Stock Plan, 8 years for the 1993 Directors Plan, 3 years for
grants to officers and employees under the 1996 Stock Incentive
Plan and 8 years for grants to directors under that plan.
Had compensation cost for the Company's three stock-based
compensation plans been determined consistent with SFAS No. 123,
the Company's net income and net income per common share would
have been reduced to the pro forma amounts indicated below for
the years ended December 31:
(In thousands, except per share data) 1998 1997 1996
Net income: As reported $ 8,150 11,083 9,425
Pro forma 7,560 10,557 9,135
Net income per common share:
Basic As reported $ 0.95 1.32 1.13
Pro forma 0.88 1.25 1.10
Diluted As reported $ 0.89 1.24 1.08
Pro forma 0.83 1.18 1.05
15. EARNINGS PER SHARE
The computation of basic and diluted EPS for the years ended
December 31, are presented in the following table.
<CAPTION
(Dollars in thousands, except
share data) 1998 1997 1996
Numerator for basic and diluted
earnings per share-net income $ 8,150 $ 11,083 $ 9,425
Denominator for basic earnings per
share-weighted average shares 8,596,884 8,420,321 8,310,178
Effect of dilutive options 561,919 493,437 378,502
Denominator for diluted earnings
per share " weighted-average
number of common shares and
dilutive potential common shares 9,158,803 8,913,758 8,688,680
Basic earnings per share $0.95 $1.32 $1.13
Diluted earnings per share $0.89 $1.24 $1.08
16. COMMITMENTS and CONTINGENCIES
LEASE COMMITMENTS
At December 31, 1998, the Company was obligated under several
noncancelable operating leases on property used for office space
and banking purposes. Several of the leases contain escalation
clauses which provide for increased rentals, primarily based upon
increases in real estate taxes. Rent expense under these leases
was approximately $4,168,000 , $1,742,000 and $404,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The
projected minimum rental payments under the terms of the
noncancelable leases at December 31, 1998 are as follows:
Years ending December 31,
(In thousands)
1999 $ 5,018
2000 4,982
2001 4,308
2002 4,163
2003 2,404
Thereafter 1,062
$21,937
In September 1996, the Bank entered into an agreement to open
approximately 44 full-service bank branches in Pathmark
supermarkets throughout New York City, Long Island, Westchester
and Rockland counties by mid-1998. In September 1997, the Bank
announced that it had entered into licensing agreements with
ShopRite Stores under which it will have the right to open in-
store branches in all new or renovated ShopRite supermarkets in
New Jersey and Connecticut. Fifty-seven supermarket branches have
opened through December 31, 1998, and the leases related thereto
are reflected in the table above.
Under the IDA and PILOT agreements discussed in note 8, the Bank
assigned the building and land at its Westbury headquarters to
the IDA, is subleasing it for $1 per year for a 10 year period
and will repurchase the building for $1 upon expiration of the
lease term in exchange for IDA financial assistance.
LOAN COMMITMENTS
The Company had outstanding commitments totaling $164.6 million
to originate loans at December 31, 1998, of which $61.3 million
were fixed-rate loans and $103.3 million were variable rate
loans. For fixed-rate loan commitments at December 31, 1998, the
interest rates on mortgage loans ranged from 6.13 % to 10.25 %.
The standard commitment term for these loans is 45 days. For
other consumer fixed-rate loan commitments, interest rates ranged
from 7.00% to 9.75% with the standard term of the commitment of
30 days. Loan commitments are made at current rates and no
material difference exists between book and market values of such
commitments.
For commitments to originate loans, the Company's maximum
exposure to credit risk is represented by the contractual amount
of those instruments. Those commitments represent ultimate
exposure to credit risk only to the extent that they are
subsequently drawn upon by customers. The Company uses the same
credit policies and underwriting standards in making loan
commitments as it does for on-balance-sheet instruments. For loan
commitments, the Company would generally be exposed to interest
rate risk from the time a commitment is issued with a defined
contractual interest rate.
The Company delivers, primarily fixed-rate, one- to four-family
mortgage loans to investors in the secondary market under "best
efforts" commitments. Loans to be sold are generally committed
at the time the borrower's mortgage interest rate is "locked-in".
At December 31, 1998, the Company had $45.3 million of "locked-
in" fixed rate one- to four-family mortgage loans. The best
efforts commitment term is generally 70 days from the "lock-in"
date.
In connection with the securitization and sale of $48.6 million
of cooperative apartment loans in 1994, a letter of credit
totaling $6.8 million was established with the FHLB. The letter
of credit provides a level of protection of approximately 14% to
the buyer against losses on the cooperative apartment loans sold
behind a pool insurance policy the Bank purchased which provides
a level of protection of approximately 20%. The letter of credit
totalled $6.8 million at December 31, 1998.
INTEREST RATE CAPS
During the year ended December 31, 1995, the Company, in order to
hedge a portion of the borrowings to fund a $75 million leverage
transaction, purchased an interest rate cap on a $25.0 million
notional principal amount on which it received a payment, based
on the notional principal amount, equal to the three month LIBOR
rate in excess of 8% on any reset date for a three year period,
which ended on September 30,1998. The premium paid for the cap,
$133,000, was carried in other assets and was fully amortized to
interest expense over the term of the contract. At December 31,
1997 and 1996, the three month LIBOR was 5.81% and 5.56%,
respectively. Interest expense on borrowed funds was increased
by approximately $34,000, $44,000 and $44,000 during the years
ended December 31, 1998, 1997 and 1996, respectively, as a result
of this agreement.
LITIGATION AND LOSS CONTINGENCY
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
1998, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 of unspecified damages. The Bank's ultimate
liability, if any, which might arise from the disposition of
these claims cannot presently be determined. Management believes
it has meritorious defenses against these actions and has and
will continue to defend its position. Accordingly, no provision
for any liability that may result upon adjudication has been
recognized in the accompanying consolidated financial statements.
The Company is involved in various legal actions arising in the
ordinary course of business, which in the aggregate, are believed
by management to be immaterial to the financial position of the
Company.
17. STOCKHOLDERS' EQUITY
At the time of its conversion to a stock savings bank, the Bank
established a liquidation account in an amount equal to its total
retained earnings as of June 30, 1993. The liquidation account
will be maintained for the benefit of eligible account holders
who continue to maintain their accounts at the Bank, after the
conversion. The liquidation account will be reduced annually to
the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder
will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The balance of the
liquidation account was approximately $15.0 million at December
31, 1998.
Subsequent to the conversion, the Bank may not declare or pay
cash dividends on or repurchase any of its shares of common
stock, if the effect would cause stockholders' equity to be
reduced below the amount required for the liquidation account,
applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory
requirements. Office of Thrift Supervision ("OTS") regulations
provide that an institution that exceeds all fully phased-in
capital requirements, before and after a proposed capital
distribution could, after prior notice but without prior approval
of the OTS, make capital distributions during the calendar year
up to 100% of net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased- in capital
requirements) at the beginning of the calendar year period. Any
additional capital distributions would require prior regulatory
approval. Unlike the Bank, the Company is not subject to these
regulatory restrictions on the payment of dividends to its
stockholders. However, the source of future dividends may depend
upon dividends from the Bank.
STOCK SPLIT
The Company declared a 2-for-1 common stock split which was
distributed on November 28, 1997 in the form of a stock dividend
to holders of record as of October 23, 1997.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are
required to maintain regulatory capital in the form of a
"tangible capital requirement," a "core capital requirement,"
and a "risk- based capital requirement."
The Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
As of December 31, 1998, the Bank has been categorized as "well
capitalized" by the OTS under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the
institution's category. The following table sets forth the
required ratios and amounts, and the Bank's actual capital
amounts, and ratios at December 31:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Ratio(3) Amount Ratio Amount Ratio
1998
Tangible Capital $130,597 5.43% $ 48,087 2.00% N/A N/A
Core Capital (1) 130,597 5.43 96,173 4.00 $120,216 5.00%
Risk-based Capital (2) 144,104 11.96 96,404 8.00 120,505 10.00
1997
Tangible Capital $125,573 6.42% $ 29,333 1.50% N/A N/A
Core Capital (1) 125,573 6.42 58,667 3.00 $ 97,778 5.00%
Risk-based Capital (2) 136,860 14.04 77,964 8.00 97,455 10.00
(1) Under the OTS's prompt corrective action regulations, the
core capital requirement was effectively increased to 4.00% since
OTS regulations stipulate that as of that date an institution
with less than 4.00% core capital will be deemed to be classified
as "undercapitalized."
(2) The OTS adopted a final regulation which incorporates an
interest rate risk component into its existing risk-based
capital standard. The regulation requires certain institutions
with more than a "normal level" of interest rate risk to maintain
capital in addition to the 8.0% risk-based capital requirement.
The Bank does not anticipate that its risk-based capital
requirement will be materially affected as a result of the new
regulation.
(3) For tangible and core capital, the ratio is to adjusted
total assets. For risk-based capital, the ratio is to total risk-
weighted assets.
STOCKHOLDER RIGHTS PLAN
On January 26, 1996, the Board of Directors of the Holding
Company adopted a Stockholder Rights Plan (the "Rights Plan").
Under the Rights Plan, which expires in February, 2006, the Board
declared a dividend of one right on each outstanding share of the
Holding Company's common stock, which was paid on February 5,
1996 to stockholders of record on that date (the "Rights"). Until
it is announced that a person or group has acquired 10% or more
of the outstanding common stock of the Holding Company (an
"Acquiring Person") or has commenced a tender offer that could
result in their owning 10% or more of such common stock, the
Rights are initially redeemable for $.01 each, are evidenced
solely by the Holding Company's common stock certificates,
automatically trade with the Holding Company's common stock and
are not exercisable. Following any such announcement, separate
Rights would be distributed, with each Right entitling its owner
to purchase participating preferred stock of the Holding Company
having economic and voting terms similar to those of one share of
the Holding Company's common stock for an exercise price of $45.
Upon announcement that any person or group has become an
Acquiring Person and unless the Board acts to redeem the Rights,
then twenty business days thereafter (the "Flip-in Date"), each
Right (other than Rights beneficially owned by any Acquiring
Person or transferee thereof, which become void) will entitle the
holder to purchase, for the $45 exercise price, a number of
shares of the Holding Company's common stock having a market
value of $90. In addition, if after an Acquiring Person gains
control of the Board, the Holding Company is involved in a merger
or sells more than 50% of its assets or assets generating more
than 50% of its operating income or cash flow, or has entered
into an agreement to do any of the foregoing (or an Acquiring
Person is to receive different treatment than all other
stockholders), each Right will entitle its holder to purchase,
for the $45 exercise price, a number of shares of common stock of
the Acquiring Person having a market value of $90. If any person
or group acquires more than 50% of the outstanding common stock
of the Holding Company, the Board may, at its option, exchange
one share of such common stock for each Right. The Rights may
also be redeemed by the Board for $0.01 per Right prior to the
Flip-in Date.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments" requires the Company to disclose estimated fair
values for substantially all of its financial instruments. The
fair value of a financial instrument is the amount at which the
asset or obligation could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation
sale. Fair value estimates are made at a specific point in time
based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the entire holdings of a particular financial instrument. Because
no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet
financial instruments, without attempting to estimate the value
of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair
value estimates and have not been considered in many of the
estimates.
The following table summarizes the carrying values and estimated
fair values of the Company's on-balance-sheet financial
instruments at December 31:
1998 1997
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
Financial Assets:
Cash and cash equivalents $ 44,808 44,808 40,306 40,306
Securities available for sale 889,251 889,251 499,380 499,380
Loans held for sale 54,188 54,188 - -
Debt securities held to maturity - - 66,404 66,372
FHLB-NY stock 21,990 21,990 12,885 12,885
Mortgage-backed securities held to maturity - - 163,057 163,326
Loans receivable, net 1,296,702 1,313,057 1,138,253 1,152,100
Accrued interest receivable 12,108 12,108 12,429 12,429
Financial Liabilities:
Deposits 1,722,710 1,727,676 1,365,012 1,368,782
Borrowed funds 440,346 446,813 466,794 467,565
Due to broker 97,458 97,458 10,000 10,000
Accrued interest payable 1,670 1,670 1,645 1,645
The methods and significant assumptions used to estimate fair
values for different categories of financial instruments are as
follows:
Cash and cash equivalents - The estimated fair values of cash and
cash equivalents are assumed to equal the carrying values as
these financial instruments are either due on demand or mature
within 90 days.
Securities available for sale, Debt Securities and Mortgage-
Backed Securities Held to Maturity - Estimated fair value for
substantially all of the Company's bonds, notes and equity
securities, both available for sale and held to maturity are
based on market quotes as provided by an independent pricing
service. For MBSs, the Company obtains bids from broker dealers
to estimate fair value. For those occasional securities for which
a market price cannot be obtained, market prices of comparable
securities are used.
Loans held for sale - The estimated fair value is based on
current prices established in the secondary market.
FHLB-NY stock - The estimated fair value of the Company's
investment in FHLB-NY stock is deemed to be equal to its carrying
value which represents the price at which it may be redeemed.
Residential loans - Residential loans include one-to four-family
mortgages and individual cooperative apartment loans. Estimated
fair value is based on discounted cash flow analysis. The
residential loan portfolio is segmented by loan type (fixed
conventional, adjustable products, etc.) with weighted average
coupon rate, remaining term, and other pertinent information for
each segment. A discount rate is determined based on the U.S.
Treasury yield curve plus a pricing spread. The discount rate for
fixed rate products is based on the FNMA yield curve plus a
pricing spread. Expected principal prepayments, consistent with
empirical evidence and management's future expectations, are used
to modify the future cash flows. For potential problem loans, the
present value result is separately adjusted downward consistent
with management's assumptions in evaluating the adequacy of the
allowance for loan losses.
Commercial real estate and other loans - Estimated fair value is
based on discounted cash flow analysis which take into account
the contractual coupon rate and maturity date of each loan. A
discount rate is determined based on the U.S. Treasury yield
curve, the prime rate or LIBOR plus a pricing spread, depending
on the index to which the product is tied. For potential problem
loans, the present value result is separately adjusted downward
consistent with management's assumptions regarding the value of
any collateral underlying the loans.
Deposits - Certificates of deposit are valued by performing a
discounted cash flow analysis of the remaining contractual
maturities of outstanding certificates. The discount rates used
are wholesale secondary market rates as of the valuation date.
For all other deposits, fair value is deemed to be equivalent to
the amount payable on demand as of the valuation date.
Borrowed funds - Borrowings are fair valued based on rates
available to the Company in either public or private markets for
debt with similar terms and remaining maturities.
Accrued interest receivable, accrued interest payable, and due to
broker - The fair values are estimated to equal the carrying
values of short-term receivables and payables, including accrued
interest, mortgage escrow funds and due to broker.
Off-balance sheet financial Instruments - The fair value of the
interest rate cap was obtained from dealer quotes and represents
the cost of terminating the agreement. The estimated fair value
of open off-balance sheet financial instruments results in an
unrealized loss of $31,000 at December 31, 1997.
The estimated fair value of commitments to extend credit is
estimated using the fees charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair
value also considers the difference between current levels of
interest rates and the committed interest rates. The estimated
fair value of these off-balance sheet financial instruments
resulted in no unrealized gain or loss at December 31, 1998 and
1997.
19. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of the Holding Company (parent
company only) are as follows:
Parent Company Condensed Statements of Financial Condition
<CAPTION
December 31,
(In thousands) 1998 1997
Assets:
Cash $ 10 656
Money market investments 1,720 4,561
Securities available for sale 2,569 4,123
Accrued interest receivable 71 42
Accrued income taxes receivable 3,755 3,781
Investment in net assets of Bank 137,217 128,522
Investment in net assets of other subsidiaries 2,073 790
Total assets 147,415 142,475
Liabilities:
Junior subordinated debt issued to Haven
Capital Trust I 25,774 25,774
Other liabilities, net 1,774 3,836
Total liabilities 27,548 29,610
Stockholders' equity:
Common stock 100 100
Additional paid-in capital 51,383 50,065
Retained earnings, substantially restricted 79,085 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available
for sale, net of tax effect 945 1,671
Treasury stock, at cost (9,800) (10,246)
Unallocated common stock held by ESOP (1,222) (1,529)
Unearned common stock held by RRPs (263) (364)
Unearned compensation (361) (399)
Total stockholders' equity 119,867 112,865
Total liabilities and stockholders' equity $147,415 142,475
Parent Company Only Condensed Statements of Operations
Years Ended December 31,
(In thousands) 1998 1997 1996
Dividend from Bank $2,500 - 2,000
Dividend from Trust 81 72 -
Interest income 345 514 178
Interest expense (2,697) (2,389) -
Other operating expenses, net (1,148) (935) (961)
(Loss) income before income tax
benefit and equity in undistributed
net income of Bank (919) (2,738) 1,217
Income tax benefit (1,403) (1,277) (360)
Net income (loss) before equity in
undistributed net income of Bank 484 (1,461) 1,577
Equity in undistributed net income of Bank 7,666 12,544 7,848
Net income $8,150 11,083 9,425
Parent Company Only Condensed Statements of Cash Flows
Years Ended December 31,
(In thousands) 1998 1997 1996
Operating activities:
Net income $ 8,150 11,083 9,425
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in undistributed net income of the Bank (7,666) (12,544) (7,848)
Gain on sale of interest earning assets (109) - -
(Increase) decrease in accrued interest receivable (29) (40) 23
Decrease (increase) in accrued income tax receivable 26 (3,422) (175)
(Decrease) increase in other liabilities (1,878) 3,189 219
Net cash (used in) provided by operating activities (1,506) (1,734) 1,644
Investing activities:
Purchases of securities available for sale (2,135) (4,095) -
Proceeds from sales of securities available for sale 3,704 - -
Additional investment in the Bank - (14,007) -
Investment in net assets of other subsidiaries (1,283) - -
Net cash provided by (used) in investing activities 286 (18,102) -
Financing activities:
Proceeds from issuance of debt - 24,984 -
Purchase of treasury stock - - (5,516)
Payment of common stock dividends (2,627) (2,598) (2,475)
Exercise of stock options 360 760 95
Net cash (used in) provided by financing activities (2,267) 23,146 (7,896)
Net (decrease) increase in cash (3,487) 3,310 (6,252)
Cash at beginning of year 5,217 1,907 8,159
Cash at end of year $ 1,730 5,217 1,907
20. QUARTERLY FINANCIAL DATA (Unaudited)
The following table is a summary of financial data by quarter for
the years ended December 31, 1998 and 1997:
1998 1997
(Dollars in thousands, 1st 2nd 3rd 4th 1st 2nd 3rd 4th
except for share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Interest income $ 34,963 36,732 39,979 40,011 28,797 31,616 32,575 33,318
Interest expense 21,469 22,582 25,041 24,684 16,372 18,234 19,345 20,449
------- ------- ------- ------- ------- ------- ------- -------
Net interest income before
provision for loan losses 13,494 14,150 14,938 15,327 12,425 13,382 13,230 12,869
Provision for loan losses 670 650 670 675 700 750 700 600
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 12,824 13,500 14,268 14,652 11,725 12,632 12,530 12,269
Non-interest income 4,459 5,583 11,015 12,089 2,327 2,827 3,211 5,547
Non-interest expense 14,067 17,381 22,641 23,225 9,069 11,538 12,014 13,226
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax expense (benefit) 3,216 1,702 2,642 3,516 4,983 3,921 3,727 4,590
Income tax expense (benefit) 1,067 471 402 986 1,678 1,621 1,276 1,563
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 2,149 1,231 2,240 2,530 3,305 2,300 2,451 3,027
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share:
Basic $ 0.25 0.14 0.26 0.29 0.40 0.28 0.29 0.36
Diluted $ 0.24 0.13 0.24 0.28 0.38 0.26 0.27 0.34
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares outstanding: Basic 8,526,864 8,567,111 8,590,777 8,611,172 8,301,766 8,357,213 8,445,829 8,382,509
Diluted 9,129,745 9,247,139 9,207,719 9,014,489 8,770,901 8,816,488 8,960,366 8,973,295
Independent Auditors' report
The Board of Directors
Haven Bancorp, Inc.:
We have audited the accompanying consolidated statements of
financial condition of Haven Bancorp, Inc. (the "Company") as of
December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
January 28, 1999
Melville, New York
Directors and officers
Directors
Haven Bancorp, Inc. and CFS Bank
Philip S. Messina
Chairman of the Board, President and Chief Executive Officer
George S. Worgul
Former Chairman of the Board and Retired President of Haven
Bancorp, Inc. and CFS Bank
Robert M. Sprotte
President, Schmelz Bros., Inc.
President, RDR Realty Corp.
President, Three Rams Realty
Michael J. Fitzpatrick
C.P.A., Financial Consultant
Retired, former Vice President, National Thrift Director,
E.F. Hutton & Co.
William J. Jennings II
Consultant, Retired, former Managing Director, Salomon Smith
Barney, Inc.
Michael J. Levine
President, Norse Realty Group Inc. & Affiliates
Partner, Levine & Schmutter, CPAs
Msgr. Thomas J. Hartman
President and Chief Executive Officer of Radio and Television for
the Diocese of Rockville Centre for Telicare Television Studios
Executive Officers
Haven Bancorp, Inc. and CFS Bank
Philip S. Messina
Chairman of the Board, President and Chief Executive Officer
Gerard H. McGuirk
Executive Vice President, Chief Lending Officer
Thomas J. Seery
Executive Vice President, Operations
Catherine Califano
Senior Vice President, Chief Financial Officer
Mark A. Ricca
Senior Vice President, General Counsel and Secretary
Stockholder Information
Administrative Headquarters
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
(516) 683-4100
Annual Meeting
The annual meeting of stockholders will be held on Wednesday,
April 21, 1999 at 3:00 P.M., at the Corporate Headquarters of the
Company, 615 Merrick Avenue, Westbury, New York. A notice of the
meeting, a proxy statement and a proxy form are included with
this mailing to stockholders of record as of March 3, 1999.
Common Stock Information
Haven Bancorp common stock is traded on the Nasdaq National
Market under the symbol HAVN. The table below shows the reported
high and low sales prices of the common stock during the periods
indicated in 1998 and 1997. Such prices reflect the 2-for-1 stock
split effective November 1997.
1998 1997
High Low High Low
First Quarter 25 19 7/8 18 3/16 13 7/8
Second Quarter 28 3/4 24 3/4 19 1/8 15 1/4
Third Quarter 26 3/4 14 3/8 21 7/8 17 13/16
Fourth Quarter 17 5/8 10 3/8 23 19 1/8
As of March 3, 1999, the Company had approximately 428
stockholders of record, not including the number of persons or
entities holding stock in nominee or street name through various
brokers and banks. At December 31, 1998, there were 8,859,692
shares of common stock outstanding.
Transfer Agent and Registrar
Inquiries regarding stockholder administration and
services should be directed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
**World Wide Web Site: http://www.chasemellon.com
Independent Auditors
KPMG LLP
1305 Walt Whitman Road, Suite 200
Melville, NY 11747
Legal Counsel
Thacher Proffitt & Wood
Two World Trade Center
New York, NY 10048
Investor Relations
Inquiries regarding Haven Bancorp, Inc.
should be directed to:
Catherine Califano
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
(516) 683-4100
Annual Report on Form 10-K
A copy of the annual report on Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange
Commission, is available to stockholders (excluding exhibits) at
no charge, upon written requests to:
Investor Relations
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
** World Wide Web Site: http://www.cfsb.com
LOCATIONS
Administrative Headquarters
Haven Bancorp, Inc.
615 Merrick Avenue, Westbury, NY 11590
CFS Bank Locations
Woodhaven
93-22 Jamaica Avenue, Woodhaven, NY 11421
Forest Parkway
80-35 Jamaica Avenue, Woodhaven, NY 11421
Forest Hills
106-19 Continental Avenue, Forest Hills, NY 11375
Ozone Park
98-16 101st Avenue, Ozone Park, NY 11416
Howard Beach
82-10 153rd Avenue, Howard Beach, NY 11414
Rockaway
104-08 Rockaway Beach Boulevard, Rockaway, NY 11694
Bellerose
244-19 Braddock Avenue, Bellerose, NY 11426
Snug Harbor
343 Merrick Road, Amityville, NY 11701
CFS Bank Supermarket Branches
NEW YORK
ATLANTIC TERMINAL in Pathmark Supermarket
625 Atlantic Avenue and Fort Green Pl., Brooklyn, NY 11217
BALDWIN in Pathmark Supermarket
1764 Grand Avenue, Baldwin, NY 11510
BAYSHORE in Edwards Super Food Stores
533 Montauk Highway, Bayshore, NY 11706
BAYSHORE in ShopRite Supermarket
1905 Sunrise Hwy., Bayshore, NY 11706
BORO PARK in Pathmark Supermarket
1245 61st Street, Boro Park, NY 11219
BRENTWOOD in Pathmark Supermarket
101 Wicks Road, Brentwood, NY 11717
CENTEREACH in Pathmark Supermarket
2150 Middle Country Road, Centereach, NY 11746
COMMACK in Pathmark Supermarket
6070 Jericho Turnpike, Commack, NY 11725
EAST ISLIP in Edwards Super Food Stores
2650 Sunrise Highway, East Islip, NY 11730
EAST MEADOW in Pathmark Supermarket
1897 Front Street, East Meadow, NY 11554
EAST ROCKAWAY in Pathmark Supermarket
492 East Atlantic Ave., East Rockaway, NY 11518
GOWANUS in Pathmark Supermarket
1-37 12th St., Brooklyn, NY 11205
GREENVALE in Pathmark Supermarket
130 Wheatley Plaza, Greenvale, NY 11548
HAUPPAUGE in ShopRite Supermarket
335 Nesconset Highway, Hauppauge, NY 11788
HOLBROOK in Pathmark Supermarket
5801 Sunrise Highway, Sayville, NY 11741
ISLIP in Pathmark Supermarket
155 Islip Avenue, Islip, NY 11751
JERICHO in Pathmark Supermarket
360 North Broadway, Jericho, NY 11753
LEVITTOWN in Pathmark Supermarket
3535 Hempstead Turnpike, Levittown, NY 11756
LONG ISLAND CITY in Pathmark Supermarket
42-02 Northern Blvd., Long Island City, NY 11100
MASSAPEQUA in Grand-Union Mini-branch
941 Carmans Road, Massapequa, NY 11758
MEDFORD in Edwards Super Food Stores
700-60 Patchogue-Yaphank Road, Medford, NY 11763
MONSEY in Pathmark Supermarket
45 Route 59, Monsey, NY 10952
MT. VERNON in Pathmark Supermarket
1 Pathmark Plaza, East 2nd & 3rd Ave., Mount Vernon, NY 10550
NANUET in Pathmark Supermarket
195 Rockland Center, Route 59 East, Nanuet, NY 10954
NEW HYDE PARK in Pathmark Supermarket
2335 New Hyde Park Road, New Hyde Park, NY 11040
NORTH BABYLON in Pathmark Supermarket
1251 Deer Park Avenue, North Babylon, NY 11703
NORTH YONKERS in Pathmark Supermarket
2540 Central Park Avenue, North Yonkers, NY 10710
OZONE PARK in Pathmark Supermarket
92-10 Atlantic Avenue, Ozone Park, NY 11416
PATCHOGUE in Pathmark Supermarket
395 Route 112, Patchogue, NY 11772
PIKE SLIP in Pathmark Supermarket
227 Cherry Street, New York, NY 10002
PORT CHESTER in Pathmark Supermarket
130 Midland Avenue, Port Chester, NY 10573
PORT JEFFERSON in Pathmark Supermarket
5145 Nesconset Hwy., Port Jefferson, NY 11776
SHIRLEY in Pathmark Supermarket
800 Montauk Highway, Shirley, NY 11967
STATEN ISLAND in Pathmark Supermarket
1351 Forest Avenue, Staten Island, NY 10302
STATEN ISLAND in Pathmark Supermarket
2875 Richmond Avenue, Staten Island, NY 10306
STATEN ISLAND in ShopRite Supermarket
2424 Hylan Blvd, Staten Island, NY 10306
STARRETT CITY in Pathmark Supermarket
111-10 Flatlands Avenue, Brooklyn, NY 11207
UNIONDALE in ShopRite Supermarket
1121 Jerusalem Avenue, Uniondale, NY 11553
WEST BABYLON in Pathmark Supermarket
531 Montauk Highway, West Babylon, NY 11704
WEST BABYLON in Edwards Super Food Store
575 Montauk Highway, West Babylon, NY 11704
WHITESTONE in Pathmark Supermarket
31-06 Farrington Street, Whitestone, NY 11357
WOODMERE in Pathmark Supermarket
253-01 Rockaway Tpke., Woodmere, NY 11422
WOODBURY in Pathmark Supermarket
81-01 Jericho Turnpike, Woodbury, NY 11797
YONKERS in Pathmark Supermarket
1757 Central Park Avenue, Yonkers, NY 10710
New JERSEY
BOUND BROOK in ShopRite Supermarket
Route 28 & Union Avenue, Bound Brook, NJ 08805
BRICKTOWN in ShopRite Supermarket
Rt. 70 & Chambers Bridge Road, Bricktown, NJ 08723
HACKENSACK in ShopRite Supermarket
S. River St. & E. Main Moonachie Rd.,Hackensack, NJ 07601
HILLSIDE in Shoprite Supermarket
367 Highway 22 West, Hillside, NJ 07205
PALISADES PARK in ShopRite Supermarket
201 Roosevelt Place, Palisades Park, NJ 07650
WAYNE in ShopRite Supermarket
625 Hamburg Turnpike, Wayne, NJ 07470
WEST LONG BRANCH in ShopRite Supermarket
145 Highway 36, West Long Branch, NJ 07764
WEST MILFORD in ShopRite Supermarket
23 Marshall Hill Road, West Milford, NJ 07480
CONNECTICUT
ANSONIA In Big Y Supermarket
404 Main Street, Ansonia, CT 06401
BRIDGEPORT in Shaws Supermarket
500 Sylvan Avenue, Bridgeport, CT 06610
MERIDAN in ShopRite Supermarket
533 South Broad Street, Meridan, CT 06450
MILFORD in ShopRite Supermarket
157 Cherry Street, Milford, CT 06460
NEWTOWN in Big Y Supermarket
6 Queen Street, Newtown, CT 06470
WATERBURY in ShopRite Supermarket
650 Wolcott Street, Waterbury, CT 06705
WEST HAVEN in ShopRite Supermarket
1131 Campbell Avenue, West Haven, CT 06516
CFS INTERCOUNTY Mortgage LOCATIONS
Administrative Office
100 Wood Avenue South, Iselin, NJ 08830
New YORK
Albany
100 Great Oaks Blvd., Suite 105, Albany, NY 12203
*Armonk
200 Business Park Drive, Armonk, NY 10504
*Batavia
113 Main Street, Batavia, NY 14020
Mid-Hudson-Fishkill
300 Westage Business Center 4th Fl., Fishkill, NY 12524
Rochester
650 Clinton Square 6th Fl., Rochester, NY 14604
*Rome
310 E. Chestnut St., Rome, NY 13440
*Staten Island
260 Christopher Lane, Staten Island, NY 10314
Westbury
900 Ellison Avenue Ste 104 & 105, Westbury, NY 11590
NEW JERSEY
*Pennington Pointe
23 Route 31, Suite A 28, Pennington, NJ 08534
Woodbridge
MetroCenter One, 100 Wood Ave. S. 2nd Fl.,Iselin, NJ 08830
CONNECTICUT
*Wilton, Ct
396 Danbury Road, Wilton, CT 06897
PENNSYLVANIA
VIRGINA BUILDING
1250 Virgina Drive, Suite 150, Fort Washington, PA 19034
CFS INSURANCE LOCATIONS
Centereach
2100 Middle Country Road, Centereach, NY 11720
Holbrook
941 Main Street, Holbrook, NY 11741
HuntingtoN
850 East Jericho Turnpike, Huntington, NY 11743
EX-23
Exhibit 23.0
Consent of Independent Certified Public Accountants
The Stockholders and the
Board of Directors
Haven Bancorp, Inc.:
We consent to incorporation by reference in the Registration
Statement Nos. 333-79740, No. 333-85056, 333-07083 and No. 333-
20823 on Forms S-8 and the Registration Statement No. 333-21129 on
Form S-3 of Haven Bancorp, Inc. of our report dated January 28,
1999, relating to the consolidated statements of financial
condition of Haven Bancorp, Inc. as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998, which report is
incorporated by reference in the December 31, 1998 Annual Report on
Form 10-K of Haven Bancorp, Inc.
Melville, New York
March 30, 1999
EX-27
[ARTICLE] 9
[MULTIPLIER] 1,000
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[CASH] 43,088
[INT-BEARING-DEPOSITS] 1,552,665
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 889,251
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 1,310,680
[ALLOWANCE] 13,978
[TOTAL-ASSETS] 2,395,523
[DEPOSITS] 1,722,710
[SHORT-TERM] 127,890
[LIABILITIES-OTHER] 112,600
[LONG-TERM] 312,456
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 100
[OTHER-SE] 119,767
[TOTAL-LIABILITIES-AND-EQUITY] 2,395,523
[INTEREST-LOAN] 99,449
[INTEREST-INVEST] 52,236
[INTEREST-OTHER] 0
[INTEREST-TOTAL] 151,685
[INTEREST-DEPOSIT] 65,785
[INTEREST-EXPENSE] 93,776
[INTEREST-INCOME-NET] 57,909
[LOAN-LOSSES] 2,665
[SECURITIES-GAINS] 2,926
[EXPENSE-OTHER] 77,314
[INCOME-PRETAX] 11,076
[INCOME-PRE-EXTRAORDINARY] 11,076
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 8,150
[EPS-PRIMARY] 0.95
[EPS-DILUTED] 0.89
[YIELD-ACTUAL] 7.28
[LOANS-NON] 6,528
[LOANS-PAST] 0
[LOANS-TROUBLED] 1,857
[LOANS-PROBLEM] 14,260
[ALLOWANCE-OPEN] 12,528
[CHARGE-OFFS] 2,334
[RECOVERIES] 1,119
[ALLOWANCE-CLOSE] 13,978
[ALLOWANCE-DOMESTIC] 13,978
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
EX-99
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant X
-----
Filed by a Party other than the Registrant
-----
Check the appropriate box:
- ---- Preliminary Proxy Statement
- ---- Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
X Definitive Proxy Statement
- ----
X Definitive Additional Materials
- ----
- ---- Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Haven Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
- ----
- ---- Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
- ---- Fee paid previously with preliminary materials.
- ---- Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
HAVEN BANCORP, INC.
615 Merrick Avenue
Westbury, New York 11590
1-516-683-4100
March 17, 1999
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders (the "Annual Meeting") of Haven Bancorp, Inc. (the
"Company"), the holding company for CFS Bank (the "Bank"), which
will be held on April 21, 1999, at 3:00 p.m., at the Corporate
Headquarters of the Company located at 615 Merrick Avenue,
Westbury, New York.
The attached notice of the Annual Meeting and proxy statement
describe the formal business to be transacted at the meeting.
Directors and officers of the Company, as well as a representative
of KPMG LLP, the Company's independent auditors, will be present at
the meeting to respond to any questions our stockholders may have.
At the Annual Meeting, you will be asked to vote on the election of
two directors, each for a three-year term, and the ratification of
KPMG LLP as independent auditor. For the reasons set forth in the
proxy statement, the Board of Directors of the Company (the
"Board") unanimously recommends a vote "FOR" each matter to be
considered.
Please sign and return the enclosed proxy card promptly. Your
cooperation is appreciated since a majority of the Common Stock
must be represented, either in person or by proxy, to constitute a
quorum for the conduct of business. If you are a stockholder whose
shares are not registered in your own name, you will need
additional documentation from your recordholder to attend and to
vote personally at the Annual Meeting. Examples of such
documentation would include a broker's statement, letter or other
document that will confirm your ownership of shares of the Company.
On behalf of the Board and all of the employees of the Company and
the Bank, we wish to thank you for your continued support.
Sincerely yours,
Philip S. Messina
Chairman of the Board, President and
Chief Executive Officer
HAVEN BANCORP, INC.
615 Merrick Avenue
Westbury, New York 11590
516-683-4100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On April 21, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Haven Bancorp, Inc. (the "Company") will be
held on April 21, 1999, at 3:00 p.m., at the Corporate Headquarters
of the Company, 615 Merrick Avenue, Westbury, New York.
The Annual Meeting is for the purpose of considering and voting
upon the following matters:
1. The election of two directors for terms of three years each or
until their successors are elected and qualified;
2. The ratification of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999; and
3. Such other matters as may properly come before the Annual
Meeting or any adjournments thereof. The Company is not aware of
any such business.
The Board of Directors has established March 3, 1999 as the record
date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournments thereof.
Only recordholders of the common stock of the Company as of the
close of business on that date will be entitled to vote at the
Annual Meeting or any adjournments thereof. If there are not
sufficient votes for a quorum or to approve or ratify any of the
foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned to permit further solicitation of proxies
by the Company. A list of stockholders entitled to vote at the
Annual Meeting will be available at CFS Bank, 615 Merrick Avenue,
Westbury, New York, for a period of ten days prior to the Annual
Meeting and will also be available for inspection at the Annual
Meeting.
By Order of the Board of Directors,
Mark A. Ricca, Esq.
Secretary
Westbury, New York
March 17, 1999
HAVEN BANCORP, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
General
This proxy statement is being furnished to stockholders of Haven
Bancorp, Inc. (the "Company") in connection with the solicitation
by the Board of Directors of the Company (the "Board of Directors")
of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on April 21, 1999, at 3:00 p.m., at
the Corporate Headquarters of the Company, 615 Merrick Avenue,
Westbury, New York, and at any adjournments thereof. The 1998
Annual Report to Stockholders, including the consolidated financial
statements for the fiscal year ended December 31, 1998, accompanies
this proxy statement, which is first being mailed to recordholders
on or about March 22, 1999.
Regardless of the number of shares of common stock of the Company
("Common Stock") owned, it is important that recordholders of a
majority of the shares be represented by proxy or be present in
person at the Annual Meeting. Stockholders are requested to vote by
completing the enclosed proxy card and returning it signed and
dated in the enclosed postage-paid envelope. Stockholders are urged
to indicate their vote in the spaces provided on the proxy card.
Proxies solicited by the Board of Directors of the Company will be
voted in accordance with the directions given therein. Where no
instructions are indicated, signed proxies will be voted FOR the
election of each of the nominees for director named in this proxy,
and FOR the ratification of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a
proxy, however, confers on the designated proxyholders
discretionary authority to vote the shares in accordance with their
best judgment on such other business, if any, that may properly
come before the Annual Meeting or any adjournments thereof.
Record Date and Voting Securities
The securities which may be voted at the Annual Meeting consist of
shares of Common Stock of the Company, with each share entitling
its owner to one vote on all matters to be voted on at the Annual
Meeting except as described below. There is no cumulative voting
for the election of directors.
The Board of Directors has fixed the close of business on March 3,
1999 as the record date (the "Record Date") for the determination
of stockholders of record entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. The total number of
shares of Common Stock outstanding on the Record Date was 8,862,892
shares.
As provided in the Company's Certificate of Incorporation,
recordholders of Common Stock who beneficially own in excess of 10%
of the outstanding shares of Common Stock (the "Limit") are not
entitled to any vote with respect to the shares held in excess of
the Limit. A person or entity is deemed to beneficially own shares
owned by an affiliate of, as well as persons acting in concert
with, such person or entity. The Company's Certificate of
Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit,
including determining whether persons or entities are acting in
concert and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit supply
information to the Company to enable the Board to implement and
apply the Limit.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to
vote at the meeting (after subtracting any shares in excess of the
Limit pursuant to the Company's Certificate of Incorporation) is
necessary to constitute a quorum at the Annual Meeting.
Abstentions are considered in determining the presence of a quorum.
If there are not sufficient votes for a quorum or to approve or
ratify any proposal at the time of the Annual Meeting, the Annual
Meeting may be adjourned to permit the further solicitation of
proxies.
Vote Required
As to the election of directors, the proxy card being provided by
the Board of Directors enables a stockholder of record to vote
"FOR" the election of the nominees proposed by the Board, or to
"WITHHOLD AUTHORITY" to vote for one or more of the nominees being
proposed. Under Delaware law and the Company's Bylaws, directors
are elected by a plurality of votes cast, without regard to either
(i) broker non-votes or (ii) proxies as to which authority to vote
for one or more of the nominees being proposed is withheld.
As to the ratification of KPMG LLP as independent auditors of the
Company, the proxy card enables a stockholder, by checking the
appropriate box, to: (i) vote "FOR" the item; (ii) vote "AGAINST"
the item; or (iii) "ABSTAIN" from voting on such item. Under the
Company's Certificate of Incorporation and Bylaws, unless otherwise
required by law, the ratification of independent auditors of the
Company will require a majority of the votes cast. Accordingly,
shares as to which the "ABSTAIN" box has been selected on the proxy
card will be counted as votes cast and will have the effect of a
vote against such proposal. Shares underlying broker non-votes
will not be counted as votes cast and will have no effect on the
vote for such proposal.
Proxies solicited hereby will be returned to the Company's transfer
agent and will be tabulated by inspectors of election designated by
the Board of Directors, who will not be employed by, or be a
director of, the Company or any of its affiliates.
Revocability of Proxies
A proxy may be revoked at any time prior to its exercise by filing
a written notice of revocation with the Secretary of the Company,
delivering to the Company a duly executed proxy bearing a later
date or attending the Annual Meeting and voting in person if a
written revocation is filed with the Secretary of the Annual
Meeting prior to the voting of such proxy. A stockholder whose
shares are not registered in his or her own name will need
additional documentation from the recordholder to vote personally
at the Annual Meeting. Examples of such documentation would
include a broker's statement, letter or other document that will
confirm such ownership of shares of Common Stock of the Company.
Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed herewith
will be borne by the Company. In addition to the solicitation of
proxies by mail, Morrow & Co., Inc., a proxy solicitation firm,
will assist the Company in soliciting proxies for the Annual
Meeting and will be paid a fee currently estimated to be $4,500
plus out-of-pocket expenses. Proxies may also be solicited
personally or by telephone or telegraph by directors, officers and
regular employees of the Company and its wholly owned subsidiary,
CFS Bank (the "Bank"), without additional compensation. The Company
will also request persons, firms and corporations holding shares in
their names, or in the name of their nominees, which are
beneficially owned by others, to send proxy material to, and obtain
proxies from, such beneficial owners and will reimburse such
holders for their reasonable expenses in doing so.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as to those
persons or groups believed by management to be beneficial owners of
more than 5% of the Company's outstanding shares of Common Stock as
of the Record Date based upon certain reports regarding such
ownership filed with the Company and with the Securities and
Exchange Commission (the "SEC"), in accordance with Sections 13(d)
or 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") by such persons or groups. Other than those listed
below, the Company is not aware of any person or group that owns
more than 5% of the Company's Common Stock as of the Record Date.
Name and Address Amount and Nature of Percent of
Title of Class Of Beneficial Owner Beneficial Ownership Class (1)
Common Stock Columbia Federal Savings 664,116(2) 7.49%
Bank Employee Stock Ownership
Plan and Trust (the "ESOP")
615 Merrick Avenue
Westbury, NY 11590
Common Stock Citigroup Inc. 551,101(3) 6.22%
153 East 53rd Street
New York, NY 10043
Common Stock DePrince, Race & Zollo, Inc. 518,350(4) 5.85%
201 S. Orange Avenue, Suite 850
Orlando, FL 32801
Common Stock David L. Babson and Company 478,000(5) 5.39%
Incorporated
One Memorial Drive
Cambridge, MA 02142
Common Stock Dimensional Fund Advisors Inc. 449,500(6) 5.07%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
____________________
(1) As of the Record Date there were 8,862,892 shares of Common
Stock outstanding.
(2) The ESOP in connection with the conversion of CFS Bank from
mutual to stock form (the "Conversion") acquired shares of Common
Stock. A Committee of the Board of Directors has been appointed to
administer the ESOP (the "ESOP Committee"). The Chase Manhattan
Bank serves as the corporate trustee for the ESOP (the "ESOP
Trustee"). The ESOP Committee may instruct the ESOP Trustee
regarding the investment of funds contributed to the ESOP. The
ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees.
Based on information in a Schedule 13G dated February 12, 1999, the
ESOP Trust is the beneficial owner of 664,116 shares of Common
Stock, of which 358,306 shares have been allocated to participating
employees and the balance, 305,810 shares, remain unallocated.
Under the ESOP, unallocated shares held in the suspense account
will be voted by the ESOP Trustee in a manner calculated to most
accurately reflect the instructions received from participants
regarding the allocated shares of Common Stock so long as such vote
is in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(3) Based on information in a Schedule 13G, dated February 9,
1999, Citigroup Inc. is reporting on behalf of subsidiaries, which
individually qualify to file a Schedule 13G and whose individual
percentages of ownership do not exceed 5%. Accordingly, Citigroup
is the only entity whose indirect beneficial ownership on an
aggregate basis exceeds 5%.
(4) Based on information in a Schedule 13G, dated February 12,
1999, DePrince, Race & Zollo, Inc., an investment advisor
registered under Section 203 of the Investment Advisors Act of
1940, is deemed to be the beneficial owner of these shares of
Common Stock.
(5) Based on information in a Schedule 13G, dated February 9,
1999, David L. Babson and Company Incorporated, an investment
advisor registered under Section 203 of the Investment Advisors Act
of 1940, is deemed to be the beneficial owner of these shares of
Common Stock.
(6) Based on information in a Schedule 13G, dated February 11,
1999, Dimensional Fund Advisors Inc., an investment advisor
registered under Section 203 of the Investment Advisors Act of
1940, is deemed to be the beneficial owner of these shares of
Common Stock.
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1.
ELECTION OF DIRECTORS
Pursuant to its Bylaws, The number of directors of the Company is
currently set at seven (7) as designated by the Board of Directors
pursuant to the Company's Bylaws. Each of the seven members of the
Board of Directors of the Company also currently serves as a
director of the Bank. Directors are elected for staggered terms of
three years each, with a term of office of one of the three classes
of directors expiring each year. Directors serve until their
successors are elected and qualified.
The two nominees proposed for election at the Annual Meeting are
Messrs. Worgul and Levine. All nominees named are currently
directors of the Company and the Bank. No person being nominated
as a director is being proposed for election pursuant to any
agreement or understanding between any person and the Company.
In the event that any such nominee is unable to serve or declines
to serve for any reason, it is intended that proxies will be voted
for the election of the balance of those nominees named and for
such other persons as may be designated by the present Board of
Directors. The Board of Directors has no reason to believe that any
of the persons named will be unable or unwilling to serve. Unless
authority to vote for the directors is withheld, it is intended
that the shares represented by the enclosed proxy card, if executed
and returned, will be voted FOR the election of all nominees
proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with Respect to the Nominees, Continuing Directors and
Certain Executive Officers
The following table sets forth, as of the Record Date, the names of
the nominees, continuing directors and the four (4) most Senior
Executive Officers (the "Senior Executive Officers"), as well as
their ages; a brief description of their recent business
experience, including present occupations and employment; certain
directorships held by each; the year in which each became a
director of the Bank and the year in which their term (or in the
case of nominees, their proposed term) as director of the Company
expires. This table also sets forth the amount of Common Stock and
the percent thereof beneficially owned by each nominee, continuing
director and Senior Executive Officers and all directors and Senior
Executive Officers as a group as of the Record Date.
Shares of Ownership
Name and Principal Expiration Common Stock as Percent
Occupation at Present Director of Term as Beneficially of
and for Past Five Years Age Since(1) Director Owned(2) Class(3)
- ----------------------- --- -------- ---------- ------------ ----------
Nominees
George S. Worgul(4) 71 1983 2002 244,287(6)(7)(8) 2.54%
Former Chairman of the Board and
Retired President of the Company
and the Bank
Michael J. Levine 54 1996 2002 42,328(6)(7) *
President of Norse Realty Group,
Inc. and Affiliates, a real
estate owner and developer;
Partner in Levine and
Schmutter Certified Public
Accountants
Continuing Directors
Robert M. Sprotte 62 1974 2001 101,166(6)(7) 1.05%
President of Schmelz Bros., Inc.,
a plumbing contractor; President
of RDR Realty Corp., a real
estate holding company; President
of Three Rams Realty
Michael J. Fitzpatrick 60 1988 2001 73,166(6)(7) *
CPA, Retired, former Vice
President-National Thrift
Director at E.F. Hutton &
Company, Inc.; Director of Legal
Aid Society of Suffolk County
William J. Jennings II(5) 53 1996 2001 41,378(6)(7) *
Consultant, Retired, former
Managing Director ! Chief of
Staff to Chairman of
Salomon Smith Barney, Inc.
Philip S. Messina 55 1986 2000 288,554(8)(9) 3.00%
Chairman of the Board, President (10)(11)
and Chief Executive Officer of
the Company And the Bank;
Chairman of the Boards of
CFSB Funding, Corp., Columbia
Resources, Corp.; CFS
Investments, Inc. and Columbia
Preferred Capital Corp., all
subsidiaries of The Bank;
Chairman of the Board of CFS
Insurance Agency, Inc., a
subsidiary of the Company and the
Bank; Director and Chairman of
the Board of CFSB Funding, Inc.,
Columbia Resources, Inc., CFS
Investments, Inc. and Columbia
Preferred Capital Corporation,
all subsidiaries of the Bank
Msgr. Thomas J. Hartman 52 1997 2000 18,410(6)(7) *
President and Chief Executive
Officer of Radio and Television
for the Diocese of Rockville
Center for Telicare Television
Studios, a cable television station
Senior Executive Officers
Thomas J. Seery 54 -- -- 94,759(8)(9) *
Executive Vice President- (10)(11)
Operations of the Company and
Bank; Director of CFS
Investments, Inc., President and
Director of CFS Insurance Agency,
Inc.
Catherine Califano 40 -- -- 82,192(8)(9) *
Senior Vice President-Chief (11)
Financial Officer of the Company
and the Bank; Director of
Columbia Resources Corp.;
Director CFSB Funding, Corp.;
Administrative Trustee of Haven
Capital Trust I; Vice President
and Director of Columbia
Preferred Capital Corporation;
Director and Treasurer of CFS
Insurance Agency, Inc.
Gerard H. McGuirk 56 -- -- 82,327(8)(9) *
Executive Vice President-Chief (10)(11)
Lending Officer of the Company
and the Bank; President and
Director of Columbia Resources,
Corp.; President and Director of
Columbia Preferred Capital
Corporation
Mark A. Ricca 41 -- -- 5,500(8)(11) *
Senior Vice President-General
Counsel, Secretary and Chief
Compliance Officer of the Company
and the Bank; President and
Director of CFSB Funding Corp.;
Director of Columbia Resources,
Corp.; Administrative Trustee of
Haven Capital Trust I; Secretary
of Columbia Preferred Capital
Corporation; Secretary of CFS
Investments Inc.; Director and
Secretary of CFS Insurance
Agency, Inc.
All directors and Senior Executive
Officers of the Company
as a group (11 persons) -- -- -- 1,074,067(7)(8) 11.16%
(9)(10)(11)
*Does not exceed 1.0% of the Company's voting securities.
(Notes continued on next page)
(1) Includes years of service as director of the Bank, prior to the
organization of the Company on September 23, 1993.
(2) Each person or relative of such person whose shares are
included herein, exercises sole or shared voting or dispositive
power as to the shares reported.
(3) Percentages with respect to each person or group have been
calculated on the basis of 8,862,892 shares of Common Stock
outstanding as of the Record Date and 752,364 shares of Common
Stock which each such person or group of persons has the right to
acquire within 60 days of the Record Date.
(4) Mr. Worgul retired as President of the Company and the Bank on
June 30, 1994. He subsequently retired as Chairman of the Board of
the Company and the Bank on April 22, 1998.
(5) Mr. Jennings' wife is the first cousin of Mr. Messina.
(6) Includes 2,068, 2,068 and 2,755 shares of restricted stock
awarded to each of Messrs. Levine, Jennings and Msgr. Hartman under
the Columbia Federal Savings Bank Recognition and Retention Plan
for Outside Directors ("DRP"), as to which each individual has sole
voting power but no investment power. Also includes 395 shares of
restricted stock awarded to each of Messrs. Fitzpatrick, Sprotte,
Worgul, Levine, Jennings and Msgr. Hartman under the Haven Bancorp,
Inc. 1996 Stock Incentive Plan ("1996 Stock Incentive Plan"), as to
which each individual has sole voting power but no investment
power.
(7) Includes 37,194 shares subject to options granted to each of
Messrs. Sprotte and Fitzpatrick along with 18,602 shares subject to
options granted to each of Messrs. Levine and Jennings under the
Haven Bancorp, Inc. 1993 Stock Option Plan for Outside Directors
("Directors' Stock Option Plan") which are currently exercisable.
Also includes 12,000 shares subject to options granted to each of
Messrs. Worgul, Sprotte and Fitzpatrick, 5,332 shares subject to
options granted to each of Messrs. Levine and Jennings, also 13,332
shares subject to options granted to Msgr. Hartman pursuant to the
1996 Stock Incentive Plan, which may be acquired within 60 days of
the Record Date. Does not include 2,668, 2,668 and 6,668 shares
subject to options granted to each of Messrs. Levine, Jennings and
Msgr. Hartman under the 1996 Stock Incentive Plan which are not
currently exercisable.
(8) Includes 198,374, 189,948, 74,680, 55,168 and 62,606 shares
subject to options granted to Messrs. Worgul, Messina, Seery and
McGuirk and to Ms. Califano, respectively, pursuant to the Haven
Bancorp, Inc. 1993 Incentive Stock Option Plan ("1993 Incentive
Option Plan") and the 1996 Stock Incentive Plan, which may be
acquired within 60 days of the Record Date. Does not include
1,586, 586, 586 and 586 shares subject to options granted to
Messrs. Messina, Seery and McGuirk and Ms. Califano under the 1993
Incentive Option Plan which are not currently exercisable and will
not be exercisable within 60 days of the Record Date. Also not
included are 44,000, 14,500, 12,000, 51,000 and 13,000 options
granted to Messrs. Messina, Seery, McGuirk and Ricca and Ms.
Califano respectively, under the 1996 Stock Incentive Plan which
are not currently exercisable and will not be exercisable within 60
days of the Record Date.
(9) The figures shown include shares held in trust pursuant to the
ESOP that were owned as of December 31, 1998 to individual accounts
as follows: Mr. Messina, 10,129 shares; Mr. Seery, 8,029 shares;
Mr. McGuirk, 5,513 shares and Ms. Califano, 7,127 shares. Such
persons have sole voting power but no investment power, except in
limited circumstances, as to such shares. The figures shown do not
include 305,810 shares held in trust pursuant to the ESOP that have
not been allocated to any individual's account and as to which the
members of the Company's ESOP Committee (consisting of Messrs.
Worgul, Sprotte and Levine) may be deemed to share investment power
and as to which the named executive officers may be deemed to share
voting power, thereby causing each such member or executive officer
to be deemed a beneficial owner of such shares. Each of the
members of the ESOP Committee and the executive officers disclaims
beneficial ownership of such shares.
(10) The figures shown include shares held in the Employer Stock
Fund of the Bank's Employee 401(k) Thrift Incentive Savings Plan
("Employee Thrift Savings Plan") at December 31, 1998 as to which
each person identified has shared voting and investment power as
follows: Mr. Messina, 28,542 shares; Mr. Seery, 7,414 shares; and
Mr. McGuirk, 883 shares. The figures shown do not include 34,882
shares held in the Employer Stock Fund of the Employee Thrift
Savings Plan as to which the Senior Executive Officers have shared
voting power and investment power. Each of the Senior Executive
Officers disclaims beneficial ownership of such shares.
(11) Includes 1,602 shares awarded to Mr. Messina under the
Columbia Federal Savings Bank Recognition and Retention Plan for
Officers and Employees ("MRP") as to which he has sole voting power
but no investment power. Also includes 3,998 shares of restricted
stock awarded to Mr. Messina and 2,000 shares of restricted stock
awarded to each of Messrs. Seery and McGuirk and to Ms. Califano,
and 4,000 shares of restricted stock awarded to Mr. Ricca under the
1996 Stock Incentive Plan.
Meetings of the Board and Committees of the Board
The Board of Directors conducts its business through meetings of
the Board and through activities of its committees. The Board of
Directors meets monthly and may have additional meetings as needed.
During fiscal 1998, the Board of Directors of the Company held 12
regular board meetings and one special meeting. All of the
directors of the Company attended at least 75% in the aggregate of
the total number of the Company's board meetings held and committee
meetings on which such director served during fiscal 1998 except
for Mr. Robert L. Koop, who, for health reasons, was excused from
the majority of the meetings. Mr. Koop retired from the Board of
Directors on January 11, 1999, having served as a director of the
Bank for thirty-one years and as a director of the Company since
its incorporation. In addition, Mr. Joseph A. Ruggiere retired
from the Board of Directors effective January 28, 1999, having
served as a director of the Bank for twenty years and also as a
director of the Company since its incorporation. Upon the
retirements of Messrs. Koop and Ruggiere, the Bylaws of the Company
and Bank were amended reducing the number of directors from nine to
seven.
The Board of Directors of the Company maintains committees, the
nature and composition of which are described below:
The Audit Committee of the Company and the Bank for fiscal 1998
consisted of Messrs. Fitzpatrick, Ruggiere, Levine and Msgr.
Hartman. This Committee met four times in fiscal 1998 and
recommends an independent audit firm to be submitted for
stockholder approval at the Company's Annual Meeting, approves
internal audit schedules and reviews internal audit reports.
The Company's Nominating Committee for the 1999 Annual Meeting
consists of Msgr. Hartman and Messrs. Sprotte, Fitzpatrick and
Jennings. The Committee considers and recommends the nominees for
directors to stand for election at the Company's Annual Meeting.
The Company's Certificate of Incorporation and Bylaws also provide
for stockholder nominations of directors. These provisions require
such nominations to be made pursuant to timely notice in writing to
the Secretary of the Company. The stockholder's notice of
nomination must contain all information relating to the nominee who
is required to be disclosed by the Company's Bylaws and by the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Nominating Committee met once in preparation for the 1999
Annual Meeting.
The Compensation Committee for the Company and Bank consists of
Messrs. Sprotte, Worgul and Levine who will be responsible for the
1999 Compensation Committee Report on Executive Compensation. The
Compensation Committee is responsible for determining executive
compensation. In 1998, the Compensation Committee consisted of
Messrs. Sprotte, Koop, Worgul and Jennings. The Compensation
Committee met twice in 1998.
Directors' Compensation
Directors' Fees. In 1998, directors who were not employees of the
Company or the Bank received a retainer of $18,000 a year, one
third of which was paid in the form of restricted stock granted
pursuant to the 1996 Stock Incentive Plan. The directors who were
not employees of the Company or the Bank also received a fee of
$1,000 for each Board meeting attended. Mr. Worgul also received
a fee of $1,000 for each of the four Board meetings attended as
Chairman in 1998. Mr. Worgul retired as Chairman of the Board of
the Company and Bank on April 22, 1998. One third of these fees
were paid by the Company. Committee members who were not employees
of the Company or the Bank received a fee of $1,500 for each
regular and special meeting attended. The Chairman of each
Committee received an additional retainer of $1,500 per year.
Directors are also eligible for coverage under the Company's health
and dental insurance plans in the same manner as employees.
Directors' Stock Option Plan. Under the Haven Bancorp, Inc. 1993
Incentive Stock Option Plan for Outside Directors (the "Directors'
Stock Option Plan"), each outside director who was not an officer
of the Company or the Bank at the time of the Bank's Conversion was
granted options to purchase 37,194 shares of Common Stock at an
exercise price of $5.00 per share on the date of grant, September
23, 1993. All stock grants have been adjusted, where appropriate,
to reflect the two-for-one stock split distributed on November 28,
1997 to holders of record as of October 31, 1997. To the extent
options for shares are available for grant under the Directors'
Stock Option Plan, each subsequently appointed or elected outside
director will be granted options as of the date on which such
director is qualified and first begins to serve as an outside
director. Pursuant to the Directors' Stock Option Plan, effective
October 24, 1996, Messrs. Levine and Jennings were each granted
options to purchase 18,602 shares of common stock at an exercise
price of $13.41 per share, the fair market value on the date of
grant. All options granted under the Directors' Stock Option Plan
become exercisable one year after the date of grant. Upon death,
disability or retirement of the participant or upon a change in
control of the Company or the Bank, all options previously granted
would automatically become exercisable.
Haven Bancorp, Inc. 1996 Stock Incentive Plan. The Company's
stockholders approved the 1996 Stock Incentive Plan at the Annual
Meeting held April 24, 1996. On such date, each eligible outside
director was granted a non-qualified stock option to purchase
12,000 shares of Common Stock at an exercise price of $12.14 per
share. To the extent options for shares are available for grant
under the 1996 Stock Incentive Plan, each subsequently appointed or
elected outside director will be granted options as of the date on
which such outside director is qualified and first begins to serve
as an outside director. Effective October 24, 1996, Messrs. Levine
and Jennings were each granted non-qualified stock options to
purchase 8,000 shares of Common Stock at an exercise price of
$13.41 per share. Effective March 25, 1997, Msgr. Hartman was
granted non-qualified stock options to purchase 20,000 shares of
Common Stock at an exercise price of $17.28, the fair market value
on the date of grant. All options granted under the 1996 Stock
Incentive Plan are exercisable in three equal installments
beginning one year after the date of grant. Upon death, disability
or retirement of the participant or upon a change in control of the
Company or the Bank, all options previously granted would
automatically become exercisable.
Pursuant to the 1996 Stock Incentive Plan, effective as of January
1, 1996 and as of the first business day of each of the first four
calendar years beginning after the January 1, 1996 grant date
("Grant Date"), each eligible outside director will be granted a
number of shares of restricted stock in lieu of receiving one-third
of the annual retainer that would otherwise be paid in cash to such
eligible outside director for the calendar year in which the Grant
Date occurs. The number of shares of restricted stock to be
granted to an eligible outside director on each Grant Date shall be
equal to the dollar value of one-third of the eligible outside
director's annual retainer for the calendar year in which the Grant
Date occurs, divided by the fair market value of a share on the
effective date of the grant, disregarding any fractional shares
resulting from such calculation. Effective January 1, 1996, each
eligible outside director was granted 494 shares in lieu of cash.
Messrs. Levine and Jennings were subsequently granted 116 shares on
October 24, 1996. Effective January 1, 1997, each eligible outside
director was granted 420 shares, in lieu of cash, representing one-
third of such director's annual retainer for 1997. Msgr. Hartman,
after his election to the Board of Directors, was granted 288
shares in lieu of cash equal to one-third of his portion of the
annual retainer for 1997 pro rated for his commencement of service
on March 25, 1997. Effective January 1, 1998 and January 1, 1999
each eligible outside director was granted 263 and 395 shares,
respectively, in lieu of cash, representing one-third of such
director's annual retainer for that year, other than Mr. Ruggiere
who was granted 33 shares for 1999 prorated to reflect his service
as a director through January 27, 1999 and Mr. Koop who was not
granted any shares due to his retirement in early January 1999.
Directors' Recognition and Retention Plan. Under the Columbia
Federal Savings Bank Recognition and Retention Plan for Outside
Directors (the "DRP"), each of the six outside directors serving at
the time of the Conversion received awards of 12,398 shares. On
October 24, 1996, Messrs. Levine and Jennings were each awarded
6,200 shares. On March 25, 1997, Msgr. Hartman was awarded 4,132
shares. Awards to directors vest in three equal annual installments
commencing on the first anniversary of the effective date of the
award. Awards will be 100% vested upon termination of employment
or service as a director due to death, disability or retirement of
the director or following a change in the control of the Bank or
the Company. In the event that before reaching normal retirement,
a director terminates service with the Bank or the Company, other
than death or disability will forfeit the director's non-vested
awards. When shares become vested and are actually distributed in
accordance with the DRP, the recipients will also receive amounts
equal to any accrued dividends paid with respect to the shares.
Prior to vesting, recipients of awards may direct the voting of the
shares allocated to them. Shares not subject to an award will be
voted by the trustees of the DRP in proportion to the directions
provided with respect to shares subject to an award.
Consultation and Retirement Plan for Non-Employee Directors. Under
the Company's Consultation and Retirement Plan for Non-Employee
Directors (the "Directors' Retirement Plan"), a director who is not
an employee or officer of the Company may be eligible to
participate in the Directors' Retirement Plan. Any participant who
has served as a director for at least 60 months, has attained age
55 and, after retirement, executes a consulting agreement pursuant
to which the participant agrees to provide continuing service to
the Bank and Company, will be eligible to receive benefits under
the Directors' Retirement Plan. The annual retirement benefit paid
to a participant will be an amount equal to two-thirds of the sum,
measured as of the date of retirement, of (i) the amount of
retainer fees paid to directors including committee chairmanship
retainer fees for committees which the participant was chairperson,
(ii) the aggregate of the annual Board of Directors committee fees
paid to the director based on the number of meetings held by the
committees on which the participant served during the calendar year
preceding the participant's retirement and (iii) the aggregate of
the twelve regular meeting fees of the Board of Directors.
Executive Compensation
The report of the Compensation Committee and the stock performance
graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act, except to the extent that
the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Committee Report on Executive Compensation. Under
rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and
benefits provided to the Company's chief executive officer and
other executive officers of the Company. The disclosure
requirements for the chief executive officer and such other
executive officers include the use of tables and a report
explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment
of this requirement, the joint Compensation Committee of the
Company and Bank (the "Compensation Committee"), at the direction
of the Board of Directors, has prepared the following report for
inclusion in the proxy statement. The members of the 1998
Compensation Committee were Messrs. Sprotte, Koop, Worgul, and
Jennings.
The Compensation Committee of the Board of Directors of the Bank is
responsible for establishing the compensation levels and benefits
of executive officers of the Bank, who also serve as executive
officers of the Company, and for reviewing recommendations of
management for compensation and benefits for other officers of the
Bank. The Compensation Committee establishes compensation on a
calendar year basis. The Compensation Committee was responsible
for compensation decisions in 1998.
Compensation of the President and Other Executive Officers. The
compensation of the President and other executive officers consists
of salary, bonus, stock options, restricted stock awards, pension
and fringe benefits. During 1992, the Board of Directors on behalf
of the Compensation Committee engaged the services of KPMG LLP to
review the Bank's compensation practices (the "Salary Review
Program"). The focus of such program was to develop a salary
management program for officer positions and develop a management
incentive program for executive and senior officers. The Salary
Review Program established competitive salary ranges for executive
officers developed by reviewing market data as of July 1, 1992.
Subsequent thereto, the ranges were updated annually through
discussions with KPMG LLP to reflect remuneration data with respect
to thrift institutions of comparable size in the New York
metropolitan area. Base salary levels are generally within a range
consistent with and competitive with that of other institutions
that are similar to the Bank in asset size, function and
geographical markets. The institutions used to compare salaries
are not necessarily the same as those which make up the peer group
used in the Stock Performance Graph.
Executive compensation is based upon consideration of an
individual's performance and contribution to the viability of the
Company and the performance of the Company as a whole. On March 1,
1998, the Compensation Committee increased Mr. Messina's salary as
President and Chief Executive Officer from $475,000 to $600,000.
The Compensation Committee reasoned that such amount would
remunerate Mr. Messina within the range in the Company's Salary
Review Program, and within the market average base salary range of
area public thrifts with assets greater than $1 billion and less
than $5 billion. At a Compensation Committee meeting held in
February 1999, the Committee decided that the salary of the
President and Chief Executive Officer along with the salaries of
the other executive officers would remain unchanged for the 1999
fiscal year.
The Compensation Committee may authorize the payment of incentive
awards to executive management of the Company under a management
incentive program implemented during 1995. The program provides for
use of key financial factors and pre-defined levels of achievement
established by the Compensation Committee as the basis for
determining incentive awards. The Committee at its discretion may
consider the weight of each of the factors and may increase or
decrease the achievement levels for any year. Having reviewed the
Company's 1998 financial data, the Compensation Committee has
decided not to pay cash incentive awards to executive management in
1999 with respect to the 1998 fiscal year.
During the second quarter of 1996, the Board of Directors engaged
the services of KPMG LLP's Performance and Compensation Management
Division to evaluate, update and recommend changes to the Company's
compensation program. The 1996 Executive Compensation Review
Report contained a study of the Company's compensation practices
compared to a peer group of financial institutions in the New York
geographic area that are of similar size and nature of business.
This report focused upon base salaries, annual incentives, total
cash compensation, long term incentives and total compensation. In
addition, the study addressed the financial performance of the
Company compared to its peers, provided an analysis of stock
granted to executives at Conversion and conveyed KPMG LLP's
prospective recommendations for cash compensation, annual
incentives and long term grants. This study has since been used by
the Committee as the basis to evaluate and establish executive
compensation levels.
Stock options and stock awards made under the compensation plans
maintained by the Company serve as a long-term incentive by linking
executive compensation with the interests of the Company's
stockholders. Stock based compensation is designed to retain
employees and build loyalty while promoting stockholder value.
Stock options and restricted stock awards were granted to Mr.
Messina as well as to other officers at the time of the Bank's
Conversion to a publicly held company on September 23, 1993. The
Compensation Committee based such grants to executive officers on
practices of other financial institutions as verified by external
surveys as well as the executives' level of responsibilities,
seniority and past contribution to the Bank. The restricted stock
awards granted to Mr. Messina vested over three years at 33-1/3%
per year; vesting commenced on September 23, 1994, one year from
the date of grant. The stock options and restricted stock awards
granted to other executive officers were based on similar data and
factors as those used in determining appropriate levels of stock
options and restricted stock awards to be granted to Mr. Messina.
The restricted stock awards granted to other executive officers
vest over a five year period at a rate of 20% per year. For some
officers, vesting commenced on September 23, 1994 and for other
officers vesting commenced February 23, 1996, in each case, one
year from date of grant.
The Board of Directors, having thoroughly reviewed the
recommendation of KPMG LLP with respect to compensation matters,
granted stock options and restricted stock awards to Mr. Messina as
well as to other officers at a meeting held on May 23, 1996. These
restricted stock awards and stock options granted vest over three
years at a rate of 33-1/3% per year. The vesting of these awards
first commenced on May 23, 1997, one year from date of grant.
The grants and awards for the President and Chief Executive
Officer and the grants and awards for Named Executive Officers (as
defined below) are reflected in the Summary Compensation Table.
Compensation Committee:
1998
Robert M. Sprotte
William J. Jennings II
Robert L. Koop
George S. Worgul
Board of Directors:
1998
Michael J. Fitzpatrick Msgr. Thomas J. Hartman George S. Worgul
Robert M. Sprotte Philip S. Messina Michael J. Levine
William J. Jennings II Joseph A. Ruggiere Robert L. Koop
Stock Performance Graph. The following graph shows a comparison of
cumulative total stockholder return on the Company's Common Stock,
based on the market price of the Common Stock assuming reinvestment
of dividends, with the cumulative total return of companies in the
Nasdaq Stock Market and in the SNL Thrift Index for the period
beginning on December 31, 1993 through December 31, 1998.
Comparison of Cumulative Total Return Among Haven Bancorp, Inc.
Common Stock, Nasdaq U.S. Index and SNL Thrift Index
December 31, 1993 ! December 31, 1998
Haven Bancorp, Inc.
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Haven Bancorp, Inc. 100.00 102.90 185.08 228.92 365.70 247.64
NASDAQ (US) 100.00 97.75 138.26 170.01 208.58 293.21
Thrifts (All) 100.00 98.82 153.90 200.53 341.22 300.11
Notes:
A. The lines represent index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
C. If the interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on
12/31/93.
Summary Compensation Table. The following table sets forth the
compensation paid by the Company and/or Bank for services during
the fiscal years ended December 31, 1998, 1997 and 1996, to the
Chief Executive Officer and the four other highest paid executive
officers (the "Named Executive Officers") of the Company and/or the
Bank who each received total salary and bonus in excess of $100,000
in 1998.
<CAPTION)
Long Term Comppensation
Annual Compensation Awards Payouts
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($)(1) ($)(2) ($)(3)(4) (#)(5) ($)(6) ($)(7)
Philip S. Messina 1998 578,365 125,000 1,800 -- -- -- 39,370
President and Chief 1997 450,481 131,250 2,999 -- -- -- 32,317
Executive Officer 1996 369,230 75,000 1,800 240,450 61,754 -- 33,296
Joseph W. Rennhack(8) 1998 183,442 40,000 900 -- -- -- 39,302
Senior Vice President 1997 170,154 40,000 1,500 -- -- -- 32,214
and Secretary 1996 161,865 29,950 900 85,875 22,754 -- 35,536
Thomas J. Seery 1998 184,808 40,000 900 -- -- -- 38,763
Executive Vice President- 1997 151,607 33,750 1,500 -- -- -- 29,022
Operations 1996 134,654 20,060 900 85,875 22,754 -- 26,397
Gerard H. McGuirk 1998 186,539 40,000 750 -- -- -- 38,133
Executive Vice President 1997 164,823 38,750 1,500 -- -- -- 30,901
and Chief Lending Officer 1996 154,952 23,375 900 85,875 22,754 -- 31,238
Catherine Califano 1998 181,538 40,000 900 -- -- -- 38,538
Senior Vice President and 1997 159,519 37,500 1,500 -- -- -- 31,271
Chief Financial Officer 1996 150,721 20,625 900 85,875 22,754 -- 29,342
(1) Bonus shown for the years 1996 through 1998 consists of cash
payments made pursuant to Company's Executive Incentive
Compensation Plan awarded for the performance achievements of the
Named Executive Officers during the preceding fiscal year.
(2) The amounts listed for 1996 through 1998 are dividends received
on restricted stock granted under the 1996 Stock Incentive Plan
which are distributed when paid, even if prior to the vesting of
restricted stock.
(3) Pursuant to the Columbia Federal Savings Bank Recognition and
Retention Plan for Officers and Employees ("MRP"), an award of
4,802 shares of restricted stock was made to Mr. Messina on May 23,
1996, which award vests in three equal annual installments
commencing on May 23, 1997. When shares become vested and are
distributed, the recipient also receives an amount equal to
accumulated dividends and earnings thereon (if any). The dollar
amounts in the table for 1996 are based upon the closing market
price of $14.3125 per share of Common Stock on December 31, 1996,
as reported on the Nasdaq National Market System .
(4) Pursuant to the 1996 Stock Incentive Plan, Mr. Messina was
granted an award of 11,998 shares of restricted stock and each of
Messrs. Rennhack, Seery and McGuirk and Ms. Califano were granted
awards of 6,000 shares of restricted stock on May 23, 1996, which
awards vest in three annual installments commencing May 23, 1997.
The dollar amounts in the table for 1996 are based upon the closing
market price of $14.3125 per share of Common Stock on December 31,
1996, as reported on the Nasdaq National Market System.
(Notes continued on next page)
(5) Includes options awarded under the Company's 1993 Incentive
Option Plan and the 1996 Stock Incentive Plan. For a discussion of
the terms of the grants and vesting of options, see footnote
accompanying Fiscal Year End Option/SAR Values Table.
(6) The Company does not maintain long-term incentive plans, and
therefore, there were no payments under such plans for fiscal 1998,
1997, or 1996.
(7) Amounts represent life insurance premiums paid by the Bank with
respect to Messrs. Messina, Rennhack, Seery and McGuirk and Ms.
Califano. Amounts for 1998 include the dollar value of an
allocation of Common Stock made to the Named Executive Officer's
account under the ESOP during 1998, with respect to the plan year
ending December 31, 1997. Based on the closing market price of the
Common Stock on December 31, 1997 of $22.50 per share, the market
value of such allocation was $35,370, $35,302, $34,763, $34,133 and
$34,538 with respect to Messrs. Messina, Rennhack, Seery and
McGuirk and Ms. Califano. The allocations to be made under the ESOP
for the plan year ending December 31, 1998 have not yet been
determined. The matching contributions for 1996 for Messrs.
Messina, Rennhack, Seery and McGuirk and Ms. Califano were $1,260,
$2,386, $1,065, $2,364 and $2,441. The Employee Thrift Savings
Plan matching contributions for 1997 for Messrs. Messina, Rennhack,
Seery and McGuirk and Ms. Califano were $4,750, respectively. The
1998 matching contributions made for each Named Executive Officers
under the Employee Thrift Savings Plan totaled $2,500.
(8)Mr. Rennhack retired from the Company and the Bank on March 1,
1999. Effective as of this date, Mark A. Ricca, Esq., General
Counsel for the Company and the Bank was appointed to serve as the
Secretary and Compliance Officer of the Company and the Bank.
Employment Agreements The Company entered into an employment
agreement with Mr. Messina, effective as of September 21, 1995,
which was amended as of May 28, 1997 ("Company Employment
Agreement"). In addition, the Bank entered into an employment
agreement with Mr. Messina, effective as of May 28, 1997 ("Bank
Employment Agreement"). The Company Employment Agreement and the
Bank Employment Agreement (collectively the "Employment
Agreements") are intended to memorialize the terms of Mr. Messina's
employment and to secure the continued availability of his services
to the Company and the Bank with a minimum of personal distraction
in the event of a proposed or threatened change in control of the
Company or the Bank. The continued success of the Company and the
Bank depends to a significant degree on Mr. Messina's skills and
competence.
The Company Employment Agreement provides for a five-year term, and
beginning on the second anniversary of its effective date, the term
of the Agreement is automatically extended for one day each day,
such that the remaining term is always three years, unless and
until either the Board of Directors or Mr. Messina provides written
notice to the other party of an intention not to extend the term of
the Company Employment Agreement, at which time the remaining term
of the Agreement will be fixed at three years from the date of the
written notice. The Bank Employment Agreement provides for an
initial term of three years, beginning on the date of the
Agreement. On September 23, 1998 and on each anniversary of such
date, the Bank's Board of Directors will review the terms of the
Agreement and the performance of Mr. Messina and may, in the
absence of Mr. Messina's objection, approve an extension of the
Bank Employment Agreement to the third anniversary of such date.
At a meeting held in September 1998, the Board of Directors
extended the Bank Employment Agreement to September 23, 2001. The
Employment Agreements provide that Mr. Messina will receive an
aggregate base salary from the Company and the Bank at an initial
annual rate of $475,000, which will be reviewed annually by the
Boards of Directors. Mr. Messina's current aggregate base salary
under his Employment Agreements with the Company and the Bank is
$600,000.
In addition to base salary, the Employment Agreements provide for,
among other things, disability pay, participation in stock plans
and other employee benefit plans, fringe benefits applicable to
executive personnel and supplemental retirement benefits to
compensate the executive for the benefits that he cannot receive
under the tax-qualified employee benefit plans maintained by the
Company and the Bank due to the limitations imposed on such plans
by the Internal Revenue Code of 1986 (the "Code"). The Employment
Agreements also provide that the Company and the Bank will
indemnify Mr. Messina during the term of the Employment Agreements
and for a period of six years thereafter against any costs,
liabilities, losses and exposures for acts and omissions in
connection with his service as an officer or director of the
Company and the Bank, to the fullest extent allowable under federal
and Delaware corporate law.
The Employment Agreements provide for the termination of Mr.
Messina's employment by the Company or the Bank for cause at any
time. Under the Company Employment Agreement, in the event the
Company chooses to terminate Mr. Messina's employment for reasons
other than for cause, or in the event of his resignation from the
Company following: (i) a failure to re-elect or re-appoint Mr.
Messina to his current offices; (ii) a material change in his
functions, duties or responsibilities; (iii) a relocation of his
principal place of employment; (iv) a material reduction in his
compensation, benefits or perquisites; or (v) a "Change in Control"
as defined in the Agreement, the executive or, in the event of his
death, his estate, would be entitled to a payment equal to the
salary payable or due during the remaining term of the Employment
Agreement, the other cash compensation and benefits that he would
have accrued or received if he had remained employed by the Company
during the remaining unexpired term of the Employment Agreement and
continued life, health, dental, accident and disability insurance
coverage for the remaining unexpired term of the Employment
Agreement. In the event that the executive's termination of
employment occurs following a Change in Control, the insurance
coverage described above will be provided for the executive's
lifetime and he shall also be entitled to receive continued fringe
benefits and perquisites for the remaining unexpired term of the
Employment Agreement and a payment equal to the difference between
the value of his normal and supplemental retirement benefits and an
unreduced early retirement benefit commencing at age 55. Payments
made to Mr. Messina under the Company Employment Agreement upon a
change in control may constitute an "excess parachute payment" as
defined under Section 280G of the Code, which may result in the
imposition of an excise tax on Mr. Messina and the denial of
federal income tax deductions for such excess amounts for the
Company. Under the Company Employment Agreement, the Company will
indemnify Mr. Messina for such excise taxes and any additional
income, employment and excise taxes imposed as a result of such
indemnification. The estimated value of Mr. Messina's Company
Employment Agreement in the event of his termination of employment
following a Change in Control is approximately $5,752,000 based
upon certain assumptions regarding the timing and structure of such
a transaction.
Under the Bank Employment Agreement, in the event the Bank chooses
to terminate the executive's employment for reasons other than for
cause, or in the event of the executive's resignation from the Bank
following (i) a failure to re-elect or re-appoint the executive to
his current offices; (ii) a material change in the executive's
functions, duties or responsibilities; (iii) a relocation of his
principal place of employment; (iv) a material reduction in his
compensation, benefits or perquisites; or (v) a Change in Control
followed by the executive's demotion, loss of title or significant
authority or responsibility, relocation or exclusion from
compensation or benefit programs, the executive, or, in the event
of his death, his estate, would be entitled to the same type of
severance payments and benefits provided for under the Company
Employment Agreement, but not in excess of three times his average
annual compensation for the preceding five calendar years.
The Company Employment Agreement provides that the Company will
guarantee the payment of any benefits and compensation due to Mr.
Messina under the Bank Employment Agreement. In addition, the
Company Employment Agreement provides that amounts payable under
the Company Employment Agreement will be reduced by the amount paid
to Mr. Messina under the Bank Agreement to avoid duplication of
payments to Mr. Messina.
Change in Control Agreements. To secure the continued availability
of the services of key Senior Executive Officers in the event of a
threatened or actual change in control, the Bank and the Company
have entered into separate change in control agreements ("Change in
Control Agreement" or the "Change in Control Agreements") with
Messrs. Seery, McGuirk and Ricca and Ms. Califano. Each Change in
Control Agreement with the Bank provides for a two-year term, and
commencing on the first anniversary of the date of the Change in
Control Agreement and continuing on each anniversary thereafter,
the Change in Control Agreement may be extended by the Board of
Directors of the Bank for an additional year such that the
remaining term of the Bank's Change in Control Agreement shall be
two years. Each Change in Control Agreement with the Company
provides for a three-year term which automatically extends for one
day each day, such that the term will always be three years, until
either the Board of Directors of the Company or the executive
provides written notice of an intention not to extend the term of
the Agreement. Each Change in Control Agreement provides that at
any time following a "Change in Control" (as defined in the Change
in Control Agreements) of the Company or the Bank, if the Company
or the Bank terminates the executive's employment for any reason
other than for cause or, in the case of the Bank's Change in
Control Agreement, if the executive voluntarily resigns following
demotion, loss of title, office or significant authority, a
reduction in compensation, or a relocation of the employee's
principal place of employment and, in the case of the Company's
Change in Control Agreement, if the executive resigns without
regard as to whether a change in status, compensation or working
conditions or location has occurred, then the executive or, in the
event of death, the executive's beneficiary would be entitled to
receive a payment equal to the salary, bonus and benefits, and
perquisites in the case of the Company's Change in Control
Agreements, that the employee would have accrued or received if his
or her employment continued for the remaining unexpired term of the
Agreement. The Change in Control Agreements with the Company
provide that the Company will indemnify the executive for any
excise taxes imposed on "excess parachute payments" deemed made to
the executive under Section 280G of the Code and for any additional
income, employment and excise taxes imposed as a result of such
indemnification. Payments to be made under the Company's Change in
Control Agreement with each Senior Executive Officer will be offset
by any payments to be made under the Bank's Change in Control
Agreement with such executive. The Company guarantees payments to
the executive under the Bank's Change in Control Agreement if the
Bank does not pay payments or benefits. The estimated value of the
Change in Control Agreements in the event of the executives'
termination of employment following a Change in Control is
approximately $1,173,000, $1,161,000, $1,153,000 and $1,156,000 for
Messrs. Seery, McGuirk and Ricca and Ms. Califano, respectively,
based upon certain assumptions regarding the timing and structure
of such a transaction.
Incentive Stock Option Plan and 1996 Stock Incentive Plan. The
Company maintains the Incentive Stock Option Plan (established in
1993) and the 1996 Stock Incentive Plan, which provide
discretionary awards to officers and key employees as determined by
a committee of disinterested directors who administer the plans.
The following table provides certain information with respect to
the number of shares of Common Stock represented by outstanding
options held by the selected senior executive officers as of
December 31, 1998. Also reported are the values for "in-the-money"
options, which represents the positive spread between the exercise
price of any such existing stock options and the year-end price of
the Common Stock.
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs Money Options/SARs at Fiscal
at Fiscal Year End (#) Year End ($)(1)
Shares Acquired Value
on Exercise Realized
Name (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
Philip S. Messina -- -- 189,948 20,586 1,564,990 38,599
Joseph W. Rennhack -- -- 116,834 7,586 1,045,100 14,224
Thomas J. Seery -- -- 74,680 7,586 623,560 14,224
Gerard H. McGuirk 7,438 79,066 55,168 7,586 289,640 14,224
Catherine Califano -- -- 62,606 7,586 364,020 14,224
Mark A. Ricca -- -- -- 45,000 -- --
(1) Messrs. Messina, Rennhack, Seery and Ms. Califano have 148,780, 101,666,
59,512, and 7,438 options with an exercise price of $5.00. In addition Mr.
McGuirk and Ms. Califano have 40,000 options with an exercise price of
$8.47. Messrs. Messina, Rennhack, Seery and McGuirk and Ms. Califano also
have 61,754, 22,754, 22,754, 22,754, and 22,754 options with an exercise
price of $13.125. Mr. Ricca has 45,000 options with an exercise price of
$25.875. As of December 31, 1998 the closing price of the common stock was
$15.00.
(2) The fair market value of the options when exercised was $15.63. Said
options were granted at an exercise price of $5.00.
Defined Benefit Plan. The Bank maintains the CFS Bank Retirement Income Plan,
a non-contributory defined benefit pension plan (the "Retirement Plan").
Retirement Plan Table. The following table indicates the annual retirement
benefit that would be payable as of December 31, 1998 under the Retirement Plan
upon retirement at age 65 to a participant electing to receive his retirement
benefit in the standard form of benefit (single life annuity), assuming
various specified levels of average annual compensation and various specified
years of credited service.
Average 10 Years 15 Years 20 Years 25 Years 30 Years
Annual of Credited of Credited of Credited of Credited of Credited
Compensation Service Service Service Service Service
125,000 24,227 36,340 48,453 60,567 72,680
150,000 29,477 44,215 58,953 73,692 88,430
160,000 31,577 47,365 63,153 78,942 94,730
175,000(2) 34,727 52,090 69,453 86,817 104,180
200,000(2) 39,977 59,965 79,953 99,942 119,930
300,000(2) 60,977 91,465 121,953 152,442(3) 182,930(3)
400,000(2) 81,977 122,965 163,953(3) 204,942(3) 245,930(3)
500,000(2) 102,977 154,465(3) 205,953(3) 257,442(3) 308,930(3)
(1) Maximum amount of service credited for purposes of the
Retirement Plan is 30 years.
(2) The annual retirement benefits shown in the table reflect a
deduction for Social Security benefits and are not subject to
further deduction. The compensation covered by the Retirement Plan
is total annual compensation (as reflected in the Summary
Compensation Table for the Named Executive Officers) including all
compensation reported by the Bank for federal income tax purposes.
The benefits shown corresponding to these compensation ranges are
hypothetical benefits based upon the Retirement Plan's normal
retirement benefit formula. Under Section 401(a)(17) of the Code,
for plan years beginning in 1994 through 1996, a participant's
compensation in excess of $150,000 (as adjusted to reflect
cost-of-living increases) was disregarded for purposes of
determining average annual earnings. This limitation was increased
to $160,000 for plan years beginning in 1997 and 1998 and also
applies to plan years beginning in 1999. The amounts shown in the
table include the supplemental retirement benefits payable to Mr.
Messina under his Employment Agreements to compensate for the
limitation on includible compensation.
(3) These are hypothetical benefits based upon the Retirement
Plan's normal retirement benefit formula. The maximum annual
benefit permitted under Section 415 of the Code in 1996 was
$120,000 and was $125,000 for 1997, or if higher, a member's
current accrued benefit as of December 31, 1982 (but not more than
$136,425). The $125,000 ceiling was increased to $130,000 for 1998
and this ceiling will be adjusted to reflect cost of living
increases in succeeding years in accordance with Section 415 of the
Code. The amounts shown in the table reflect the supplemental
retirement benefits payable to Mr. Messina under his Employment
Agreements to compensate for the limitation on annual benefits.
The following table sets forth the years of credited service (i.e.,
benefit service) as of June 30, 1996 for each of the following
executive officers.
Credited Service(1)
Years Months
Philip S. Messina 32 2
Thomas J. Seery 21 11
Catherine Califano 3 1
Gerard H. McGuirk 2 11
(1) The Retirement Plan was frozen effective as of June 30, 1996
for a period of three years, at which time the status of the Plan
will be evaluated for reactivation. Since the date the Retirement
Plan was frozen, no new employees have begun participation in this
program.
Supplemental Executive Retirement Agreement. The Bank has entered
into an agreement to provide supplemental retirement benefits for
Mr. Worgul ("Executive"). The agreement is unfunded. As of
December 31, 1996, the Company has accrued the entire $1.2 million
liability under the unfunded agreement. All obligations arising
under the agreement are payable from the general assets of the
Bank. However, the Bank is responsible for the payment of premiums
on an insurance policy, which would reimburse the Bank for the
payments due under the agreement in the event of the Executive's
death. The agreement provides for an annual retirement benefit of
$120,000 for 10 years after retirement upon reaching the normal
retirement age contained in the Retirement Plan. In the event of
a change in ownership of the Bank after retirement but prior to the
payment of the entire benefit or in the event of the Executive's
death after retirement, any unpaid benefit shall be paid in a lump
sum to the Executive or the Executive's estate, respectively.
Transactions With Certain Related Persons. The federal banking
laws require that all loans or extensions of credit to executive
officers and directors must be made on substantially the same
terms, including interest rates and collateral, and follow
substantially the same credit underwriting procedures as those
prevailing at the time for comparable transactions with the other
persons and must not involve more than the normal risk of repayment
or present other unfavorable features.
Michael J. Levine, a director since 1996, has an equity interest in
a number of companies that had commercial real estate loans
outstanding with the Bank in 1998, which loans were made prior to
the time Mr. Levine became a director. The Board of Directors at
a meeting held December 17, 1997 approved extending the maturity of
one of the existing loans in which Mr. Levine has an equity
interest. The loan was extended for ten years at market interest
rates, with no additional funds advanced. Subsequently, at a
meeting of the Board of Directors held February 18, 1998, a loan on
Mr. Levine's primary residence in the amount of $200,000 was
approved by the Board of Directors. The largest aggregate
outstanding balance of these loans in 1998 was approximately $19.2
million.
At December 31, 1998, the aggregate balance outstanding for all
loans in which Mr. Levine has an equity interest was approximately
$13.2 million. The loans to such entities were made in the
ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and management
believes that such loans do not involve more than the normal risk
of collectibility or present other unfavorable features.
Mark A. Ricca, Esq., Senior Vice President and General Counsel
since April 1998 and Senior Vice President, General Counsel,
Secretary and Chief Compliance Officer since March 1999, was a
partner at Ricca & Donnelly, a law firm, prior to joining the
Company. Mr. Ricca's brother was, and continues to be, the
managing partner at Ricca & Donnelly. The Company paid Ricca &
Donnelly approximately $363,000 for legal services provided in
1998. The Company believes that these services and payments were
on terms substantially similar to those available from non-
affiliated parties.
PROPOSAL 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
KPMG LLP were The Company's independent auditors for the fiscal
year ended December 31, 1998. The Company's Board of Directors has
reappointed KPMG LLP to continue as independent auditors for the
Bank and the Company for the year ending December 31, 1999, subject
to ratification of such appointment by the stockholders.
A representative of KPMG LLP will be present at the Annual Meeting,
will be given an opportunity to make a statement if so desired and
will be available to respond to appropriate questions from
stockholders present at the Annual Meeting.
Ratification of KPMG LLP as independent auditors of the Company
requires the affirmative vote of a majority of the votes cast.
Abstentions will have the effect as a vote against this proposal
while broker non-votes will have no effect on the vote for this
proposal.
Unless marked to the contrary, the shares represented by the
enclosed Proxy, if executed and returned, will be voted FOR
ratification of the appointment of KPMG LLP as the independent
auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
ADDITIONAL INFORMATION
Stockholder Proposals
To be considered for inclusion in the proxy statement and proxy
relating to the Annual Meeting of Stockholders to be held in 2000,
a stockholder proposal must be received by the Secretary of the
Company at the address set forth on the first page of this Proxy
Statement, not later than November 16, 1999. Any such proposal will
be subject to applicable laws, rules and regulations, as may be
amended including 17 C.F.R. Section 240.14a-8 of the Rules and
Regulations under the Exchange Act.
Notice of Business to be Conducted at an Annual Meeting
The Bylaws of the Company provide an advance notice procedure for
a stockholder to properly bring business before an Annual Meeting.
The stockholder must give written advance notice to the Secretary
of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the
event less than one hundred (100) days notice or prior public
disclosure of the date of the Annual Meeting is given or made to
stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day
following the date on which the Company's notice to stockholders of
the Annual Meeting date was mailed or such public disclosure was
made. The advance notice by stockholders must include the
stockholder's name and address, as they appear on the Company's
record of stockholders, a brief description of the proposed
business, the reason for conducting such business at the Annual
Meeting, the class and number of shares of the Company's capital
stock that are beneficially owned by such stockholder and any
material interest of such stockholder in the proposed business. In
the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in its
proxy statement and proxy relating to an Annual Meeting any
stockholder proposal which does not meet all of the requirements
for inclusion established by the SEC in effect at the time such
proposal is received.
Other Matters Which May Properly Come Before the Annual Meeting
The Board of Directors knows of no business which will be presented
for consideration at the Annual Meeting other than as stated in the
Notice of Annual Meeting of Stockholders. If, however, other
matters are properly brought before the Annual Meeting, it is the
intention of the persons named in the accompanying proxy to vote
the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you
are urged to return your proxy card promptly. If you are present at
the Annual Meeting and wish to vote your shares in person, your
proxy may be revoked in writing and you may vote your shares at the
Annual Meeting.
A copy of the Form 10-K (without exhibits) for the year ended
December 31, 1998, as filed with the Securities and Exchange
Commission, will be furnished without charge to stockholders of
record upon written request to Haven Bancorp, Inc., Mr. Mark A.
Ricca, Senior Vice President, General Counsel and Secretary, 615
Merrick Avenue, Westbury, New York 11590.
By Order of the Board of Directors,
Mark A. Ricca, Esq.
Secretary
Westbury, New York
March 17, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE
REQUESTED TO SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
EXHIBIT 99.1
March 17, 1999
Dear Participant:
As of March 3, 1999, the trust ("RRP Trust") established for
the Columbia Federal Savings Bank (now known as CFS Bank, the
"Bank") Recognition and Retention Plan for Officers and Employees
("RRP") held 5,603 shares of common stock of Haven Bancorp, Inc.
(the "Company"), the parent holding company for the Bank. As a
participant in the RRP, you may direct the voting of the shares of
the Company's common stock held by the RRP Trust that have been
granted to you under the RRP.
Chase Manhattan Bank has been appointed as the trustee for the
RRP Trust (the "RRP Trustee"). We, the Board of Directors, are
forwarding to you the attached Vote Authorization Form, provided
for the purpose of conveying your voting instructions to the RRP
Trustee. The RRP Trustee will vote those shares of the Company's
common stock held in the RRP Trust that have been granted to
participants in accordance with instructions received from the
participants. If the RRP Trustee does not receive voting
instructions with respect to shares that have been granted to
participants, the RRP Trustee will vote such shares in the same
proportion as the Trustee votes the shares for which it has
received voting instructions.
At this time to direct the voting of shares granted to you
under the RRP, you must complete and sign the enclosed Vote
Authorization Form and return it in the accompanying envelope to
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"). Your vote
will not be revealed, directly or indirectly, to any director,
officer or other employee of the Company or the Bank. Your shares
will be tallied by ChaseMellon, on a confidential basis.
ChaseMellon will then provide the tabulated results to the RRP
Trustee. The RRP Trustee will then vote the shares in the RRP Trust
based on the voting instructions it has received from participants,
as described above.
Sincerely,
The Board of Directors
HAVEN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
VOTE AUTHORIZATION FORM
I, having signed this card, hereby instruct the Columbia Federal
Savings Bank Recognition and Retention Plan for Officers and
Employees ("RRP") Trustee to vote all shares of common stock of
Haven Bancorp, Inc. granted to me under the RRP as set forth on the
reverse side at the Annual Meeting of Stockholders to be held on
April 21, 1999, and at any adjournments thereof.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here
Please mark your
votes as indicated X
in this example ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
1. The Election as directors of all nominees listed: (Except as
marked to the contrary below)
George S. Worgul, Michael J. Levine
FOR VOTE WITHHOLD
------- ------
Instructions: To withhold your vote for any individual nominee,
write that nominee's name on the space provided below:
-------------------------------------
2. The ratification of KPMG LLP as independent auditors of Haven
Bancorp, Inc. for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
----- ----- -----
I acknowledge that I have received from the Company prior to the
execution of this proxy a Notice of Annual Meeting of Stockholders,
a Proxy Statement dated March 17, 1999, the Annual Report to
Stockholders and a letter dated March 17, 1999 from the Board of
Directors.
I understand that my voting instructions are solicited by the Board
of Directors on behalf of the RRP Trustee for the Annual
Stockholders Meeting to be held on April 21, 1999, and any
adjournments thereof. The RRP Trustee is hereby authorized to vote
the shares granted to me, in its trust capacity, as indicated
above.
-------------------------
Signature
-------------------------
Date
Please sign, date and return
this form in the enclosed
business reply envelope.
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FOLD AND DETACH HERE
EXHIBIT 99.2
March 17, 1999
Dear Participant:
As of March 3, 1999, the trust ("DRP Trust") established for
the Columbia Federal Savings Bank (now known as CFS Bank, the
"Bank") Recognition and Retention Plan for Outside Directors
("DRP") held 17,495 shares of common stock of Haven Bancorp, Inc.
(the "Company"), the parent holding company for the Bank. As a
participant in the DRP, you may direct the voting of the shares of
the Company's common stock held by the DRP Trust that have been
granted to you under the DRP.
Chase Manhattan Bank has been appointed as an unrelated
corporate trustee for the DRP Trust (the "DRP Trustee"). We, the
Board of Directors, are forwarding to you the attached Vote
Authorization Form, provided for the purpose of conveying your
voting instructions to the DRP Trustee. The DRP Trustee will vote
those shares of the Company's common stock held in the DRP Trust
that have been granted to participants in accordance with
instructions received from the participants. If the DRP Trustee
does not receive voting instructions with respect to shares that
have been granted to participants, the DRP Trustee will vote such
shares in the same proportion as it votes the shares for which it
has received voting instructions.
At this time to direct the voting of shares granted to you
under the DRP, you must complete and sign the enclosed Vote
Authorization Form and return it in the accompanying envelope to
ChaseMellon Shareholder Services L.L.C. ("ChaseMellon"). Your vote
will not be revealed, directly or indirectly, to any director,
officer or other employee of the Company or the Bank. Your shares
will be tallied by ChaseMellon on a confidential basis.
ChaseMellon will then provide the tabulated results to the DRP
Trustee. The DRP Trustee will then vote the shares in the DRP Trust
based on the voting instructions it has received from participants,
as described above.
Sincerely,
The Board of Directors
HAVEN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
VOTE AUTHORIZATION FORM
I, having signed this card, hereby instruct the Columbia Federal
Savings Bank Recognition and Retention Plan for Outside Directors
("DRP") Trustee to vote all shares of common stock of Haven
Bancorp, Inc. granted to me under the DRP as set forth on the
reverse side at the Annual Meeting of Stockholders to be held on
April 21, 1999, and any adjournments thereof.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
Please mark your
votes as indicated X
in this example ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
1. The Election as directors of all nominees listed: (Except as
marked to the contrary below)
George S. Worgul, Michael J. Levine
FOR VOTE WITHHOLD
------- ------
Instructions: To withhold your vote for any individual nominee,
write that nominee's name on the space provided below:
-------------------------------------
2. The ratification of KPMG LLP as independent auditors of Haven
Bancorp, Inc. for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
----- ----- -----
I acknowledge that I have received from the Company prior to the
execution of this proxy a Notice of Annual Meeting of Stockholders,
a Proxy Statement dated March 17, 1999, the Annual Report to
Stockholders and a letter dated March 17, 1999 from the Board of
Directors.
I understand that my voting instructions are solicited by the Board
of Directors on behalf of the DRP Trustee for the Annual
Stockholders Meeting to be held on April 21, 1999, and any
adjournments thereof. The DRP Trustee is hereby authorized to vote
the shares granted to me, in its trust capacity, as indicated
above.
-------------------------
Signature
-------------------------
Date
Please sign, date and return
this form in the enclosed
business reply envelope.
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FOLD AND DETACH HERE
EXHIBIT 99.3
March 17, 1999
Dear Participant:
The CFS Bank (the "Bank") 401(k) Plan (the "401(k) Plan")
includes an investment fund, known as the Employer Stock Fund,
consisting primarily of common stock of the Bank's parent holding
company, Haven Bancorp, Inc. (the "Company"). As a participant in
the 401(k) Plan with an interest in the Employer Stock Fund, you
may direct the voting of the proportion of the shares of the
Company's common stock held by the 401(k) Plan Trust that are
allocable to your account.
Merrill Lynch Trust Company has been appointed as the
corporate trustee for the Employer Stock Fund of the 401(k) Plan
(the "401(k) Plan Trustee"). The 401(k) Plan Trustee will vote
those shares of the Company's common stock held in the 401(k) Plan
Trust in accordance with instructions of the participants. We, the
Board of Directors, are forwarding to you the attached Proxy
Statement, and the Vote Authorization Form, provided for the
purpose of conveying your voting instructions to the 401(k) Plan
Trustee.
At this time to direct the voting of the proportion of the
shares allocable to your account under the 401(k) Plan, you must
complete and sign the enclosed Vote Authorization Form and return
it to the 401(k) Plan Trustee in the accompanying envelope. Your
vote will not be revealed, directly or indirectly, to any director,
officer or other employee of the Company or the Bank. Your vote
will be tallied by ChaseMellon Shareholder Services L.L.C. on a
confidential basis and then the 401(k) Plan Trustee will vote the
shares of the 401(k) Plan Trust based on the voting instructions it
has received from participants, as described above.
Sincerely,
The Board of Directors
HAVEN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
VOTE AUTHORIZATION FORM
I, having signed this card, hereby instruct the CFS Bank 401(k)
Plan ("401(k)") Trustee to vote my proportionate interest in the
shares of common stock of Haven Bancorp, Inc. held by the Bank
Stock Fund of the 401(k) Plan as set forth on the reverse side at
the Annual Meeting of Stockholders to be held on April 21, 1999,
and at any adjournments thereof.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here
Please mark your
votes as indicated X
in this example ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
1. The Election as directors of all nominees listed: (Except as
marked to the contrary below)
George S. Worgul, Michael J. Levine
FOR VOTE WITHHELD
------- ------
Instructions: To withhold your vote for any individual nominee,
write that nominee's name on the space provided below:
-------------------------------------
2. The ratification of KPMG LLP as independent auditors of Haven
Bancorp, Inc. for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
----- ----- -----
I acknowledge that I have received from the Company prior to the
execution of this proxy a Notice of Annual Meeting of Stockholders,
a Proxy Statement dated March 17, 1999, the Annual Report to
Stockholders and a letter dated March 17, 1999 from the Board of
Directors.
I understand that my voting instructions are solicited by the Board
of Directors on behalf of the 401(k) Trustee for the Annual
Stockholders Meeting to be held on April 21, 1999, and any
adjournments thereof. The 401(k) Trustee is hereby authorized to
vote the shares allocable to my interest in the 401(k) Plan, in its
trust capacity, as indicated above.
-------------------------
Signature
-------------------------
Date
Please sign, date and return
this form in the enclosed
business reply envelope.
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FOLD AND DETACH HERE
EXHIBIT 99.4
March 17, 1999
Dear Participant:
As of March 3, 1999, the trust ("ESOP Trust") established for
the Columbia Federal Savings Bank (now known as CFS Bank, the
"Bank") Employee Stock Ownership Plan ("ESOP") held 664,116 shares
of common stock of Haven Bancorp, Inc. (the "Company"), the parent
holding company for the Bank, for the benefit of participants in
the ESOP. As of the Record Date, March 3, 1999, 358,306 shares of
Common Stock in the ESOP had been allocated to participating
employees. As a participant in the ESOP, you may direct the voting
of the shares of the Company's common stock held by the ESOP Trust
allocated to your account.
Chase Manhattan Bank has been appointed as the corporate
trustee for the ESOP Trust (the "ESOP Trustee"). We, the Board of
Directors, are forwarding to you the attached Vote Authorization
Form, provided for the purpose of conveying your voting
instructions to the ESOP Trustee. The ESOP Trustee will vote those
shares of the Company's common stock held in the ESOP Trust
allocated to participants in accordance with instructions of the
participants.
All unallocated shares held in the ESOP Trust, and allocated
shares with respect to which no written instructions are received,
will be voted by the Trustee in the same proportion as those
allocated shares for which voting instructions are received, so
long as such vote is in accordance with the provisions of the
Employment Retirement Income Security Act of 1974, as amended.
At this time to direct the voting of shares allocated to your
account under the ESOP, you must complete and sign the enclosed
Vote Authorization Form and return it in the accompanying envelope
to ChaseMellon Shareholders Services L.L.C. ("ChaseMellon"). Your
vote will not be revealed, directly or indirectly, to any director,
officer or other employee of the Company or the Bank. Your shares
will be tallied by ChaseMellon and then the ESOP Trustee will vote
the shares in the ESOP Trust based on the voting instructions it
has received from participants, as described above.
Sincerely,
The Board of Directors
HAVEN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
VOTE AUTHORIZATION FORM
I, having signed this card, understand that the ESOP Trustee is the
holder of record and custodian of all shares of Haven Bancorp, Inc.
(the "Company") common stock allocated to me under the Columbia
Federal Savings Bank Employee Stock Ownership Plan and Trust ("ESOP
Trust"). Further, I understand that my voting instructions are
solicited on behalf of the Company's Board of Directors for the
Annual Meeting of Stockholders on April 21, 1999, and any
adjournments thereof. Accordingly, you are instructed to vote all
shares allocated to me and held by the ESOP Trust as set forth on
the reverse side.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here
Please mark your
votes as indicated X
in this example ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
1. The Election as directors of all nominees listed: (Except as
marked to the contrary below)
George S. Worgul, Michael J. Levine
FOR VOTE WITHHOLD
------- ------
Instructions: To withhold your vote for any individual nominee,
write that nominee's name on the space provided below:
-------------------------------------
2. The ratification of KPMG LLP as independent auditors of Haven
Bancorp, Inc. for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
----- ----- -----
I acknowledge that I have received from the Company prior to the
execution of this proxy a Notice of Annual Meeting of Stockholders,
a Proxy Statement dated March 17, 1999, the Annual Report to
Stockholders and a letter dated March 17, 1999 from the Board of
Directors.
I understand that my voting instructions are solicited by the Board
of Directors on behalf of the ESOP Trustee for the Annual
Stockholders Meeting to be held on April 21, 1999, and any
adjournments thereof. The ESOP Trustee is hereby authorized to
vote the shares allocated to me, in its trust capacity, as
indicated above.
-------------------------
Signature
-------------------------
Date
Please sign, date and return
this form in the enclosed
business reply envelope.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
EXHIBIT 99.5
REVOCABLE PROXY
HAVEN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
April 21, 1999
3:00 p.m.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
I, having signed this card, hereby appoint the official proxy
committee of the Board of Directors of Haven Bancorp, Inc. (the
"Company"), each with full power of substitution, to act as
attorneys and proxies for the undersigned, and to vote all shares
of Common Stock of the Company which the undersigned is entitled
to vote only at the Annual Meeting of Stockholders, to be held on
April 21, 1999, at 3:00 p.m., at the Corporate Headquarters of
the Company located at 615 Merrick Avenue, Westbury, New York,
and at any adjournments thereof.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted FOR each of
the proposals listed. If any other business is presented at the
Annual Meeting, this proxy will be voted by those named in this
proxy in their best judgment. At the present time, the Board of
Directors knows of no other business to be presented at the
Annual Meeting.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here
Please mark your
votes as indicated X
in this example ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
1. The Election as directors of all nominees listed: (Except as
marked to the contrary below)
George S. Worgul, Michael J. Levine
FOR VOTE WITHHOLD
------- ------
Instructions: To withhold your vote for any individual nominee,
write that nominee's name on the space provided below:
-------------------------------------
2. The ratification of KPMG LLP as independent auditors of Haven
Bancorp, Inc. for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
----- ----- -----
The undersigned acknowledges receipt from the Company prior to
the execution of this proxy of a Notice of Annual Meeting of
Stockholders and of a Proxy Statement dated March 17, 1999 and of
the Annual Report to Stockholders.
Please sign exactly as name appears on this card. When signing
as attorney, executor, administrator, trustee or guardian, please
give full title. If shares are held jointly, each holder may
sign but only one signature is required.
Date: , 1999
-------------------------
Signature
-------------------------
Signature, if held jointly
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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