SELECTED
CONSOLIDATED
FINANCIAL &
OTHER DATA
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
(In Thousands, Except Per Share Amounts)
OPERATING DATA:
Interest income........................... $ 238,849 $ 207,491 $ 196,972 $ 175,530 $ 160,752
Interest expense.......................... 120,633 106,746 101,730 79,948 71,385
------------ ------------ ------------ ------------ ------------
Net interest income..................... 118,216 100,745 95,242 95,582 89,367
Provision for possible loan losses........ (2,100) (1,200) (1,700) (2,650) (4,700)
------------ ------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses............... 116,116 99,545 93,542 92,932 84,667
------------ ------------ ------------ ------------ ------------
Non-interest income:
Loan fees and service charges........... 2,941 2,770 2,566 3,292 3,341
Banking service fees.................... 6,564 5,323 3,944 3,108 3,753
Fees from sale of investment products... 1,814 1,376 617 615 536
Net gain (loss) on the sales of mortgage
loans and securities available for sale 2,681 4,750 (1,088) 214 3,857
Net loss on financial futures
transactions........................... -- -- -- -- (495)
Other................................... 4,753 448 573 771 192
------------ ------------ ------------ ------------ ------------
Total non-interest income ............ 18,753 14,667 6,612 8,000 11,184
------------ ------------ ------------ ------------ ------------
General and administrative expenses....... 50,049 47,535 48,968 50,845 48,455
------------ ------------ ------------ ------------ ------------
Merger and restructuring expense.......... -- -- 19,024 -- --
------------ ------------ ------------ ------------ ------------
Real estate operations, net............... 924 463 883 880 1,296
------------ ------------ ------------ ------------ ------------
SAIF recapitalization expense............. -- 9,432 -- -- --
------------ ------------ ------------ ------------ ------------
Income before income tax expense
and cumulative effect of
change in accounting principle........... 83,896 56,782 31,279 49,207 46,100
Income tax expense ....................... (32,685) (24,776) (19,717) (21,740) (20,912)
Cumulative effect of change in
accounting for income taxes.............. -- -- -- 5,685 --
------------ ------------ ------------ ------------ ------------
Net income ............................... $ 51,211 $ 32,006 $ 11,562 $ 33,152 $ 25,188
============ ============ ============ ============ ============
Earnings per common share(2):
Income before cumulative effect
of change in accounting principle...... $ 2.25 $ 1.34 $ .43 $ 1.01 $ N/M (4)
Net income.............................. $ 2.25 $ 1.34 .43 $ 1.22 $ N/M (4)
Book value per share(2)................... $ 7.93 $ 6.84 $ 6.44 $ 6.48 $ 5.87
Dividends per share(2), (3)............... $ .53 $ .40 $ .40 $ .39 $ .32
Dividend payout ratio(2), (3)............. 23.33% 29.85% 76.92% 24.84% 29.36%
9-a
SELECTED CONSOLIDATED FINANCIAL
& OTHER DATA
(CONT'D)
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
(In Thousands)
FINANCIAL CONDITION DATA:
Total assets.............................. $ 3,244,200 $ 2,940,907 $ 2,731,592 $ 2,583,982 $ 2,250,605
First mortgage loans, net................. 1,770,995 1,586,046 1,370,175 1,134,882 1,078,960
Other loans, net.......................... 249,421 267,116 294,768 297,472 309,457
Loans receivable, net................... 2,020,416 1,853,162 1,664,943 1,432,354 1,388,417
Mortgage-backed securities held
to maturity............................. 644,247 550,817 664,726 785,593 439,605
Mortgage-backed securities available
for sale................................. 334,641 280,429 206,794 171,983 234,236
Debt securities held to maturity.......... 593 643 21,179 52,984 4,662
Debt and equity securities
available for sale....................... 107,150 136,133 46,273 180 --
Federal Home Loan Bank stock.............. 54,119 27,938 20,288 17,409 21,734
Money market investments.................. -- 10,700 13,915 21,844 77,261
Trading account securities................ -- -- 2,003 12,939 12,487
Deposits.................................. 1,684,419 1,715,959 1,748,874 1,791,514 1,758,102
Borrowed funds............................ 1,253,931 1,008,786 767,138 578,897 293,693
Shareholders' equity...................... 169,063 151,903 156,386 171,291 153,769
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994(1) 1993(1)
------------ ------------ ------------ ------------ -----------
SELECTED FINANCIAL RATIOS & OTHER DATA:
Return on average assets.................. 1.64% 1.16% .44% 1.35% 1.16%
Return on average shareholders' equity.... 31.48 20.26 6.81 20.13 18.74
Shareholders' equity to assets............ 5.21 5.17 5.73 6.63 6.83
Net interest rate spread.................. 3.62 3.47 3.43 3.73 3.99
Net interest margin....................... 3.85 3.71 3.68 3.95 4.23
Efficiency ratio.......................... 38.57 42.96 47.57 49.19 49.86
Nonaccrual loans and real estate owned,
net, as a percentage of total assets..... .58 .98 1.18 1.64 2.02
Allowance for possible loan losses as
a percentage of nonaccrual loans......... 106.59 75.87 70.04 70.23 69.02
Average interest-earning assets to
average interest-bearing liabilities..... 105.83 105.86 106.47 106.82 107.04
CUSTOMER SERVICE FACILITIES:
Full service.............................. 31 29 27 26 26
Loan production offices................... 7 7 6 6 6
Executive office.......................... 1 1 1 1 1
(1) On January 27, 1995, Hamilton Bancorp, Inc. was merged with and into New
York Bancorp Inc. The merger was accounted for as a pooling of interests
and, accordingly, all prior periods include the consolidated results of
Hamilton Bancorp, Inc.
(2) Per share amounts have been calculated to fully reflect the 4-for-3 stock
split effective July 24, 1997, the 3-for-2 stock split effective January
23, 1997 and the ten percent stock dividend effective February 14, 1994.
(3) Dividends per share, and the dividend payout ratio, have not been restated
for the merger with Hamilton Bancorp, Inc.
(4) N/M - Hamilton Bancorp, Inc. converted to stock ownership on April 1, 1993.
Accordingly, restated per share data is not meaningful.
9-b
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
New York Bancorp Inc. ("New York Bancorp" or the "Company") is a savings and
loan holding company. The Company, through its subsidiary, Home Federal Savings
Bank (the "Bank"), operates as a community savings bank. The Bank's principal
business consists of attracting deposits from the general public and investing
these deposits, together with funds from ongoing operations and borrowings, in
the origination and purchase of residential and commercial mortgage loans,
cooperative residential loans and consumer loans. The Bank also maintains a
portion of its assets in mortgage-backed securities and debt and equity
securities, including obligations of the U.S. Government and federal agencies,
money market investments, corporate notes and other securities.
On October 7,1997, New York Bancorp signed a definitive merger agreement with
North Fork Bancorporation, Inc. ("North Fork") whereby the Company will be
merged with and into North Fork. Under the terms of the agreement, each share of
the Company outstanding at the time of the merger will be converted into 1.19
shares of North Fork common stock. The transaction, which is expected to be
completed during the first quarter of calendar year 1998, is subject to approval
by the shareholders of both the Company and North Fork, the approval of the
appropriate regulatory authorities, as well as the satisfaction of certain other
conditions. The merger is expected to be accounted for as a pooling of
interests.
On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings"), was merged with and into New
York Bancorp. This transaction was accounted for as a pooling of interests, and,
as a result, the financial results for the periods prior to the merger reported
in the accompanying management's discussion and analysis and consolidated
financial statements include the results of Hamilton.
As part of the Company's strategy to find ways to best utilize its available
capital, during fiscal year 1997 New York Bancorp continued its stock repurchase
program by repurchasing 1,169,284 shares of its common stock, bringing the total
number of Treasury shares to 8,174,522 and the total number of outstanding
common shares to 21,318,644 at September 30, 1997. The Company's stock
repurchase program has been terminated in connection with the execution of the
Company's merger agreement with North Fork.
EARNINGS SUMMARY
New York Bancorp earned net income of $51.2 million, or $2.25 per share, for the
year ended September 30, 1997, representing a 31.48% return on average
stockholders' equity. Net income for the year ended September 30, 1996 amounted
to $32.0 million, or $1.34 per share, which included the recognition of a
one-time charge of $9.4 million representing the Bank's assessment to
recapitalize the Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). Excluding the SAIF recapitalization
charge, net income for the year ended September 30, 1996 would have amounted to
$37.4 million, or $1.57 per share, representing a 23.69% return on average
stockholders' equity.
ASSET/LIABILITY MANAGEMENT
The Company is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice or mature more or less frequently, or on a
different basis, than its interest-earning assets. The Company's primary
approach to controlling interest rate risk and maximizing net interest margin
emphasizes gap management. The Company does not have a mandated targeted gap,
10-a
but historically has managed the gap so that it will range from a modest
positive to a modest negative position, which would generally result in
upper-end ranges of positive to negative positions of 15%. The size and
direction of the gap is determined by management, reflecting its views on the
direction of interest rates and general market conditions. The Company's
cumulative one year gap as a percent of total interest-earning assets moved from
a negative 2.85% at September 30, 1996 to a negative 8.20% at September 30,
1997, reflecting the Company's recent strategy to fund loan originations with
short-term low cost wholesale liabilities.
A negative gap denotes liability sensitivity which in a given period will result
in more liabilities than assets being subject to repricing. Generally, liability
sensitive gaps would result in a net positive effect on net interest margin and,
consequently, net income in a declining interest rate environment.
Alternatively, liability sensitive gaps generally would result in a net negative
effect on net interest margin and, consequently, net income in an increasing
interest rate environment.
The Company manages its interest rate risk exposure by investing in adjustable
rate mortgage and other loans and securities, multi-tranche fixed rate REMIC
securities which generally have an estimated average life of five years, and an
assortment of fixed rate loans and securities. At September 30, 1997, 57.4% of
such interest-earning assets were adjustable rate assets, and the average lives
of the fixed rate REMIC securities was approximately 4.2 years. The Company also
may choose to extend the maturity of its funding source and/or reduce the
repricing mismatches by using interest rate swaps and financial futures
arrangements. Additionally, the Company uses interest rate collar, interest rate
floor, and interest rate cap arrangements to assist in further insulating the
Company from volatile interest rate changes.
Adjustable rate mortgage and mortgage-backed securities generally contain
interim and lifetime caps which limit the amount the interest rate can increase
or decrease at repricing dates. Since the Company's liabilities are not
similarly affected, the Company could be adversely affected in a rising interest
rate environment. Increasing interest rates would also tend to extend the lives
of fixed rate mortgages and mortgage-backed securities, which could adversely
affect net interest income. In a declining interest rate environment, the
Company faces interest rate risk as higher rate fixed rate loans prepay due to
the borrowers refinancing at lower rates. The cash flows from such prepayments
would be reinvested in interest-earning assets at then current market rates.
At September 30, 1997, the mortgage-backed securities portfolios had an
estimated average life of approximately 4.3 years. Assuming an immediate and
parallel shift of 300 basis points in the yield curve, the estimated average
life of these portfolios would extend to approximately 5.9 years. The Bank
considers its investment in mortgage-backed securities as a separate investment
category from mortgage loans because of the liquidity characteristics of these
instruments. The Bank further segregates its mortgage-backed securities holdings
as either held to maturity or available for sale. At September 30, 1997, the
Bank's portfolios of mortgage-backed securities represented 30.2% of total
assets. Such mortgage-backed securities are either guaranteed by the FHLMC, GNMA
or FNMA, or constitute REMIC and private-issue pass-through mortgage-backed
securities which are virtually all rated AAA by nationally recognized rating
services.
10-b
At September 30, 1997, the Bank maintained $700.0 million of interest rate
collar arrangements which mature in August 1998. These interest rate collars
provide for the Bank to receive payment when three month LIBOR exceeds 7.50%,
and requires the Bank to pay when three month LIBOR is less than 5.00%, thereby
reducing the Bank's exposure to a rising interest rate environment. At September
30, 1997, three month LIBOR was 5.77%.
During the years ended September 30, 1997 and 1996, the Bank was a party to $600
million of interest rate swap arrangements to extend the maturity of its
liabilities in order to create a more consistent and predictable interest rate
spread. These arrangements provided for the Bank to pay a fixed rate of interest
while receiving a floating rate. These arrangements matured during the third
quarter of fiscal year 1997.
Additionally, in an effort to further protect against interest rate risk
associated with the repricing of its interest-bearing deposit liabilities, the
Bank was a party to $1.0 billion of interest rate floor agreements which were
scheduled to expire on February 22, 1998. During the third quarter of fiscal
year 1995, in an effort to secure the hedge position provided against the
aforementioned interest rate risk, the Bank terminated its position as a party
to the $1.0 billion of interest rate floor agreements. Accordingly, and in
conformity with generally accepted accounting principles, the Bank deferred
recognition of the gain on the terminated interest rate floor agreements and is
amortizing such gain as an adjustment to the cost of interest-bearing deposit
liabilities over the original contractual life of the interest rate floor
agreements. At September 30, 1997, the amount of the unamortized gain was $1.2
million.
At September 30, 1997, the Bank had approximately $2.6 million in contracts for
purposes of hedging the "Standard & Poor's 500" index. The call options
maturities range from March 1999 through August 1999. The Bank uses stock
indexed call options for purposes of hedging its MarketSmart CDs and MarketSmart
I.R.A. CDs. The call options hedge the interest rate paid on these 5 year CD
deposits which is an annual percentage yield based on the changes in the
Standard & Poor's 500 Composite Stock Price Index during each of the 5 year
terms of the CDs. Premiums paid on the call options are amortized to interest
expense over the terms of the underlying CD using the straight line method.
Gains and losses, if any, resulting from the early termination of the call
option are deferred and amortized to interest expense over the remaining term of
the underlying CD. The Bank ceased offering MarketSmart CDs during fiscal year
1995 due to its inability to purchase such small quantities of stock indexed
call options.
Although the Company's asset/liability plan is intended to protect the Company's
interest rate spread against changes in prepayment speeds caused by changes in
interest rates, there is a risk that during periods of rapidly changing interest
rates, the Company's spread could be reduced or become negative. The following
table sets forth the anticipated repricing or maturity of the Company's assets,
liabilities and yields, including the effect of off-balance sheet financial
instruments, at September 30, 1997 using assumptions based on its historical
experience and other data available to management. This table does not
necessarily indicate the impact of general interest rate movements on the
Company's net interest yield because the repricing of various assets and
liabilities is subject to customer discretion and competitive and other
pressures. As a result, assets and liabilities indicated as repricing within the
same period may in fact reprice at different times and at different rate levels.
11-a
At September 30, 1997
------------------------------------------------------------------------------------------------
More More More
More than than than than Over
6 Months 6 Months 1 Year 3 Years 5 Years 10
or Less to 1 Year to 3 Years to 5 Years to 10 Years Years Total Yield
----------- ----------- ---------- ---------- ----------- ------- ---------- -------
(Dollars in Thousands)
INTEREST-EARNING ASSETS:
First mortgage loans(1). $ 433,837 $ 339,536 $ 498,221 $ 388,862 $ 65,110 $ 62,465 $ 1,788,031 8.32%
Other loans(1).......... 81,252 84,396 35,849 25,259 2,907 21,417 251,080 8.65
Mortgage-backed
securities(2) ......... 143,876 108,570 308,872 201,576 215,519 475 978,888 6.95
Debt and equity securities 65,586 42 167 41,756 192 -- 107,743 6.15
Federal Home Loan Bank
stock.................. 54,119 -- -- -- -- -- 54,119 6.75
----------- ----------- ----------- ---------- ---------- --------- -------------
Total interest-earning
assets............. 778,670 532,544 843,109 657,453 283,728 84,357 3,179,861 7.82
----------- ----------- ----------- ---------- ---------- --------- -------------
INTEREST-BEARING LIABILITIES:
Demand and NOW
accounts(3)............ 4,819 4,819 17,861 16,108 149,211 -- 192,818 .77
Money market deposit
accounts(3)............ 22,386 22,386 53,265 26,092 25,071 -- 149,200 2.82
Passbook savings and
club accounts(3)....... 68,465 68,465 197,173 126,201 224,363 -- 684,667 2.33
Certificate accounts.... 276,456 197,508 153,560 29,061 1,149 -- 657,734 4.98
Borrowed funds(4)....... 906,623 -- 368,081 39,992 -- -- 1,314,696 5.86
----------- ----------- ----------- ---------- ---------- --------- -------------
Total interest-bearing
liabilities........ 1,278,749 293,178 789,940 237,454 399,794 -- 2,999,115 4.38
----------- ----------- ----------- ---------- ---------- --------- -------------
Interest sensitivity gap
per period............... (500,079) 239,366 53,169 419,999 (116,066) 84,357
----------- ----------- ----------- ---------- ---------- ---------
Cumulative interest
sensitivity gap.......... $ (500,079) $ (260,713) $ (207,544) $ 212,455 $ 96,389 $ 180,746
=========== =========== =========== ========== ========== =========
Cumulative gap as a
percent of total interest-
earning assets........... (15.73)% (8.20)% (6.53)% 6.68% 3.03% 5.68%
======= ======= ======= ======= ======= ========
Cumulative net interest-
sensitive assets as a
percent of interest-
sensitive liabilities.... (16.67)% (8.69)% (6.92)% 7.08% 3.21% 6.03%
======= ======= ======= ======= ======= ========
(1) Assumes prepayment rates ranging from 3% to 12% depending on the loan type
and interest rate. These prepayment assumptions are based on actual
prepayments experienced and market assumptions for each interest rate
range.
(2) Assumes mortgage-backed securities prepay using actual prepayment rates
experienced on the underlying securities.
(3) Assumes NOW accounts, money market deposit accounts and passbook savings
and club accounts will be withdrawn at annual rates of 5.00%, 30.00% and
20.00%, respectively, based on their declining balance, reflecting the
Bank's experience.
(4) Includes the amount shown in the balance sheet caption "Due to brokers".
11-b
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 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 September 30, 1997.
Net Portfolio Value
Changes in Net Portfolio Value as a % of Assets
Rates ---------------------------------------------- ---------------------------
in Basis Dollar Percentage Change in
Points Amount Change Change % Percentage(1)
------ ------ ------ ------ - -------------
(Dollars in Thousands)
200............... $250,467 $(65,122) (20.6)% 7.8% (17.9)%
100............... 283,998 (31,591) (10.0) 8.7 (8.4)
Base case......... 315,589 -- -- 9.5 --
(100)............. 345,300 29,711 9.4 10.2 7.4
(200)............. 361,047 45,458 14.4 10.5 10.5
(1) Based on the portfolio value of the Company's assets in the base case
scenario.
As in the case with the Gap table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV requires the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes that the
12-a
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.
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, the average
balances and rates paid on interest-bearing liabilities, and the effect of the
Bank's off-balance sheet financial instruments which are used to manage the
repricing characteristics of interest-bearing liabilities. Net income is further
affected by the provision for possible loan losses, non-interest income,
non-interest expense and taxes.
The following table sets forth certain information relating to the Company's
average consolidated statement of financial condition and reflects the average
yield on assets and average cost of liabilities for the periods indicated. The
impact of interest rate swaps, interest rate collars, interest rate floors and
interest rate caps are included in the table in the respective category to which
they relate. The yields and costs are derived by dividing income or expense by
the average balance of assets (which include nonaccrual loans) or liabilities,
respectively, for the periods shown.
12-b
Year Ended September 30,
-----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------ ------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
ASSETS:
Interest-earning assets:
First mortgage loans..... $1,699,622 $140,248 8.25% $1,471,464 $118,792 8.07% $1,257,057 $104,042 8.28%
Other loans.............. 260,095 22,355 8.59 281,414 24,735 8.79 303,649 25,916 8.53
Mortgage-backed securities 928,569 63,790 6.87 854,660 56,921 6.66 921,198 60,331 6.55
Debt and equity
securities - taxable.... 180,190 12,435 6.90 105,190 6,774 6.44 71,158 4,877 6.85
Money market investments 386 21 5.41 4,776 256 5.36 18,845 1,080 5.73
Trading account securities -- -- .-- 220 13 5.70 12,883 726 5.63
--------------------- ------------------------ -----------------------
Total interest-earning
assets ........... 3,068,862 238,849 7.78 2,717,724 207,491 7.63 2,584,790 196,972 7.62
-------- -------- ---------
Non-interest-earning assets 61,167 47,678 43,442
----------- ----------- ----------
Total assets........... $3,130,029 $2,765,402 $2,628,232
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Deposits:
Certificate accounts... $ 672,651 33,007 4.91 $ 736,896 37,679 5.11 $ 676,290 35,703 5.28
Passbook savings and
club accounts......... 697,460 16,280 2.33 730,165 17,509 2.40 801,630 19,964 2.49
Money market
deposit accounts...... 144,331 4,310 2.99 117,363 3,357 2.86 132,187 4,054 3.07
Demand and
NOW accounts......... 183,288 1,925 1.05 159,793 1,925 1.20 148,594 2,673 1.80
--------------------- ------------------------ -----------------------
Total deposits..... 1,697,730 55,522 3.27 1,744,217 60,470 3.47 1,758,701 62,394 3.55
Borrowed funds............ 1,202,036 65,111 5.42 822,987 46,276 5.62 669,090 39,336 5.88
--------------------- ------------------------ ------------------------
Total interest-bearing
liabilities..... 2,899,766 120,633 4.16 2,567,204 106,746 4.16 2,427,791 101,730 4.19
------- ------- --------
Other liabilities......... 67,611 40,222 30,720
--------- ---------- ---------
Total liabilities.. 2,967,377 2,607,426 2,458,511
Shareholders' equity...... 162,652 157,976 169,721
--------- ---------- ---------
Total liabilities and
shareholders'
equity.......... $ 3,130,029 $ 2,765,402 $2,628,232
=========== ============ ==========
NET INTEREST INCOME/INTEREST
RATE SPREAD............... $ 118,216 3.62% $ 100,745 3.47% $ 95,242 3.43%
================ ================= =================
NET EARNING ASSETS/NET
INTEREST MARGIN........... $ 169,096 3.85% $ 150,520 3.71% $ 156,999 3.68%
=========== ===== ============ ===== ========== =====
PERCENTAGE OF INTEREST-
EARNING ASSETS TO
INTEREST-BEARING LIABILITIES 105.83% 105.86% 106.47%
======= ======= =======
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates and changing volumes. The following table describes the extent to
which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to (i) increases and decreases
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) increases and decreases attributable to changes in rates (changes in rates
multiplied by prior volume), and (iii) the net change. The change attributable
to the combined impact of volume and rate has been allocated proportionately to
the change due to volume and the change due to rate.
13
Year Ended September 30, 1997 Year Ended September 30, 1996
Compared to Year Ended Compared to Year Ended
September 30, 1996 September 30, 1995
Increase (Decrease) Increase (Decrease)
--------------------------- -----------------------------
Volume Rate Net Volume Rate Net
---------------------------- -----------------------------
(In Thousands)
INTEREST INCOME ON INTEREST-EARNING
ASSETS:
First mortgage loans.................... $ 18,776 $ 2,680 $21,456 $ 17,235 $ (2,485) $ 14,750
Other loans............................. (1,842) (538) (2,380) (1,993) 812 (1,181)
Mortgage-backed securities.............. 5,036 1,833 6,869 (4,454) 1,044 (3,410)
Debt and equity securities - taxable.... 5,144 517 5,661 2,171 (274) 1,897
Money market investments................ (237) 2 (235) (758) (66) (824)
Trading account securities.............. (13) -- (13) (722) 9 (713)
-------- --------- --------- --------- --------- ---------
Total income on interest-
earning assets........................... 26,864 4,494 31,358 11,479 (960) 10,519
-------- --------- --------- --------- --------- ---------
INTEREST EXPENSE ON INTEREST-
BEARING LIABILITIES:
Deposits:
Certificate accounts.................. (3,194) (1,478) (4,672) 3,045 (1,069) 1,976
Passbook savings and club accounts.... (771) (458) (1,229) (1,733) (722) (2,455)
Money market deposit accounts......... 800 153 953 (436) (261) (697)
Demand and NOW accounts............... 247 (247) -- 221 (969) (748)
-------- --------- --------- --------- ---------- ----------
Total deposits..................... (2,918) (2,030) (4,948) 1,097 (3,021) (1,924)
Borrowed funds.......................... 20,464 (1,629) 18,835 8,561 (1,621) 6,940
-------- --------- ---------- --------- ----------- ----------
Total expenses on interest-
bearing liabilities...................... 17,546 (3,659) 13,887 9,658 (4,642) 5,016
-------- --------- ---------- ------ -------- ---------
Net interest income........................ $ 9,318 $ 8,153 $ 17,471 $ 1,821 $ 3,682 $ 5,503
======== ========= ========= ========= ========= =========
Note: Nonaccrual loans are included in the volume variances.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
GENERAL
The Company's net income for the year ended September 30, 1997 was $51.2
million, or $2.25 per share, as compared to $32.0 million, or $1.34 per share,
for the year ended September 30, 1996. Comments regarding the components of net
income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1997
increased by $31.4 million, or 15.1%, to $238.8 million as compared with $207.5
million for the year ended September 30, 1996. The increase in interest income
was primarily attributable to a $351.1 million increase in average
interest-earning assets, coupled with a 15 basis point increase in yields.
Interest and fees on loans for the year ended September 30, 1997 increased by
$19.1 million, or 13.3%, to $162.6 million as compared to fiscal year 1996. The
increase in loan income reflects a $228.2 million increase in the average
balance and an 18 basis point increase in the yield on first mortgage loans
which, however, were partially offset by a $21.3 million decrease in the average
balance and a 20 basis point decrease in the yield on other loans. The increase
in the overall average balance reflects the record level of $544.4 million of
loan originations. Interest on mortgage-backed securities held to maturity and
mortgage-backed securities available for sale for the year ended September 30,
1997 increased by $6.9 million to $63.8 million as compared to fiscal year 1996.
The increase in mortgage-backed securities income reflects a $73.9 million
14-a
increase in the average balance of the portfolio to $928.6 million, coupled with
a 21 basis point increase in yield to 6.87%. Interest and dividends on debt and
equity securities increased by $5.7 million for the year ended September 30,
1997 to $12.4 million as compared to fiscal year 1996. The increase in interest
and dividends on debt and equity securities reflects a $75.0 million increase in
the average balance of the portfolio to $180.2 million, coupled with a 46 basis
point increase in the yield to 6.90%. Money market investment income declined by
$.2 million, reflecting a $4.4 million decrease in the average balance of the
portfolio. The decrease in the average balance of money market investments is
due to the Company investing these funds in higher yielding assets and/or
utilizing the funds to reduce certain short-term borrowed funds.
At September 30, 1997, mortgage-backed securities held to maturity had
unrealized depreciation of $8.1 million. The unrealized depreciation is due to
market yields on similar type securities being above those of the Bank's
securities. As a result of the increase in interest rates since the acquisition
of these securities, the Company earns a below market rate of interest on the
securities, and the estimated average lives of the securities are presently
longer than the estimated lives at the time of acquisition.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1997 increased by $13.9 million, or 13.0%, to $120.6 million as compared
with $106.7 million for the year ended September 30, 1996. The increase in
interest expense reflects a $332.6 million increase in the average balance of
total interest-bearing liabilities to $2,899.8 million. This increase reflects
the Bank's use of higher costing borrowings to fund balance sheet growth.
However, the cost of funds for fiscal year 1997
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amounted to 4.16%, the same amount as fiscal year 1996, primarily due to the
offsetting impact of the Bank's use of interest rate swaps and other off-balance
sheet instruments which decreased interest expense by $6.3 million and $3.5
million for the years ended September 30, 1997 and 1996, respectively.
Interest expense on deposits decreased $4.9 million, or 8.2%, to $55.5 million
for the year ended September 30, 1997 as compared with the year ended September
30, 1996. This decrease reflects a 20 basis point decrease in the average cost
of deposits from 3.47% in fiscal year 1996 to 3.27 % in fiscal year 1997,
coupled with a $46.5 million decrease in the average balance of deposits to
$1,697.7 million. The Bank's use of interest rate swaps and other off-balance
sheet instruments decreased the cost of deposits by 16 basis points each year.
Interest expense on borrowed funds increased $18.8 million, or 40.7%, to $65.1
million for the year ended September 30, 1997 as compared to the year ended
September 30, 1996. This increase reflects a $379.0 million increase in the
average balance of borrowed funds to $1,202.0 million which, however, was
partially offset by a 20 basis point decrease in the average cost of borrowed
funds from 5.62% in fiscal year 1996 to 5.42% in fiscal year 1997. The Bank's
use of interest rate swaps and other off-balance sheet instruments decreased the
cost of borrowed funds by 22 basis points and 14 basis points in fiscal years
1997 and 1996, respectively.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $2.1 million and $1.2 million for possible loan losses
during the years ended September 30, 1997 and 1996, respectively. The increase
in the provision for possible loan losses primarily reflects management's
assessment of events related to one nonaccrual loan (subsequently resolved) and
the increase and change in the composition of the loan portfolio. The Bank's
ratio of its allowance for possible loan losses to total nonaccrual loans
amounted to 106.6% and 75.9% at September 30, 1997 and 1996, respectively.
The Company's recorded investment in impaired loans was $4.9 million and $11.9
million at September 30, 1997 and 1996, respectively, all of which were on
nonaccrual status. Due to charge offs, or the crediting of interest payments to
principal, the loans did not have an impairment reserve at September 30, 1997
and 1996. Interest income recognized on impaired loans during each of the years
ended September 30, 1997 and 1996 amounted to approximately $.4 million, which
approximated the actual interest payments received. The average recorded
investment in impaired loans was $13.2 million and $14.5 million during the
years ended September 30, 1997 and 1996, respectively. The allowance for
possible loan losses contains additional amounts for impaired loans, as deemed
necessary, to maintain reserves at levels considered adequate by management.
As part of the Bank's determination of the adequacy of the allowance for
possible loan losses, the Bank monitors its loan portfolio through its Asset
Classification Committee. The Committee, which meets no less than quarterly,
consists of employees who are independent of the loan origination process and
members of management. This Committee reviews individual loans with the lending
officers and assesses risks relating to the collectibility of these loans. The
Asset Classification Committee determines the adequacy of the allowance for
15-a
possible loan losses through ongoing analysis of historical loss experience, the
composition of the loan portfolios, delinquency levels, underlying collateral
values and cash flow values. Utilizing these procedures, management believes
that the allowance at September 30, 1997 is sufficient to cover anticipated
losses inherent in the loan portfolios.
Activity in the allowance for possible loan losses is summarized as follows:
As of and For the
Year Ended September 30,
----------------------------------------
1997 1996 1995
----------------------------------------
(In Thousands)
Allowance for possible loan losses,
beginning of year.............................................. $ 19,386 $ 21,272 $ 25,705
Charge-offs:
Commercial real estate........................................ (698) (974) (2,889)
Residential real estate....................................... (1,114) (730) (1,422)
Multifamily residential....................................... -- -- (546)
Other loans................................................... (1,148) (1,441) (1,442)
--------- ----------- ----------
Total charge-offs........................................... (2,960) (3,145) (6,299)
--------- ----------- ----------
Less recoveries:
Commercial real estate.................................... 71 -- --
Residential real estate................................... 27 -- 4
Other loans............................................... 71 59 75
--------- ----------- ----------
Total recoveries........................................ 169 59 79
--------- ----------- ----------
Net charge-offs....................................... (2,791) (3,086) (6,220)
Hamilton's net activity for the quarter
ended December 31, 1994......................................... -- -- 87
Addition to allowance, charged to expense........................ 2,100 1,200 1,700
--------- ----------- ----------
Allowance at end of year......................................... $ 18,695 $ 19,386 $ 21,272
========= =========== ==========
The Bank's allowance for possible loan losses at September 30, 1997 was $18.7
million which represented 106.6% of nonaccrual loans, or .9% of total loans,
compared to $19.4 million at September 30, 1996 which represented 75.9% of
nonaccrual loans, or 1.0% of total loans.
The following table sets forth information regarding nonaccrual loans, real
estate owned, net, and restructured loans at the dates indicated:
September 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(In Thousands)
Nonaccrual loans:
First mortgage loans:
One-to-four family conventional residential.................. $ 11,399 $ 12,092 $ 13,391
Multifamily residential...................................... 752 155 131
Commercial real estate....................................... 4,165 11,758 14,316
---------- ----------- -----------
16,316 24,005 27,838
Other loans - cooperative residential loans.................... 1,223 1,547 2,534
---------- ----------- -----------
Total nonaccrual loans..................................... $ 17,539 $ 25,552 $ 30,372
========== =========== ===========
Real estate owned, net........................................... $ 1,363 $ 3,197 $ 1,967
========== =========== ===========
Restructured loans............................................... $ 5,015 $ 5,818 $ 9,104
========== =========== ===========
15-b
At September 30, 1997, 1996 and 1995, total nonaccrual loans as a percentage of
total assets amounted to .54%, .87% and 1.11%, respectively. The decrease in
nonaccrual loans at September 30, 1997 reflects the Bank's increased collection
activity, the acceleration of write-offs of delinquent loans, and the sale of
delinquent loans.
The amount of interest income on nonaccrual and restructured loans that would
have been recorded had these loans been current in accordance with their
original terms was $2,106,000, $3,252,000 and $4,049,000 for the years ended
September 30, 1997, 1996 and 1995, respectively. The amount of interest income
that was recorded on these loans was $1,011,000, $1,397,000 and $1,808,000 for
the years ended September 30, 1997, 1996 and 1995, respectively.
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1997 amounted to $116.1 million, representing an increase of $16.6
million, or 16.6%, from the year ended September 30, 1996. Net interest income
for the current year increased approximately $9.3 million due to a $351.1
million increase in average interest-earning assets and approximately $8.2
million due to a 14 basis point increase in the net interest margin. Offsetting
these increases, the provision for possible loan losses increased $.9 million.
NON-INTEREST INCOME
Non-interest income amounted to $18.8 million for the year ended September 30,
1997 as compared with $14.7 million for the year ended September 30, 1996. The
$4.1 million improvement in non-interest income is primarily attributable to
$4.5 million of interest received on a tax settlement with the Internal Revenue
Service, a $1.2 million, or 23.3%, increase in banking service fees, and a $.4
million, or 31.8%, increase in fees from the sale of investment products.
Partially offsetting these increases was a $2.1 million decline in the net gain
on the sales of mortgage loans and securities available for sale, primarily due
to the prior year including a gain of $2.9 million on the sale of the Company's
investment in the common stock of a local savings bank.
NON-INTEREST EXPENSE
Non-interest expense amounted to $51.0 million during the year ended September
30, 1997 as compared with $57.4 million during the year ended September 30,
1996. The prior year included the one-time recapitalization assessment by the
SAIF of the FDIC of $9.4 million. Excluding the one-time charge, non-interest
expense would have amounted to $48.0 million in fiscal year 1996. The general
and administrative expense component of non-interest expense totaled $50.0
million, or 1.60% of average assets, for the year ended September 30, 1997,
compared to $47.5 million, or 1.72% of average assets, for the year ended
16-a
September 30, 1996. The $2.5 million increase in general and administrative
expense reflects a $2.9 million increase in compensation and benefits and a $1.1
million increase in other expense which, however, were partially offset by a
$1.5 million decrease in federal deposit insurance premiums. The increase in
compensation and benefits is primarily attributable to the cost associated with
stock appreciation rights as a result of the 89% increase in the market value of
the Company's stock during fiscal year 1997, coupled with the full year cost of
the multifamily lending department formed during the prior fiscal year and the
Bank's continued expansion into supermarket banking. The increase in other
expense was primarily attributable to professional fees related to special
projects. The decrease in federal deposit insurance premiums reflects the
recapitalization of the SAIF during the prior fiscal year, which had the effect
of reducing deposit insurance premiums during fiscal year 1997.
INCOME TAX EXPENSE
Income tax expense totaled $32.7 million for an effective tax rate of 39.0%
during fiscal year 1997 compared to $24.8 million for an effective tax rate of
43.6% during fiscal year 1996. The reduction in the effective tax rate is
primarily attributable to a $.7 million refund received on the tax settlement
with the Internal Revenue Service, coupled with the benefit derived from certain
tax planning strategies implemented during fiscal year 1997.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
GENERAL
The Company's net income for the year ended September 30, 1996 was $32.0
million, or $1.34 per share, as compared to $11.6 million, or $.43 per share,
for the year ended September 30, 1995. Comments regarding the components of net
income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1996
increased by $10.5 million, or 5.3%, to $207.5 million as compared with $197.0
million for the year ended September 30, 1995. The increase in interest income
was primarily attributable to a $132.9 million increase in average
interest-earning assets, resulting primarily from an increase in loans.
Interest and fees on loans for the year ended September 30, 1996 increased by
$13.6 million, or 10.4%, to $143.5 million as compared to fiscal year 1995. The
increase in loan income reflects a $192.2 million increase in the average
balance and a 26 basis point increase in the yield on other loans which, how-
ever, were partially offset by a 21 basis point decrease in the yield on first
16-b
mortgage loans. The increase in average balance reflects the purchase of
$206.0 million of loans, combined with increased originations. Interest on
mortgage-backed securities held to maturity and mortgage-backed securities
available for sale for the year ended September 30, 1996 decreased by $3.4
million to $56.9 million as compared to fiscal year 1995. The decrease in
mortgage-backed securities income reflects a $66.5 million decrease in the
average balance of the portfolio to $854.7 million which, however, was partially
offset by an 11 basis point increase in yield to 6.66%. Interest and dividends
on debt and equity securities increased by $1.9 million for the year ended
September 30, 1996 to $6.8 million as compared to fiscal year 1995. The increase
in interest and dividends on debt and equity securities reflects a $34.0 million
increase in the average balance of the portfolio to $105.2 million which,
however, was partially offset by a 41 basis point decline in the yield to 6.44%.
Money market investment income declined by $.8 million to $.3 million as
compared to fiscal year 1995. The decline in money market investment income
reflects a $14.1 million decrease in the average balance of the portfolio,
coupled with a 37 basis point decrease in yield to 5.36%. Interest on trading
account securities for the year ended September 30, 1996 decreased by $.7
million as compared to fiscal year 1995. This decrease was the result of a $12.7
million decrease in the average balance of the portfolio. The decrease in the
average balance of money market investments and trading account securities is
due to the Company investing these funds in higher yielding assets and/or
utilizing the funds to reduce certain short-term borrowed funds.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1996 increased by $5.0 million, or 4.9%, to $106.7 million as compared with
$101.7 million for the year ended September 30, 1995. The increase in interest
expense reflects a $139.4 million increase in the average balance of total
interest-bearing liabilities to $2,567.2 million. This represents a movement by
depositors from lower costing passbook savings and money market accounts to
higher costing certificate of deposit accounts, and an increase in the Bank's
higher costing borrowings to fund balance sheet growth. Partially offsetting
these factors was a decline in the cost of funds primarily due to the impact of
the Bank's use of interest rate swaps and other off-balance sheet instruments
which decreased interest expense by $3.5 million and $1.2 million for the years
ended September 30, 1996 and 1995, respectively. Further, the impact of the
Bank's use of reverse repurchase agreements with imbedded interest rate caps,
all of which had matured prior to September 30, 1995, was to decrease interest
expense by $1.6 million for the year ended September 30,1995.
Interest expense on deposits decreased $1.9 million, or 3.1%, to $60.5 million
for the year ended September 30, 1996 as compared with the year ended September
30, 1995. This decrease reflects an 8 basis point decrease in the average cost
of deposits from 3.55% in fiscal year 1995 to 3.47% in fiscal year 1996, coupled
17-a
with a $14.5 million decrease in the average balance of deposits to $1,744.2
million. Interest expense on borrowed funds increased $6.9 million, or 17.6%, to
$46.3 million for the year ended September 30, 1996 as compared to the year
ended September 30, 1995. This increase reflects a $153.9 million increase in
the average balance of borrowed funds to $823.0 million which, however, was
partially offset by a 26 basis point decrease in the average cost of borrowed
funds from 5.88% in fiscal year 1995 to 5.62% in fiscal year 1996.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $1.2 million and $1.7 million for possible loan losses
during the years ended September 30, 1996 and 1995, respectively. The reduction
in the provision for possible loan losses reflects the improvement of the Bank's
ratio of its allowance for possible loan losses to total nonaccrual loans which
amounted to 75.9% and 70.0% at September 30, 1996 and 1995, respectively.
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1996 amounted to $99.5 million, representing an increase of $6.0
million, or 6.4%, from the year ended September 30, 1995. Net interest income
for the year ended September 30, 1996 increased $5.5 million due to a $132.9
million increase in average interest-earning assets and a 3 basis point increase
in the net interest margin. The provision for possible loan losses declined $.5
million, reflecting the improvement in the Bank's level of nonaccrual loans.
NON-INTEREST INCOME
Non-interest income amounted to $14.7 million for the year ended September 30,
1996 as compared with $6.6 million for the year ended September 30, 1995. The
$8.1 million improvement in non-interest income is primarily attributable to a
$5.8 million improvement in net gain (loss) on the sales of mortgage loans and
securities available for sale, coupled with a $1.4 million, or 35.0%, increase
in banking service fees and a $.8 million, or 123.0%, increase in fees from sale
of investment products. Included in fiscal year 1996's $4.8 million net gain on
the sales of mortgage loans and securities available for sale, is a gain of $2.9
million realized on the sale of the Company's investment in the common stock of
a local savings bank.
NON-INTEREST EXPENSE
Non-interest expense amounted to $57.4 million during the year ended September
30, 1996 as compared with $68.9 million during the year ended September 30,
1995. The year ended September 30, 1996 includes the one-time SAIF
recapitalization assessment of $9.4 million, while the prior year includes $19.0
million in merger and restructuring expenses incurred in connection with the
merger with
17-b
Hamilton. Excluding these one-time charges in both periods, non-interest expense
would have been $48.0 million in fiscal year 1996 as compared to $49.9 million
in the prior fiscal year. This decline of $1.9 million is primarily attributable
to consolidation efficiencies from the merger which, however, were partially
offset by the cost associated with stock appreciation rights as a result of the
62% increase in the price of the Company's stock during fiscal year 1996,
coupled with staffing and other costs associated with the Bank's multifamily
lending department, formed during fiscal year 1996, and the Bank's continued
efforts to expand into supermarket banking.
INCOME TAX EXPENSE
Income tax expense totaled $24.8 million for an effective tax rate of 43.6%
during fiscal year 1996 compared to $19.7 million for an effective tax rate of
63.0% during fiscal year 1995. The higher effective income tax rate during
fiscal year 1995 resulted from the non-deductibility of certain merger and
restructuring charges.
ANALYSIS OF FINANCIAL CONDITION
In managing its financial condition, the Company establishes objectives to
maximize the appropriate levels of asset and liability mix to meet profit, risk
and capital goals. Total assets increased $303.3 million to $3.2 billion at
September 30, 1997. The increase in total assets primarily reflects a $167.3
million increase in loans receivable and a $147.6 million increase in
mortgage-backed securities.
The growth in assets was primarily funded by a $245.1 million increase in
borrowed funds, as deposits decreased $31.5 million. At September 30, 1997 the
Bank also had $60.8 million in due to brokers which in October 1997 was
converted into additional borrowed funds. Although the Bank's strategy is to
fund asset growth with core deposits, the Bank will also continue to utilize
borrowings to fund asset growth when such growth can be conducted profitably
within the Bank's asset/liability management parameters and regulatory capital
constraints.
Loans serviced for others at September 30, 1997 amounted to $579.8 million as
compared to $597.0 million at September 30, 1996.
LIQUIDITY AND CAPITAL
The Company's current primary sources of funds are dividends from the Bank and
sales of debt and equity securities available for sale. Dividend payments to the
Company from the Bank are subject to the profitability of the Bank, applicable
law and regulations, and provisions under terms of the Bank's subordinated
capital note agreements. During fiscal years 1997, 1996 and 1995, the Bank made
dividend payments to the Company amounting to $27.8 million, $37.4 million and
$26.2 million, respectively.
The Company's liquidity is also available for, among other things, payments of
dividends or repurchases of outstanding shares of the Company's common stock. In
this regard, during fiscal years 1997, 1996 and 1995 the Company declared cash
dividends of $11.4 million, $9.2 million and $9.1 million, respectively, and
made treasury stock repurchases of $27.7 million, $29.0 million and $28.8
million, respectively.
18-a
The maintenance of an appropriate level of liquid resources to meet not only
regulatory requirements but also to provide the funding necessary to meet the
Company's consolidated business activities and obligations is an integral
element in the successful management of the Company's assets. At September 30,
1997, federal regulations required that for each calendar month, a savings
institution maintain an average daily balance of cash and cash equivalents and
certain uncommitted marketable securities equal to 5% of net withdrawable
accounts and borrowings payable in one year or less. Under Office of Thrift
Supervision ("OTS") regulations, the percentage of assets which must be liquid
assets may vary between 4% and 10% of the obligation of the savings institution
on withdrawable accounts and borrowings payable on demand or with unexpired
maturities of one year or less. During September 1997, the Bank's liquidity
ratio was 5.15% compared to 5.26% for the month of September 1996. The liquidity
levels will vary dependent upon savings flows, future loan fundings, operating
needs and general prevailing economic conditions. Because of the Bank's diverse
available funding sources, including cash flows from the Bank's regular
amortization and interest received in connection with the loan and
mortgage-backed securities portfolios and borrowings, available on a
collateralized basis, the Company does not foresee any problems in generating
liquidity to meet its operational, debt repayment and other requirements.
During fiscal 1997, the Company's operating activities provided $69.8 million.
These funds, along with $179.6 million provided by financing activities and
funds available at the beginning of the fiscal year, were utilized to fund net
investing activities of $246.8 million. Financing activities primarily provided
borrowings with original maturities greater than three months.
The primary investment activity of the Bank is the origination and purchase of
loans receivable, and the purchase of mortgage-backed securities and debt and
equity securities. During fiscal year 1997, the Bank originated $544.4 million
of loans and purchased $22.4 million of loans. Further, during fiscal year 1997,
the Bank purchased $261.1 million of mortgage-backed securities and $84.1
million of debt and equity securities. These activities were primarily funded by
principal and interest payments on loans, mortgage-backed securities and debt
and equity securities, from the sales of loans and securities available for
sale, and from deposits, borrowings from the Federal Home Loan Bank of New York
("FHLB-NY") and reverse repurchase agreements.
At September 30, 1997, the Bank is considered a "well-capitalized" institution
under the prompt corrective action regulations and continued to exceed all
regulatory capital requirements. Regulatory capital, which is comprised of
"tangible capital," "core capital" and "risk-based capital," amounted to
approximately $165.9 million, $165.9 million and $184.1 million, respectively,
which exceeded the respective regulatory requirements by $117.2 million, $68.5
million and $59.6 million. (See note 17 to Consolidated Financial Statements.)
18-b
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and accompanying notes 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 due to inflation. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary. As
a result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
COMPUTER ISSUES FOR THE YEAR 2000
As a financial services company, the Bank is aware of the potential problems the
year 2000 could have on its computer systems and programs. During fiscal year
1997, the Bank initiated a review of its computer systems and programs to
determine which, if any, systems and programs are not capable of recognizing the
year 2000. Communications were initiated with all of the Bank's vendors that
supply the Bank with these systems and programs. The Bank's efforts to determine
what, if any, problems exist has been substantially completed. Where the
potential computer problems for the year 2000 have been identified, vendors have
committed to resolving such problems by no later than September 30, 1998. As a
result of the pending merger with North Fork, it is anticipated that the
Company's computer systems will be converted to those of North Fork. (See note 2
to Consolidated Financial Statements.)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). The Statement is effective for transactions occurring after December 31,
1996. The Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial - components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("SFAS No. 127"). The Statement delays for one year the implementation
of SFAS No. 125, as it relates to (1) secured borrowings and collateral, and (2)
transfers of financial assets that are part of repurchase agreement,
dollar-roll, securities lending and similar transactions.
19-a
The Company has adopted portions of SFAS No. 125 (those not deferred by SFAS No.
127) effective January 1, 1997. Adoption of these portions did not have a
significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS No. 125, management does not believe
adoption of the portions of SFAS No. 125 which have been deferred by SFAS No.
127 will have a material effect on the Company.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). The Statement is effective for
periods ending after December 15, 1997, and will require restatement of all
prior-period earnings per share ("EPS") data presented. The Statement
establishes standards for computing and presenting EPS. It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the income statement. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Based on its review
of the Statement, management believes the adoption of SFAS No. 128 will result
in basic earnings per share being modestly higher than the current primary
earnings per share, and at the same time will have no material effect on diluted
earnings per share of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). The Statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
also requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of prior periods will be required. Management has not
completed its review of SFAS No. 130, and has not determined the impact, if any,
that adoption of SFAS No. 130 will have on the Company.
19-b
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The Statement establishes standards for the way an enterprise
reports information about operating segments in annual financial statements and
requires that enterprises report selected information about operating segments
in interim financial reports issued to shareholders. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Statement
requires a reconciliation of total segment revenue and expense items and segment
assets to the amounts in the enterprise's financial statements. The Statement
also requires a descriptive report on how the operating segments were
determined, the products and services provided by the operating segments, and
any measurement differences used for segment reporting and financial statement
reporting. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. Management has not completed its review of SFAS
No. 131, but does not anticipate that the adoption of SFAS No. 131 will have a
significant effect on the Company.
LEGISLATIVE MATTERS
On September 30, 1996, Congress passed, and the President signed, legislation
that recapitalized the SAIF. Under the major provisions of the legislation,
savings institutions, such as the Bank, were assessed a one-time assessment of
65.7 basis points per $100 of insured SAIF-assessable deposits as of March 31,
1995. Since approximately 80.8% of the Bank's deposits were insured by the SAIF
(the remainder were insured by the Bank Insurance Fund ("BIF")), the Company
recorded a one-time charge of $9.4 million during the fourth quarter of fiscal
year 1996.
20-a
As a result, the disparity of insurance premiums between SAIF and BIF members
was eliminated. Beginning January 1, 1997 deposit insurance premiums for SAIF
members were reduced to the same schedule as BIF members, ranging from 0 to 27
basis points rather than the previous range of 23 to 31 basis points. In
addition, SAIF deposits are assessed approximately 6.3 basis points, and BIF
deposits assessed approximately 1.3 basis points, to cover the cost of Financing
Corporation ("FICO") obligations, until December 31, 1999. Full pro rata sharing
of the FICO payments between SAIF and BIF members will occur on the earlier of
January 1, 2000 or the date the SAIF and BIF are merged. The legislation
specifies that the SAIF and BIF will be merged on January 1, 1999 provided no
savings associations remain as of that time. As a result of this legislation,
the Bank has seen a significant decrease in deposit insurance premiums. However,
management cannot predict the level of FDIC insurance assessments on an on-going
basis.
Legislation has been introduced in Congress that would eliminate the federal
savings association charter. The legislation would require all federal savings
associations convert to national banks or state-chartered institutions two years
after enactment. Federal associations that fail to convert would automatically
become national banks. Additionally, the OTS would be eliminated. The
legislation provides for the merger of the BIF and the SAIF as of January 1,
2000, or a date two years after enactment. A federal thrift could continue to
engage in any activity in which it was lawfully engaged prior to converting to a
national bank charter. A savings and loan holding company in existence on the
date of enactment would become a bank holding company. Activities permitted for
a savings and loan holding company would be grandfathered, but would be lost if
a bank subsidiary is acquired or there is a change in control. No assurance can
be given as to whether this legislation will be enacted or, if enacted, what the
terms of such legislation would be.
20-b
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30,
--------------------------
1997 1996
--------------------------
ASSETS
Cash and due from banks.................................................... $ 26,305 $ 13,045
Money market investments (note 3).......................................... -- 10,700
Investment in debt and equity securities, net:
Held to maturity (estimated market value of
$609 and $641 at September 30, 1997
and 1996, respectively) - (note 4)...................................... 593 643
Available for sale (notes 5 and 14)...................................... 107,150 136,133
Mortgage-backed securities, net:
Held to maturity (estimated market value of
$636,142 and $534,602 at September 30, 1997
and 1996, respectively) - (notes 6 and 14).............................. 644,247 550,817
Available for sale (notes 7, 14 and 21).................................. 334,641 280,429
Federal Home Loan Bank stock (note 14)..................................... 54,119 27,938
Loans receivable, net (notes 8, 9 and 14):
First mortgage loans..................................................... 1,788,031 1,603,769
Other loans.............................................................. 251,080 268,779
-------------- --------------
2,039,111 1,872,548
Less allowance for possible loan losses.................................. (18,695) (19,386)
-------------- --------------
Total loans receivable, net............................................ 2,020,416 1,853,162
Accrued interest receivable (note 10)...................................... 21,590 21,862
Premises and equipment, net (note 11)...................................... 12,711 12,927
Other assets (notes 12 and 16)............................................. 22,428 33,251
-------------- --------------
Total assets........................................................... $ 3,244,200 $ 2,940,907
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (note 13)....................................................... $ 1,684,419 $ 1,715,959
Borrowed funds, including securities sold under
agreements to repurchase of $840,331 and $453,698
at September 30, 1997 and 1996, respectively (note 14).................. 1,253,931 1,008,786
Mortgagors' escrow payments.............................................. 17,247 14,987
Due to brokers (note 6).................................................. 60,765 --
Accrued expenses and other liabilities (notes 15 and 18)................. 58,775 49,272
------------- -----------
Total liabilities...................................................... 3,075,137 2,789,004
-------------- --------------
Commitments, contingencies and contracts (notes 8, 16 and 20)
SHAREHOLDERS' EQUITY (NOTES 16, 17 AND 19):
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued................................................. -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 29,493,166 and 29,493,700 shares issued at September 30, 1997
and 1996, respectively; 21,318,644 and 22,197,600 shares outstanding
at September 30, 1997 and 1996, respectively......................... 295 295
Additional paid-in capital............................................... 66,495 65,355
Retained earnings, substantially restricted.............................. 181,851 145,686
Treasury stock, at cost, 8,174,522 and 7,296,100
shares at September 30, 1997 and 1996, respectively..................... (81,092) (58,871)
Unrealized appreciation (depreciation) on securities
available for sale, net of tax effect................................... 1,514 (562)
-------------- --------------
Total shareholders' equity............................................. 169,063 151,903
-------------- --------------
Total liabilities and shareholders' equity............................. $ 3,244,200 $ 2,940,907
============== ==============
See accompanying notes to consolidated financial statements.
21
CONSOLIDATED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended September 30,
-------------------------------------------------
1997 1996 1995
INTEREST INCOME:
Interest and fees on loans:
First mortgage loans..................................... $ 140,248 $ 118,792 $ 104,042
Other loans.............................................. 22,355 24,735 25,916
------------ ----------- -----------
Total interest and fees on loans....................... 162,603 143,527 129,958
Mortgage-backed securities................................. 63,790 56,921 60,331
Debt and equity securities - taxable....................... 12,435 6,774 4,877
Money market investments................................... 21 256 1,080
Trading account securities................................. -- 13 726
------------ ----------- -----------
Total interest income.................................. 238,849 207,491 196,972
------------ ----------- -----------
INTEREST EXPENSE:
Deposits (notes 13 and 21)................................. 55,522 60,470 62,394
Borrowed funds (notes 14 and 21)........................... 65,111 46,276 39,336
------------ ----------- -----------
Total interest expense................................. 120,633 106,746 101,730
------------ ----------- -----------
Net interest income.................................... 118,216 100,745 95,242
Provision for possible loan losses (note 9)................ (2,100) (1,200) (1,700)
------------ ----------- -----------
Net interest income after provision for
possible loan losses................................ 116,116 99,545 93,542
------------ ----------- -----------
NON-INTEREST INCOME:
Loan fees and service charges.............................. 2,941 2,770 2,566
Banking service fees....................................... 6,564 5,323 3,944
Fees from sale of investment products...................... 1,814 1,376 617
Net gain (loss) on the sales of mortgage loans and
securities available for sale (notes 5, 7 and 8)......... 2,681 4,750 (1,088)
Other ..................................................... 4,753 448 573
------------ ----------- -----------
Total non-interest income.............................. 18,753 14,667 6,612
------------ ----------- -----------
NON-INTEREST EXPENSE:
General and administrative:
Compensation and benefits (notes 18 and 19).............. 25,603 22,741 21,809
Occupancy, net (notes 11 and 20)......................... 8,842 8,397 8,751
Advertising and promotion................................ 2,261 2,565 2,565
Federal deposit insurance premiums....................... 2,212 3,759 4,464
Other.................................................... 11,131 10,073 11,379
------------ ----------- -----------
Total general and administrative....................... 50,049 47,535 48,968
Merger and restructuring (note 2).......................... -- -- 19,024
Real estate operations, net (note 12)...................... 924 463 883
SAIF recapitalization (note 13)............................ -- 9,432 --
------------ ----------- -----------
Total non-interest expense............................. 50,973 57,430 68,875
------------ ----------- -----------
Income before income tax expense....................... 83,896 56,782 31,279
------------ ----------- -----------
INCOME TAX EXPENSE (NOTE 16):
Federal expense............................................ 25,900 16,676 13,460
State and local expense.................................... 6,785 8,100 6,257
------------ ----------- -----------
Total income tax expense............................... 32,685 24,776 19,717
------------ ----------- -----------
Net income............................................. $ 51,211 $ 32,006 $ 11,562
============ =========== ===========
EARNINGS PER COMMON SHARE (NOTE 17).......................... $ 2.25 $ 1.34(1) $ .43(1)
(1) Per share amounts have been restated to fully reflect the 3-for-2 stock
split effective January 23, 1997 and the 4-for-3 stock split effective July
24, 1997.
See accompanying notes to consolidated financial statements.
22
CONSOLIDATED
STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Unrealized
Common Appreciation
Common Stock (Depreciation)
Additional Stock Acquired on Securities
Common Paid-in Retained Treasury Acquired by Available
Stock Capital Earnings Stock by ESOP RRP for Sale Total
--------- ----------- ------------ ---------- ------- --------- ---------- ---------
Balance at September 30, 1994.. $ 295 $ 62,664 $ 125,528 $ (9,995) $ (2,174) $ (1,130) $ (3,897) $ 171,291
Net income for the year
ended September 30, 1995...... -- -- 11,562 -- -- -- -- 11,562
Dividends declared on common stock -- -- (9,114) -- -- -- -- (9,114)
Exercise of 770,928 shares of
stock options................. 3 -- (603) 1,544 -- -- -- 944
Purchase of 2,906,032 shares of
treasury stock................ -- -- -- (28,784) -- -- -- (28,784)
Purchase and retire 393,286 shares (2) (3,710) -- -- -- -- -- (3,712)
Net proceeds from sale of 596,750
shares of treasury stock (note 2) -- 1,035 -- 3,495 -- -- -- 4,530
ESOP and RRP activity,
including tax benefit (note 2) (1) 3,438 -- -- 2,174 1,130 -- 6,741
Hamilton Bancorp's net income
for the three months ended
December 31, 1994 (note 2).... -- -- (1,780) -- -- -- -- (1,780)
Change in unrealized appreciation
on securities available for sale,
net of taxes of $3,690........ -- -- -- -- -- -- 4,708 4,708
----- --------- ---------- --------- -------- -------- -------- ---------
Balance at September 30, 1995.. 295 63,427 125,593 (33,740) -- -- 811 156,386
Net income for the year
ended September 30, 1996...... -- -- 32,006 -- -- -- -- 32,006
Dividends declared on common stock -- -- (9,218) -- -- -- -- (9,218)
Exercise of 348,076 shares of
stock options................. -- 1,928 (2,695) 3,897 -- -- -- 3,130
Purchase of 2,428,424 shares of
treasury stock................ -- -- -- (29,028) -- -- -- (29,028)
Unrealized depreciation on securities
transferred from held to maturity to
available for sale, net of taxes
of $97 -- -- -- -- -- -- (126) (126)
Change in unrealized appreciation
(depreciation) on securities available
for sale, net of taxes of $968 -- -- -- -- -- -- (1,247) (1,247)
------ ---- ----- ---- ----- ----- ---------- ---------
Balance at September 30, 1996.. 295 65,355 145,686 (58,871) -- -- (562) 151,903
Net income for the year
ended September 30, 1997...... -- -- 51,211 -- -- -- -- 51,211
Dividends declared on common stock -- -- (11,391) -- -- -- -- (11,391)
Exercise of 290,861 shares of
stock options................. -- 1,153 (3,655) 5,512 -- -- -- 3,010
Purchase of 1,169,284 shares of
treasury stock................ -- -- -- (27,733) -- -- -- (27,733)
Cash paid in lieu of 534 fractional
shares in the aggregate, resulting
from the 3-for-2 and 4-for-3
stock splits................. -- (13) -- -- -- -- -- (13)
Change in unrealized appreciation
(depreciation) on securities
available for sale, net
of taxes of $1,481 -- -- -- -- -- -- 2,076 2,076
----- ---------- --------- -------- -------- -------- --------- ---------
Balance at September 30, 1997.. $ 295 $ 66,495 $ 181,851 $ (81,092) $ -- $ -- $ 1,514 $ 169,063
===== ========= ========== ========= ======== ======== ======== =========
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
(IN THOUSANDS)
Year Ended September 30,
-------------------------------------------------
1997 1996 1995
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 51,211 $ 32,006 $ 11,562
--------------- --------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................... 2,332 2,153 2,064
Amortization and accretion of deferred fees,
discounts and premiums................................. (186) 1,823 1,538
Provision for possible loan losses...................... 2,100 1,200 1,700
Provision for losses on foreclosed real estate.......... 304 346 361
Net loss on sale of foreclosed real estate.............. 177 147 82
Net (gain) loss on sale of mortgage loans and
securities available for sale.......................... (2,681) (4,750) 1,088
SAIF recapitalization................................... (9,432) 9,432 --
Deferred income taxes................................... 5,599 (3,520) (1,965)
Amortization of ESOP and RRP compensation
expense................................................ -- -- 464
Termination of ESOP and RRP............................. -- -- 4,992
Net decrease in trading account......................... -- 2,003 10,936
(Increase) decrease in accrued interest receivable...... 272 (139) (2,579)
Increase in accrued interest payable.................... 173 1,476 838
Increase (decrease) in accrued expenses and
other liabilities...................................... 18,406 (6,290) 3,779
Decrease in other assets............................... 1,515 1,806 2,812
--------------- --------------- -------------
Total adjustments....................................... 18,579 5,687 26,110
--------------- --------------- -------------
Net cash provided by operating activities................. 69,790 37,693 37,672
--------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on loans............................... 347,635 296,727 201,852
Principal payments on mortgage-backed securities.......... 141,348 102,091 80,169
Principal payments, maturities and calls
on debt and equity securities............................ 94,050 56,938 30,987
Proceeds on sales of loans................................ 45,879 76,349 38,799
Proceeds on sales of mortgage-backed securities
available for sale....................................... 35,734 83,766 77,279
Proceeds on sales of debt and equity securities
available for sale....................................... 20,815 17,083 7,737
Investment in first mortgage loans........................ (503,521) (571,989) (432,050)
Investment in other loans................................. (59,815) (59,045) (71,057)
Investment in mortgage-backed securities
available for sale....................................... (171,110) (82,445) (45,789)
Investment in mortgage-backed securities
held to maturity......................................... (89,973) -- --
Investment in debt and equity securities
available for sale....................................... (84,135) (142,048) (52,221)
Investment in interest rate collar and floor agreements... -- (915) (2,265)
Proceeds on sales of foreclosed real estate............... 4,595 2,856 8,035
Proceeds from sale of interest rate floor and interest
rate swap agreements..................................... -- 1,512 10,835
Purchases of Federal Home Loan Bank stock, net............ (26,181) (7,650) (2,879)
Net purchases of premises and equipment................... (2,116) (2,229) (1,374)
--------------- --------------- -------------
Net cash used in investing activities..................... (246,795) (228,999) (151,942)
--------------- --------------- -------------
(Continued)
24
CONSOLIDATED
STATEMENTS OF CASH
FLOWS (CONTINUED)
(IN THOUSANDS)
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
demand, savings, money market,
and NOW accounts......................................... $ 8,486 $ 14,341 $ (187,214)
Net increase (decrease) in time deposits.................. (40,026) (47,256) 152,542
Net increase (decrease) in borrowings with original
maturities of three months or less....................... 192,188 (93,936) 248,715
Proceeds from long-term borrowings........................ 652,076 691,459 10,000
Repayment of long-term borrowings......................... (599,119) (355,875) (66,517)
Purchase of common stock for treasury
or retirement............................................ (27,733) (29,028) (32,496)
Payment of common stock dividends......................... (10,411) (9,427) (8,156)
Exercise of stock options................................. 1,857 1,202 872
Proceeds from sale of treasury stock...................... -- -- 4,530
Cash paid in lieu of fractional shares
resulting from stock splits.............................. (13) -- --
Increase (decrease) in mortgagors' escrow accounts........ 2,260 (1,533) 1,004
--------------- --------------- -------------
Net cash provided by financing activities................. 179,565 169,947 123,280
--------------- --------------- -------------
Net increase (decrease) in cash and cash equivalents...... 2,560 (21,359) 9,010
Hamilton's net cash flows for the three months ended
December 31, 1994 (note 2)............................... -- -- (5,771)
Cash and cash equivalents at beginning of year............ 23,745 45,104 41,865
--------------- --------------- -------------
Cash and cash equivalents at end of year.................. $ 26,305 $ 23,745 $ 45,104
=============== =============== =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................. $ 130,123 $ 108,096 $ 99,797
=============== =============== =============
Income taxes paid......................................... $ 18,612 $ 26,328 $ 20,599
=============== =============== =============
Noncash Investing and Financing Activities:
Transfer of loans to real estate owned.................. $ 3,041 $ 4,462 $ 4,455
=============== =============== =============
Securities purchased not yet settled.................... $ 60,765 $ -- $ --
=============== =============== =============
Transfer of mortgage-backed securities available
for sale to mortgage-backed securities
held to maturity....................................... $ -- $ 15,421 $ --
=============== =============== =============
Transfer of mortgage-backed securities held
to maturity to mortgage-backed securities
available for sale..................................... $ -- $ 84,109 $ 69,817
=============== =============== =============
Securitization and transfer of loans to
mortgage-backed securities available for sale.......... $ -- $ 65,364 $ 11,418
=============== =============== =============
Transfer of debt securities held
to maturity to debt and equity securities
available for sale..................................... $ -- $ 15,000 $ 7,465
=============== =============== =============
See accompanying notes to consolidated financial statements.
25
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New York Bancorp Inc. ("New York Bancorp" or the "Holding Company") is a savings
and loan holding company under the Savings and Loan Holding Company Act, as
amended ("SLHCA"). The Holding Company, through its savings bank subsidiary,
Home Federal Savings Bank (the "Bank") operates as a community savings bank. The
significant accounting and reporting policies are summarized below.
(A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting and include the accounts of New York Bancorp and its wholly
owned subsidiary, Home Federal Savings Bank (collectively the "Company"). All
material intercompany transactions and balances have been eliminated.
On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings"), was merged with and into New
York Bancorp (see note 2) and Hamilton Savings was merged into the Bank. The
merger was accounted for as a pooling of interests and, accordingly, all prior
periods include the consolidated accounts of Hamilton.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. The consolidated financial statements for fiscal year 1995 reflect
Hamilton's year-end conformed with that of the Company. Prior year consolidated
financial statements reflect the combination of the Company at and for the year
ended September 30 with Hamilton at or for its year ended December 31.
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 the consolidated statements of condition and
income for the years presented. Estimates that are susceptible to change
include, among other things, the determination of the allowance for possible
loan losses and the valuation of real estate acquired in connection with
foreclosures. Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and money market investments.
(B) MONEY MARKET INVESTMENTS
Money market investments represent short-term instruments (generally ninety days
or less), which are generally held to maturity. These investments are carried at
cost or, if applicable, at cost adjusted for accretion of discount or
amortization of premium using a method which approximates the level-yield method
over the period to maturity. Carrying values of these investments approximate
current market values.
(C) TRADING ACCOUNT SECURITIES
Trading account securities are carried at estimated market value. Net realized
and unrealized gains (losses) are included in non-interest income. Interest on
trading account securities is included in interest income.
26-a
(D) DEBT AND EQUITY AND MORTGAGE-BACKED SECURITIES
Debt and mortgage-backed securities 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.
Debt and mortgage-backed securities to be held for indefinite periods of time
and not intended to be held to maturity and marketable equity securities are
classified as available for sale securities and are recorded at fair value, with
unrealized appreciation and depreciation, net of tax, reported as a separate
component of shareholders' equity.
Gains and losses on the sale of securities are determined using the specific
identification method.
(E) LOANS RECEIVABLE
Loans are carried at amortized cost. Interest on loans is recognized on the
accrual basis. The accrual of income on loans is discontinued when certain
factors, such as contractual delinquency of ninety days or more, indicate
reasonable doubt as to the timely collectibility of such income. However,
management may elect to continue to accrue interest on loans over ninety days
delinquent if, in the opinion of management, collection is expected, primarily
through a third party guarantee. Interest previously recognized on past due
loans is charged to the allowance for loan losses when in the opinion of
management such interest is deemed to be uncollectible. Loans on which the
accrual of income has been discontinued are designated as nonaccrual loans and
income is recognized subsequently only in the period collected. Loans for which
no third party guarantee exists that are not secured by a lien on real property
are charged to the allowance for loan losses when they become more than 120 days
delinquent.
Loan origination fees, less certain direct origination costs, are deferred and
recognized as an adjustment of the loan's yield over the life of the loan by the
interest method, which results in a constant rate of return. When loans are
sold, any remaining unaccreted deferred fees are recognized as income at the
time of sale.
Discounts (premiums) on mortgage loans purchased are deferred and accreted
(amortized) to income over the life of the loans using the level-yield method.
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114") and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures" ("SFAS
No. 118") which amended SFAS No. 114 (collectively the "Statements"). Under the
Statements, a loan is considered impaired when it is probable that the Company,
based upon current information, will not collect all amounts due, both principal
and interest, according to the contractual terms of the loan agreement. Certain
loans are exempt from the provisions of the Statements, including large groups
of smaller-balance homogenous loans that are collectively evaluated for
impairment which, for the Company, include one-to-four family first mortgage
loans and consumer and commercial loans whose principal balance is less than
26-b
$500,000, other than those modified in a troubled debt restructuring (TDR). A
loan is considered a TDR by the Company when modifications of a concessionary
nature are made to the loan's original contractual terms due to the borrower's
financial difficulties. The Statements require that impaired loans that are
within the scope of these Statements 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 observable market price or the fair
value of the collateral if the loan is collateral dependent.
Loans reviewed for impairment by the Company are limited to one-to-four family
first mortgage loans and consumer and commercial loans in excess of $500,000,
loans modified in a TDR, and commercial real estate loans. At September 30, 1997
and 1996, the measurement values of the Company's impaired loans were based upon
the estimated market value of the underlying collateral. The Company's impaired
loan identification and measurement processes are conducted in conjunction with
the Company's review of classified assets and adequacy of its allowance for
possible loan losses. Specific factors utilized in the impaired loan
identification process include, but are not limited to, delinquency status,
loan-to-value ratio, and debt coverage. Cash receipts on an impaired loan 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 the
full payment is applied as a reduction of the carrying value of the loan. If the
estimated market value of the underlying collateral, including guarantees, is
less than the principal balance of an impaired loan, a loss is either charged to
the allowance for possible loan losses or an impairment reserve is allocated to
reduce the book value of the loan to the estimated market value of the
underlying collateral.
Interest income on impaired loans is recorded on a cash basis, except for a TDR
which has performed under its restructured terms for at least six months, at
which time the accrual basis is utilized.
The adoption of SFAS Nos. 114 and 118 did not have a significant effect on the
Company's financial condition or results of operations.
Provisions for possible loan losses are charged to operations based on
management's periodic review and evaluation of the loan portfolio in relation to
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
overall portfolio quality, and underlying collateral values and cash flow
values. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies could require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. Management believes that the allowance for possible
loan losses is adequate.
(F) LOAN SERVICING
Fees earned for servicing loans owned by investors are reported as income when
the related mortgage loan payments are collected. Loan servicing costs are
charged to expense as incurred.
27-a
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122").
SFAS No. 122 was superseded by SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective for
transactions occurring after December 31, 1996. The Statements establish
accounting standards for mortgage servicing rights, which are the contractual
right to service loans owned by others, typically for a fee. Prior to these
Statements, only purchased mortgage servicing rights were capitalized as an
asset. SFAS Nos. 122 and 125 require originated mortgage servicing rights
("OMSR") to be capitalized as an asset. OMSR represents mortgage servicing
rights acquired when an institution originates and subsequently sells or
securitizes mortgage loans but retains the servicing rights. The Statements also
require all capitalized mortgage servicing rights ("MSR") to be evaluated for
impairment based on their value. In evaluating for impairment, the Company
stratifies its MSR by adjustable or fixed rate loans, by interest rate, and by
year of origination. The Company uses current market assumptions for prepayment
speeds and discounts, and a 4.5% annual inflation factor for servicing costs.
The adoption of SFAS Nos. 122 and 125 did not have a significant effect on the
Company's operating results or financial position.
The Company amortizes its MSR in proportion to, and over the period of,
estimated servicing income.
(G) PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and building improvements, leasehold
improvements and furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings, building improvements and
furniture, fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the respective assets. Leasehold improvements
are amortized using the straight-line method over the terms of the related
leases.
(H) REAL ESTATE OWNED
Real estate owned consists of real estate acquired in satisfaction of loans, and
is carried at the lower of cost or estimated fair value less estimated selling
costs. When a property is acquired in satisfaction of a loan, the excess of the
carrying amount over the fair value, if any, is charged to the allowance for
loan losses. Subsequent to acquisition, an allowance for real estate owned is
established to maintain these properties at the lower of cost or fair value less
estimated costs to sell. Real estate owned is shown net of the allowance.
The allowance is established through charges to income which are included in
real estate operations, net. Operating results of real estate owned, including
rental income, operating expenses, and gains and losses realized from the sales
of properties owned, are also recorded in real estate operations, net.
(I) 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.
27-b
(J) INCOME TAXES
The Holding Company and its subsidiary file consolidated income tax returns. The
subsidiary pays to or receives from the Holding Company, as appropriate, an
allocated portion of the consolidated income taxes or benefits based upon the
effective current income tax rate.
Deferred taxes are provided for temporary differences between the tax basis and
financial statement carrying amounts of existing assets and liabilities, which
is measured by applying enacted tax laws and rates. A valuation allowance is
provided for deferred tax assets which are deemed not likely to be realized.
(K) STOCK-BASED COMPENSATION PLANS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS No.
123 applies to all transactions in which an entity acquires goods or services by
issuing equity instruments or by incurring liabilities where the payment amounts
are based on the entity's common stock price, except for employee stock
ownership plans.
SFAS No. 123 establishes a new method of accounting for stock-based compensation
arrangements with employees. The new method is a fair value based method rather
than the intrinsic value based method that is contained in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
SFAS No. 123 does not require an entity to adopt the new fair value method for
purposes of preparing its basic financial statements. Entities are permitted to
either adopt the fair value based method or to continue the use of APB 25. For
entities not adopting the SFAS No. 123 fair value based method, SFAS No. 123
requires the entity to display in the notes to the financial statements pro
forma net income and earnings per share information as if the fair value based
method had been adopted.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. However, pro
forma disclosures required for entities that elect to continue to measure
compensation cost using the APB 25 method must include the effect of all awards
granted in fiscal years that began after December 15, 1994. The Company will
continue to apply the APB 25 method in preparing its consolidated financial
statements and will provide the pro forma disclosures required by SFAS No. 123
in the notes to the consolidated financial statements.
(L) RETIREMENT PLANS
The Company has a pension plan covering substantially all employees who have
attained minimum service requirements. The Company's policy is to contribute
annually an amount sufficient to meet the Employee Retirement Income Security
Act of 1974, as amended, ("ERISA") funding standards.
Postretirement and postemployment 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.
28-a
(M) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate swaps, caps, floors, collars, options and financial futures
agreements are periodically used to manage the Company's interest rate risk.
Generally, the net settlements on such transactions used as hedges of
non-trading assets or liabilities are accrued as an adjustment to interest
income or interest expense over the lives of the agreements. Further, gains or
losses on terminated contracts used as hedges of non-trading assets or
liabilities are generally deferred and amortized over the life of the original
hedge. Contracts which are not matched against specific assets, liabilities, or
the repricing of interest rate floor arrangements or do not meet correlation
criteria are accounted for at market value with the resulting gain or loss
recognized in operations.
(N) EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The weighted average number of shares of common stock and common
stock equivalents used in the computation of earnings per common share for the
years ended September 30, 1997, 1996 and 1995 was 22,806,867, 23,888,786 and
26,655,830, respectively.
(2) BUSINESS COMBINATION
(A) MERGER AGREEMENT WITH NORTH FORK BANCORPORATION, INC.
On October 7, 1997, New York Bancorp signed a definitive merger agreement with
North Fork Bancorporation, Inc. ("North Fork") whereby the Company will be
merged with and into North Fork (the "Merger Agreement"). Under the terms of the
Merger Agreement, each share of the Company outstanding at the effective time of
the merger will be exchangeable for 1.19 shares (the "Exchange Ratio") of North
Fork common stock. The transaction, which is expected to be completed during the
first quarter of calendar year 1998, is subject to approval by the shareholders
of both the Company and North Fork, the approval of the appropriate regulatory
authorities, as well as the satisfaction of certain other conditions. The merger
is expected to be accounted for as a pooling of interests.
If the market value of the North Fork common stock (as determined in accordance
with the procedures set forth in the Merger Agreement) falls below $25.50,
either party may terminate the Merger Agreement unless, in the case of
termination by New York Bancorp, North Fork increases the Exchange Ratio so that
the shares of North Fork common stock issued in exchange for each share of New
York Bancorp common stock have a value of not less than $30.35.
In connection with the Merger Agreement, North Fork and the Company also entered
into a Stock Option Agreement dated October 7, 1997, pursuant to which the
Company granted North Fork an option to purchase 4,261,000 shares of New York
Bancorp common stock, upon the terms and conditions stated therein. The maximum
profit North Fork can receive under the Stock Option Agreement is $40.0 million.
28-b
(B) MERGER WITH HAMILTON BANCORP, INC.
On January 27, 1995, New York Bancorp acquired Hamilton in a transaction
accounted for under the pooling of interests method of accounting. Pursuant to
the merger agreement, New York Bancorp issued 3.41 shares of common stock for
each outstanding share of Hamilton common stock and reserved for issuance
365,648 shares of common stock for Hamilton's stock options outstanding as of
the merger consummation date. In addition, 612,784 shares of common stock were
issued to holders of Hamilton stock options who received stock for the options
calculated in accordance with the formula contained in the merger agreement. As
a condition to the merger, Hamilton, immediately prior to the consummation of
the merger, reissued in an underwritten offering 175,000 shares of Hamilton
treasury stock amounting to net proceeds of $4,530,000, after underwriting
commission and offering costs. As a result of the above, 12,449,842 shares of
common stock were issued in connection with the merger.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. The consolidated financial statements for 1995 reflect Hamilton's
year-end conformed with that of the Company, while prior year consolidated
financial statements include the operations of Hamilton for its year ended
December 31. The effect on the accompanying consolidated financial statements
arising from the inclusion of the $1,780,000 of net income of Hamilton for the
three months ended December 31, 1994 in the Company's results of operations for
both fiscal year 1995 and 1994 is presented in the accompanying Consolidated
Statement of Changes in Shareholders' Equity as an adjustment for change in
fiscal year of Hamilton. Additionally, the Consolidated Statements of Income for
both fiscal year 1995 and 1994 each include $7,948,000 and $1,780,000
representing net interest income after provision for possible loan losses and
net income, respectively, reflecting those results of Hamilton's operations for
the three months ended December 31, 1994.
The following is a summary of Hamilton Bancorp's cash flows for the three months
ended December 31, 1994 (in thousands):
Net cash provided by operating activities........................ $ 678
Net cash used by investing activities............................ (4,389)
Net cash provided by financing activities........................ 9,482
-----------
Net increase in cash and cash equivalents........................ $ 5,771
===========
In connection with the merger, during fiscal year 1995 the Company recorded
certain non-recurring merger-related and restructuring expenses of approximately
$19.0 million and reclassified $77.3 million of Hamilton's held to maturity
securities to available for sale securities. Of these securities, $66.8 million
were subsequently sold, resulting in a $1.2 million loss. The non-recurring
merger-related and restructuring charges reflected $4.3 million in investment
banking, legal and accounting fees, $6.3 million in severance costs, $5.1
million related to the termination of Hamilton's ESOP and the accelerated
vesting of shares of the Recognition and Retention Plan ("RRP") pursuant to the
requirements of such plans upon a change in control, and $3.3 million in certain
back-office and facilities consolidation costs and signage costs.
29-a
The following table summarizes the activity with respect to the merger-related
and restructuring expenses, on a pre-tax basis:
Merger-Related
and
Restructuring
Accrual
--------------
(In Thousands)
Balance at December 31, 1994.............................. $ --
Provision charged against operations...................... 19,024
Cash outlays.............................................. (12,287)
Non-cash items............................................ (6,395)
-----------
Balance at September 30, 1995............................. 342
Cash outlays.............................................. (342)
-----------
Balance at September 30, 1996............................. $ --
===========
(3) MONEY MARKET INVESTMENTS
Money market investments consisted of $10.7 million of securities purchased
under agreements to resell at September 30, 1996, which agreements matured on
October 1, 1996.
During the years ended September 30, 1996 and 1995, the Company entered into
purchases of securities under agreements to resell (none during the year ended
September 30, 1997). The amounts advanced under these agreements represented
short-term loans and are reflected as money market investments in the
consolidated statements of financial condition. Securities representing
collateral for these transactions were delivered by appropriate entry into the
Company's account maintained at a third-party custodian. Securities purchased
under agreements to resell averaged $.3 million and $1.2 million for the years
ended September 30, 1996 and 1995, respectively. The maximum amount of such
agreements outstanding at any month-end during the years ended September 30,
1996 and 1995 was $11.4 million and $8.4 million, respectively.
(4) DEBT SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of debt securities held to
maturity are summarized as follows:
September 30, 1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
BONDS AND NOTES - corporate notes........................ $ 593 $ 16 $ -- $ 609
========== ========== ========== ==========
September 30, 1996
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------
(In Thousands)
BONDS AND NOTES - corporate notes........................ $ 643 $ -- $ (2) $ 641
========== ========== ========== ==========
The debt securities held as of September 30, 1997 and 1996 mature on January 1,
2006. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations without call or
prepayment penalties.
29-b
There were no sales of debt securities held to maturity during the years ended
September 30, 1997, 1996 and 1995. (See note 2 regarding the transfer of
securities in connection with the Hamilton merger.)
(5) DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of debt and equity securities
available for sale are summarized as follows:
September 30, 1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------
(In Thousands)
EQUITY SECURITIES:
Stock in FNMA........................................... $ 2 $ 54 $ -- $ 56
---------- ----------- ----------- ----------
BONDS AND NOTES:
Agency obligations................................... 106,244 9 (318) 105,935
Other................................................ 1,143 16 -- 1,159
----------- ------------ ------------ -----------
107,387 25 (318) 107,094
----------- ------------ ------------ -----------
$ 107,389 $ 79 $ (318) $ 107,150
=========== ============ ============ ===========
September 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
EQUITY SECURITIES:
Common stocks......................................... $ 5,326 $ -- $ (508) $ 4,818
Stock in FNMA......................................... 2 40 -- 42
----------- ------------ ------------ -----------
5,328 40 (508) 4,860
----------- ------------ ------------ ------------
BONDS AND NOTES:
Agency obligations................................... 131,245 -- (1,007) 130,238
Other................................................ 1,028 7 -- 1,035
----------- ------------ ------------ -----------
132,273 7 (1,007) 131,273
----------- ------------ ------------ -----------
$ 137,601 $ 47 $ (1,515) $ 136,133
=========== ============ ============ ===========
The amortized cost and estimated market values of debt securities available for
sale are distributed to a maturity category based on the contractual maturity of
the security in the table below. Expected maturities may differ from contractual
maturities because borrowers have the right to call or prepay obligations
without call or prepayment penalties.
30-a
September 30, 1997
-----------------------------
Estimated
Amortized Market
Cost Value
-----------------------------
(In Thousands)
Due in one year or less.......................... $ 40,558 $ 40,570
Due after one year through five years............ 66,829 66,524
------------ ------------
$ 107,387 $ 107,094
============ ============
Gains and losses were realized on sales of debt and equity securities available
for sale as follows:
Year ended September 30,
------------------------
1997 1996 1995
---------------------------------------
(In Thousands)
Gross gains.................... $ 431 $ 3,143 $ 304
Gross losses................... (80) (2) (168)
----------- ------------ ------------
Net gains...................... $ 351 $ 3,141 $ 136
=========== ============ ============
(6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost and the estimated market values of mortgage-backed securities
held to maturity are summarized as follows:
September 30, 1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
FHLMC................................................... $ 3,346 $ 4 $ (27) $ 3,323
FNMA.................................................... 5,369 23 (130) 5,262
GNMA.................................................... 1,128 53 -- 1,181
Private-issue pass-through.............................. 48 -- -- 48
REMIC & CMO............................................. 634,356 1,654 (9,682) 626,328
----------- ------------ ------------ -----------
Total................................................... $ 644,247 $ 1,734 $ (9,839) $ 636,142
=========== ============ ============ ===========
September 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------
(In Thousands)
FHLMC................................................... $ 14,710 $ -- $ (59) $ 14,651
FNMA.................................................... 6,333 -- (129) 6,204
GNMA.................................................... 1,409 59 -- 1,468
Private-issue pass-through.............................. 1,264 25 -- 1,289
REMIC & CMO............................................. 527,101 -- (16,111) 510,990
----------- ------------ ------------ -----------
Total................................................... $ 550,817 $ 84 $ (16,299) $ 534,602
=========== ============ ============ ===========
Included in the amounts as of September 30, 1997 is a $60.8 million REMIC issue
which, in accordance with generally accepted accounting principles, has been
recorded on a trade date basis. As of September 30, 1997, the security had not
been delivered to the Company, nor had the Company paid for the security. The
corresponding liability is shown in the Consolidated Statement of Financial
Condition as Due to Brokers. The Company has entered into commitments for
reverse repurchase agreements which will provide the funds to pay for the REMIC
security on settlement date.
30-b
The amortized cost and estimated market values of mortgage-backed securities
held to maturity, all of which have prepayment provisions, are distributed to a
maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
September 30, 1997
------------------
Estimated
Amortized Market
Cost Value
-----------------------------
(In Thousands)
Due in one year or less....................... $ 19,739 $ 19,657
Due after one year through five years......... 347,119 345,344
Due after five years through ten years........ 208,243 204,541
Due after ten years........................... 69,146 66,600
------------ ------------
$ 644,247 $ 636,142
============ ============
There were no sales of mortgage-backed securities held to maturity during the
years ended September 30, 1997, 1996 and 1995. (See note 2 regarding the
transfer of securities in connection with the Hamilton merger.)
At September 30, 1997 and 1996, $8,715,000 and $10,241,000, respectively, of the
mortgage-backed securities held to maturity portfolio consists of securities
with underlying adjustable rate loans. Such securities had an estimated market
value of $8,585,000 and $10,077,000, respectively.
The privately-issued REMICs and CMOs and privately-issued pass-through
mortgage-backed securities contained in the Company's held to maturity and
available for sale portfolios have generally been underwritten by large
investment banking firms with the timely payment of principal and interest on
these securities supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of credit or
subordination techniques. Substantially all such securities are rated AAA by one
or more of the nationally recognized securities rating agencies. These
securities are subject to certain credit-related risks normally not associated
with U.S. Government 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 creditworthiness of
the enhancer. Thus, in the event a credit enhancer does not fulfill its
obligations, the mortgage-backed securities holder could be subject to risk of
loss similar to a purchaser of a whole loan pool. Management believes that the
credit enhancements are adequate to protect the Company from losses, thus the
Company has not provided an allowance for losses on its privately issued
mortgage-backed securities.
31-a
(7) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The amortized cost and the estimated market value of mortgage-backed securities
available for sale are summarized as follows:
September 30, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------
(In Thousands)
FHLMC................................................... $ 28,710 $ 815 $ (144) $ 29,381
FNMA.................................................... 13,851 184 (108) 13,927
GNMA.................................................... 6,230 379 (8) 6,601
REMIC and CMO........................................... 259,457 1,385 (119) 260,723
Private-issue pass-through.............................. 23,587 422 -- 24,009
----------- ------------ ------------ -----------
Total................................................... $ 331,835 $ 3,185 $ (379) $ 334,641
=========== ============ ============ ===========
September 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(In Thousands)
FHLMC................................................... $ 59,872 $ 491 $ (518) $ 59,845
FNMA.................................................... 47,596 313 -- 47,909
GNMA.................................................... 7,336 355 -- 7,691
REMIC and CMO........................................... 139,262 261 (626) 138,897
Private-issue pass-through.............................. 25,886 201 -- 26,087
----------- ------------ ------------ -----------
Total................................................... $ 279,952 $ 1,621 $ (1,144) $ 280,429
=========== ============ ============ ===========
The amortized cost and estimated market values of mortgage-backed securities
available for sale, all of which have prepayment provisions, are distributed to
a maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
September 30, 1997
---------------------------
Estimated
Amortized Market
Cost Value
---------------------------
(In Thousands)
Due in one year or less........................................................ $ 74,246 $ 74,419
Due after one year through five years.......................................... 212,731 214,309
Due after five years through ten years......................................... 44,858 45,913
------------ ------------
$ 331,835 $ 334,641
============ ============
Gains and losses were realized on sales of mortgage-backed securities available
for sale as follows:
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
Gross gains................................................... $ 1,917 $ 1,205 $ 60
Gross losses.................................................. (88) -- (1,044)
------------ ----------- ------------
Net gains (losses)............................................ $ 1,829 $ 1,205 $ (984)
============ =========== ============
31-b
(8) LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
September 30,
-----------------------
1997 1996
-----------------------
FIRST MORTGAGE LOANS:
One-to-four family conventional residential, including loans
with adjustable rates of $793,931 and $843,860
in 1997 and 1996, respectively............................................ $ 956,844 $ 1,029,636
Multifamily residential.................................................... 365,324 171,099
Commercial real estate..................................................... 450,596 383,181
Partially guaranteed by Veterans Administration or insured by
the Federal Housing Administration........................................ 11,610 14,836
Participation in loans fully guaranteed by the Agency for
International Development................................................ -- 26
Construction loans, net of undisbursed portion of
approximately $12,002 and $5,470 in 1997 and
1996, respectively........................................................ 5,468 4,369
Reverse annuity loans, net of undisbursed portion of
approximately $3,489 and $4,416 in 1997
and 1996, respectively.................................................... 2,163 2,265
-------------- --------------
1,792,005 1,605,412
Unamortized purchase accounting premiums................................... 1,137 1,645
Unearned purchase accounting discounts..................................... (1,138) (1,993)
Unamortized premiums....................................................... 2,808 3,677
Unearned discounts......................................................... (12) (27)
Deferred loan fees......................................................... (6,769) (4,945)
-------------- --------------
1,788,031 1,603,769
-------------- --------------
OTHER LOANS:
Consumer loans............................................................. 12,302 9,227
Cooperative residential loans.............................................. 113,628 123,034
Home improvement loans..................................................... 645 1,035
Guaranteed student loans .................................................. 45,674 51,151
Commercial business loans.................................................. 11,092 12,351
Loans secured by deposit accounts.......................................... 7,056 8,078
Second mortgage loans...................................................... 1,540 2,211
Home equity loans, net of unused lines of credit of
approximately $12,332 and $9,462 in
1997 and 1996, respectively............................................... 42,657 44,277
Purchased auto leasing..................................................... 17,178 18,702
-------------- --------------
251,772 270,066
Unamortized purchase accounting premiums................................... 40 52
Unearned purchase accounting discounts..................................... (36) (52)
Unamortized premiums....................................................... 222 319
Unearned discounts......................................................... (758) (1,391)
Deferred loan fees......................................................... (160) (215)
-------------- --------------
251,080 268,779
-------------- --------------
Less allowance for possible loan losses....................................... (18,695) (19,386)
-------------- --------------
$ 2,020,416 $ 1,853,162
============== ==============
The yield on the average investment in first mortgage loans was 8.25%, 8.07% and
8.28% for the years ended September 30, 1997, 1996 and 1995, respectively.
32-a
At September 30, 1997 and 1996, the Bank had commitments of $79,489,000 and
$80,950,000, respectively, to originate first mortgage, cooperative residential
and home equity loans. Such commitments generally have fixed expiration dates
and may require payment of a fee. Since many of the commitments may expire
without being used, the total commitment amounts do not necessarily represent
future cash requirements. Of the $79,489,000 commitments outstanding at
September 30, 1997, $13,142,000 represent fixed rate loans with interest rates
ranging from 6.75% to 10.25% and $66,347,000 represent adjustable rate loans.
At September 30, 1997 and 1996, the Bank had commitments of $7,098,000 and
$6,016,000, respectively, to sell qualified fixed rate first mortgage loans. The
commitment prices approximated the carrying value of the loans.
During the years ended September 30, 1997, 1996 and 1995, the Company recognized
net gains (losses) of $.5 million, $.4 million and $(.2) million, respectively,
on sales of newly originated first mortgage loans.
Substantially all of the Bank's business activity is through originations of
loans secured by real estate with customers located in the New York metropolitan
area. The risk inherent in this portfolio is dependent not only upon regional
and general economic stability which affects property values, but also financial
well-being and creditworthiness of the borrowers. In order to minimize the
credit risk related to this concentration, the Bank utilizes conservative
underwriting standards as well as diversifying the types and locations of real
estate projects underwritten in the area.
(9) ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
As of and For the
Year Ended September 30,
-----------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Allowance for possible loan losses,
beginning of year............................................. $ 19,386 $ 21,272 $ 25,705
Charge-offs:
Commercial real estate...................................... (698) (974) (2,889)
Residential real estate..................................... (1,114) (730) (1,422)
Multifamily residential..................................... -- -- (546)
Other loans................................................. (1,148) (1,441) (1,442)
------------ ----------- ------------
Total charge-offs........................................ (2,960) (3,145) (6,299)
------------ ----------- ------------
Less recoveries:
Commercial real estate................................... 71 -- --
Residential real estate.................................. 27 -- 4
Other loans.............................................. 71 59 75
------------ ----------- ------------
Total recoveries....................................... 169 59 79
------------ ----------- ------------
Net charge-offs..................................... (2,791) (3,086) (6,220)
Hamilton's net activity for the quarter
ended December 31, 1994........................................ -- -- 87
Addition to allowance, charged to expense....................... 2,100 1,200 1,700
------------ ----------- ------------
Allowance at end of year........................................ $ 18,695 $ 19,386 $ 21,272
============ =========== ============
32-b
The following table sets forth the Bank's nonaccrual loans at the dates
indicated:
September 30,
---------------------------------------------
1997 1996 1995
------------ ----------- --------
(In Thousands)
First mortgage loans:
One-to-four family conventional residential.................. $ 11,399 $ 12,092 $ 13,391
Multifamily residential...................................... 752 155 131
Commercial real estate....................................... 4,165 11,758 14,316
------------ ----------- ------------
16,316 24,005 27,838
Other loans - cooperative residential loans..................... 1,223 1,547 2,534
------------ ----------- ------------
Total nonaccrual loans.......................................... $ 17,539 $ 25,552 $ 30,372
============ =========== ============
Additionally, at September 30, 1997, 1996 and 1995, the Bank had $4.7 million,
$4.4 million and $5.0 million, respectively, of consumer and other loans which
are past due 90 days and still accruing interest at the dates indicated. Of the
$4.7 million at September 30, 1997, $3.6 million represents loans guaranteed by
the United States Department of Education through the New York Higher Education
Services Corporation.
The amount of interest income on nonaccrual loans that would have been recorded
had these loans been current in accordance with their original terms, was
$1,576,000, $2,654,000 and $3,097,000 for the years ended September 30, 1997,
1996 and 1995, respectively. The amount of interest income that was recorded on
these loans was $596,000, $924,000 and $1,083,000 for the years ended September
30, 1997, 1996 and 1995, respectively.
At September 30, 1997, 1996 and 1995, the Bank had $5.0 million, $5.8 million
and $9.1 million, respectively, in loans whose terms had been modified in
trouble debt restructurings. The amount of interest income that would have been
recognized for the years ended September 30, 1997, 1996 and 1995 had these loans
remained current in accordance with their original terms was $530,000, $598,000
and $952,000, respectively. The amount of interest income that was recorded on
these loans was $415,000, $473,000 and $725,000 for the years ended September
30, 1997, 1996 and 1995, respectively.
The Bank's recorded investment in impaired loans was $4.9 million and $11.9
million at September 30, 1997 and 1996, respectively. Due to charge-offs, or the
crediting of interest payments to principal, the loans did not have an
impairment reserve at September 30, 1997 or 1996. Interest income recognized on
impaired loans, which was not materially different from cash-basis interest
income, amounted to approximately $.4 million for each of the years ended
September 30, 1997 and 1996. The average recorded investment in impaired loans
was approximately $13.2 million and $14.5 million during the years ended
September 30, 1997 and 1996, respectively. The allowance for possible loan
losses contains additional amounts for impaired loans, as deemed necessary, to
maintain reserves at levels considered adequate by management.
33-a
(10) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
September 30,
---------------------------------
1997 1996
---------------------------------
(In Thousands)
Debt and equity securities.................................................... $ 1,227 $ 1,806
Mortgage-backed securities.................................................... 5,627 5,324
Loans receivable.............................................................. 14,736 13,554
Interest rate swap arrangements............................................... -- 1,178
-------------- --------------
$ 21,590 $ 21,862
============== ==============
(11) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
September 30,
-----------------------
1997 1996
-----------------------
(In Thousands)
AT COST:
Land........................................................................ $ 651 $ 651
Office buildings and improvements........................................... 10,687 10,395
Leasehold improvements...................................................... 6,594 5,898
Furniture, fixtures and equipment........................................... 12,086 10,970
-------------- --------------
30,018 27,914
Accumulated depreciation and amortization..................................... (17,307) (14,987)
-------------- --------------
$ 12,711 $ 12,927
============== ==============
Depreciation and amortization of premises and equipment, included in occupancy
expense, was approximately $2,332,000, $2,153,000 and $2,064,000 for the years
ended September 30, 1997, 1996 and 1995, respectively.
(12) OTHER ASSETS
Other assets are summarized as follows:
September 30,
-----------------------
1997 1996
-----------------------
(In Thousands)
Net deferred tax asset........................................................ $ 12,312 $ 19,393
Mortgage servicing rights..................................................... 1,097 1,088
Real estate owned, net of allowance for losses of
$152,000 in 1997 and $266,000 in 1996........................................ 1,363 3,197
Prepaid expenses.............................................................. 1,568 1,270
Other......................................................................... 6,088 8,303
-------------- --------------
$ 22,428 $ 33,251
============== ==============
At September 30, 1997, 1996 and 1995, the Bank was servicing first mortgage
loans of approximately $579,812,000, $597,017,000 and $523,664,000,
respectively, which are either partially or wholly owned by others.
The Bank's risk at September 30, 1997 with respect to servicing loans for others
is minimized due to the fact that loans serviced for others are without recourse
to the originator/servicer. To date, the Bank has not suffered significant
losses from its mortgage servicing activities.
33-b
An analysis of the changes in the Company's mortgage servicing rights is as
follows:
As of and For the
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
Balance at beginning of year.................................... $ 1,088 $ 137 $ 248
Additions ..................................................... 328 1,217 --
Amortization.................................................... (319) (266) (111)
------------ ----------- ------------
Balance at end of year.......................................... $ 1,097 $ 1,088 $ 137
============ =========== ============
Activity in the allowance for losses on real estate owned is summarized as
follows:
As of and For the
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
Balance at beginning of year.................................... $ 266 $ 220 $ 390
Provision charged to operations................................. 304 346 361
Charge-offs..................................................... (418) (300) (531)
------------ ----------- ------------
Balance at end of year.......................................... $ 152 $ 266 $ 220
============ =========== ============
The Bank has seven wholly owned unconsolidated subsidiaries, three of which are
inactive. The Bank's aggregate investment in these subsidiaries amounted to
$368,000 and $679,000 at September 30, 1997 and 1996, respectively, and is
included in "Other Assets - Other." The combined financial condition and results
of operations of the Bank's unconsolidated subsidiaries are not significant to
the accompanying consolidated financial statements.
(13) DEPOSITS
Deposits are summarized as follows:
September 30,
------------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Amount Percent Amount Percent
------------------------------------------------------------
(Dollars in Thousands)
Non-interest bearing demand deposits............. $ 42,808 2.54% $ 37,013 2.16%
NOW accounts..................................... 150,010 8.90 130,831 7.63
Passbook accounts................................ 684,667 40.65 716,827 41.77
Variable rate money market
deposit accounts................................ 149,200 8.86 133,528 7.78
--------------- -------- --------------- ---------
1,026,685 60.95 1,018,199 59.34
Certificate accounts................................ 657,734 39.05 697,760 40.66
--------------- -------- --------------- ---------
$ 1,684,419 100.00% $ 1,715,959 100.00%
=============== ======== =============== =========
Included in deposits are accounts with denominations of $100,000 or more
totaling approximately $190,367,000 and $164,720,000 at September 30, 1997 and
1996, respectively. The Bank does not use brokered certificates of deposit as a
funding source.
34-a
Scheduled remaining maturities of certificate accounts are summarized as
follows:
September 30,
----------------------------------------------------------------
1997 1996
----------------------------- -------------------
Amount Percent Amount Percent
----------------------------------------------------------------
(Dollars in Thousands)
Within 12 months................................. $ 473,964 72.06% $ 458,856 65.76%
12 to 24 months.................................. 92,306 14.03 134,031 19.21
24 to 36 months.................................. 61,254 9.31 51,192 7.34
36 to 48 months.................................. 12,883 1.96 43,271 6.20
48 to 60 months.................................. 16,178 2.46 9,552 1.37
Over 60 months................................... 1,149 .18 858 .12
--------------- -------- --------------- ---------
$ 657,734 100.00% $ 697,760 100.00%
=============== ======== =============== =========
Weighted average stated interest rates on interest-bearing deposits, including
the effect of related interest rate floors, interest rate collars, and interest
rate swaps, as of the respective dates were as follows:
September 30,
----------------------
1997 1996
----------------------
NOW accounts...................................................... 1.00% 1.33%
------- -------
Passbook accounts................................................. 2.33% 2.36%
------- -------
Variable rate money market deposit accounts....................... 2.82% 2.98%
------- -------
Certificate accounts.............................................. 4.98% 4.86%
------- -------
Total deposits.................................................... 3.23% 3.30%
======= =======
Weighted average stated interest rates on interest-bearing deposits, excluding
the effect of related interest rate floors, interest rate collars, and interest
rate swaps, as of the respective dates were as follows:
September 30,
----------------------
1997 1996
----------------------
NOW accounts...................................................... 1.00% 1.33%
------- -------
Passbook accounts................................................. 2.42% 2.43%
------- -------
Variable rate money market deposit accounts....................... 3.13% 3.29%
------- -------
Certificate accounts.............................................. 5.24% 5.13%
------- -------
Total deposits.................................................... 3.40% 3.46%
======= =======
The average cost of deposits, including the effect of related interest rate
floors, interest rate collars, and interest rate swaps (net of early withdrawal
penalties) approximated 3.27%, 3.47% and 3.55% for the years ended September 30,
1997, 1996 and 1995, respectively.
Interest expense on deposits, including the effect of related interest rate
floors, interest rate collars, and interest rate swaps, is summarized as
follows:
Year Ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
NOW accounts.................................................... $ 1,925 $ 1,925 $ 2,673
Passbook accounts............................................... 16,280 17,509 19,964
Variable rate money market deposit accounts..................... 4,310 3,357 4,054
Certificate accounts............................................ 33,007 37,679 35,703
------------ ----------- ------------
$ 55,522 $ 60,470 $ 62,394
============ =========== ============
34-b
On September 30, 1996, Congress passed, and the President signed, legislation
that recapitalized the Savings Association Insurance Fund (the "SAIF"). Under
the major provisions of the legislation, savings institutions, such as the Bank,
were assessed a one-time assessment of 65.7 basis points per $100 of insured
SAIF-assessable deposits as of March 31, 1995. Since approximately 80.8% of the
Bank's deposits at September 30, 1996 were insured by the SAIF (the remainder
were insured by the Bank Insurance Fund ("BIF")), the Company recorded a
one-time charge of $9.4 million during the fourth quarter of fiscal year 1996;
the one-time assessment was paid in the first quarter of fiscal year 1997.
(14) BORROWED FUNDS
Borrowed funds are summarized as follows:
September 30,
-------------------------
1997 1996
-------------------------
(In Thousands)
NOTES PAYABLE - FIXED-RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
8.10%, due in 1997............................................................. $ -- $ 375
5.68% to 5.71%, due in 1998.................................................... 155,000 --
--------------- --------------
155,000 375
--------------- --------------
NOTES PAYABLE - VARIABLE RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
5.37% to 5.99%, due in 1997.................................................... -- 542,000
5.63% to 6.63%, due in 1998.................................................... 249,500 --
--------------- --------------
249,500 542,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
FIXED RATE AGREEMENTS:
5.37% to 6.15%, due in 1997................................................... -- 353,698
5.61% to 5.73%, due in 1998................................................... 367,001 --
5.70% to 5.73%, due in 1999................................................... 117,330 --
5.57% to 6.55%, due in 2000................................................... 137,000 --
5.68% to 5.98%, due in 2002................................................... 119,000 --
--------------- --------------
740,331 353,698
VARIABLE RATE AGREEMENTS:
5.59% in 1997 and 5.09% in 1996, due in 1998.................................. 100,000 100,000
--------------- --------------
SUBORDINATED CAPITAL NOTES, FIXED RATE - 10.84%:
Due in 1997...................................................................... -- 3,800
Due in 1998...................................................................... 3,800 3,800
Due in 1999...................................................................... 3,800 3,800
--------------- --------------
7,600 11,400
--------------- --------------
TREASURY, TAX AND LOAN NOTES, CALLABLE -
5.56% IN 1997 AND 5.84% IN 1996.................................................. 1,500 1,313
--------------- --------------
$ 1,253,931 $ 1,008,786
=============== ==============
Under the terms of a collateral agreement, indebtedness to and outstanding
commitments from the Federal Home Loan Bank of New York (the "FHLB-NY") are
secured by qualifying assets principally in the form of first mortgage loans and
mortgage-backed securities having estimated market values at least equal to 125%
of the amount of total indebtedness and outstanding commitments.
35-a
At September 30, 1997, all securities sold under agreements to repurchase were
delivered to the primary dealers or the FHLB-NY who arranged the transactions.
The securities remained registered in the name of the Bank and are returned upon
maturity of the agreement. Securities sold under agreements to repurchase
averaged $764,439,000, $328,405,000 and $307,657,000 during the years ended
September 30, 1997, 1996 and 1995, respectively. The maximum amounts outstanding
at any month-end were $927,291,000, $453,698,000 and $351,855,000 during the
years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997, the Bank had outstanding $740.3 million of fixed rate
reverse repurchase agreements with a weighted average interest rate of 5.73% and
a weighted average remaining maturity of seventeen months. The Bank may
substitute collateral in the form of U.S. Treasury or mortgage-backed
certificates. At September 30, 1997, the borrowings were collateralized by FNMA,
FHLMC, REMIC, non-agency pass-through certificates and agency obligations having
a carrying value of approximately $773.7 million and a market value of
approximately $766.6 million.
At September 30, 1997, the Bank had outstanding a $100.0 million variable rate
reverse repurchase agreement with an interest rate of 5.59% and a remaining
maturity of 4 months. The rate on this reverse repurchase agreement is subject
to repricing on a monthly basis. The Bank may substitute collateral in the form
of U.S. Treasury, GNMA, FNMA, FHLMC, REMIC, CMO or non-agency pass-through
certificates rated no less than AA. At September 30, 1997, the borrowings were
collateralized by REMIC and non-agency pass-through certificates having a
carrying value of approximately $105.7 million and a market value of
approximately $105.0 million.
On November 18, 1988, the Bank issued $25,000,000 in 10.95% (Series A Notes) and
$5,000,000 in 10.52% (Series B Notes) subordinated capital notes (collectively
the "Notes"). Interest on the Notes is payable in semiannual installments,
commencing May 30, 1989. The remaining principal on the Series A Notes and
Series B Notes is payable in annual installments of $2,800,000 and $1,000,000,
respectively. The Notes are fully subordinated to savings deposit accounts and
other general liabilities of the Bank. Further, a portion of the Notes qualify
as capital for purposes of meeting the regulatory risk-based capital
requirements. The Notes are redeemable in whole or in part, with a prepayment
premium, at the option of the Bank, subject to regulatory approval, at any time.
Deferred issuance costs are being amortized over the period to maturity of the
Notes.
On February 3, 1989, the Bank established a Mortgage-Backed Medium-Term Note,
Series A (the "Medium-Term Notes") program. The Medium-Term Notes can be issued
from time to time in designated principal amounts, up to a total remaining
aggregate amount of $180,000,000, with interest rates to be established at the
time of issuance, and with maturities to be set ranging from nine months to
fifteen years from the date of issuance. No amounts were outstanding under this
program at September 30, 1997 and 1996.
Weighted average interest rates on borrowed funds at September 30, 1997 and
1996, including the effect of related interest rate collars, interest rate caps,
and interest rate swaps, amounted to 5.87% and 5.25%, respectively. Excluding
the effects of off-balance sheet financial instruments, the average interest
rates on borrowed funds at September 30, 1997 and 1996 amounted to 5.84% and
5.55%, respectively.
35-b
The average cost of borrowed funds for the years ended September 30, 1997, 1996
and 1995, including the effect of related interest rate collars, interest rate
caps, and interest rate swaps, was 5.42%, 5.62% and 5.88%, respectively.
Interest expense on borrowed funds, including the effect of related interest
rate collars, interest rate caps, and interest rate swaps, is summarized as
follows:
Year ended September 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(In Thousands)
Notes payable................................................... $ 21,657 $ 26,764 $ 19,920
Securities sold under agreements to repurchase.................. 42,525 18,175 17,619
Subordinated capital notes...................................... 892 1,304 1,716
Other........................................................... 37 33 81
----------- ----------- -----------
$ 65,111 $ 46,276 $ 39,336
=========== =========== ===========
(15) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are summarized as follows:
September 30,
-------------------------
1997 1996
-------------------------
(In Thousands)
Federal, state and local income taxes payable .................................... $ 8,712 $ 411
Accrued interest payable.......................................................... 6,806 6,633
Official checks outstanding....................................................... 22,857 8,238
Negative goodwill................................................................. 874 1,068
Deferred gain on interest rate floor and swap agreements.......................... 1,218 5,819
Accrued SAIF recapitalization assessment.......................................... -- 9,432
Accrued expenses and other........................................................ 18,308 17,671
----------- -----------
$ 58,775 $ 49,272
=========== ===========
(16) INCOME TAXES
New York Bancorp files consolidated Federal income tax returns on a
calendar-year basis with the Bank and its subsidiaries. Prior to January 1,
1996, if certain definitional tests and other conditions were met, the Bank was
allowed a special bad debt deduction based on a percentage of taxable income or
on a specified experience formula. The Bank used the specified experience
formula for 1995 and the percentage of taxable income method in 1994. The
statutory percentage of the special bad debt deduction was 8%.
Under legislation enacted in August 1996, the Bank will no longer be permitted
to use the percentage of taxable income method for Federal tax purposes, but
will be permitted to deduct bad debts only as they are incurred. The legislation
also requires the recapture of the excess of tax bad debt reserves at December
31, 1995 over those established as of December 31, 1987 (the "base year"). The
Bank's tax bad debt reserves of $27.9 million as of December 31, 1995 did not
exceed those of the base year. Therefore, the Bank will not be required to
recapture any of its bad debt reserves. Such reserve reflects the cumulative
Federal income tax bad debt deductions to that date. The base year reserves will
continue to be subject to recapture, and the Bank could be required to recognize
a tax liability, under certain circumstances, including (1) the Bank fails to
36-a
qualify as a "bank" for Federal income tax purposes; (2) certain distributions
are made with respect to the stock of the Bank; (3) the bad debt reserves are
used for any purpose other than to absorb bad debt losses; and (4) there is a
change in Federal tax law. However, management is currently not aware of the
occurrence of any such circumstances.
New York Bancorp files combined New York State franchise and New York City
financial corporation tax returns with the Bank and its subsidiaries on a
calendar-year basis. The Company's annual tax liability for each tax was the
greater of a tax based on "entire net income," "alternative entire net income,"
"taxable assets" or a minimum tax. Further, the Company is subject to a
temporary surcharge based upon New York State tax liability. The Company's
provision for New York State and New York City taxes is based on "entire net
income" for the calendar years 1996, 1995 and 1994 and for the nine months ended
September 30, 1997. New York State and New York City do not allow for the
utilization of net operating loss carrybacks or carryforwards for banks.
In response to the aforementioned Federal legislation enacted in August 1996,
the New York State and New York City tax laws have been amended to generally
prevent a recapture of existing tax bad debt reserves and to allow for the
continued use of the percentage of taxable income method to determine the bad
debt deduction in computing the New York State and New York City tax liability.
The percentage of the taxable income method is allowed if the Bank maintains at
least 60% of its total assets in qualifying assets, as defined. If the Bank
fails to meet the qualifying assets test, it would be required to recapture the
reserves established after December 31, 1995, the base year, which amounted to
approximately $16 million as of December 31, 1996. The Bank has not provided any
deferred taxes for these tax bad debt reserves as the Bank has met, and
continues to meet, the qualifying asset requirement. Additionally, all existing
tax bad debt reserves for New York State and New York City, amounting to
approximately $85 million as of December 31, 1996, would be subject to recapture
under certain conditions, including the merger of the Bank into a commercial
bank, such as North Fork.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
September 30,
--------------------------
1997 1996
--------------------------
(In Thousands)
Deferred tax assets:
Allowance for possible loan losses.............................................. $ 7,644 $ 7,976
SAIF recapitalization........................................................... -- 4,020
Nonaccrual interest............................................................. 617 2,477
Excess tax over book basis of loans............................................. 1,830 1,009
Deferred loan fees.............................................................. 715 977
Real estate owned............................................................... 62 109
Premises and equipment.......................................................... 1,031 720
Unrealized loss on available for sale securities................................ -- 428
Other........................................................................... 2,325 2,645
----------- -----------
Total gross deferred tax assets............................................... 14,224 20,361
----------- -----------
Deferred tax liabilities:
Unrealized gain on available for sale securities................................ 1,053 --
Other........................................................................... 859 968
----------- -----------
Total gross deferred tax liabilities.......................................... 1,912 968
----------- -----------
Net deferred tax asset........................................................ $ 12,312 $ 19,393
=========== ===========
36-b
The Company has a net deferred tax asset of $12.3 million at September 30, 1997.
This represents the anticipated Federal, state and local tax benefits expected
to be realized in future years upon the utilization of the underlying tax
attributes comprising this balance. The Company has reported taxable income for
Federal, state and local income tax purposes in each of the past three years and
in management's opinion, in view of the Company's previous, current and
projected future earnings trend, such net deferred tax asset will be fully
realized. Accordingly, no valuation allowance was deemed necessary for the net
deferred tax asset at September 30, 1997.
Total income tax expense was allocated as follows:
Year ended September 30,
------------------------------------------
1997 1996 1995
------------------------------------------
(In Thousands)
Income from operations.......................................... $ 32,685 $ 24,776 $ 19,717
Shareholders' equity - compensation expense for tax
purposes in excess of amounts recognized for
financial reporting purposes................................... (1,153) (1,928) (1,488)
Shareholders' equity - unrealized appreciation
(depreciation) on securities available for sale................ 1,481 (1,067) 3,690
----------- ----------- -----------
Total........................................................... $ 33,013 $ 21,781 $ 21,919
=========== =========== ===========
The components of income tax expense on operations are as follows:
Year ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
Current:
Federal....................................................... $ 21,860 $ 19,599 $ 13,917
State and local............................................... 5,226 8,697 7,765
------------ ----------- -----------
27,086 28,296 21,682
------------ ----------- -----------
Deferred:
Federal....................................................... 4,040 (2,923) (457)
State and local............................................... 1,559 (597) (1,508)
------------ ----------- -----------
5,599 (3,520) (1,965)
------------ ----------- -----------
Total....................................................... $ 32,685 $ 24,776 $ 19,717
============ =========== ===========
The effective income tax rates for the years ended September 30, 1997, 1996 and
1995 were 39.0%, 43.6% and 63.0%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:
Year ended September 30,
-------------------------------------
1997 1996 1995
-------------------------------------
Tax on income at statutory rate........................................ 35.0% 35.0% 35.0%
Tax effects of:
State and local income tax, net of
Federal income tax benefit........................................ 5.3 9.3 13.0
Nondeductible costs associated with Hamilton merger................ .-- .-- 15.0
Other, net......................................................... (1.3) (.7) .--
-------- ------- --------
Tax at effective rate.................................................. 39.0% 43.6% 63.0%
======== ======= =======
37-a
(17) SHAREHOLDERS' EQUITY
DIVIDEND RESTRICTIONS
In connection with the Bank's conversion to stock form in February 1988, and
Hamilton Savings' conversion to stock form in April 1993, special liquidation
accounts were established at the time of conversions, pursuant to regulations of
the Office of Thrift Supervision ("OTS") or its predecessor, based on the amount
of the Bank's regulatory capital as of September 30, 1987 and Hamilton Savings'
regulatory capital as of September 30, 1992. In the unlikely event of a future
liquidation, eligible depositors who continue to maintain accounts would be
entitled to receive a distribution from the liquidation accounts. The total
amount of the liquidation account will be decreased as the balances of eligible
deposits are reduced on annual determination dates subsequent to the
conversions. The balance of the liquidation accounts aggregated to approximately
$13.6 million at September 30, 1997.
The ability of New York Bancorp to pay dividends depends upon dividend payments
by the Bank to New York Bancorp, which is New York Bancorp's primary source of
income. The Bank is not permitted to pay dividends on its capital stock or
repurchase shares of its stock if its shareholder's equity would be reduced
below the amount required for the liquidation account or applicable regulatory
capital requirements. The Bank is currently allowed under regulation to pay cash
dividends to New York Bancorp in an amount not to exceed 100% of its net income
to date, during a calendar year, plus an amount not to exceed one-half of its
surplus capital ratio at the beginning of the calendar year. Additionally, under
terms of its subordinated capital note agreements, the Bank is permitted to pay,
on a cumulative basis, cash dividends to New York Bancorp in an amount not to
exceed 75% of its net income from November 30, 1988 to date, plus $5.0 million.
STOCK SPLITS
The Company declared a 3-for-2 common stock split which was distributed on
January 23, 1997 in the form of a stock dividend. Additionally, the Company
declared a 4-for-3 common stock split which was distributed on July 24, 1997 in
the form of a stock dividend. Accordingly, information with respect to shares of
common stock fully reflect the stock splits.
TREASURY STOCK TRANSACTIONS
During the year ended September 30, 1997, New York Bancorp repurchased 1,169,284
shares of its outstanding common stock. At September 30, 1997, the Company has
8,174,522 shares of Treasury stock which, among other things, could be held to
satisfy obligations under the Company's stock option plans. Treasury stock is
being accounted for using the cost method. In connection with the Merger
Agreement providing for the merger of the Company with North Fork, which is
intended to be accounted for as a pooling of interests, on October 7, 1997, the
Company's Board of Directors terminated its stock repurchase plan.
37-b
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 September 30, 1997, the Bank has been categorized as "well capitalized" by
the OTS under the prompt corrective action regulations and continues to exceed
all regulatory capital requirements. The Bank's actual capital amounts and
ratios are presented in the following tables (dollars in thousands):
TANGIBLE CAPITAL CORE CAPITAL(1) RISK-BASED CAPITAL(2)
-----------------------------------------------------------------------------
Amount Percentage(3) Amount Percentage(3) Amount Percentage(3)
-----------------------------------------------------------------------------
As of September 30, 1997:
Total Bank equity................... $ 167,359 5.16% $ 167,359 5.16% $ 167,359 10.75%
Add (subtract):
o Allowable portion of
subordinated capital notes.. -- . -- -- . -- 532 .03
o Other........................ (1,505) (.05) (1,505) (.05) 16,257 1.05
---------- ------ ---------- ------ ---------- -------
Capital for regulatory purposes..... 165,854 5.11 165,854 5.11 184,148 11.83
Minimum regulatory requirement...... 48,664 1.50 97,328 3.00 124,545 8.00
---------- ------ ---------- ------ ---------- -------
Excess.............................. $ 117,190 3.61% $ 68,526 2.11% $ 59,603 3.83%
========== ====== ========== ====== ========== =======
As of September 30, 1996:
Total Bank equity................... $ 138,195 4.70% $ 138,195 4.70% $ 138,195 9.86%
Add:
o Allowable portion of
subordinated capital notes.. -- . -- -- . -- 1,634 .11
o Other........................ 278 .01 278 .01 17,806 1.27
---------- ------ ---------- ------ ---------- -------
Capital for regulatory purposes..... 138,473 4.71 138,473 4.71 157,635 11.24
Minimum regulatory requirement...... 44,117 1.50 88,234 3.00 112,180 8.00
---------- ------ ---------- ------ ---------- -------
Excess.............................. $ 94,356 3.21% $ 50,239 1.71% $ 45,455 3.24%
========== ====== ========== ====== ========== =======
(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.
38-a
(18) BENEFITS
PENSION PLAN
All eligible employees of the Bank are included in a defined benefit pension
plan (the "Plan"). Benefits contemplated by the Plan are funded through a group
annuity insurance contract. The Bank contributes to the Plan an amount
sufficient to meet ERISA funding standards.
Hamilton had maintained a noncontributory defined benefit plan for all eligible
employees. The plan was funded through a deposit administration contract with an
insurance company. As of May 1, 1994, the plan was curtailed and all future
benefit accruals ceased. The plan curtailment resulted in a net gain of
approximately $181,000. Subsequent to the merger, all former Hamilton employees
retained by the Bank meeting plan requirements became eligible for participation
in the Plan. Effective December 31, 1995, the former Hamilton plan was merged
with that of the Bank.
The following table sets forth the funded status of the Bank's plan and amounts
recognized in the Company's consolidated financial statements at September 30
(in thousands):
1997 1996
---------- ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $10,719 in 1997 and $10,423 in 1996.............................. $ 11,233 $ 10,929
========== ==========
Projected benefit obligations for service rendered to date.................... $ 11,439 $ 10,978
Plan assets at fair value..................................................... 9,948 10,166
---------- ----------
Projected benefit obligation in excess of plan assets......................... (1,491) (812)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........................... 2,572 1,972
Unrecognized prior service cost............................................... (869) (971)
Unrecognized net obligation at transition being
recognized over fifteen years................................................ 230 261
Additional liability.......................................................... (1,727) (1,213)
---------- ----------
Accrued pension cost included in other liabilities............................ $ (1,285) $ (763)
========== ==========
38-b
Net pension cost for the years ended September 30, 1997, 1996 and 1995 included
the following components (in thousands):
1997 1996 1995
-------- ----- -----
Service cost - benefits earned during the period................. $ 96 $ 46 $ 131
Interest cost on projected benefit obligation.................... 840 838 844
Actual return on plan assets..................................... (547) (593) (583)
Net amortization and deferral.................................... (381) (371) (439)
Additional liability............................................. 514 879 --
-------- --------- --------
Net pension cost (benefit) included in non-interest
expenses -- compensation and benefits........................... $ 522 $ 799 $ (47)
======== ========= ========
Assumptions used in 1997, 1996 and 1995 to develop the net periodic pension cost
were:
1997 1996 1995
-------- --------- -----
Weighted average discount rate................................... 7.50% 8.00% 9.00%
Rate of increase in future compensation levels................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets...................... 9.50% 9.50% 9.50%
In conjunction with its pension plan, the Bank maintains a Supplemental
Executives Retirement Plan (the "SERP Plan") to provide retirement benefits
which would have been provided under the Plan except for limitations imposed by
Section 415 of the Internal Revenue Code.
The following sets forth the SERP Plan's status and amounts recognized in the
Company's consolidated financial statements at September 30 (in thousands):
1997 1996
---------- ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $967 in 1997 and $485 in 1996.................................... $ 976 $ 824
=========== ===========
Projected benefit obligations for service rendered to date.................... $ 1,157 $ 950
Plan assets at fair value..................................................... -- --
----------- -----------
Projected benefit obligation in excess of plan assets......................... (1,157) (950)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........................... 140 50
Unrecognized prior service cost being
recognized over fifteen years................................................ 295 322
Additional liability.......................................................... (254) (247)
----------- -----------
Accrued SERP Plan cost included in other liabilities.......................... $ (976) $ (825)
=========== ===========
39-a
Net SERP Plan cost for the years ended September 30, 1997, 1996 and 1995
included the following components (in thousands):
1997 1996 1995
-------- -------- -----
Service cost - benefits earned during the period................. $ 39 $ 35 $ 52
Interest cost on projected benefit obligation.................... 78 118 90
Actual return on plan assets..................................... -- -- --
Net amortization and deferral.................................... 27 27 (7)
Additional liability............................................. 7 -- --
Settlement loss.................................................. -- 49 --
-------- -------- --------
Net pension cost included in non-interest
expenses -- compensation and benefits........................... $ 151 $ 229 $ 135
======== ======== ========
Assumptions used in 1997, 1996 and 1995 to develop the net periodic SERP Plan
cost were:
1997 1996 1995
-------- -------- -----
Weighted average discount rate................................... 7.00% to 7.50% 7.50% to 8.00% 7.50% to 8.00%
Rate of increase in future compensation levels................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets...................... N/A N/A N/A
Hamilton had also maintained a SERP. On January 27, 1995, as a result of the
merger, Hamilton's SERP was terminated in accordance with the plan's change in
control provision and distributions in the aggregate amount of $307,000 were
made to all eligible participants. Fiscal year 1995 includes $63,000 in merger
and restructuring expenses related to the termination of Hamilton's SERP.
401(k) PLAN
The Bank maintains a 401(k) Savings Plan (the "401(k) Plan") for all qualified
employees. The terms of the 401(k) Plan provide for employee contributions on a
pre-tax basis up to a maximum of 10% of total compensation, with matching
contributions to be made by the Bank equal to a minimum of 50% of employee
contributions.
RETIREE'S BENEFIT PLAN
The Bank, as part of its overall benefits, provides to its eligible retirees
health coverage and life insurance coverage. Eligible participants are retired
employees of the Bank who retire with a minimum age of 55 and 5 years of
service. The Company has elected to defer and amortize to expense over a twenty
year period the accumulated postretirement benefit obligation of $3.2 million at
the October 1, 1993 date of adoption of SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The plan is non-contributory for
those retirees who retired prior to July 1992. The plan was amended during
fiscal year 1995. The amendment included an increase in the cost for future
retirees and placing a cap on the Bank's share of plan costs.
39-b
The following table sets forth the plan's status and amounts recognized in the
Company's consolidated financial statements at September 30 (in thousands):
1997 1996
----------- -------
Accumulated postretirement benefit obligation:
Retirees including covered dependents and beneficiaries........................ $ 2,458 $ 1,693
Eligible active participants................................................... 82 100
Other active participants...................................................... 710 753
----------- -----------
Total accumulated postretirement benefit obligation........................... 3,250 2,546
Plan assets........................................................................ -- --
----------- -----------
Accumulated benefit obligation in excess of plan assets............................ (3,250) (2,546)
Unrecognized transition obligation................................................. 2,140 2,274
Unrecognized prior service cost.................................................... (452) (503)
Unrecognized gain.................................................................. (1,428) (2,062)
----------- -----------
Accrued benefit obligation......................................................... $ (2,990) $ (2,837)
=========== ===========
Net periodic postretirement benefit cost included the following components for
the years ended September 30 (in thousands):
1997 1996 1995
---------- ---------- -------
Service cost........................................................ $ 74 $ 59 $ 51
Interest cost....................................................... 224 190 267
Amortization of transition obligation
of $3.2 million over 20 years...................................... 134 134 146
Amortization of prior service cost.................................. (52) (52) (39)
Amortization of gain................................................ (89) (131) (87)
---------- ---------- ----------
Total postretirement benefit expense.............................. $ 291 $ 200 $ 338
========== ========== ==========
The above plan does not have any assets and the Company presently intends to
maintain the plan as unfunded. The assumed long-term health care cost trend used
to measure the expected cost of benefits under the plan for 1997 is 5.5%. The
discount rate used in determining the accumulated postretirement benefit
obligation is 7.50%. The effect of raising the health care trend by 1% will
increase the service and interest cost and the accumulated benefit obligation by
approximately $54,000 and $406,000, respectively.
The amounts included in compensation and benefit expense for the above plans are
as follows for the years ended September 30 (in thousands):
1997 1996 1995
---------- ---------- -------
Pension plan........................................................ $ 522 $ 799 $ (47)
Supplemental executives retirement plan............................. 151 229 135
401(k) plan......................................................... 454 549 408
Retirees' benefit plan.............................................. 291 200 338
---------- ---------- ----------
$ 1,418 $ 1,777 $ 834
========== ========== ==========
40-a
Hamilton had also maintained a noncontributory retirement plan for its outside
directors. The plan provided benefits for participants upon reaching age 65, and
required at least 5 years of service, but not exceeding 10 years of service. On
January 27, 1995, the plan was terminated in accordance with the plan's change
in control provisions and distributions in the aggregate amount of $1,039,600
were made to all eligible participants. Included in compensation and benefit
expense is $25,000 for the year ended September 30, 1995. Fiscal year 1995 also
includes $638,000 in merger and restructuring expense related to the plan.
(19) STOCK PLANS
STOCK OPTION PLANS
The stock option plans permit New York Bancorp common stock to be issued to key
employees and directors of the Company and its subsidiaries. The options granted
under the plans are intended to be either incentive stock options or
non-qualified options.
Options have been granted to purchase common stock at the fair market value of
the stock at the date of grant. Options generally vest over a three year period
from the date of grant and generally expire ten years from the date of grant for
employees and five years from the date of grant for directors.
Hamilton maintained incentive stock option plans for its officers, directors and
other key employees. Generally, these plans provided for the grant of options to
individuals at a price equivalent to the fair market value at the date of grant
and were exercisable over a ten year period from the date of grant. In
accordance with the plans' change in control provisions, the individuals became
fully vested in their stock option grants on the merger date, January 27, 1995.
The options were exchanged for options of the Company, and are set forth
separately in the table below.
Additionally, stock appreciation rights ("SARs") have been granted to key
employees of the Holding Company and its subsidiary. SARs entitle the grantee to
receive cash equal to the excess of the market value of the shares at the date
the right is exercised over the exercise price. An expense is accrued for the
earned portion of the amount by which the market value of the stock exceeds the
exercise price for each SAR outstanding. The expense related to the SARs for the
years ended September 30, 1997, 1996 and 1995 was approximately $2,770,000,
$1,775,000 and $171,000, respectively.
40-b
The following table summarizes certain information regarding the option plans
and has been prepared after giving effect to the 3-for-2 common stock split and
the 4-for-3 common stock split.
Number of shares of
--------------------------------------------------------------------
Weighted
Non-qualified Average
Incentive Stock Non-statutory Options to Exercise
SARs Options Stock Options Directors Price
---------------------------------------------------------------------------------
Balance outstanding at
September 30, 1994....... 336,600 322,004 656,520 198,000 $ 6.52
Hamilton options
outstanding at
January 27, 1995......... -- -- 612,784 365,648 $ 1.19
Forfeited................. (19,800) (68,356) (96,066) -- $ 8.26
Granted................... -- 162,062 297,938 -- $ 9.67
Exercised................. (39,600) (120,940) (649,988) -- $ 1.04
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1995....... 277,200 294,770 821,188 563,648 $ 6.70
Forfeited................. -- (5,782) -- (49,500) $ 2.94
Granted................... -- 148,476 158,024 49,500 $ 11.12
Exercised................. -- (62,636) -- (285,440) $ 3.66
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1996....... 277,200 374,828 979,212 278,208 $ 8.18
Forfeited................. -- (7,494) -- -- $ 11.71
Granted................... -- 118,000 -- 49,500 $ 21.52
Exercised................. (257,200) (125,153) (26,000) (139,708) $ 6.52
---------- ----------- ----------- ------------
Balance outstanding at
September 30, 1997....... 20,000 360,181 953,212 188,000 $ 10.23
========== =========== =========== ============
The following table summarizes information about SARs and stock options
outstanding at September 30, 1997.
Options and SARs Outstanding Options and SARs Exercisable
-------------------------------------------------- ---------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contractural Number Exercise
Exercise Price Outstanding Price Life (In Years) Outstanding Price
---------------------------------------------------------------------------------------------------------------
$ 3.79 - 3.94 90,882 $ 3.91 4.7 90,882 $ 3.91
6.67 - 8.98 547,141 7.77 5.3 547,141 7.77
9.05 - 11.13 716,537 10.29 7.2 381,891 10.07
16.94 - 23.44 166,833 21.51 7.8 -- --
------------ -------------
3.79 - 23.44 1,521,393 10.23 6.5 1,019,914 8.29
============ =============
41-a
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123 for awards after October 1, 1995, the
Company's net income and net income per share would have been reduced to the pro
forma amounts presented below for the years ended September 30 (dollars in
thousands, except per share amounts):
1997 1996
---------- ----------
Net income:
As reported............................... $51,211 $32,006
Pro forma................................. 50,204 31,542
Earnings per share:
As reported............................... $2.25 $1.34
Pro forma................................. 2.20 1.32
In preparing the pro forma information, the fair value of each grant of stock
options by the Company in the years ended September 30, 1997 and 1996 was
estimated on the date of grant using the Black-Scholes multiple option-pricing
model, with the following weighted-average assumptions: expected lives of
options of 4 years, volatility of 40%, and dividend yields of 2% for both years;
risk free interest rates of 6.29% and 5.28% were used for the years ended
September 30, 1997 and 1996, respectively.
RECOGNITION AND RETENTION PLAN
Hamilton maintained a RRP, under which restricted stock awards were made to
officers, directors and other key employees, and an Employee Stock Ownership
Plan (the "ESOP"). In accordance with the plans' change in control provisions,
the participants became fully vested on the merger date, January 27, 1995.
Distributions of the shares in the plans have been made to participants.
Included in compensation and benefit expense is $464,000 for the year ended
September 30, 1995. Fiscal year 1995 also includes $4,992,000 in merger and
restructuring expense related to these plans.
(20) COMMITMENTS, CONTINGENCIES AND CONTRACTS
In the normal course of its business, the Company is a defendant in certain
claims and legal actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters will not have a material adverse effect on the
consolidated financial condition of the Company.
41-b
The Company has obligations under a number of noncancellable leases on property
used for banking purposes. These leases contain escalation clauses which provide
for increased rental expense based on a percentage of increases in real estate
taxes. Rental expense under these leases, included in non-interest expense -
occupancy, for the years ended September 30, 1997, 1996 and 1995 approximated
$2,406,000, $2,096,000 and $2,040,000, respectively.
The projected minimum rentals under existing operating leases are as follows:
Year ending September 30, Amount
---------------
(In Thousands)
1998.................................................. $ 2,307
1999.................................................. 2,214
2000.................................................. 1,548
2001.................................................. 1,058
2002.................................................. 790
Later years........................................... 2,561
-----------
$ 10,478
(21) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company enters into a variety of financial instruments with off-balance
sheet risk in the normal course of business.
INTEREST RATE SWAP ARRANGEMENTS
The Company enters into interest rate swap arrangements to manage the repricing
characteristics of its interest-bearing liabilities. Such agreements provide for
the concurrent exchange of its current and future interest payments on either
short-term money market certificates of deposit accounts or variable rate
borrowed funds for another party's obligations for interest payments on an
equivalent amount of fixed-rate indebtedness. The principal or notional amounts
of these arrangements are not reflected in the consolidated statements of
financial condition. The incremental revenue or expense associated with interest
rate swaps is recognized over the term of the swap arrangement and is presented
as a component of the interest expense of the related liability. Gains and
losses resulting from the early termination of swap arrangements are amortized
over the remaining term of the swap arrangement.
At September 30, 1996 the Company had outstanding notional amounts of interest
rate swap arrangements of $600.0 million maturing through June 1997 with an
unrealized gain amounting to $2.9 million (none outstanding at September 30,
1997). Further, at September 30, 1996 there was $1.5 million of net deferred
gains relating to terminated interest rate swap contracts (none at September 30,
1997).
42-a
INTEREST RATE COLLAR, INTEREST RATE FLOOR, AND INTEREST RATE CAP ARRANGEMENTS
The Company uses interest rate collar, interest rate floor, and interest rate
cap arrangements to protect the Bank against interest rate risk associated with
the repricing of its interest-bearing liabilities. Premiums paid for interest
rate collar, interest rate floor, and interest rate cap arrangements are
amortized to interest expense of the related liability over the contractual
terms of these arrangements using the straight-line method. When a liability is
prepaid, any related interest rate collar, interest rate floor, or interest rate
cap is re-designated to another interest-bearing liability at the lower of cost
or estimated market value and the loss, if any, is included in the gain or loss
on early extinguishment of the liability. Interest received or paid under the
terms of these arrangements is accrued and recorded as a reduction or increase
of interest expense of the related interest-bearing liability.
At September 30, 1997 and 1996, the Bank was a party to $700.0 million of
interest rate collar agreements which mature in August 1998. These agreements
are intended to reduce the interest rate risk associated with certain short-term
borrowings and certificates of deposit accounts. Under the terms of these
agreements, the Bank receives interest when the three month LIBOR index is in
excess of 7.50%, and pays interest when the three month LIBOR index is less than
5.00%. At September 30, 1997 and 1996, the three month LIBOR was 5.77% and
5.625%, respectively. At September 30, 1997 mortgage-backed securities with a
market value of $13.6 million were pledged as collateral on these arrangements.
The Bank's credit risk with respect to these interest rate collar arrangements
is in the risk of nonperformance by the other party to the agreements. However,
the Bank does not anticipate nonperformance by the counterparty and controls the
risk through its usual monitoring procedures. At September 30, 1997, the
unamortized premium on the Bank's interest rate collars amounted to $.4 million
which approximated the current market value.
During fiscal year 1995, the Bank was a party to $1.0 billion of interest rate
floor agreements which were scheduled to expire on February 22, 1998. During
fiscal year 1995, in an effort to secure the hedge position provided against the
aforementioned interest rate risk, the Bank terminated its position as a party
to the $1.0 billion of interest rate floor agreements. Accordingly, and in
conformity with generally accepted accounting principles, the Company deferred
recognition of the gain on the terminated interest rate floor agreements and is
amortizing such gain as an adjustment to the cost of interest-bearing deposit
liabilities over the original contractual life of the interest rate floor
agreements. At September 30, 1997, the amount of the unamortized gain was $1.2
million.
42-b
STOCK INDEXED CALL OPTIONS
The Bank uses stock indexed call options for purposes of hedging its MarketSmart
CDs and MarketSmart I.R.A. CDs. The call options hedge the interest rate paid on
these 5 year CD deposits which is an annual percentage yield based on the
changes in the Standard & Poor's 500 Composite Stock Price Index ("S & P Index")
during each of the 5 year terms of the CDs. Premiums paid on the call options
are amortized to interest expense over the terms of the underlying CD using the
straight line method. Gains and losses, if any, resulting from the early
termination of the call option are deferred and amortized to interest expense
over the remaining term of the underlying CD.
At September 30, 1997, the Company had approximately $2.6 million in contracts
for purposes of hedging the S & P Index. The call options maturities range from
March 1999 through August 1999. The Company carries stock indexed call options
at market value. Further, at September 30, 1997, there were no deferred gains or
losses relating to terminated contracts. The Bank ceased offering MarketSmart
CDs during fiscal year 1995 due to its inability to purchase such small
quantities of stock indexed call options.
FINANCIAL FUTURES TRANSACTIONS
The Company from time to time may enter into various financial futures contracts
to protect against changes in the market value of various interest-earning
assets and interest-bearing liabilities, including the repricing of interest
rate floor arrangements. Realized gains and losses on these contracts are
deferred and accounted for as premiums or discounts on the related assets,
liabilities or interest rate floor resets to the extent such contracts are
matched against specific assets, liabilities or interest rate floor resets and
meet specific hedge correlation criteria. Contracts which are not matched
against specific assets, liabilities, or the repricing of interest rate floor
arrangements or do not meet correlation criteria are accounted for at market
value with the resulting gain or loss recognized in operations. At September 30,
1997 and 1996, the Company has no outstanding financial future transactions.
During the years ended September 30, 1997, 1996 and 1995, the Bank's net
interest income increased by $6.3 million, $3.5 million and $1.2 million,
respectively, as a net result of off-balance sheet financial instruments.
(22) FAIR VALUE OF 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
43-a
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:
September 30,
-------------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------------------------------------------------
(In Thousands)
FINANCIAL ASSETS:
Cash and cash equivalents.............. $ 26,305 $ 26,305 $ 23,745 $ 23,745
Debt and equity securities............. 107,743 107,759 136,776 136,774
Federal Home Loan Bank stock........... 54,119 54,119 27,938 27,938
Mortgage-backed securities............. 978,888 970,783 831,246 815,031
Loans receivable, net.................. 2,020,416 2,052,611 1,853,162 1,872,423
FINANCIAL LIABILITIES:
Deposits............................... 1,684,419 1,687,876 1,715,959 1,721,433
Borrowed funds......................... 1,253,931 1,253,614 1,008,786 1,008,136
The following methods and assumptions were utilized in estimating the fair
values of its on-balance sheet financial instruments at September 30, 1997 and
1996:
CASH AND CASH EQUIVALENTS
The estimated fair values are assumed to equal the carrying values as these
financial instruments are either due on demand or mature within 90 days.
43-b
DEBT AND EQUITY SECURITIES AND MORTGAGE-BACKED SECURITIES
Estimated fair values of debt and equity securities and mortgage-backed
securities, both available for sale and held to maturity, are generally
predicated upon quoted market prices or dealer quotes, or in the absence of such
quotes, on quoted market prices for securities with similar credit, maturity and
interest rate characteristics.
LOANS RECEIVABLE, NET
Estimated fair values are calculated for pools of loans with similar
characteristics. The loans are first segregated by type, such as one-to-four
family residential, other residential, commercial, and consumer, and then
further segregated into fixed and adjustable rate categories and seasoned and
nonseasoned categories.
Estimated fair values are derived by discounting expected future cash flows.
Expected future cash flows are based on contractual cash flows, adjusted for
prepayments. Prepayment estimates are based on a variety of factors including
the Bank's experience with respect to each loan category, the effect of current
economic and lending conditions, and regional statistics for each loan category,
if available. The discount rates used are based on market rates for new loans of
similar type and purpose, adjusted, when necessary, for factors such as
servicing cost, credit risk, and term.
As mentioned previously, this technique of estimating fair value is extremely
sensitive to the assumptions and estimates used. While management has attempted
to use assumptions and estimates which are the most reflective of the loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than those determined in formal trading marketplaces. As such,
readers are cautioned in using this information for purposes of evaluating the
financial condition and/or value of the Company in and of itself or in
comparison with any other company.
DEPOSITS
The estimated fair value of deposit liabilities with no stated maturity (NOW,
money market, savings accounts and non-interest bearing accounts, which
represent 61.0% of all deposit liabilities) are equal to the carrying amounts
payable on demand. The estimated fair value of certificates of deposit represent
contractual cash flows discounted using interest rates currently offered on
deposits with similar characteristics and remaining maturities.
Under generally accepted accounting principles, these estimated fair values do
not include the intangible value of core deposit relationships which comprise a
significant portion of the Bank's deposit base. However, management believes
that the Bank's core deposit relationships provide a relatively stable, low cost
funding source which has a substantial intangible value separate from the
deposit balances.
44-a
BORROWED FUNDS
The estimated fair value of borrowed funds is calculated based on the discounted
value of contractual cash flows using interest rates currently in effect for
borrowings with similar maturities and collateral requirements.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The estimated fair values of interest rate swap agreements, interest rate
collars, interest rate floors, interest rate caps and stock indexed call options
are obtained from dealer quotes and represent the cost of terminating the
agreements. The estimated fair value of open off-balance sheet financial
instruments results in an unrealized gain (loss) of $(.4) million and $2.9
million at September 30, 1997 and 1996, respectively.
Further, 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 creditworthiness of the
counterparties. Generally, for fixed-rate loan commitments, estimated fair value
also considers the difference between current levels of interest rates and the
committed interest rates. The estimated fair value of commitments to purchase
mortgage-backed securities is based on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. The estimated fair
value of these off-balance sheet financial instruments results in no unrealized
gain or loss at September 30, 1997 and 1996.
(23) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). The Statement is effective for transactions occurring after December 31,
1996. The Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial - components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("SFAS No. 127"). The Statement delays for one year the implementation
of SFAS No. 125, as it relates to (1) secured borrowings and collateral, and (2)
transfers of financial assets that are part of repurchase agreement,
dollar-roll, securities lending and similar transactions.
44-b
The Company has adopted portions of SFAS No. 125 (those not deferred by SFAS No.
127) effective January 1, 1997. Adoption of these portions did not have a
significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS No. 125, management does not believe
adoption of the portions of SFAS No. 125 which have been deferred by SFAS No.
127 will have a material effect on the Company.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). The Statement is effective for
periods ending after December 15, 1997, and will require restatement of all
prior-period earnings per share ("EPS") data presented. The Statement
establishes standards for computing and presenting EPS. It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the income statement. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Based on its review
of the Statement, management believes the adoption of SFAS No. 128 will result
in basic earnings per share being modestly higher than the current primary
earnings per share, and at the same time will have no material effect on diluted
earnings per share of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). The Statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
also requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of prior periods will be required. Management has not
completed its review of SFAS No. 130, and has not determined the impact, if any,
that adoption of SFAS No. 130 will have on the Company.
45-a
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The Statement establishes standards for the way an enterprise
reports information about operating segments in annual financial statements and
requires that enterprises report selected information about operating segments
in interim financial reports issued to shareholders. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Statement
requires a reconciliation of total segment revenue and expense items and segment
assets to the amounts in the enterprise's financial statements. The Statement
also requires a descriptive report on how the operating segments were
determined, the products and services provided by the operating segments, and
any measurement differences used for segment reporting and financial statement
reporting. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. Management has not completed its review of SFAS
No. 131, but does not anticipate that the adoption of SFAS No. 131 will have a
significant effect on the Company.
(24) PARENT COMPANY ONLY FINANCIAL INFORMATION
New York Bancorp operates a wholly owned subsidiary, Home Federal Savings Bank.
The earnings of the Bank are recognized by the Holding Company using the equity
method of accounting. Accordingly, earnings of the Bank are recorded as
increases in the Holding Company's investment and any dividends would reduce the
Holding Company's investment in the Bank. The following is the condensed
financial statements for New York Bancorp Inc. (parent company only) as of
September 30, 1997 and 1996 and for the years ended September 30, 1997, 1996 and
1995:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30,
----------------------------
1997 1996
----------------------------
(In Thousands)
ASSETS
Cash and due from banks........................................................... $ 60 $ 236
Money market investments.......................................................... 4,900 10,700
Debt and equity securities available for sale..................................... 31 4,841
Investment in Bank, at equity..................................................... 167,359 138,195
Other............................................................................. 68 195
----------- ------------
$ 172,418 $ 154,167
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities............................................ $ 3,355 $ 2,264
Shareholders' equity.............................................................. 169,063 151,903
----------- ------------
$ 172,418 $ 154,167
=========== ============
45-b
CONDENSED STATEMENTS OF INCOME
Year ended September 30,
---------------------------------------------
1997 1996 1995
---------------------------------------------
(In Thousands)
Dividends from Bank............................................. $ 27,800 $ 37,352 $ 26,200
Interest income................................................. 374 509 720
Interest expense................................................ -- -- (48)
Non-interest income............................................. 125 3,141 353
Non-interest expense............................................ (469) (410) (649)
------------ ----------- ------------
Income before income taxes and equity in
undistributed earnings of Bank................................. 27,830 40,592 26,576
Income tax expense.............................................. -- (1,471) (154)
------------ ----------- ------------
Income before equity in undistributed
earnings of Bank............................................... 27,830 39,121 26,422
Excess of dividends over current year earnings.................. -- (7,115) (14,860)
Equity in undistributed earnings of Bank........................ 23,381 -- --
------------ ----------- ------------
Net income...................................................... $ 51,211 $ 32,006 $ 11,562
============ =========== ============
CONDENSED STATEMENTS OF CASH FLOWS
Year ended September 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 51,211 $ 32,006 $ 11,562
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the Bank............................ (23,381) 7,115 14,860
Gain on sale of debt and equity securities
available for sale........................................... (125) (3,141) (295)
Amortization of premiums...................................... -- -- 48
Amortization of ESOP and RRP.................................. -- -- 464
Termination of ESOP and RRP................................... -- -- 4,992
(Increase) decrease in other assets........................... (96) 281 392
Increase (decrease) in other liabilities...................... 1,264 1,519 (241)
------------ ----------- ------------
Total adjustments............................................. (22,338) 5,774 20,220
------------ ----------- ------------
Net cash provided by operating activities....................... 28,873 37,780 31,782
------------ ----------- ------------
(continued)
46-a
Year ended September 30,
-----------------------------------------
1997 1996 1995
-----------------------------------------
(In Thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of mortgage-backed securities
available for sale............................................... -- -- 6,957
Proceeds from sale of debt and equity securities
available for sale............................................... 5,589 16,336 1,159
Investment in Bank................................................ (4,000) -- (105)
Investment in debt and equity securities available for sale....... (138) (14,457) (4,812)
Principal payments on mortgage-backed securities
available for sale............................................... -- -- 2,273
------------ ----------- ------------
Net cash provided by investing activities....................... 1,451 1,879 5,472
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for
treasury or retirement........................................... (27,733) (29,028) (32,496)
Proceeds from sale of treasury stock.............................. -- -- 4,530
Repayment of long term debt....................................... -- -- (217)
Payment of common stock dividends................................. (10,411) (9,427) (8,156)
Cash paid in lieu of fractional shares
resulting from stock splits...................................... (13) -- --
Exercise of stock options......................................... 1,857 1,202 872
------------ ----------- ------------
Net cash used by financing activities........................... (36,300) (37,253) (35,467)
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents................ (5,976) 2,406 1,787
Cash and cash equivalents at beginning of year...................... 10,936 8,530 8,187
Hamilton's net cash flows for the three months
ended December 31, 1994............................................ -- -- (1,444)
------------ ----------- ------------
Cash and cash equivalents at end of year............................ $ 4,960 $ 10,936 $ 8,530
============ =========== ============
46-b
(25) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years ended September 30, 1997 and
1996 is presented below:
Fiscal 1997 Fiscal 1996
------------------------------------------------- ----------------------------------------------------------
Quarter Ended
-------------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31,
1997 1997 1997 1996 1996 1996 1996 1995
==============================================================================================================
(In Thousands except per share data)
QUARTERLY OPERATING DATA:
Interest income....... $ 62,447 $ 61,919 $ 59,066 $ 55,417 $ 54,349 $ 52,392 $ 50,091 $ 50,659
Interest expense...... 33,276 31,030 28,789 27,538 27,528 26,486 25,741 26,991
---------- --------- --------- --------- ---------- --------- ---------- ---------
Net interest income... 29,171 30,889 30,277 27,879 26,821 25,906 24,350 23,668
Provision for possible loan
losses (300) (300) (1,200) (300) (300) (300) (300) (300)
Net interest income after
provision for possible
loan losses 28,871 30,589 29,077 27,579 26,521 25,606 24,050 23,368
----------- ---------- --------- --------- ------------ ---------- --------- ---------
Non-interest income:
Loan fees and service
charges 687 738 699 817 676 673 790 631
Banking service fees 1,838 1,677 1,558 1,491 1,461 1,444 1,175 1,243
Fees from sale of
investment products 392 488 573 361 307 432 444 193
Net gain on sales
of mortgage loans
and securities
available for sale 1,934 117 513 117 1,972 742 1,529 507
Other 64 53 4,574 62 80 132 108 128
Total non-interest income 4,915 3,073 7,917 2,848 4,496 3,423 4,046 2,702
--------- -------- ------- --------- --------- ------- ---------
Non-interest expense:
General and administrative 12,809 11,663 13,418 12,159 12,280 11,714 11,631 11,910
Real estate operations, net 25 164 466 269 123 253 (46) 133
SAIF recapitalization -- -- -- -- 9,432 -- -- --
------ ------ ------- -------- ------- ------ ------- ------
Total non-interest
expense 12,834 11,827 13,884 12,428 21,835 11,967 11,585 12,043
Income before
income tax expense... 20,952 21,835 23,110 17,999 9,182 17,062 16,511 14,027
Income tax expense.... 7,082 8,671 9,197 7,735 3,810 7,432 7,335 6,199
---------- --------- --------- --------- ---------- --------- ---------- ---------
Net income............ $ 13,870 $ 13,164 $ 13,913 $ 10,264 $ 5,372 $ 9,630 $ 9,176 $ 7,828
========== ========= ========= ========= ========== ========= ========== =========
Earnings per
common share......... $ .62 $ .58 $ .61 $ .45 $ .23 $ .41 $ .38 $ .32
Summation of the quarterly earnings per common share, due to the averaging
effect of the number of shares and share equivalents throughout the year, does
not necessarily equal the annual amount.
47
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of New York Bancorp Inc.:
We have audited the accompanying consolidated statements of financial condition
of New York Bancorp Inc. and Subsidiary as of September 30, 1997 and 1996 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 New York Bancorp
Inc. and Subsidiary as of September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
October 27, 1997
Jericho, New York
48
At September 30, 1997 there were 2,632 holders of record of common stock.
The following table shows high and low closing sales prices as reported by the
New York Stock Exchange. Such prices do not necessarily reflect retail markups,
markdowns or commissions.
Fiscal year ended September 30, 1997
- -----------------------------------------------------
Cash
Dividends
High Low Per Share
4th Quarter $32.000 $26.344 $.15
3rd Quarter $26.156 $20.813 $.15
2nd Quarter $25.125 $18.656 $.1125
1st Quarter $19.375 $16.063 $.075
Fiscal year ended September 30, 1996
- -----------------------------------------------------
Cash
Dividends
High Low Per Share
4th Quarter $16.063 $12.875 $ .10
3rd Quarter $13.063 $11.875 $ .10
2nd Quarter $11.625 $10.750 $ .10
1st Quarter $11.250 $ 9.875 $ .10
50