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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended September 30, 1995
__________________
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from to
_____ _____
Commission file number 1-11684
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NEW YORK BANCORP INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 11-2869250
__________________________________ _______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
241-02 Northern Boulevard, Douglaston, N. Y. 11362
______________________________________________ _________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 631-8100
____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
___________________ _________________________________________
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
_____ _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K of any
amendment to this Form 10-K. _____
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last reported sales price of such stock
on the New York Stock Exchange on November 30, 1995, was $184,083,786.
The number of shares outstanding of the registrant's Common Stock as of November
30, 1995 was 11,906,474.
Documents Incorporated by Reference
____________________________________
The following documents are incorporated by reference:
Portions of the Registrant's 1995 Annual Report to Shareholders for the Fiscal
Year Ended September 30, 1995 - Part I, Part II; and Portions of the
Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders to be
held on January 23, 1996 -Part III.
Exhibit Index on Page 44.
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NEW YORK BANCORP INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 40
Item 3. Legal Proceedings............................................... 41
Item 4. Submission of Matters to a Vote of Security Holders............. 41
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 41
Item 6. Selected Financial Data......................................... 41
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................. 41
Item 8. Financial Statements and Supplementary Data..................... 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 42
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 42
Item 11. Executive Compensation.......................................... 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 42
Item 13. Certain Relationships and Related Transactions.................. 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................... 43
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PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
_______________________________
New York Bancorp Inc. ("New York Bancorp" or the "Company"), a Delaware business
corporation, is a savings and loan holding company which, together with its
subsidiary, Home Federal Savings Bank ("Home Federal" or the "Savings Bank"), is
headquartered in Douglaston, New York. The Company was organized at the
direction of the Savings Bank in connection with the Savings Bank's conversion
from mutual to stock form of organization. The conversion was completed on
February 4, 1988. The sole activity of the Company at this time is its ownership
of all of the outstanding capital stock of the Savings Bank. At September 30,
1995, the Company had total assets of $2.7 billion and shareholders' equity of
$156.4 million.
Home Federal was organized in 1935 as a federally chartered savings and loan
association. In 1983, Home Federal changed its charter to a federal savings
bank, and in February 1988 converted from a mutual to its current stock form of
ownership. The Savings Bank's business is primarily conducted in New York City,
and Nassau, Suffolk and Westchester Counties. The Savings Bank maintains
twenty-seven full service branch offices located in Kings, Queens, Nassau,
Richmond and Suffolk Counties, and six loan production offices located in Kings,
Queens, Nassau, Westchester, and Suffolk Counties.
In March 1992, New York Bancorp, through its subsidiary, the Savings Bank,
acquired $203.8 million in assets and assumed $52.6 million in liabilities of
the former State Savings, FSB ("State Savings") from the Resolution Trust
Corporation ("RTC"), as receiver of State Savings.
In August and October 1992, New York Bancorp, through its subsidiary, the
Savings Bank, additionally acquired $273.9 million in assets and assumed $480.0
million in liabilities of the former Union Savings Bank ("Union Savings") from
the Federal Deposit Insurance Corporation (the "FDIC"), as receiver of Union
Savings.
On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings") with total assets of $721.6
million and shareholders' equity of $78.1 million, was merged with and into New
York Bancorp. This transaction has been accounted for as a pooling of interests,
and, as a result, the financial results for the periods prior to the merger
reported herein have been restated to include the results of Hamilton. The
Company reports its financial results on a fiscal year ended September 30,
whereas Hamilton reported its financial results on a calendar year basis. In
order to present historical consolidated financial information, the consolidated
financial statements for years prior to fiscal year 1995 reflect the combination
of the Company at and for the years ended September 30 with Hamilton's financial
condition and results of operations at and for the years ended December 31.
Home Federal has been, and intends to continue to be, a community savings bank
offering a variety of deposit and lending services designed to meet the needs of
the communities it serves. The Savings Bank's deposit customer base is drawn
primarily from Kings, Queens, Richmond, Nassau and Suffolk Counties, while its
loan origination activity is conducted primarily in Kings, Queens and the other
New York City boroughs as well as Nassau, Suffolk and Westchester Counties.
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Deposits in the Savings Bank are insured up to the applicable limits by the FDIC
and the Savings Bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision (the "OTS") and by the FDIC.
Additionally, the Savings Bank is a member of the Federal Home Loan Bank
("FHLB") System.
The Savings 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
Savings Bank also maintains a portion of its assets in mortgage-backed
securities and investment securities, including obligations of the U.S.
Government and federal agencies, corporate and other debt instruments.
During the past few years, the Savings Bank took positive steps to be responsive
to customers' needs by providing more quality and diverse financial services.
During this period, the Savings Bank's branch personnel were fully trained in
new products and cross-selling techniques. The Savings Bank additionally has
established loan production offices throughout the branch system to provide
better loan related services to present and new customers in the branch
community. The Savings Bank has also opened two full-service branches in
supermarkets, and is planing to open additional branches in supermarkets.
NARRATIVE DESCRIPTION OF BUSINESS
LENDING ACTIVITIES
__________________
GENERAL. A component of the Savings Bank's overall interest rate risk
strategy is to shorten the maturities and increase the interest rate
sensitivity of its assets primarily through the origination and
purchase of adjustable rate loans. With respect to fixed rate
conventional mortgage loans, the Savings Bank either sells such loans
or retains them if (i) they have been funded with long-term borrowings
or (ii) hedging techniques can be used to protect the Savings Bank
against interest rate risk. The loan products offered by Home Federal
are affected by Federal and state laws, the supply of funds available
for lending purposes, market forces, including the demand for loans,
and competition.
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LOAN PORTFOLIO COMPOSITION. The following tables set forth the
composition of the Savings Bank's total loan portfolio by dollar amount
and percent of total portfolio as of the dates indicated.
At September 30,
_________________________________________________________________________________________________________
1995 1994 1993 1992 1991
____________________ ____________________ _____________________ _____________________ ___________________
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
___________ ________ ___________ ________ ____________ ________ ___________ _________ __________ ________
(Dollars in Thousands)
FIRST MORTGAGE LOANS(1):
One-to four-family
residential............ $ 932,313 55.14% $ 719,421 49.16% $ 716,913 50.40% $ 723,647 54.40% $ 499,143 53.17%
Commercial.............. 451,788 26.72 438,531 29.96 391,878 27.54 268,158 20.16 174,585 18.60
Construction, net of
loans in process....... 8,902 .52 4,966 .34 -- .-- 8,352 .63 19,863 2.11
___________ ______ __________ ______ ___________ ______ _________ ______ __________ ______
Total first
mortgage loans....... 1,393,003 82.38 1,162,918 79.46 1,108,791 77.94 1,000,157 75.19 693,591 73.88
______ ______ ______ ______ ______
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized premiums,
unearned discounts,
deferred loan fees
and allowance for
possible loan losses... (22,828) (28,036) (29,831) (23,140) (8,461)
____________ __________ ___________ ___________ __________
Net first mortgage
loans................ 1,370,175 1,134,882 1,078,960 977,017 685,130
____________ __________ ___________ ___________ __________
OTHER LOANS:
Consumer................ 21,912 1.30 13,067 .89 16,944 1.19 19,782 1.49 8,041 .86
Cooperative
residential............ 141,902 8.39 150,520 10.29 163,431 11.49 165,226 12.42 128,553 13.69
Home improvement........ 1,526 .09 9,637 .66 8,101 .57 8,038 .61 8,786 .94
Guaranteed Student...... 56,673 3.35 54,693 3.74 55,180 3.88 60,274 4.53 25,183 2.68
Commercial.............. 11,214 .66 15,336 1.05 7,085 .50 5,842 .44 12,144 1.29
Secured by deposits..... 7,917 .47 8,401 .57 7,411 .52 6,292 .47 5,769 .62
Second mortgage......... 2,147 .13 2,605 .18 2,819 .20 6,137 .46 4,263 .45
Home equity............. 33,513 1.98 36,890 2.52 42,152 2.96 45,410 3.41 41,994 4.47
Purchased auto
leasing................ 21,063 1.25 9,385 .64 10,665 .75 13,073 .98 10,501 1.12
____________ ______ __________ ______ ___________ ______ ___________ ______ __________ ______
Total other loans....... 297,867 17.62 300,534 20.54 313,788 22.06 330,074 24.81 245,234 26.12
______ ______ ______ ______ ______
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized
premiums, unearned
discounts, deferred
loan fees and
allowance for
possible loan losses... (3,099) (3,062) (4,331) (7,328) (3,927)
____________ ___________ ____________ ____________ ___________
Net other loans......... 294,768 297,472 309,457 322,746 241,307
____________ ___________ ____________ ____________ ___________
Total loans............. $ 1,690,870 100.00% $ 1,463,452 100.00% $ 1,422,579 100.00% $ 1,330,231 100.00% $ 938,825 100.00%
============ ====== =========== ====== ============ ====== ============ ====== =========== ======
Total net loans......... $ 1,664,943 $ 1,432,354 $ 1,388,417 $ 1,299,763 $ 926,437
============ =========== ============ ============ ===========
(1) Of the amount in total first mortgage loans, $1,016,693,000, $760,951,000, $695,371,000, $566,196,000 and $396,145,000,
represent adjustable rate mortgage loans at September 30, 1995, 1994, 1993, 1992 and 1991, respectively.
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ORIGINATION, PURCHASE AND SALE OF LOANS. Set forth below is a table showing the
Savings Bank's total loan origination, purchase, sale, amortization and
repayment activities for the years indicated.
Year ended September 30,
_______________________________________________
1995 1994 1993
_____________ _____________ _____________
(In Thousands)
FIRST MORTGAGE LOANS
At beginning of year................................ $ 1,162,918 $ 1,108,791 $ 1,000,157
First mortgage loans originated..................... 332,253 343,020 361,094
First mortgage loans purchased...................... 100,314 -- 106,192
Securitization and transfer to mortgage-
backed securities available for sale............... (11,695) (18,817) (53,023)
Transfer of loans to real estate owned.............. (3,879) (4,662) (4,162)
First mortgage loans sold........................... (37,942) (109,226) (126,294)
Amortization, prepayments and other................. (137,927) (156,188) (175,173)
Hamilton's net activity for the
quarter ended December 31, 1994.................... (11,039) -- --
_____________ _____________ _____________
At end of year...................................... $ 1,393,003 $ 1,162,918 $ 1,108,791
============= ============= =============
OTHER LOANS
At beginning of year................................ $ 300,534 $ 313,788 $ 330,074
Other loans originated.............................. 57,046 46,901 46,856
Other loans purchased............................... 14,427 2,939 --
Transfer of loans to real estate owned.............. (576) (1,122) (2,123)
Other loans sold.................................... (1,499) -- --
Amortization, prepayments and other................. (69,229) (61,972) (61,019)
Hamilton's net activity for the
quarter ended December 31, 1994.................... (2,836) -- --
_____________ _____________ _____________
At end of year...................................... $ 297,867 $ 300,534 $ 313,788
============= ============= =============
Total loan originations were basically unchanged at $389.3 million in fiscal
1995 compared to $389.9 for fiscal 1994, which was an $18.0 million decrease
from fiscal 1993. Loan purchases totaled $114.7 million for fiscal 1995,
compared to $2.9 million in fiscal 1994 and $106.2 million in fiscal 1993. The
loan purchases in fiscal 1995 primarily represent adjustable rate one-to-four
family first mortgage loans. The loans purchased in fiscal 1993 were primarily
commercial mortgage loans obtained from the FDIC as receiver for the former
Union Savings.
Loan sales were $39.4 million, $108.9 million and $126.6 million for the years
ended September 30, 1995, 1994 and 1993. The decrease in the current year is
attributed to an increase in origination of adjustable rate first mortgage loans
and a decrease in origination of fixed rate first mortgage loans. It is the
Company's policy to retain for portfolio adjustable rate first mortgage loans,
while generally selling fixed rate first mortgage loans.
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LOAN MATURITY. The following table sets forth the estimated contractual maturity
of the Savings Bank's loan portfolio, assuming no prepayments and excluding
mortgage-backed securities.
At September 30, 1995
_________________________________________________________________________________
First Mortgage Loans
_______________________________________
One-
to Four-
Family Cooperative Consumer
Residential Commercial Construction Residential and Other Total
____________ __________ ____________ ____________ ___________ _____________
(In Thousands)
Amounts due:
Within 1 year............ $ 3,056 $ 10,707 $ 8,902 $ 344 $ 12,762 $ 35,771
After 1 year(1):
1 to 2 years........... 2,538 34,198 -- 46 8,342 45,124
2 to 3 years........... 3,311 16,620 -- 95 11,191 31,217
3 to 5 years........... 7,723 29,622 -- 488 26,487 64,320
5 to 10 years.......... 83,775 225,765 -- 6,519 70,339 386,398
10 to 15 years......... 134,185 103,764 -- 14,411 17,810 270,170
Over 15 years.......... 697,725 31,112 -- 119,999 9,034 857,870
___________ __________ ___________ __________ ___________ ____________
Total after 1 year... 929,257 441,081 -- 141,558 143,203 1,655,099
___________ __________ ___________ __________ ___________ ____________
Total amounts due.. $ 932,313 $ 451,788 $ 8,902 $ 141,902 $ 155,965 1,690,870
=========== ========== =========== ========== =========== ____________
Less:
Unearned purchase
accounting discounts
and premiums, net....... (329)
Unearned discounts and
premiums, net........... 193
Deferred loan fees....... (4,519)
Allowance for possible
loan losses............. (21,272)
____________
Loans receivable....... $ 1,664,943
============
______________
(1) Of the $1,655,099,000 in loans due after one year, $1,205,002,000 are adjustable rate loans and
$450,097,000 are fixed rate loans.
RESIDENTIAL MORTGAGE AND COOPERATIVE RESIDENTIAL LENDING. The Savings Bank
emphasizes the origination of conventional adjustable rate mortgage ("ARM")
loans for retention in its own portfolio. At September 30, 1995,
residential ARM loans outstanding, both originated and purchased by Home
Federal, comprised $631.4 million, or 67.7%, of the total residential
mortgage loan portfolio. The Savings Bank's residential mortgage loan
originations are concentrated in the Savings Bank's market area. Most local
residential loans are originated directly by the Savings Bank. At September
30, 1995, the Savings Bank offered one, three and five year ARM loans for a
maximum term of 30 years with initial interest rates of 5.375%, 6.875% and
7.125%, respectively. The Savings Bank similarly offered a fixed rate loan
at 7.625% which amortizes in approximately 23 years based upon a bi-weekly
payment structure. At September 30, 1995, the Savings Bank offered
conventional 10, 15 and 30 year fixed rate mortgages with interest rates of
6.750%, 6.875% and 7.375%, respectively, and a maximum loan amount equal to
the applicable Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") maximum loan amounts.
Additionally, the Savings Bank offers convertible mortgage loans, which
typically mature in 15 or 30 years. These loans begin with an adjustable
interest rate and give the mortgagor an option to convert to a fixed
interest rate during years two through five. At September 30, 1995, the
Savings Bank offered convertible mortgage loans with an initial interest
rate of 5.375%. A 20% minimum downpayment is typically required on all
residential mortgage loans. Any loan with less than a 20% downpayment is
required to have private mortgage insurance.
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At September 30, 1995, the Savings Bank had $141.9 million of loans secured
by assignment of leases and shares on cooperative residential apartments,
of which $109.5 million, or 77.2%, have adjustable rates. In recent years,
the Savings Bank has significantly curtailed its cooperative lending as a
result of the continued depressed real estate market conditions for this
type of lending.
For residential mortgage and cooperative residential adjustable rate loans
there is a lifetime adjustment cap not to exceed 6.00% above the initial
offered rate. For most adjustable rate loans, the maximum rate change is
2.00% to 2.50% per adjustment. During the year ending September 30, 1995,
the Savings Bank originated $288.1 million of residential ARM loans, or
84.9%, of the total residential mortgage loan originations, which includes
$4.4 million cooperative residential adjustable rate loans during that
period. During the same period, the Savings Bank originated $51.1 million
of fixed rate residential mortgage loans, or 15.1%, of the total mortgage
loans originated during that period. A substantial portion of these fixed
rate mortgage loans were sold into the secondary market.
The Savings Bank's residential mortgage loans customarily include
due-on-sale clauses giving the Savings Bank the right to declare a loan
immediately due and payable in the event, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and the
loan not being repaid. The Savings Bank has generally enforced due-on-sale
clauses in its mortgage contracts.
Residential loan originations are generated by the Savings Bank's marketing
efforts, its depositors, walk-in customers and referrals from real estate
brokers, mortgage brokers, builders, as well as the Savings Bank employees.
Loan applications are reviewed in accordance with the underwriting
standards approved by the Savings Bank's Board of Directors. Residential
loans in excess of $1.0 million are approved by the Loan Review Committee
of the Savings Bank's Board of Directors.
In underwriting residential real estate loans, the Savings Bank evaluates
both the borrower's ability to make monthly payments and the value of the
property securing the loan. The Savings Bank has adopted a policy of
generally limiting the loan-to-value ratio on originated and purchased
loans to 95% and requiring that loans exceeding 80% of the appraised value
of the property or its purchase price, whichever is less, be insured by a
mortgage insurance company approved by FNMA and FHLMC in an amount
sufficient to reduce the Savings Bank's exposure to no greater than an 80%
level. The Savings Bank requires the mortgagor to maintain hazard
(including fire) insurance on property securing residential real estate
loans. The Savings Bank also requires flood insurance on property located
in designated flood hazard areas.
The Savings Bank offers reverse annuity mortgages to qualified senior
citizens on one family properties up to a total indebtedness of $350,000.
These loans allow seniors the ability to supplement their income by
borrowing against the equity in their home. The loans require a maximum
loan-to-value ratio of 70% and a maximum term of fifteen years. As of
September 30, 1995, the Savings Bank's reverse annuity mortgage portfolio
consisted of 22 loans with a total potential indebtedness of $5.0 million,
of which $2.7 million is yet to be disbursed over the remaining term of
these loans.
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There are unquantifiable risks resulting from increased costs to the
borrower as a result of periodic repricing of adjustable rate loans.
Despite the benefits of adjustable rate loans to the Savings Bank's
asset/liability management program, they do pose potential additional
risks, primarily because as interest rates rise, the underlying payments by
the borrower rise, thereby increasing the potential for default. At the
same time, the marketability of the underlying property may be adversely
affected by higher interest rates. However, to reduce such additional risk,
the Savings Bank reviews the borrower's application for an adjustable rate
loan based on the borrower's ability to make future monthly payments
assuming a fully indexed interest rate or 7.00%, whichever is greater.
COMMERCIAL REAL ESTATE LOANS. In recent years, the Savings Bank has
originated and purchased loans on commercial income-producing properties.
At September 30, 1995, the Savings Bank had approximately $451.8 million,
or 26.7% of the total loan portfolio invested in loans on commercial income
producing properties.
Commercial mortgage lending on income-producing properties entails
significant additional risks as compared with residential property lending.
Commercial real estate loans typically involve large loan balances to
single borrowers or groups of related borrowers. The repayment experience
is typically dependent on the successful operation of the real estate
project. Since these risks can be significantly affected by supply and
demand conditions in the market for office and retail space, and as such
may be subject to a greater extent to adverse conditions in the economy in
general, the Savings Bank generally has limited itself to lending within
its market area where it has knowledge and experience of such items.
The majority of loans on income-producing properties currently offered by
the Savings Bank are underwritten for a term of ten years with a maximum
rate adjustment period of five years, typically with a maximum amortization
period of twenty years. In setting interest rates and origination fees on
new loans and loan extensions, management considers both current cost of
funds and its analysis of the risk associated with the particular loan.
The Savings Bank's underwriting policies with respect to loans on
income-producing properties are designed to require that actual or
anticipated cash flow will be more than sufficient to cover operating
expenses and debt service payments. A detailed analysis of the project is
undertaken by a lending officer. Furthermore, an independent analysis of
the project is undertaken by the Savings Bank Credit Administration
Department. Loan-to-value ratios on new commercial real estate loans made
by the Savings Bank generally do not exceed 65%, have personal guarantees
from the individual borrowers, and the net income to debt service coverage
ratio generally is at least 120%. All income-producing properties are
appraised by an independent appraiser who must be approved by the Board of
Directors. Commercial real estate loans in excess of $650,000 are approved
by the Loan Review Committee of the Savings Bank's Board of Directors. Home
Federal requires that the borrower obtain title insurance and hazard
insurance in the amount of the loan, naming the Savings Bank as loss payee.
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CONSTRUCTION LOANS. At September 30, 1995 the Savings Bank's construction
loan portfolio consisted of 26 loans amounting to $12.9 million of which
$4.0 million remains as undisbursed.
Construction loans generally are made with floating interest rates and
maturities not in excess of three years. Progress disbursements are made on
the basis of percentage of completion as determined by an independent
consultant. In addition, the Savings Bank conducts an analysis of the
borrower's financial capability.
OTHER LENDING. Federal regulations permit the Savings Bank to engage in
most types of consumer lending. At September 30, 1995, the Savings Bank's
other loan portfolio, exclusive of cooperative residential loans discussed
above, totaled $156.0 million and was comprised of $29.8 million of both
secured and unsecured personal loans, $21.1 million in purchased automobile
leases, $56.7 million in guaranteed student loans, $11.2 million in
commercial business loans, $33.5 million in home equity loans and $3.7
million in home improvement and second mortgage loans. Such other loans,
including cooperative residential loans, comprised 17.6% of the total loan
portfolio.
The Savings Bank's other loans (with the exception of cooperative
residential loans, guaranteed student loans, home equity loans and consumer
home improvement loans) have maturities of not greater than five years.
Consumer home improvement loans may have maturities of up to ten years and
student loans have maturities which vary according to the student's tenure
in school. Student loans are guaranteed by the New York State Higher
Education Services Corporation and the yield to the Savings Bank varies
based upon a spread over U.S. Treasury Bills. Rates offered for personal
and home improvement loans as of September 30, 1995 ranged from 9.25% to
14.50%. The Savings Bank also offers home equity loans which permit
borrowers to draw down funds over a ten-year period at a floating rate over
prime, amortized over a twenty-year schedule. Additionally, the Savings
Bank offers commercial loans to business entities and individuals generally
in the New York Metropolitan area on a secured basis. Loans are reviewed in
conformance with standards approved by the Board of Directors.
Commercial business loans historically have had a higher degree of risk
than residential real estate loans. While real estate mortgage loans are
secured by real property whose value on a relative basis tends to be easily
ascertainable, commercial business loans typically are made on the basis of
the borrower's ability to make repayment from the cash flow of its business
or the conversion of current assets and are frequently secured by business
assets, such as accounts receivable, equipment and inventory. As a result,
the availability of funds for the repayment of commercial business loans
may be substantially dependent on the success of the business itself.
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LOAN PURCHASES. The Savings Bank purchased $100.0 million of adjustable
rate first mortgage loans during the year ended September 30, 1995. Such
loans carried higher rates than could be obtained on purchases of
adjustable rate mortgage-backed securities. The loans were primarily
performing seasoned loans whereby a borrower was not delinquent for more
than 30 days during the year preceding the purchase date.
The Savings Bank also purchased $14.1 million of auto lease loans during
fiscal 1995. Primarily in connection with its acquisitions of State Savings
and Union Savings during the years ended September 30, 1993 and 1992, the
Savings Bank purchased residential mortgage and cooperative residential
loans, commercial real estate loans and other loans. While the loans
acquired were originated using underwriting criteria substantially
different than that used by the Savings Bank, as part of its due diligence
process, the Savings Bank performed detail reviews of acquired loan pools
including various loan file reviews, site inspections and analysis of
payment history information. The purchase price for such loans reflected
management's evaluation of the interest and credit risks associated with
such loans.
LOAN SERVICING. Mortgage servicing provides a relatively stable source of
fee income in that such income is a function of the size of the servicing
portfolio and not the interest rate on the related loans. In addition to
servicing fee income, which generally ranges from 0.25% to 0.50% per annum
of outstanding principal balances, other fees such as late charges are
collected. The Savings Bank has also benefited from the generation of a
relatively low cost source of funds from escrow deposits, and the use of
principal and interest payments prior to remittance to investors. At
September 30, 1995 and 1994, the Company was servicing first mortgage loans
of approximately $523.7 million and $530.3 million, respectively, which are
either partially or wholly owned by others. Loan servicing fees amounted to
$1.7 million and $1.8 million for the years ended September 30, 1995 and
1994, respectively.
The Savings Bank's risk with respect to servicing loans for others is
minimal due to the fact that loans serviced for others are all without
recourse to the originator/servicer.
DELINQUENCIES. The Savings Bank conducts a regular review and follow-up of
all loan delinquencies. When a borrower fails to make a scheduled payment
on a loan, the Savings Bank takes steps to have the borrower cure the
delinquency. Most loan delinquencies are cured within 90 days and no legal
action is required. If the delinquency exceeds 90 days and is not cured
through the Savings Bank's normal collection procedures, the Savings Bank
will initiate measures to enforce its remedies resulting from the default,
including, in the case of mortgage loans, commencing foreclosure action, or
in the case of other secured loans, repossessing the collateral. In certain
cases, the Savings Bank will also consider accepting from the mortgagor a
voluntary deed to the mortgaged premises in lieu of foreclosure. Property
acquired by the Savings Bank as a result of foreclosure or by deed in lieu
of foreclosure is classified as "Real Estate Owned." In the case of
unsecured installment loans, the Savings Bank either commences legal action
to collect the balances or negotiates a "work-out" payment schedule over a
period which may exceed the original term of the loan. In certain instances
the Savings Bank will restructure loans to assist borrowers in meeting
their obligations.
11
12
It is the Savings Bank's policy to discontinue the accrual of interest when
a mortgage loan, cooperative residential loan, or home equity loan exceeds
90 days delinquent, and in some cases, before reaching 90 days delinquent.
At September 30, 1995, the Savings Bank's ratio of nonaccrual loans to
total loans was 1.80%. 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.
Additionally, at September 30, 1995, 1994 and 1993 the Savings Bank had
$5.0 million, $4.0 million and $3.3 million, respectively, of consumer and
other loans which are past due 90 days and still accruing interest at the
dates indicated. Of the $5.0 million at September 30, 1995, $3.0 million
represents loans guaranteed by the United States Department of Education
through the New York Higher Education Services Corporation. The following
tables set forth certain information regarding nonaccrual loans, real
estate owned and restructured loans. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
1995 Annual Report to Shareholders for a discussion on the interest that
would have been earned on nonaccrual loans and the decrease in nonaccrual
loans to total loans.)
For the Year Ended September 30,
__________________________________________________________________________
1995 1994 1993 1992 1991
_________ _________ _________ _________ _________
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis......................... $ 30,372 $ 36,533 $ 38,808 $ 35,458 $ 25,340
========= ========= ========= ========= =========
Real estate owned......................... $ 1,967 $ 5,919 $ 6,609 $ 9,336 $ 18,250
========= ========= ========= ========= =========
Restructured loans........................ $ 9,104 $ 9,481 $ 6,237 $ 2,309 $ 3,712
========= ========= ========= ========= =========
12
13
Summary of Loan Loss Experience
_______________________________
As of and
For the Year Ended September 30,
__________________________________________________________________________
1995 1994 1993 1992 1991
_________ _________ _________ _________ _________
(Dollars in Thousands)
Allowance for possible loan
losses, beginning of year................ $ 25,705 $ 26,828 $ 19,455 $ 4,970 $ 4,449
Charge-offs:
Commercial real estate.................. 3,435 1,732 682 348 450
Real estate - construction.............. -- -- -- 2,016 1,592
Residential real estate................. 1,422 1,572 1,586 1,214 657
Other loans............................. 1,442 901 1,731 604 198
_________ _________ _________ _________ _________
Total charge-offs..................... 6,299 4,205 3,999 4,182 2,897
_________ _________ _________ _________ _________
Less: Recoveries
Commercial real estate................ -- (349) (220) -- --
Residential real estate............... (4) (47) (41) -- --
Other loans........................... (75) (36) (122) (22) (17)
_________ _________ _________ _________ _________
Total recoveries.................... (79) (432) (383) (22) (17)
_________ _________ _________ _________ _________
Net charge-offs........................... 6,220 3,773 3,616 4,160 2,880
Addition to allowance in connection
with the acquisitions of State
Savings and Union Savings................ -- -- 6,289 10,241 --
Hamilton's net activity for the quarter
ended December 31, 1994.................. 87 -- -- -- --
Addition to allowance charged to
expense.................................. 1,700 2,650 4,700 8,404 3,401
_________ _________ _________ _________ _________
Allowance at end of year.................. $ 21,272 $ 25,705 $ 26,828 $ 19,455 $ 4,970
========= ========= ========= ========= =========
Assets Quality Ratios
_____________________
Net charge-offs to average
loans outstanding during the period...... .40% .27% .25% .39% .31%
Allowance for possible loan
losses to total loans.................... 1.26% 1.76% 1.89% 1.46% .53%
Allowance for possible loan
losses to nonaccrual loans............... 70.04% 70.36% 69.13% 54.87% 19.62%
Nonaccrual loans to total loans........... 1.80% 2.50% 2.73% 2.67% 2.70%
Total loans............................... $ 1,690,870 $ 1,463,452 $ 1,422,579 $ 1,330,231 $ 938,825
Average loans(1).......................... $ 1,560,706 $ 1,411,067 $ 1,425,134 $ 1,074,982 $ 924,612
Total assets.............................. $ 2,731,592 $ 2,583,982 $ 2,250,605 $ 2,153,861 $ 1,760,968
______________
(1) Nonaccruing loans have been included in the average loan amounts.
The allowance for possible loan losses is established and maintained
through provisions for possible loan losses charged to expense. During
the years ended September 30, 1993 and 1992 the Savings Bank also had
additions to its allowance for possible loan losses resulting from its
acquisitions of State Savings and Union Savings. Loans are charged-off
against the allowance for possible loan losses when management
believes the collectibility of the full principal balance is unlikely
("Charge-offs"). As part of the Savings Bank's determination of the
adequacy of the allowance for loan losses, the Savings 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 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 for
September 30, 1995 is sufficient to cover anticipated losses inherent
in the loan portfolios.
13
14
At September 30, 1995, 1994, 1993, 1992 and 1991 the allowance for possible loan losses was allocated as follows:
At September 30,
_______________________________________________________________________________________________________________
1995 1994 1993 1992 1991
______________________ _____________________ _____________________ ______________________ _____________________
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
_________ __________ _________ __________ _________ __________ __________ __________ _________ __________
(Dollars in Thousands)
Construction
loans......... $ 39 .53% $ 25 .34% $ -- .--% $ 118 .63% $ 350 2.12%
Commercial
loans......... 92 .66 71 1.05 61 .50 86 .44 975 1.29
Commercial
real estate
loans......... 8,562 26.72 11,678 29.96 13,363 27.55 9,796 20.16 709 18.60
Residential
and other
loans......... 4,037 72.09 6,270 68.65 6,513 71.95 6,610 78.77 1,453 77.99
Unallocated.... 8,542 .-- 7,661 .-- 6,891 .-- 2,845 .-- 1,483 .--
________ ______ ________ ______ ________ ______ ________ ______ ________ ______
Total........ $ 21,272 100.00% $ 25,705 100.00% $ 26,828 100.00% $ 19,455 100.00% $ 4,970 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
INVESTMENT ACTIVITIES
_____________________
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in
Debt and Equity Securities" ("SFAS No. 115"). Under SFAS No. 115,
investment 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. Investment and mortgage-backed securities to be held for
indefinite periods of time and not intended to be held to maturity are
now classified as available for sale securities and are recorded at
fair value, with unrealized appreciation and depreciation reported,
net of tax, as a separate component of shareholders' equity.
In connection with the adoption of SFAS No. 115, mortgage-backed
securities previously classified as held for sale, and carried at the
lower of cost or market, were classified as available for sale. The
carrying value of these mortgage-backed securities was adjusted to
their market value, which resulted in increasing the carrying value by
$826,000, and increasing shareholders' equity by $449,000, which was
net of taxes of $377,000. In addition, the Savings Bank reclassified
$71.5 million of mortgage-backed securities available for sale to
mortgage-backed securities held to maturity, and reclassified $78.1
million of mortgage-backed securities held to maturity to
mortgage-backed securities available for sale. At the time of the
reclassifications, the carrying value of such mortgage-backed
securities approximated market value.
14
15
Prior to October 1, 1993, investment and mortgage-backed securities which the
Company had the positive intent and ability to hold on a long-term basis or
until maturity were carried at cost, adjusted for amortization of premiums and
accretion of discounts. Investment and mortgage-backed securities to be held for
indefinite periods of time and not intended to be held to maturity or on a
long-term basis were classified as held for sale and were carried at the lower
of cost or market value. Such securities held for sale included securities used
as part of the Company's asset/liability strategy, or securities that may have
been sold in response to, among other things, changes in interest rates,
prepayment risk, the need or desire to increase capital, the need to satisfy
regulatory requirements or other similar factors.
MORTGAGE-BACKED SECURITIES.
__________________________
Home Federal invests a portion of its assets in mortgage-backed
securities. Home Federal considers its investment in mortgage-backed
securities as a separate investment category from mortgage loans
because of the liquidity characteristics of these instruments. At
September 30, 1995, the Savings Bank's portfolios of mortgage-backed
securities totaled $871.5 million, or 31.9% of total assets.
Approximately 20.4% of this portfolio includes mortgage-backed
securities with underlying loans which are guaranteed by either the
FHLMC, GNMA or FNMA. The remainder of the portfolio consists of REMIC,
CMO and private-issue pass-through mortgage-backed securities virtually
all of which are rated no less than AAA by nationally recognized rating
services. Management anticipates the full collection of principal
balances and contractual interest amounts on these securities over
their lives, as none of these securities are considered to be residual
interests.
Included in the Savings Bank's mortgage-backed securities portfolio at
September 30, 1995 are REMIC and CMO securities with a principal
balance of $660.9 million. This portfolio has an average estimated life
of 5.3 years at September 30, 1995. Changes in interest rates and
underlying collateral values can affect the average life of the REMIC
and CMO securities. Assuming an immediate and parallel shift in the
yield curve of 300 basis points from the rate environment at September
30, 1995, it is estimated that the average life of this portfolio would
be extended to 7.3 years. At September 30, 1995 the Savings Bank's
REMIC and CMO portfolio consisted of 34.7% in Sequential Payment
Securities, 27.1% in Targeted Amortization Securities, 16.4% in
Scheduled Payment Securities, and 21.8% in other Securities. (See
Management's Discussion and Analysis of Financial Condition and Results
of Operations - Asset/Liability Management and Notes 4 and 6 to the
Consolidated Financial Statements for the Year Ended September 30, 1995
contained in the 1995 Annual Report to Shareholders.)
15
16
The following table sets forth the composition of the Savings Bank's
mortgage-backed securities held to maturity portfolio as of the dates
indicated:
September 30,
___________________________________________________
1995 1994 1993
____________ _____________ _____________
(In Thousands)
CARRYING VALUES:
FHLMC(1)...................................... $ 21,461 $ 27,265 $ 68,360
FNMA(2)....................................... 34,148 45,493 97,496
GNMA(3)....................................... -- 55,013 75,974
REMIC and CMO(4).............................. 604,722 651,091 189,683
____________ _____________ _____________
Total mortgage-backed securities
held to maturity........................... 660,331 (5) 778,862 431,513
Add: Unamortized premiums.................... 6,519 10,110 9,078
Less: Unearned discounts..................... (2,124) (3,379) (986)
____________ _____________ _____________
Total carrying value........................ $ 664,726 $ 785,593 $ 439,605
============ ============= =============
ESTIMATED MARKET VALUE.......................... $ 637,503 $ 730,500 $ 443,756
============ ============= =============
_________________
(1) Includes $4,736,000, $7,076,000 and $9,081,000 of adjustable rate securities at September 30, 1995,
1994, and 1993, respectively.
(2) Includes $8,370,000, $10,688,000 and $14,606,000 of adjustable rate securities at September 30,
1995, 1994, and 1993, respectively.
(3) Includes $55,013,000 and $63,064,000 of adjustable rate securities at September 30, 1994 and 1993,
respectively.
(4) Includes $4,111,000, $5,904,000 and $8,490,000 of adjustable rate securities at September 30, 1995,
1994, and 1993, respectively.
(5) Of the $660,331,000 in mortgage-backed securities at September 30, 1995, $41,897,000 represent pools
with underlying loans having five and seven year balloon maturities.
The following table sets forth the composition of the Savings Bank's
mortgage-backed securities available for sale portfolio as of the dates
indicated:
September 30,
____________________________________________________
1995 1994 1993
____________ _____________ ______________
(In Thousands)
CARRYING VALUES:
FHLMC......................................... $ 74,344 $ 49,796 $ 15,742
FNMA.......................................... 36,831 35,287 --
GNMA.......................................... 10,854 2,201 220
REMIC ........................................ 56,199 63,277 179,051
Private-issue pass-through.................... 30,295 30,303 35,030
____________ _____________ _____________
Total mortgage-backed securities
available for sale......................... 208,523 180,864 230,043
Add: Unamortized premiums.................... 1,091 1,594 4,595
Less: Unearned discounts...................... (3,818) (3,479) (402)
Less: Unrealized appreciation (depreciation)
on securities available for sale....... 998 (6,996) --
____________ _____________ _____________
Total carrying value........................ $ 206,794 $ 171,983 $ 234,236
============ ============= =============
ESTIMATED MARKET VALUE.......................... $ 206,794 $ 171,983 $ 235,074
============ ============= =============
16
17
INVESTMENTS.
____________
The Savings Bank's investment policy, which is established by its Board
of Directors, is to invest funds among various categories of
investments and maturities based upon the Savings Bank's
asset/liability policies, investment quality and marketability
standards, liquidity needs and performance objectives.
At September 30, 1995, the Company had $13.9 million, or .5% of its
total assets, invested in money market investments. The Company had
$67.5 million in investment securities and investment securities
available for sale at September 30, 1995, representing 2.5% of total
assets. It is the Company's policy to purchase only issues rated
investment grade. An "A" rating, as assigned by several generally
recognized independent rating agencies, is the third highest of the
four rating grades which are considered to be "investment grade" by the
rating agencies and by most financial institutions. "Baa" is the fourth
highest rating. At September 30, 1995, 100% of such issues owned by the
Company were considered to be investment grade by the rating agencies.
The Company maintains a trading account for the purpose of taking
advantage of short-term movements of interest rates in the market
place. At September 30, 1995, the Company had $2.0 million, or .1%, of
its assets in trading account securities.
17
18
The following table sets forth certain information regarding the
Company's investment portfolio at the dates indicated:
September 30,
__________________________________________________
1995 1994 1993
____________ ____________ ____________
(Dollars In Thousands)
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. Government and agency obligations............ $ 20,000 $ 51,501 $ 2,577
Corporate notes................................... 1,179 1,483 1,899
Common stocks..................................... -- -- 186
____________ ____________ ____________
Total investment securities held to
maturity....................................... 21,179 52,984 4,662
____________ ____________ ____________
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. Government and agency obligations............ 41,740 -- --
Common stocks .................................... 4,082 134 --
Stock in FNMA..................................... 2 2 --
____________ ____________ ____________
Total investment securities
available for sale............................. 45,824 136 --
Add: Unrealized appreciation on
securities available for sale.................... 449 44 --
____________ ____________ ____________
Net investment securities
available for sale............................. 46,273 180 --
____________ ____________ ____________
FEDERAL HOME LOAN BANK STOCK........................ 20,288 17,409 21,734
____________ ____________ ____________
MONEY MARKET INVESTMENTS:
Securities purchased under resale
agreements....................................... 8,400 5,031 59,001
Commercial paper.................................. -- 4,002 2,997
FHLB overnight deposits........................... 4,997 11,561 9,013
Federal funds sold................................ 500 1,250 6,250
Other............................................. 18 -- --
____________ ____________ ____________
Total money market investments.................. 13,915 21,844 77,261
____________ ____________ ____________
TOTAL INVESTMENT PORTFOLIO.......................... $ 101,655 $ 92,417 $ 103,657
============ ============ ============
AVERAGE LIFE, IN YEARS, OF TOTAL INVESTMENT
PORTFOLIO, EXCLUDING EQUITY SECURITIES............. 3.6 4.0 .2
=== === ===
The table below sets forth certain information regarding the carrying and market
values, average yields and maturities of the Savings Bank's investment in debt
securities.
At September 30, 1995
__________________________________________________________________________________________________________________
One Year 1 to 5 to More than
or Less 5 Years 10 Years 10 Years Total Investment Securities
__________________ ___________________ __________________ __________________ _____________________________________
Average
Carrying Average Carrying Average Carrying Average Carrying Average Life Carrying Market Average
Value Yield Value Yield Value Yield Value Yield in Years Value Value Yield
________ _______ ________ _________ ________ _________ ________ ________ _________ ________ _________ _______
(Dollars in Thousands)
U.S.
Government
and agency
obligations.... $ -- .--% $ 61,753 6.95% $-- .--% $ -- .--% 4.4 $ 61,753 $ 61,678 6.95%
===== ==== ======== ==== === === ====== ==== === ======== ========= ====
Corporate
notes.......... $ 502 7.53% $ -- .--% $-- .--% $ 677 6.38% 6.3 $ 1,179 $ 1,182 6.87%
===== ==== ======== ==== === === ====== ==== === ======== ========= ====
18
19
SUBSIDIARIES OF THE SAVINGS BANK
________________________________
The Savings Bank has six wholly owned subsidiaries, three of which are inactive.
Of the active subsidiaries, one subsidiary, Alameda Advantage Corp. ("AAC"), is
a limited partner in the partnership which owns the property used for the
Savings Bank's executive and administrative offices. At September 30, 1995, the
Savings Bank's investment in AAC amounted to $455,000.
Two of the subsidiaries, Home Fed Services, Inc. and HF Investors, Inc., were
primarily established to offer annuities through the Savings Bank's branch
system. At September 30, 1995, the Savings Bank's investment in these
subsidiaries amounted to $386,000.
SOURCES OF FUNDS
________________
The Savings Bank's lending and investment activities are predominately funded by
deposits, FHLB-NY advances, reverse repurchase agreements with primary
government securities dealers, scheduled amortization and prepayments of its
loan and investment portfolio, and funds provided by operations. Although not
viewed as a primary source of funds, the Savings Bank will, from time to time,
sell certain of the Savings Bank's mortgages and securities which have been
designated as available for sale. The primary purpose of these sales has been to
reduce the Savings Bank's interest rate risk position. Further, in fiscal year
1989, the Savings Bank began to utilize subordinated capital notes as an
additional source of funds.
DEPOSITS. Home Federal has a number of programs designed to attract
both short-term and long-term savings from the general public by
providing a wide assortment of accounts bearing interest rates
consistent with federal regulations and market conditions. Included
among these programs are savings accounts, negotiable order of
withdrawal ("NOW") accounts, money market deposit accounts ("MMDA"),
fixed rate and variable rate Individual Retirement and Keogh Accounts,
fixed rate and variable rate certificates of deposit, and non-interest
bearing demand accounts. Additionally, during the year ended September
30, 1994 Home Federal introduced its MarketSmart 5-year certificates of
deposit which enable depositors to earn an annual percentage yield
based on the changes in the Standard & Poor's ("S&P") 500 Composite
Stock Price Index during each of the 5 year terms of the CD. The
MarketSmart CD is also available to depositors as an individual
retirement certificate of deposit. Included in deposits at September
30, 1995 is $2.5 million of MarketSmart CD deposit liabilities. The
Savings Bank utilizes Stock Indexed Call options to hedge the risks
associated with this product. The Savings Bank ceased offering the
MarketSmart CD during the current fiscal year due to its inability to
purchase Stock Indexed Call Options.
19
20
Savings accounts (passbook or statement), which accounted for
approximately 42.9% of the Savings Bank's total deposits at September
30, 1995, earned interest as of that date at an annual rate of 2.47%
with an effective annual yield of 2.50%. Interest on savings accounts
is compounded daily and credited quarterly. A savings account must have
a balance of at least $50.00 to earn interest. At September 30, 1995,
approximately 42.6% of all deposits were in certificate accounts with
original maturities ranging from three months to seven years. Interest
on certificate accounts of six months or less is based on simple
interest and credited monthly. Interest on all other certificate
accounts is compounded daily and credited quarterly. At September 30,
1995, approximately 5.9% of all deposits were in MMDAs which bear a
fluctuating rate of interest that is reviewed regularly by the Savings
Bank. Additionally, NOW accounts represented 6.7% of the Savings Bank's
total deposits at September 30, 1995. Interest on NOW accounts is
compounded daily and credited monthly. Non-interest bearing demand
accounts represented 1.9% of the Savings Bank's total deposits at
September 30, 1995.
The following table sets forth the distribution of the Savings Bank's
deposit accounts at the dates indicated and the weighted average
interest rates on deposits at September 30, 1995.
At September 30,
_____________________________________________________________________
September 30, 1995 1994 1993
_______________________ ________________________ ____________________
1995
Weighted
Average Percent Percent Percent
Nominal of of of
Rate Amount Deposits Amount Deposits Amount Deposits
_____________ _____________ ________ ____________ ________ ___________ ________
(Dollars in Thousands)
Non-interest bearing
demand accounts....... .--% $ 32,821 1.88% 34,110 1.91% $ 30,532 1.74%
NOW accounts........... 1.59 116,726 6.67 109,123 6.09 96,725 5.50
Variable rate money
market deposit
accounts.............. 3.01 102,937 5.89 158,413 8.84 142,951 8.13
Regular savings and
club accounts......... 2.47 751,374 42.96 878,591 49.04 966,645 54.98
____ ____________ _____ ____________ ______ ___________ _____
2.34 1,003,858 57.40 1,180,237 65.88 1,236,853 70.35
____ ____________ _____ ____________ ______ ___________ _____
Certificate accounts:
With original
maturities of:
3 months.......... 4.44 11,923 .68 8,015 .45 6,943 .39
6 months.......... 4.94 88,938 5.09 94,033 5.25 97,278 5.53
7 months.......... 5.20 34,179 1.95 -- .-- -- .--
12 months.......... 5.58 144,155 8.24 138,819 7.75 102,213 5.81
13 months.......... 5.71 56,120 3.21 -- .-- 319 .02
30 months.......... 4.71 26,168 1.50 31,947 1.78 33,873 1.93
36 months.......... 5.26 14,328 .82 12,973 .72 10,566 .60
48 months.......... 5.33 4,535 .26 4,187 .23 3,293 .19
60 months.......... 6.37 88,075 5.04 59,115 3.30 59,020 3.36
Other................ 5.59 48,307 2.76 49,044 2.74 25,538 1.46
IRA & Keogh.......... 5.73 162,198 9.27 160,215 8.94 151,603 8.62
Certificates
$100,000 or
greater............. 6.01 66,090 3.78 52,929 2.96 30,603 1.74
____ ____________ ______ ____________ ______ ____________ ______
5.60 745,016 42.60 611,277 34.12 521,249 29.65
____ ____________ ______ ____________ ______ ____________ ______
Total deposits....... 3.73% $ 1,748,874 100.00% $ 1,791,514 100.00% $ 1,758,102 100.00%
==== ============ ====== ============ ====== ============ ======
20
21
The following table presents the deposit activity of the Savings Bank for the years indicated:
September 30,
___________________________________________________
1995 1994 1993
______________ _______________ ______________
(In Thousands)
Deposits........................................... $ 2,909,582 $ 2,635,468 $ 2,493,069
Withdrawals........................................ (3,011,924) (2,658,499) (2,538,233)
Deposit sales(1)................................... -- -- (39,297)
______________ _______________ ______________
Deposits in excess of (less than)
withdrawals....................................... (102,342) (23,031) (84,461)
Interest credited.................................. 67,670 56,443 59,799
Hamilton's net activity for the
quarter ended December 31, 1994................... (7,968) -- --
______________ _______________ ______________
Net increase (decrease) in deposits................ $ (42,640) $ 33,412 $ (24,662)
============== =============== ==============
(1) Reflects deposits sold to another financial institution.
The following table presents the weighted average nominal interest
rates on certificate accounts outstanding at September 30, 1995 by
periods of maturity.
Percent of Weighted Remaining maturity
Certificates Average ____________________________________________________________________
to Total Nominal 6 months 6 months 1 year 3 years 5 years
Quarter Ended Amount Deposits Rate or less to 1 year to 3 years to 5 years to 10 years Total
_____________ ______ ____________ ________ ________ _________ __________ __________ ___________ ________
(Dollars in Thousands)
December 31, 1995....... $ 158,348 21.25% 4.99% $ 158,348
March 31, 1996.......... 145,726 19.56 5.40 145,726
June 30, 1996........... 104,537 14.03 5.77 $ 104,537
September 30, 1996...... 101,139 13.58 5.61 101,139
December 31, 1996....... 27,443 3.68 5.48 $ 27,443
March 31, 1997.......... 18,391 2.47 5.93 18,391
June 30, 1997........... 24,158 3.24 6.10 24,158
September 30, 1997...... 16,598 2.23 5.74 16,598
December 31, 1997....... 12,933 1.74 5.88 12,933
March 31, 1998.......... 23,876 3.20 6.31 23,876
June 30, 1998........... 14,585 1.96 5.79 14,585
September 30, 1998...... 13,086 1.76 6.32 13,086
December 31, 1998....... 8,870 1.19 5.32 $ 8,870
March 31, 1999.......... 5,711 .77 5.22 5,711
June 30, 1999........... 15,316 2.06 5.82 15,316
September 30, 1999...... 11,184 1.50 5.73 11,184
December 31, 1999....... 7,920 1.06 6.69 7,920
March 31, 2000.......... 12,330 1.66 7.14 12,330
June 30, 2000........... 17,717 2.38 7.09 17,717
September 30, 2000...... 3,941 .53 5.83 3,941
December 31, 2000....... 730 .09 5.62 $ 730
March 31, 2001.......... 17 .-- 7.93 17
December 31, 2001....... 460 .06 7.16 460
__________ ______ ____ __________ __________ __________ __________ ___________ __________
$ 745,016 100.00% 5.60% $ 304,074 $ 205,676 $ 151,070 $ 82,989 $ 1,207 $ 745,016
========== ====== ==== ========== ========== ========== ========== =========== ==========
21
22
At September 30, 1995, the Savings Bank had outstanding $66.1 million
in certificate accounts in amounts of $100,000 or more maturing as
follows:
Quarter Ended Amount
_____________ ________
(In Thousands)
December 31, 1995....................... $ 14,778
March 31, 1996.......................... 7,979
June 30, 1996........................... 7,413
September 30, 1996...................... 6,985
December 31, 1996....................... 3,354
March 31, 1997.......................... 1,576
June 30, 1997........................... 1,572
September 30, 1997...................... 706
December 31, 1997....................... 1,290
March 31, 1998.......................... 5,934
June 30, 1998........................... 892
September 30, 1998...................... 674
December 31, 1998....................... 1,241
March 31, 1999.......................... 328
June 30, 1999........................... 1,682
September 30, 1999...................... 2,570
December 31, 1999....................... 1,304
March 31, 2000.......................... 1,989
June 30, 2000........................... 3,452
September 30, 2000...................... 371
____________
$ 66,090
============
BORROWED FUNDS. Although deposits are the Savings Bank's primary source
of funds, the Savings Bank's policy has been to utilize borrowed funds
when they are a less costly source of funds or can be invested at a
positive interest rate spread. These borrowings are generally
short-term or variable rate and, therefore, present greater interest
rate and liquidity risk to the Savings Bank. The Savings Bank attempts
to manage this risk and utilizes off-balance sheet financial
instruments to a limited extent to manage its risks.
Home Federal obtains advances from the FHLB-NY upon the security of its
residential mortgage loans and mortgage-backed securities. Such
advances are made pursuant to several different credit programs, each
of which has its own interest rate and range of maturities.
Home Federal also employs repurchase agreements as a means of borrowing
funds. It is the Savings Bank's policy to enter into these agreements
only with primary government dealers.
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23
At September 30, 1995, the Savings Bank had outstanding $190.2 million
of fixed rate reverse repurchase agreements with a weighted average
interest rate of 5.87% and remaining maturities of one to three months.
The Savings Bank may substitute collateral in the form of U.S. Treasury
or mortgage-backed certificates. At September 30, 1995, the borrowings
were collateralized by FNMA, FHLMC, REMIC and non-agency pass-through
certificates having a carrying value of approximately $204.9 million
and a market value of approximately $198.7 million.
At September 30, 1995, the Savings Bank had outstanding $4.7 million of
flexible reverse repurchase agreements which are collateralized
borrowings having interest rates of 7.85% and a stated remaining
maturity of eight months. The Savings Bank may substitute collateral in
the form of U.S. Treasury, GNMA, FNMA and FHLMC certificates. At
September 30, 1995, the borrowings were collateralized by FNMA and
FHLMC certificates having a carrying value of approximately $4.6
million and a market value of approximately $4.5 million.
At September 30, 1995, the Savings Bank had outstanding $150.0 million
of LIBOR-based variable rate reverse repurchase agreements with a
weighted average interest rate of 5.90% and remaining maturities of six
to eleven months. The Savings 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, 1995,
the borrowings were collateralized by FNMA, FHLMC, REMIC and non-agency
pass-through certificates having a carrying value of approximately
$162.0 million and a market value of approximately $158.0 million.
On November 18, 1988, the Savings Bank issued $25.0 million in 10.95%
(Series A Notes) and $5.0 million in 10.52% (Series B Notes)
subordinated capital notes (collectively as the "Notes"). During the
years ended September 30, 1991 and 1990, the Company repaid $6.0
million and $5.0 million, respectively, of its Series A Notes at prices
substantially equal to its carrying value. Interest on the Notes is
payable in semiannual installments. Principal on the Series A Notes and
Series B Notes are payable in five annual installments of $2.8 million
and $1.0 million, respectively, beginning on November 30, 1994 and
ending on November 30, 1998. The first installment of $3.8 million was
paid on November 30, 1994. As of September 30, 1995, the Savings Bank
had $15.2 million of the Notes outstanding which are fully subordinated
to savings deposit accounts and other general liabilities of the
Savings Bank. Further, at September 30, 1995, $3.3 million 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 at
the option of the Savings Bank, subject to regulatory approval, at any
time. Deferred issuance costs are being amortized over the period to
maturity of the notes.
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On February 3, 1989 the Savings 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 $180.0
million, 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, 1995.
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
At September 30,
_____________________________________
1995 1994 1993
___________ __________ __________
(In Thousands)
Notes payable--fixed rate advances from the FHLB-NY:
7.750% to 8.400%, due in 1994................................ $ -- $ -- $ 2,857
4.470% to 8.450%, due in 1995................................ -- 27,500 17,500
4.130% to 8.450%, due in 1996................................ 22,375 22,375 17,375
8.100%, due in 1997.......................................... 375 375 375
___________ __________ __________
22,750 50,250 38,107
___________ __________ __________
Notes payable--variable-rate advances from the FHLB-NY:
3.138% to 3.700%, due in 1994................................ -- -- 67,500
4.813% to 6.125%, due in 1995................................ -- 207,000 --
5.883% to 6.625%, due in 1996................................ 363,000 -- --
5.000% to 5.986%, due in 1997................................ 20,000 20,000 10,000
4.813%, due in 1998.......................................... -- 35,000 --
___________ __________ __________
383,000 262,000 77,500
___________ __________ __________
Securities sold under agreements to repurchase:
Fixed rate agreements:
3.200%, due in 1994........................................ -- -- 19,109
4.860% to 5.300%, due in 1995.............................. -- 90,191 --
5.790% to 6.000%, due in 1996.............................. 190,160 -- --
___________ __________ __________
190,160 90,191 19,109
___________ __________ __________
Other collateralized borrowings:
Fixed rate flexible reverse repurchase agreements:
7.010% to 7.450%, due in 1994.............................. -- -- 23,700
7.850%, due in 1996........................................ 4,700 4,700 7,700
___________ __________ __________
4,700 4,700 31,400
___________ __________ __________
Variable rate flexible reverse repurchase agreements:
3.261% to 3.838%, due in 1994.............................. -- -- 105,860
5.793% to 6.025%, due in 1996.............................. 150,000 -- --
___________ __________ __________
150,000 -- 105,860
___________ __________ __________
Variable rate capped reverse repurchase agreements:
3.920% to 4.250%, due in 1995.............................. -- 150,000 --
___________ __________ __________
Subordinated capital notes, fixed rate - 10.84%:
Due in 1995................................................. -- 3,800 3,800
Due in 1996................................................. 3,800 3,800 3,800
Due in 1997................................................. 3,800 3,800 3,800
Due in 1998................................................. 3,800 3,800 3,800
Due in 1999................................................. 3,800 3,800 3,800
___________ __________ __________
15,200 19,000 19,000
___________ __________ __________
Treasury, tax and loan notes-callable, 5.75% and 5.19% at
September 30, 1995 and 1994, respectively..................... 1,328 582 --
___________ __________ __________
Other (ESOP) prime rate, due in 2000........................... -- 2,174 2,717
___________ __________ __________
Total borrowed funds........................................ $ 767,138 $ 578,897 $ 293,693
=========== ========== ==========
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The following table sets forth the maximum month-end balance, average
balance and weighted average interest rate of short-term borrowings
based on remaining maturities for the periods indicated. Average
balances and rates are computed on the basis of daily balances.
Year Ended September 30,
____________________________________________
1995 1994 1993
____________ ____________ ____________
(Dollars in Thousands)
FHLB-NY advances--due in one year or less:
Maximum month-end balance............................. $ 385,375 $ 234,500 $ 113,811
Balance at end of year................................ 385,375 234,500 70,357
Average balance....................................... 293,268 159,724 74,851
Weighted average interest rate:
On balance at end of year.......................... 6.13% 5.44% 3.54%
On average balance................................. 5.75% 4.29% 3.92%
Other borrowings--principally reverse repurchase
agreements, due in one year or less:
Maximum month-end balance............................. $ 349,988 $ 240,773 $ 64,201
Balance at end of year................................ 349,988 240,773 42,809
Average balance....................................... 259,685 110,480 36,424
Weighted average interest rate:
On balance at end of year.......................... 5.96% 4.49% 5.25%
On average balance................................. 5.72% 5.52% 5.97%
Total short-term borrowings:
Maximum month-end balance............................. $ 735,363 $ 475,273 $ 164,554
Balance at end of year................................ 735,363 475,273 113,166
Average balance....................................... 548,560 270,204 111,275
Weighted average interest rate:
On balance at end of year.......................... 6.05% 4.96% 4.19%
On average balance................................. 5.74% 4.79% 4.60%
MARKET AREA AND COMPETITION
___________________________
Home Federal has been, and continues to be, a community-oriented savings bank
offering a variety of financial services to its community. The Savings Bank,
however, has substantial competition for both loans and deposits. The New York
City metropolitan area has a high density of financial institutions, many of
which are substantially larger and have substantially greater financial
resources than the Savings Bank, and all of which are competitors of the Savings
Bank to varying degrees. The Savings Bank faces significant competition, both in
making mortgage and consumer loans and in attracting deposits. The Savings
Bank's competition for loans comes principally from savings and loan
associations, savings banks, mortgage banking companies, insurance companies,
and commercial banks. Its most direct competition for deposits has historically
come from savings and loan associations, savings banks, commercial banks, credit
unions and securities dealers. The Savings Bank faces additional competition for
deposits from short-term money market funds and other corporate and government
securities funds.
The Savings Bank competes for loans principally through competitive pricing and
the efficiency and quality of services it provides borrowers and their real
estate brokers. It competes for deposits through pricing, service and by
offering a variety of deposit accounts. New powers for thrift institutions
provided by New York State and Federal legislation enacted in recent years have
resulted in increased competition between savings banks and other financial
institutions for both deposits and loans.
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EMPLOYEES
_________
At September 30, 1995, Home Federal had 558 employees, including 164 part-time
employees. The Savings Bank's employees are not represented by any collective
bargaining group. The Savings Bank considers its employee relations to be
excellent.
REGULATION
__________
GENERAL. The Savings Bank is a member of the FHLB System and
approximately 81.9% of its deposit accounts are insured up to
applicable limits by the FDIC under the Savings Association Insurance
Fund ("SAIF"). In addition, approximately 18.1% of its deposit accounts
are insured by the Bank Insurance Fund ("BIF"). The Savings Bank is
subject to extensive regulation by the OTS, as its chartering agency,
and the FDIC, as the deposit insurer. The Savings Bank must file
reports with the OTS and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. There are periodic
examinations by the OTS and the FDIC to examine whether the Savings
Bank is in compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily
to ensure the safe and sound operation of the Savings Bank for the
protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. Any change in such regulation,
whether by the OTS, the FDIC or the United States Congress could have a
material adverse impact on the Company, the Savings Bank and their
operations. The Company, as a savings and loan holding company, is
required to file certain reports with, and otherwise comply with the
rules and regulations of the OTS, and of the Securities and Exchange
Commission ("SEC") under the Federal securities laws. Certain of the
regulatory requirements applicable to the Savings Bank and to the
Company are referred to below or elsewhere herein.
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FEDERAL SAVINGS INSTITUTION REGULATION
______________________________________
BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by the Home Owners Loan Act of 1933 as amended ("HOLA") and,
in certain respects, the Federal Deposit Insurance Act ("FDI Act") and
the regulations that have been issued pursuant to those statutes. These
laws and regulations delineate the nature and extent of the activities
in which federal savings associations may engage. In particular,
authority for certain types of loans, e.g., commercial, nonresidential
real property loans and consumer loans, is limited to a percentage of
the institution's capital or assets. The description of statutory
provisions and regulations applicable to savings and loan institutions
set forth in this Form 10-K do not purport to be a complete description
of such statutes and regulations and their effects on the Savings Bank.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are
generally subject to the national bank limits on loans to one borrower.
The Savings Bank is generally not permitted, with certain exceptions,
to make new loans to a single or related group of borrowers in excess
of 15% of the Savings Bank's unimpaired capital and unimpaired surplus,
plus up to an additional 10% for loans fully secured by readily
marketable collateral. Real estate is not included in the definition of
"readily marketable collateral." At September 30, 1995, the maximum
amount which Home Federal could loan to one borrower (and related
entities) under the limit was approximately $23.6 million. At September
30, 1995, the Savings Bank's largest aggregate amount of loans to one
borrower was $12.1 million.
QUALIFIED THRIFT LENDER TEST. All savings institutions, including the
Savings Bank, are required to meet a qualified thrift lender ("QTL")
test to avoid extensive restrictions on their operations under the
HOLA, as amended. Under the QTL test, a savings institution is required
to maintain at least 65% of its "portfolio assets" (total assets less
(i) specified liquid assets up to 20% of total assets, (ii) specified
intangibles, including goodwill, and (iii) the value of property used
to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including
certain mortgage-backed and mortgage-related securities) on a monthly
basis in at least 9 out of every 12 months.
A savings institution that fails the QTL test must either convert to a
bank charter or operate under certain restrictions. If the savings
institution does not convert to a bank charter, it generally will be
prohibited from: (i) making any new investment or engaging in any new
activity not permissible for a national bank, (ii) paying dividends not
permissible under national bank regulations, (iii) obtaining advances
from any FHLB, and (iv) establishing any new branch office in a
location not permissible for a national bank in the institution's home
state. In addition, beginning three years after the institution failed
the QTL test, the institution would be prohibited from refinancing any
investment or engaging in any activity not permissible for a national
bank and would have to repay any outstanding advances from an FHLB as
promptly as can be prudently done consistent with safe and sound
operation of the institution.
At September 30, 1995, the Savings Bank met the test with qualified
thrift investments equal to approximately 84.0% of its tangible assets,
and has always met the test since its effectiveness.
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LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS regulations impose
limitations upon all capital distributions by savings institutions,
such as dividends, payments to repurchase or otherwise acquire their
shares, payments to shareholders of another institution in a cash-out
merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an
institution's capital level. An institution that exceeds all fully
phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 institution") and has not been advised by the OTS
that it is in need of more than normal supervision, could, after prior
notice, to the OTS, make capital distributions during a calendar year
equal to the greater of: (i) 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in
capital requirements) at the beginning of the calendar year, or (ii)
75% of its net income for the previous four quarters. Any additional
capital distributions would require prior regulatory approval.
The Savings Bank is a Tier I institution. In the event the Savings
Bank's capital fell below its requirement or the OTS notified it that
it was in need of more than normal supervision, the Savings Bank's
ability to make capital distributions could be restricted. In addition,
the OTS may prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if
the OTS determines that such distribution would constitute an unsafe or
unsound practice. Furthermore, federal law prohibits the Savings Bank
from making any capital distribution if, after the distribution, the
Savings Bank would have: (i) a total risk-based capital ratio of less
than 8.0%, (ii) a Tier I risk-based capital ratio of less than 4.0%, or
(iii) a leverage capital ratio of less than 4.0% (3.0% in the event the
Savings Bank was assigned a 1 MACRO rating, the highest examination
rating of the OTS for rating institutions).
LIQUIDITY. The Savings Bank is required, for each calendar month, to
maintain an average daily balance of liquid assets (as defined in the
regulations) equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement may be changed from time to time
by the OTS to any amount within the range of 4% to 10%, depending upon
economic conditions and the deposit flows of member savings
institutions, and currently is 5%. OTS regulations also require each
member institution to maintain an average daily balance of short-term
liquid assets at a specified percentage (currently 1%) of the total of
its net withdrawable deposit accounts and borrowings payable in one
year or less during the preceding calendar month. For the month of
September 1995, the Savings Bank was in compliance with the OTS
liquidity requirements, having an average daily liquidity ratio and a
short-term liquidity ratio of 5.28%. Monetary penalties may be imposed
for failure to meet liquidity requirements. The Savings Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirement.
ASSESSMENTS. Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, to be paid on a semi-annual basis, is computed upon the
savings institution's total assets, including consolidated
subsidiaries, as reported in the institution's latest quarterly thrift
financial report. The Savings Bank's total assessment for the fiscal
year 1995 was approximately $.4 million.
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TRANSACTIONS WITH RELATED PARTIES. The Savings Bank's authority to
engage in transactions with related parties or "affiliates" (i.e., any
company that controls or is under common control with Home Federal,
including the Company and the Savings Bank's subsidiaries), or to make
loans to certain insiders, is limited by Sections 23A and 23B of the
Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount
of transactions with all affiliates to 20% of the savings institution's
capital and surplus. Loans and certain other extensions of credit are
required to be secured by collateral in an amount and of a type
described in Section 23A and the purchase of low quality assets from
affiliates, or the receipt of such assets as collateral, is generally
prohibited. Section 23B provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and
under circumstances, including credit standards, that are substantially
the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with nonaffiliated
individuals or entities. In the absence of comparable transactions,
such transactions may only occur under terms and circumstances,
including credit standards, that in good faith would be offered to or
would apply to nonaffiliated individuals or entities. Notwithstanding
Sections 23A and 23B, savings institutions are prohibited from lending
to any affiliate that is engaged in activities that are not permissible
for bank holding companies under Section 4(c) of the Bank Holding
Company Act ("BHC Act"). Further, no savings institution may invest in
the securities of any affiliate other than a subsidiary.
The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, are currently governed by Sections 22(g) and 22(h) of the FRA,
and Regulation O thereunder. Among other things, these regulations
require such loans to be made on terms substantially the same as to
those offered to unaffiliated individuals which involve no more than
the normal risk of collectibility, place limits on the amount of loans
the Savings Bank may make to such persons based, in part, on the
Savings Bank's capital position, and require certain approval
procedures to be followed. The Savings Bank is currently in compliance
with such regulations. The OTS regulations, with minor variances, apply
Regulation O to savings institutions.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against any savings institution and all
"institution-related parties," including shareholders, and any
attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an
insured institution. Civil penalties cover a wide range of violations
and actions and range from $5,000 per day to $1.0 million per day for a
finding of knowing or reckless disregard causing substantial loss to
the savings institution. Criminal penalties for most financial
institution crimes include fines of up to $1.0 million and imprisonment
for up to 30 years. In addition, regulators have substantial discretion
to impose enforcement action on an institution that fails to comply
with its regulatory requirements. Possible enforcement action ranges
from the requirements of an approved capital plan and the imposition of
a directive, to receivership, conservatorship or the termination of
deposit insurance. Under the FDI Act, the FDIC has the authority to
recommend to the Director of OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by
the Director, the FDIC has authority to take such action under certain
circumstances.
29
30
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") and a final rule to implement safety and
soundness standards required under the FDI Act. The Guidelines set
forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. The standards set forth
in the guidelines address internal controls and information systems;
internal audit systems; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and
benefits. The agencies are expected to adopt a proposed rule that
proposes asset quality and earnings standards which, if adopted in
final, would be added to the Guidelines. If the appropriate federal
banking agency determines that an institution fails to meet any
standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve
compliance with the standard, as required by the FDI Act. The final
rule establishes deadlines for the submission and review of such safety
and soundness compliance plans when such plans are required.
REGULATORY CAPITAL REQUIREMENT. The Savings Bank is required to meet
minimum capital standards, promulgated by the OTS, having three
components: a leverage limit or "core capital" requirement, a "tangible
capital" requirement, and a "risk-based capital" requirement. The OTS
regulations require that in meeting the leverage ratio, tangible, and
risk-based capital standards, the institution must deduct investments
in and loans to subsidiaries engaged in certain activities not
permissible for national banks.
The leverage limit requires a savings institution to maintain "core
capital" in an amount not less than 3% of adjusted total assets. Core
capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, less intangibles other than certain qualifying servicing
rights. The tangible capital requirements call for "tangible capital"
in an amount not less than 1.5% of adjusted total assets. Tangible
capital is defined as core capital less any intangible assets other
than qualifying servicing rights.
Generally, savings institutions with a leverage ratio (core capital) of
less than 4.0% will be deemed "undercapitalized" under the prompt
corrective rule and, therefore, the leverage ratio has effectively been
increased to 4.0%. (See Prompt Corrective Action Regulations.)
The risk-based capital requirement calls for an institution to maintain
capital in an amount not less than 8% of its risk weighted assets.
Under the risk-based capital standards, assets are categorized and
assigned risk weights by the regulation so that assets which are deemed
to involve a greater credit risk require more capital than assets with
less credit risk. Risk-based capital may include two components, core
and supplementary. Core capital is as defined previously. Supplementary
capital may be included in an amount up to 100% of core capital. The
components of supplementary capital may include cumulative preferred
stock, long-term preferred stock, mandatory convertibles securities,
subordinated debt and intermediate preferred stock and general
allowance for loan and lease losses. General allowance for loan and
lease losses allowable in supplementary capital is limited to a maximum
of 1.25% of risk-adjusted assets.
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31
In August 1993, the OTS adopted a final rule incorporating an interest
rate risk component into the existing risk-based capital standard.
Under the final rule, savings institutions with "above normal" interest
rate risk exposure are subject to a deduction for total capital for
purposes of calculating risk-based capital requirements. A savings
institution's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming
and outgoing discounted cash flows from assets, liabilities and
off-balance sheet contracts) that would result from a hypothetical 200
basis point increase or decrease in market interest rates (except when
the 3-month Treasury bond equivalent yield falls below 4.0%, then the
decrease will be equal to one-half of that Treasury rate) divided by
the estimated economic value of the institution's assets, as calculated
in accordance with guidelines set forth by the OTS. A savings
institution whose measured interest rate risk exposure exceeds 2.0%
must deduct an interest rate component in calculating its total capital
under the risk- based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institutions
measured interest rate risk and 2.0%, multiplied by the estimated
economic value of the institutions assets. The dollar amount is
deducted from an institutions total capital in calculating compliance
with its risk-based capital requirement. The rule provides that the
director of the OTS may waive or defer an institution's interest rate
risk component on a case-by -case basis. For the present time, the OTS
has delayed implementation of the automatic capital deduction of the
interest rate risk component. The Savings Bank's risk-based capital
requirement would not have been materially affected based on interest
rate risk at September 30, 1995. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital
contained in the 1995 Annual Report to Shareholders.)
PROMPT CORRECTIVE REGULATORY ACTION. Federal law established a system
of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, Federal banking regulators are
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's
degree of capitalization.
Under the OTS rules, generally a savings institution that has a total
risk-based capital of less than 8.0% or a leverage ratio or Tier 1
risk-based ratio that is less than 4.0% would be considered to be
"undercapitalized." A savings institution that has risk-based capital
less than 6.0%, a Tier I risk-based capital ratio of less than 3.0%, or
a leverage ratio that is less than 3.0% would be considered to be
"significantly undercapitalized" and a savings institution that has a
tangible capital to assets ratio equal to or less than 2.0% would be
deemed to be "critically undercapitalized."
The rules require any institution to file a capital restoration plan
with the OTS within 45 days of the date it is deemed to be
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Any institution that is "undercapitalized" or worse
is prohibited from capital distributions and paying management fees and
is subject to growth limits. "Substantially undercapitalized"
institutions and "critically undercapitalized" institutions are subject
to greater mandatory or discretionary restrictions such as limits on
activities, replacement of officers or directors and forced merger.
Generally, subject to a narrow exception, Federal banking regulators
are required to appoint a receiver or conservator for an institution
that is critically undercapitalized.
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32
INSURANCE OF DEPOSIT ACCOUNTS. Approximately 81.9% of the deposits of
the Savings Bank are presently insured by the SAIF. The remaining 18.1%
of the Savings Bank's deposits are insured by the BIF, the deposit
insurance fund that covers most commercial bank deposits. Under federal
law, both the SAIF and BIF are statutorily required to be recapitalized
to a 1.25% of insured reserve deposits ratio. The average assessment
rate for both SAIF and BIF deposits was between 24 and 25 basis points.
The BIF presently meets the required reserve ratio, whereas the SAIF is
not expected to meet or exceed the required level until 2002, at the
earliest. The situation is primarily due to the statutory requirement
that SAIF members make payments on bonds issued in the late 1980's by
the Financing Corporation ("FICO") to recapitalize the predecessor to
the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC adopted a new
assessment rate schedule of 4 to 31 basis points for BIF deposits for
the second half of 1995. Under that schedule, approximately 91% of BIF
members pay the lowest assessment rate of 4 basis points. Most
recently, the FDIC has voted to reduce the BIF assessment schedule
further for the first half of calendar year 1996 so that most BIF
members will pay the statutory minimum semiannual assessment of $1,000.
With respect to SAIF deposits, the FDIC adopted a final rule retaining
the existing assessment rate schedule applicable to SAIF deposits of 23
to 31 basis points. As long as the premium differential continues, it
may have adverse consequences for the Savings Bank, since its deposit
base is primarily SAIF-insured. Such consequences may include reduced
earnings and an increase in the cost of raising funds in the capital
markets. In addition, SAIF members, such as the Savings Bank, could be
placed at a substantial competitive disadvantage to BIF members with
respect to pricing of loans and deposits and the ability to achieve
lower operating costs.
Legislation is pending in the United States Congress to mitigate the
effect of the BIF/SAIF premium disparity. Under the legislation a
special assessment would be imposed on the amount of SAIF deposits held
by institutions, including the Savings Bank, to recapitalize the SAIF
fund. The amount of the special assessment would be left to the
discretion of the FDIC but is generally estimated at between 85 to 90
basis points of insured deposits. The legislation would also require
that the BIF and the SAIF be merged by January 1, 1998, provided that
subsequent legislation is enacted requiring savings associations to
become banks, and that the FICO payments be spread across all BIF and
SAIF members. The payment of the special assessment would have the
effect of immediately reducing the capital of SAIF-member institutions,
net of any tax effect; however, it would not affect the Savings Bank's
compliance with its regulatory capital requirements. Management cannot
predict whether legislation imposing such a fee will be enacted, or, if
enacted, the amount of any special assessment or when and whether
ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums. Management can also not predict whether or when the BIF and
SAIF will merge.
A significant increase in SAIF insurance premiums or a significant
special assessment to recapitalize the SAIF would likely have an
adverse effect on the operating expenses and results of operations of
the Savings Bank. Based on the Savings Bank's deposit insurance
assessment base as of September 30, 1995, an 85 to 90 basis point fee
to recapitalize the SAIF would result in a $12.2 million to $13.0
million payment.
32
33
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. The management of the Savings
Bank does not know of any practice, condition or violation that might
lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION. Bills have been introduced into the
United States Congress which would eliminate the Federal Thrift
Charter. These bills would require that all federal savings
associations convert to national banks or state banks by no later than
January 1, 1998 and would treat all state savings associations as state
banks as of that date. All savings and loan holding companies would
become bank holding companies under the legislative proposals and would
be subject to the activities restrictions (with some activities
temporarily grandfathered) applicable to bank holding companies. The
legislative proposals would also abolish the OTS; savings associations
would be regulated by the bank regulators depending upon the type of
bank charter selected. The Board of Governors of the Federal Reserve
Board would be responsible for the regulation of holding companies.
Management cannot predict whether or when this legislation will be
enacted. However, any such future legislation could eliminate the
Institution's ability to engage in certain activities and otherwise
disrupt operations. See "Taxation."
FEDERAL HOME LOAN BANK SYSTEM. The Savings Bank is a member of the FHLB
System which consists of 12 regional FHLB Banks. The FHLB provides a
central credit facility primarily for member institutions. The Savings
Bank, as a member of the FHLB-NY, is required to acquire and hold
shares of capital stock of the FHLB-NY in an amount at least equal to
1% of the aggregate principal amount of its unpaid residential mortgage
loans, and similar obligations at the beginning of each year, or 5% of
its advances (borrowings) from the FHLB-NY, whichever is greater. The
Savings Bank is in compliance with this requirement, with an investment
in FHLB-NY stock of $20.3 million at September 30, 1995. FHLB advances
are required to be secured by specific types of collateral and
long-term advances may be obtained primarily for the purpose of
providing funds for residential housing finance.
The FHLBs are required to provide funds out of their earnings for the
resolution of insolvent thrifts and to allocate funds for affordable
housing programs. The requirements could reduce the amount of dividends
that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to members. For the year
ended September 30, 1995 dividends from the FHLB-NY to the Savings Bank
amounted to $1.4 million, or 4.4%, of the Savings Bank's pre-tax
income. If dividends were reduced, or interest on FHLB advances
increased, the Savings Bank's net interest income would likely also be
reduced. Further, there can be no assurance that future legislation
involving the FHLB's will not also cause a decrease in the amount of
dividends or in the value of the FHLB-NY stock held by the Savings
Bank.
33
34
FEDERAL RESERVE SYSTEM. Although the Savings Bank is not a member of
the Federal Reserve System, it is subject to FRB regulations which
require it to maintain non-interest earning reserves against certain of
its transaction accounts (primarily NOW and regular checking accounts).
Because reserves must generally be maintained in cash or in
non-interest bearing accounts, the effect of the reserve requirements
is to increase the Savings Bank's cost of funds. FHLB System members
are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to
exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
The FRB regulations generally require that reserves of 3% must be
maintained against net transaction accounts of $54.0 million or less
(subject to annual adjustment by the FRB) and an initial reserve of
$1.62 million plus 10% at December 20, 1994, (subject to adjustment by
the FRB between 8% and 14%) against that portion of net transaction
accounts in excess of $54.0 million. The first $4.2 million of
otherwise reservable balances (subject to adjustments by the FRB) are
exempt from the reserve requirements. The balances maintained to meet
the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS. The Savings Bank is in
compliance with the foregoing requirements.
HOLDING COMPANY REGULATION. The Company is a unitary savings and loan
holding company within the meaning of the HOLA. As such, the Company is
required to be registered with the OTS and is subject to OTS
regulations, examinations, supervision and reporting requirements.
Among other things, the OTS has enforcement authority which permits the
OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. The Savings Bank
must notify the OTS 30 days before declaring any dividend to the
Company.
As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business
activities in which it may engage, provided that the Savings Bank
continues to meet the QTL test. Upon any acquisition by the Company,
which would be subject to prior regulatory approval, of another
qualifying institution except for a supervisory acquisition, the
Company would become a multiple savings and loan holding company (if
the acquired institution is held as a separate subsidiary) and would be
subject to extensive limitations on the types of business activities in
which it could engage. In general, such holding company would be
limited primarily to activities permissible for bank holding companies
under the Bank Holding Company Act and activities in which multiple
savings and loan holding companies were authorized by regulation to
engage on March 5, 1987. Such activities include, without limitation,
mortgage banking, consumer finance, operation of a trust company, and
certain types of securities brokerage.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more
than 5% of the voting stock of another savings institution or holding
company thereof, without prior written approval of the OTS. Further,
savings and loan holding companies must receive OTS approval prior to
acquiring another savings association by merger, consolidation or
purchase of assets. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and
managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and
competitive factors.
34
35
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan
holding companies; and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings
institution specifically permit such acquisitions. Although the
conditions imposed upon acquisitions in those states which have enacted
such legislation vary, most such statutes are of the "regional
reciprocity" type which require both that the acquiring holding company
be located (as defined by the location of its subsidiary savings
institutions) in a state within a defined geographic region and that
the state in which the acquiring holding company is located have
enacted reciprocal legislation allowing savings institutions in the
target state to purchase savings institutions in the acquiror's home
state on terms no more restrictive than those imposed by the target
state on the acquiror. Some states authorize acquisition by
out-of-state holding companies only in supervisory cases, and certain
states do not authorize interstate acquisition under any circumstances.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may
acquire "control" of a Federally- insured savings institution without
giving at least 60 days' written notice to the OTS and providing the
OTS an opportunity to disapprove the proposed acquisition. "Control" is
defined for this purpose as the power, directly or indirectly, to
direct the management or policies of an institution or to vote 25% or
more of any class of voting securities of a savings institution. In
addition, existing regulations established various presumptions of
control, which, among other things, generally contemplate that
ownership of more than 10% of any class of voting securities of an
insured savings institution (when combined with certain other control
factors) constitute control.
On May 14, 1991, Mr. Patrick E. Malloy, III, Chairman of the Board of
the Company, and Mr. Michael A. McManus, Jr., President and Chief
Executive Officer of the Company, received approval from the OTS of the
application they had filed to acquire up to 20% of the outstanding
common stock of the Company. As of September 30, 1995, Messrs. Malloy
and McManus beneficially owned a total of 11.3% of the outstanding
common stock of the Company.
Josiah T. and Valer Austin are in the process of filing a change in
control application with the OTS as a result of their percentage
ownership. They are requesting permission to increase their ownership
up to 20%. As of September 30, 1995, Mr. and Mrs. Austin beneficially
own a total of 10.3% of the outstanding common stock.
35
36
TAXATION
________
FEDERAL. New York Bancorp files a calendar year consolidated Federal
income tax return with its subsidiary, Home Federal, and reports the
income and expenses using the accrual method of accounting.
Savings institutions are generally taxed in the same manner as other
corporations. However, unlike other corporations, qualifying savings
institutions such as Home Federal are allowed to establish a reserve
for bad debts and are permitted to deduct additions to that reserve for
each tax year. For purposes of computing the deductible addition to the
Savings Bank's bad debt reserve, the loans are separated into
"qualifying real property loans" (in general, loans secured by
interests in improved real property) and all other loans
("non-qualifying loans"). The deduction with respect to qualifying real
property loans may be determined using the most favorable of the
following two methods: (i) a method based on the institution's actual
loss experience (the "experience method"), or (ii) a method based on a
specified percentage of the institution's taxable income (the
"percentage of taxable income method"). The addition to the reserve for
non-qualifying loans must be computed under the experience method. The
net effect of this special bad debt deduction is that the maximum
effective Federal income tax rate on income, computed without regard to
actual bad debts and certain other factors, for qualifying institutions
using the percentage of taxable income method is 32.2%, exclusive of
any minimum or environmental tax, as compared to the generally
applicable maximum corporate Federal income tax rate of 35.0%. The
Savings Bank used the experience method for 1993 and percentage of
taxable income method in calendar years 1994, 1992 and 1991. During the
same four year period, Hamilton used the percentage of taxable income
method. Each tax year, the Savings Bank selects the most favorable
method to calculate the deduction with respect to an addition to the
tax bad debt reserve.
The amount of the bad debt deduction that a savings institution may
claim with respect to additions to its reserve for bad debts is subject
to certain limitations. First, the full deduction is available only if
at least 60% of the savings institution's assets fall within certain
designated categories. Second, under the percentage of taxable income
method, the bad debt deduction attributable to "qualifying real
property loans" cannot exceed the greater of (i) the amount deductible
under the experience method or (ii) the amount which, when added to the
bad debt deduction for non-qualifying loans, equals the amount by which
12% of the sum of the total deposits or withdrawable accounts of
depositors at the end of the taxable year exceeds the sum of the
surplus, undivided profits, and reserves at the beginning of the
taxable year. Third, the amount of the bad debt deduction attributable
to qualifying real property loans computed using the percentage of
taxable income method is permitted only to the extent that the
institution's reserve for losses on qualifying real property loans at
the close of the taxable year does not exceed 6% of such loans
outstanding at the time. Fourth, a savings institution that computes
its bad debt deduction using the percentage of taxable income method
and files its Federal income tax return as part of a consolidated
group, as Home Federal does, is required to reduce proportionately its
bad debt deduction for losses attributable to activities of nonsavings
institution members of the consolidated group that are "functionally
related" to the savings institution member. (The savings institutions
member is permitted, however, to proportionately increase its bad debt
deduction in subsequent years to recover any such reduction to the
extent the nonsavings institution members realize income in future
years from their "functionally related" activities.)
36
37
As of December 31, 1994, the Savings Bank's bad debt reserve for
Federal income tax purposes totaled approximately $28.7 million. To the
extent that (i) the Savings Bank's reserve for losses on qualifying
real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Savings Bank makes a
distribution to the Company, as its sole shareholder, that is
considered to result in a withdrawal from that excess bad debt reserve,
then the amount considered withdrawn from the reserve will be included
in Home Federal's taxable income. The amount considered to be withdrawn
from the reserve and included in income will equal the amount actually
distributed plus the amount necessary to pay the tax with respect to
the withdrawal.
Dividends paid out of the Savings Bank's current or accumulated
earnings and profits, as calculated for Federal income tax purposes,
however, will not be considered to result in withdrawals from the
Savings Bank's bad debt reserves. Dividends in excess of Home Federal's
current and accumulated earnings and profits, distributions in
redemption of stock and distributions in partial or complete
liquidation of Home Federal will be considered to result in withdrawals
from Home Federal's bad debt reserves for this purpose.
Legislation is pending before the United States Congress that would
generally repeal, effective for taxable years beginning after 1995, the
above-described bad debt deduction rules available to thrift
institutions such as the Savings Bank, but would generally retain the
experience method for thrift institutions having assets with average
adjusted bases of $500 million or less. The proposed tax legislation
would not require the recapture of bad debt reserve deductions taken
prior to 1988 which amounted to $28.4 million, but would require the
recapture of the bad debt reserve deductions taken by an affected
thrift institution after 1987 which amounted to $.3 million. The
balance of pre-1988 bad debt reserves would continue to be subject to
provisions of present law referred to above that require recapture in
the case of certain excess distributions to shareholders. Bad debt
reserve deductions required to be recaptured would generally be taken
into account ratably over the six-taxable year period beginning with
the first taxable year beginning after December 31, 1995. However, if
an institution maintains its residential loans at a level equal to the
average level of such loans for a period preceding 1995, the
institution would be permitted to defer recapture of its reserves until
1998. The Savings Bank is not able to predict whether or in what form
the proposed tax legislation will be enacted or the effect that such
enactment would have on the Savings Bank's Federal income tax
liability. In addition, there may be an impact on the state and city
income tax liability as a result of enactment of the proposed
legislation.
37
38
STATE AND LOCAL. The Savings Bank files combined New York State
franchise and New York City financial corporation tax returns with its
subsidiaries and New York Bancorp on a calendar year basis.
The New York State and City taxes on banking corporations are each
imposed in an annual amount equal to the greater of (i) 9% of the
Savings Bank's "Entire Net Income" allocable to New York State (and to
New York City for purposes of the City tax) during the taxable year; or
(ii) the applicable alternative minimum tax. The applicable alternative
minimum tax is generally the greater of (i) a percentage (.01%, .004%,
or .002%, for the New York State tax, depending upon the nature and mix
of the Savings Bank's assets and on the ratio of its net worth to the
average value of its assets, and .01% for the New York City tax) of the
average value of the Savings Bank's assets allocable to New York State
(and to New York City for the City tax) with certain modifications;
(ii) 3% of the Savings Bank's "Alternative Entire Net Income" allocable
to New York State (and to New York City for the City tax); or (iii) a
minimum tax. In addition to the foregoing, the New York State Tax Law
also imposes a 17% metropolitan surcharge on the portion of the New
York State franchise tax otherwise payable which is attributable to the
Savings Bank's activities in New York City and in several other New
York counties.
Further, beginning in calendar year 1990, New York State Tax Law also
imposes a temporary surcharge equal to 15% of that portion of the New
York State franchise tax otherwise payable. The surcharge rate is
reduced to 12 1/2% for tax years ending after June 30, 1994 and before
July 1, 1995, 7 1/2% for tax years ending after June 30, 1995 and
before July 1, 1996, and 2 1/2% for tax years ending after June 30,
1996 and before July 1, 1997.
As a Delaware business corporation, New York Bancorp is required to
file annual returns with and pay annual fees to the Secretary of the
State of Delaware. The Company is also subject to a minimal annual
Delaware franchise tax.
New York State and New York City also allow a bad-debt deduction for
thrift institutions, such as the Savings Bank, provided the same method
is used for the thrift's federal tax return. The legislation pending in
the United States Congress could result in the elimination of this
deduction, and a recapture of at least a portion of the Savings Bank's
bad debt reserves for state and local income tax purposes. If the state
and local bad debt recapture is made at the income tax rates currently
in effect, the Company could have a charge to future earnings of
approximately $5.0 million on an after tax basis.
38
39
SUPPLEMENTAL ITEM
The following table sets forth certain information regarding executive officers
of the Company, at October 1, 1995, who are not also directors.
Name Age Position Held
____ ___ _____________
Robert J. Anrig 47 First Vice President, Lending
Carmine Bracco 57 First Vice President, EDP and Operations
Dennis Hodne 49 First Vice President, Retail Banking
Richard F. Rothschild 48 First Vice President, Marketing
Edward J. Steube 51 First Vice President, Business Development
Robert J. Anrig has been First Vice President, Lending of the Company and the
Savings Bank since May 1992. From April 1990 to May 1992 Mr. Anrig served as a
business and real estate consultant in Long Island, New York. From August 1989
to March 1990 Mr. Anrig served as President and CEO of Riverhead Savings Bank.
Carmine Bracco became First Vice President, EDP and Operations of the Company
and the Savings Bank on October 1, 1995. From December 1993 to October 1995, Mr.
Bracco served as Vice President, Internal Audit of the Savings Bank. From May
1988 to May 1992, Mr. Bracco served as Senior Vice President, Internal Audit,
and from May 1992 to December 1993 as Senior Vice President, Financial Services
for National Westminster Bank.
Dennis Hodne became First Vice President, Retail Banking of the Company and the
Savings Bank on October 1, 1995. Previously, from January 1995 through September
1995 he was First Vice President, Strategic Planning for the Company and the
Savings Bank. From September 1992 to January 1995 Mr. Hodne served as Senior
Vice President, Retail Banking for Hamilton Federal Savings Bank. From 1988 to
September 1992 Mr. Hodne served as Senior Vice President, Branch Administrator
for Crossland Savings Bank.
Richard F. Rothschild became First Vice President, Marketing of the Company and
the Savings Bank on October 1, 1995. Previously, from 1987 through 1995 he
served as First Vice President, Banking Services of the Savings Bank and was
named to the similar position in New York Bancorp when it became a publicly
traded company in February 1988.
Edward J. Steube has been First Vice President, Business Development of the
Company and the Savings Bank since September 1992. From 1982 to September 1992,
Mr. Steube served as Vice President for Kidder, Peabody & Co., Inc.
39
40
ITEM 2 - PROPERTIES
The Savings Bank conducts its business through twenty-seven full-service branch
offices, six loan production offices, an operations center and one executive
office located in Kings, Queens, Nassau, Westchester, Richmond, and Suffolk
Counties. The following table sets forth information relating to each of the
Savings Bank's offices at September 30, 1995. The total net book value of the
Savings Bank's premises and equipment at September 30, 1995 was $12.9 million.
Date Lease Net
Owned Leased Expiration Book Value
or or Including at
Location Leased Acquired Options Sept. 30, 1995
________ ______ ________ __________ ______________
(In Thousands)
Branch Offices:
70-01 Forest Avenue, Ridgewood, NY (1)......... Owned 1949 -- $ 1,086
70-24 Myrtle Avenue, Glendale, NY.............. Owned 1976 -- 545
83-24 Woodhaven Blvd., Glendale, NY............ Leased 1991 2038 820
155-14 Cross Bay Blvd., Howard Beach, NY....... Leased 1974 1999 368
248-40 Northern Blvd., Little Neck, NY......... Owned 1963 -- 553
145-15 243rd Street, Rosedale, NY.............. Owned 1961 -- 347
7401 13th Avenue, Brooklyn, NY................. Owned 1979 -- 1,037
413 86th Street., Brooklyn, NY (1)............. Owned 1948 -- 676
9502 3rd Avenue, Brooklyn, NY.................. Leased 1991 2,000 76
420 Court Street, Brooklyn, NY................. Owned 1930 -- 700
2123 Avenue U, Brooklyn, NY.................... Leased 1990 1998 85
179 Avenue U, Brooklyn, NY..................... Owned 1973 -- 155
6501 11th Avenue, Brooklyn, NY................. Owned 1976 -- 859
195 Rockaway Avenue, Valley Stream, NY......... Leased 1974 1999 134
210 Mineola Blvd., Mineola, NY (1)............. Leased 1992 2007 233
41 Forest Avenue, Glen Cove, NY................ Leased 1992 2007 475
35 Merrick Avenue, Merrick, NY 11566........... Owned 1978 -- 550
77 Lincoln Avenue, Rockville Centre, NY........ Leased 1992 2007 136
155 East Main Street, Huntington, NY........... Owned 1992 -- 444
143 Alexander Avenue, Lake Grove, NY........... Leased 1992 2015 39
46 E. Hoffman Avenue, Lindenhurst, NY.......... Leased 1994 2009 190
800 Montauk Highway, Shirley, NY............... Leased 1992 2000 45
356 Middle Country Road, Coram, NY............. Leased 1992 2003 62
62 South Ocean Avenue, Patchogue, NY (1)....... Owned 1992 -- 1,026
366 Route 25A, Rocky Point, NY................. Leased 1992 2003 36
43 Main Street, Westhampton Beach, NY.......... Owned 1992 -- 433
985 Richmond Avenue, Staten Island, NY......... Leased 1995 2015 251
Loan Production Offices:
241-02 Northern Blvd., Douglaston, NY.......... Leased 1989 1999 205
One Depot Plaza, Mamaroneck, NY................ Leased 1986 1996 24
Executive Office:
241-02 Northern Blvd., Douglaston, NY.......... Leased 1989 1999 795
Operations Center:
100 Jericho Quadrangle, Jericho, NY............ Leased 1993 2002 466
_________
$ 12,851
=========
_____________
(1) Loan Centers are also located at these locations.
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ITEM 3 - LEGAL PROCEEDINGS
On July 1, 1994, a purported class action complaint was filed in the Delaware
Chancery Court on behalf of the shareholders of Hamilton by Adar Equities, Ltd.
as plaintiff, naming, among others, New York Bancorp as a defendant. An
identical complaint was filed by the Serious Software Corporation on July 7,
1994 in the Delaware Chancery Court. Plaintiffs allege that certain directors
and senior officers of Hamilton breached their fiduciary duties to Hamilton
shareholders. New York Bancorp is alleged to have aided and abetted this breach
by allegedly providing them the promise of continued employment and monetary
incentives in exchange for entering into a merger agreement. Plaintiffs claimed
that if the Merger was approved by shareholders of New York Bancorp and
Hamilton, the consideration that Hamilton shareholders would receive in exchange
for their Hamilton common stock would be "grossly inadequate." Plaintiffs sought
various remedies, including an injunction to prevent the consummation of the
Merger and compensatory damages in an unspecified amount. On September 19, 1994,
defendants moved to dismiss the complaints on the ground that they fail to state
a claim upon which relief could be granted.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained on the back cover page of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information contained on page 9 of the 1995 Annual Report to Shareholders
under the caption "Selected Consolidated Financial & Other Data" is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The information contained on pages 10 through 20 of the 1995 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is incorporated herein by
reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Independent Auditors' Report appearing on pages
21 through 48 of the 1995 Annual Report to Shareholders are incorporated herein
by reference.
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42
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 4 through 8 of the Proxy Statement for the
Annual Meeting of Shareholders to be held January 23, 1996 under the caption
"Information with Respect to the Nominees, Continuing Directors and Certain
Executive Officers" is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information contained on pages 9 through 16 (excluding the Stock Performance
Graph and Report of the Compensation Committee on Executive Compensation) of the
Proxy Statement for the Annual Meeting of Shareholders to be held January 23,
1996 under the captions "Directors Compensation" and "Executive Compensation" is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 2 and 3 of the Proxy Statement for the Annual
Meeting of Shareholders to be held January 23, 1996 under the caption "Security
Ownership of Certain Beneficial Owners" is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 17 of the Proxy Statement for the Annual
Meeting of Shareholders to be held January 23, 1996 under the caption
"Transactions with Certain Related Persons" is incorporated herein by reference.
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43
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
____________________
The following financial statements are included in the Company's Annual Report
to Shareholders for the year ended September 30, 1995, portions of which are
attached as an exhibit to this report:
- Consolidated Statements of Financial Condition at September 30, 1995
and 1994
- Consolidated Statements of Income for each of the years in the three-
year period ended September 30, 1995
- Consolidated Statements of Changes in Shareholders' Equity for each
of the years in the three-year period ended September 30, 1995
- Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 30, 1995
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
FINANCIAL STATEMENT SCHEDULES
_____________________________
Financial statement schedules are omitted because they are not required or
because the required information is set forth in the consolidated financial
statements or notes thereto.
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44
EXHIBITS
________
The following exhibits are either filed as part of this report or are
incorporated herein by reference to documents previously filed by the Company
with the SEC.
Exhibit
Number Description
_______ ___________
3.1 Certificate of Incorporation of New York Bancorp Inc., as
amended(9)
3.2 Bylaws of New York Bancorp Inc., as amended(7)
10.2 New York Bancorp Inc. Incentive Stock Option Plan(2)
10.3 New York Bancorp Inc. Option Plan for Outside Directors(3)
10.4 Home Federal Savings Bank Management Recognition Plan and
Trust(1)
10.8 Home Federal Savings Bank Employee Stock Purchase Plan(4)
10.9 New York Bancorp Inc. 1990 Incentive Stock Option Plan(5)
10.10 New York Bancorp Inc. 1990 Option Plan for Outside
Directors(6)
10.13 Home Federal Savings Bank Supplemental Executives Benefit
Plan, as
amended(9)
10.14 Home Federal Savings Bank Deferred Compensation Plan, as
amended(9)
10.17 New York Bancorp Inc. 1993 Long-Term Incentive Plan(7)
10.18 New York Bancorp Inc. 1993 Stock Option Plan for Outside
Directors(8)
11 Statement re: computation of per share earnings
13 Portions of New York Bancorp Inc.'s Annual Report to
Shareholders for the fiscal year ended September 30, 1995
incorporated herein by reference
22 Subsidiaries of the New York Bancorp Inc.
24 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(1) Incorporated by reference to Exhibits filed with Registration Statement on
Form S-1, No. 33-16369
(2) Incorporated by reference to Exhibits filed with Registration Statement on
Form S-8, No. 33-23468
(3) Incorporated by reference to Exhibits filed with Registration Statement on
Form S-8, No. 33-23478
(4) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1989 Form 10-K
(5) Incorporated by reference to Annex A of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 23, 1991
(6) Incorporated by reference to Annex B of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 23, 1991
(7) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1992 Form 10-K
(8) Incorporated by reference to Exhibit A of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 25, 1994
(9) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1994 Annual Report on Form 10-K
REPORTS ON FORM 8-K
___________________
None
44
45
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEW YORK BANCORP INC.
By: /s/ Michael A. McManus, Jr.
______________________________
Michael A. McManus, Jr.
President and
Chief Executive Officer
Date: December 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on December 14, 1995 by the following persons
on behalf of the Registrant and in the capacities indicated.
/s/ Patrick E. Malloy, III /s/ Ronald H. McGlynn
______________________________________ _____________________________
Patrick E. Malloy, III Ronald H. McGlynn
Chairman of the Board Director
/s/ Stan I. Cohen /s/ Michael A. McManus, Jr.
______________________________________ _____________________________
Stan I. Cohen Michael A. McManus, Jr.
Director, Senior Vice President, Director, President
Controller and Secretary and Chief Executive Officer
/s/ Geraldine A. Ferraro /s/ Walter R. Ruddy
______________________________________ _____________________________
Geraldine A. Ferraro Walter R. Ruddy
Director Director
/s/ Peter D. Goodson /s/ Robert A. Simms
______________________________________ _____________________________
Peter D. Goodson Robert A. Simms
Director Director
/s/ John E. D. Grunow, Jr.
______________________________________
John E. D. Grunow, Jr.
Director