SELECTED
CONSOLIDATED
FINANCIAL &
OTHER DATA
Year Ended September 30,
__________________________________________________________________
1995 1994(1) 1993(1) 1992(1) 1991(1)
__________ __________ __________ __________ __________
(In Thousands, Except Per Share Amounts)
OPERATING DATA:
Interest income............................ $ 196,972 $ 175,530 $ 160,752 $ 152,417 $ 157,117
Interest expense........................... 101,730 79,948 71,385 84,415 107,975
__________ __________ __________ __________ __________
Net interest income...................... 95,242 95,582 89,367 68,002 49,142
Provision for possible loan losses......... (1,700) (2,650) (4,700) (8,404) (3,401)
__________ __________ __________ __________ __________
Net interest income after provision
for possible loan losses................ 93,542 92,932 84,667 59,598 45,741
__________ __________ __________ __________ __________
Other operating income:
Loan fees and service charges............ 2,566 3,292 3,341 3,196 2,717
Net gain (loss) on the sales of mortgage
loans and securities available for sale. (1,088) 214 3,857 13,185 2,532
Net loss on financial futures
transactions............................ -- -- (495) -- (388)
Real estate operations, net.............. (883) (880) (1,296) (3,413) (7,774)
Other.................................... 5,134 4,494 4,481 2,604 2,084
__________ __________ __________ __________ __________
Total other operating income .......... 5,729 7,120 9,888 15,572 (829)
__________ __________ __________ __________ __________
Merger and restructuring expense........... 19,024 -- -- -- --
__________ __________ __________ __________ __________
Other operating expenses................... 48,968 50,845 48,455 42,374 35,586
__________ __________ __________ __________ __________
Income before taxes on income and
extraordinary item and cumulative
effect of change in accounting principle.. 31,279 49,207 46,100 32,796 9,326
Income tax expense ........................ (19,717) (21,740) (20,912) (15,346) (6,089)
Extraordinary item, early
extinguishment of debt.................... -- -- -- (570) --
Cumulative effect of change in
accounting for income taxes............... -- 5,685 -- -- --
__________ __________ __________ __________ __________
Net income ................................ $ 11,562 $ 33,152 $ 25,188 $ 16,880 $ 3,237
========== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Income before extraordinary item
and cumulative effect of change
in accounting principle................... $ .87 $ 2.02 $ N/M(4) $ N/M(4) $ N/M(4)
Net income................................. $ .87 $ 2.44 $ N/M(4) $ N/M(4) $ N/M(4)
BOOK VALUE PER SHARE(2).................... $ 12.88 $ 12.95 $ 11.75 $ N/M(4) $ N/M(4)
DIVIDENDS PER SHARE(2), (3)................ $ .80 $ .78 $ .64 $ .45 $ .40
DIVIDEND PAYOUT RATIO(2), (3).............. 76.92% 24.84% 29.36% 25.71% 108.11%
September 30,
______________________________________________________________________
1995 1994(1) 1993(1) 1992(1) 1991(1)
____________ ____________ ____________ ____________ ____________
(In Thousands)
FINANCIAL CONDITION DATA:
Total assets.............................. $ 2,731,592 $ 2,583,982 $ 2,250,605 $ 2,153,861 $ 1,760,968
First mortgage loans, net................. 1,370,175 1,134,882 1,078,960 977,017 685,130
Other loans, net.......................... 294,768 297,472 309,457 322,746 241,307
Loans receivable, net.................... 1,664,943 1,432,354 1,388,417 1,299,763 926,437
Mortgage-backed securities held
to maturity.............................. 664,726 785,593 439,605 448,296 577,943
Mortgage-backed securities available
for sale................................. 206,794 171,983 234,236 76,707 32,015
Investment securities held to maturity.... 21,179 52,984 4,662 26,620 15,300
Investment securities available for sale.. 46,273 180 -- 67 21,301
Federal Home Loan Bank stock.............. 20,288 17,409 21,734 20,876 19,334
Money market investments.................. 13,915 21,844 77,261 192,758 85,384
Trading account securities................ 2,003 12,939 12,487 12,242 11,778
Deposits.................................. 1,748,874 1,791,514 1,758,102 1,782,764 1,207,107
Borrowed funds............................ 767,138 578,897 293,693 222,850 430,333
Shareholders' equity...................... 156,386 171,291 153,769 99,933(5) 89,209(5)
September 30,
_______________________________________________________________________
1995 1994(1) 1993(1) 1992(1) 1991(1)
________________ __________ __________ __________ __________
SELECTED FINANCIAL RATIOS & OTHER DATA:
Return on average assets.................. .44% 1.35% 1.16% .89% .19%
Return on average shareholders' equity.... 6.81 20.13 18.74 17.81 3.55
Shareholders' equity to assets............ 5.73 6.63 6.83 4.64 5.07
Net interest rate spread.................. 3.43 3.73 3.99 3.47 2.71
Net interest margin....................... 3.68 3.95 4.23 3.68 2.99
Nonaccrual loans and real estate owned,
net, as a percentage of total assets..... 1.18 1.64 2.02 2.08 2.48
Allowance for possible loan losses as
a percentage of nonaccrual loans......... 70.04 70.23 69.02 54.87 19.62
Average interest-earning assets to
average interest-bearing liabilities..... 106.47 106.82 107.04 104.67 104.32
CUSTOMER SERVICE FACILITIES:
Full service.............................. 27 26 26 29 21
Loan production offices................... 6 6 6 7 7
Executive office.......................... 1 1 1 1 1
(1) Restated to reflect the merger with Hamilton Bancorp, Inc., which was accounted for as a pooling of
interests.
(2) Per share amounts have been calculated to fully reflect the 3-for-2 stock splits effective October 22, 1992
and July 29, 1993 and the ten percent stock dividend effective February 14, 1994.
(3) Dividends per share, and the dividend payout ratio, have not been restated for the merger with Hamilton
Bancorp, Inc.
(4) N/M - Hamilton Bancorp, Inc. converted to stock ownership on April 1, 1993. Accordingly, restated per share
data is not meaningful.
(5) Includes only the retained earnings of Hamilton Bancorp, Inc. which converted to stock ownership on April
1, 1993.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
New York Bancorp Inc. ("New York Bancorp" or the "Company") is a savings and
loan holding company. The Company, through its subsidiary, Home Federal Savings
Bank (the "Savings Bank"), operates as a community savings bank. 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, money market investments, corporate notes and other securities.
On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings") was merged with and into New
York Bancorp. This transaction has been accounted for as a pooling of interests,
and, as a result, the financial results for the periods prior to the merger
reported in the accompanying management's discussion and analysis and
consolidated financial statements 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.
During the year ended September 30, 1995, the interest rate environment resulted
in a relatively flat yield curve, thus producing an adverse risk/reward
relationship for growing the asset size of the balance sheet through security
purchases. As part of the Company's strategy to find ways to best utilize its
available capital, during fiscal year 1995 New York Bancorp continued its stock
repurchase program by repurchasing 1,431,700 shares of its common stock in the
open market, bringing the total number of Treasury shares to 2,607,876 and the
total number of outstanding common shares to 12,138,974 at September 30, 1995.
In June 1995, New York Bancorp's common stock commenced trading on the New York
Stock Exchange. This has given the Company's stock added visibility and
additional investor interest as well as increased the stock's liquidity.
In August and October 1992, New York Bancorp, through the Savings Bank, 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.
EARNINGS SUMMARY
New York Bancorp earned net income of $11.6 million, or $.87 per share, for the
year ended September 30, 1995, compared with $33.2 million, or $2.44 per share,
for the prior year. The results for the year ended September 30, 1995 included
$16.1 million in after tax non-recurring costs and $.7 million in an after tax
loss on the sale of securities, both of which were incurred in connection with
the Hamilton merger. Net income for the year ended September 30, 1994 included
$5.7 million in income, or $.42 per share, from the cumulative effect of a
change in accounting for income taxes.
ASSET/LIABILITY MANAGEMENT
The Savings Bank is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice or mature more or less frequently, or on a
different basis, than its interest-earning assets. The Savings Bank's primary
approach to controlling interest rate risk and maximizing net interest margin
emphasizes gap management. The Savings Bank does not have a mandated targeted
gap, but historically has managed the gap so that it will range from a modest
positive to a modest negative position, which would generally result in
upper-end ranges of positive to negative positions of 15%. The size and
direction of the gap is determined by management, reflecting its views on the
direction of interest rates and general market conditions. The Savings Bank's
cumulative one year gap as a percent of total interest-earning assets moved from
a positive .16% at September 30, 1994 to a negative 12.51% at September 30,
1995.
A negative gap denotes liability sensitivity which in a given period will result
in more liabilities than assets being subject to repricing. Generally, liability
sensitive gaps would result in a net positive effect on net interest margin and,
consequently, net income in a declining interest rate environment.
Alternatively, liability sensitive gaps would generally result in a net negative
effect on net interest margin and, consequently, net income in an increasing
interest rate environment.
The change from a .16% positive cumulative one year gap to a 12.51% negative
cumulative one year gap resulted from an increased use of short term borrowings
to fund growth in longer term assets, and a transfer by depositors to short term
(less than one year) certificates of deposit from regular savings accounts. In
determining the one year cumulative gap, regular savings accounts are assumed
not to reprice. Alternatively, it is anticipated that their balance will be
transferred into other more interest-sensitive liabilities over time, and
therefore have a minimal repricing impact on the one year gap. In 1995, the
transfer by depositors of these funds into short term (less than one year)
certificates of deposit resulted in increasing interest-bearing liabilities
which reprice within one year, and, therefore, increased the cumulative one year
negative gap.
At September 30, 1995, the Savings Bank's interest-earning assets principally
consisted of adjustable rate mortgage and other loans and securities,
multi-tranche fixed rate REMIC securities and an assortment of fixed rate
mortgage and other loans. At September 30, 1995, 52.2% of such interest-earning
assets were adjustable rate assets. Within the framework of the targeted gap,
the Savings Bank may choose to extend the maturity of its funding source and/or
reduce the repricing mismatches by using interest rate
10
swaps and financial futures arrangements. Additionally, the Savings Bank uses
interest rate caps and interest rate floor arrangements to assist in further
insulating the Savings Bank from volatile interest rate changes.
During the year ended September 30, 1995, the Company's mortgage-backed
securities portfolio decreased $86.1 million, from $957.6 million at September
30, 1994 to $871.5 million at September 30, 1995. This decrease is primarily
attributed to the transfer, and subsequent sale, of $66.8 million of
mortgage-backed securities held to maturity to available for sale in connection
with restructuring the Hamilton portfolio's risk profile to be more consistent
with the Company's. The average lives of mortgage-backed securities are
sensitive to changes in the interest rate environment. The average lives tend to
shorten in periods of declining interest rate environments and lengthen in
periods of increasing interest rate environments. At September 30, 1995, the
mortgage-backed securities portfolios had an estimated average life of
approximately 5.3 years. Assuming an immediate and parallel shift of 300 basis
points in the yield curve, the average life of these portfolios would extend to
approximately 7.2 years. The Savings Bank considers its investment in
mortgage-backed securities as a separate investment category from mortgage loans
because of the liquidity characteristics of these instruments. The Savings Bank
further segregates its mortgage-backed securities holdings as either held to
maturity or available for sale. At September 30, 1995, the Savings Bank's
portfolios of mortgage-backed securities represented 31.9% of total assets. Such
mortgage-backed securities are either guaranteed by the FHLMC, GNMA or FNMA or
constitute REMIC and private-issue passthrough mortgage-backed securities which
are virtually all rated AAA by nationally recognized rating services. The
Savings Bank purchases such securities at premiums and discounts to face value
depending on present market conditions. As interest rates rise or decline, the
yield on these securities may increase or decrease due to prepayments, which
will lengthen or shorten the estimated average lives and thus affect the level
of premium amortization and discount accretion. Additionally, the cash flows
from such prepayments will be reinvested in interest-earning assets at then
current market rates.
In connection with its interest rate risk management strategy, at September 30,
1995 the Savings Bank maintained interest rate swap arrangements with a notional
amount of $205.0 million. For $140.0 million of the $205.0 million of interest
rate swap arrangements, the Savings Bank receives a variable rate (which is
matched against the related variable rate borrowing) and pays a fixed rate, thus
locking in a spread on fixed rate mortgage loans or fixed rate mortgage-backed
securities during the term of the swap. Such swaps have maturities ranging from
January 1996 to May 1996. For the remaining $65.0 million of interest rate
swaps, the Savings Bank is receiving a fixed rate of 5.80% and paying a variable
rate based on Federal funds (5.79% on September 30, 1995). This interest rate
swap effectively unwound $65.0 million (of the aforementioned $140.0 million in
interest rate swaps) where the Savings Bank was receiving a variable rate based
on Federal funds (5.79% on September 30, 1995) and paying a fixed rate of 4.04%.
The term of such swaps extend through January 1996.
Additionally, in an effort to further protect against interest rate risk
associated with the repricing of its interest-bearing deposit liabilities, the
Savings Bank was a party to $1.0 billion of interest rate floor agreements which
were scheduled to expire on February 22, 1998. During the third quarter of
fiscal year 1995, in an effort to secure the hedge position provided against the
aforementioned interest rate risk, the Savings Bank terminated its position as a
party to the $1.0 billion of interest rate floor agreements. Accordingly, and in
accordance with generally accepted accounting principles, the Savings Bank
deferred recognition of the gain on the terminated interest rate floor
agreements and is amortizing such gain as an adjustment to the cost of
interest-bearing deposit liabilities over the original contractual life of the
interest rate floor agreements. At September 30, 1995 the amount of the
unamortized gain was $7.4 million.
At September 30, 1995 the Company had approximately $2.6 million in contracts
for purposes of hedging the "Standard & Poor's 500" index. The call options
maturities range from March 1999 through August 1999. The Savings Bank uses
stock indexed call options for purposes of hedging its MarketSmart CDs and
MarketSmart I.R.A. CDs. The call options hedge the interest rate paid on these 5
year CD deposits which is an annual percentage yield based on the changes in the
Standard & Poor's 500 Composite Stock Price Index during each of the 5 year
terms of the CDs. Premiums paid on the call options are amortized to interest
expense over the terms of the underlying CD using the straight line method.
Gains and losses, if any, resulting from the early termination of the call
option are deferred and amortized to interest expense over the remaining term of
the underlying CD.
Although the Company's asset/liability plan is intended to protect the Company's
interest rate spread against changes in prepayment speeds caused by changes in
interest rates, there is a risk that during periods of rapidly changing interest
rates, the Company's spread could be reduced or become negative. The following
table sets forth the scheduled repricing or maturity of the Company's assets,
liabilities and yields at September 30, 1995 using assumptions based on its
historical experience and other data available to management. This table does
not necessarily indicate the impact of general interest rate movements on the
Company's net interest yield because the repricing of various assets and
liabilities is subject to customer discretion and competitive and other
pressures. As a result, assets and liabilities indicated as repricing within the
same period may in fact reprice at different times and at different rate levels.
11
At September 30, 1995
_______________________________________________________________________________________________
More More More
More than than than than Over
6 Months 6 Months 1 Year 3 Years 5 Years 10
or Less to 1 Year to 3 Years to 5 Years to 10 Years Years Total Yield
__________ ___________ ____________ ___________ _____________ ________ ____________ _____
(Dollars in Thousands)
INTEREST-EARNING ASSETS:
First mortgage loans...... $ 330,923 $ 305,542 $ 342,028 $ 215,477 $ 102,811 $ 92,995 $ 1,389,776 8.18%
Other loans............... 141,822 34,322 57,138 35,522 20,883 6,752 296,439 8.80
Investment securities..... 45,538 10,000 1,237 10,000 677 -- 67,452 6.69
Federal Home Loan Bank
stock.................... 20,288 -- -- -- -- -- 20,288 7.00
Mortgage-backed
securities............... 107,522 77,973 136,560 86,229 463,236 -- 871,520 6.55
Money market
investments.............. 13,915 -- -- -- -- -- 13,915 6.25
Trading account
securities............... 2,003 -- -- -- -- -- 2,003 6.25
__________ ___________ __________ __________ __________ __________ ____________
Total interest-earning
assets............... 662,011 427,837 536,963 347,228 587,607 99,747 2,661,393 7.66
__________ ___________ __________ __________ __________ __________ ____________
INTEREST-BEARING LIABILITIES:
NOW accounts.............. 10,108 10,108 30,536 20,872 27,679 17,423 116,726 1.41
Money market deposit
accounts................. 16,140 16,140 37,370 17,610 13,290 2,387 102,937 2.83
Regular savings and club
accounts................. 52,599 52,599 168,266 124,447 187,186 166,277 751,374 2.29
Certificate accounts...... 304,074 205,676 151,070 82,989 1,207 -- 745,016 5.50
Borrowed funds............ 743,598 11,700 8,040 3,800 -- -- 767,138 6.14
__________ ___________ __________ __________ __________ __________ ____________
Total interest-bearing
liabilities.......... 1,126,519 296,223 395,282 249,718 229,362 186,087 2,483,191 4.42
__________ ___________ __________ __________ __________ __________ ____________
INTEREST RATE HEDGING........ 45 (45) -- -- -- --
INTEREST SENSITIVITY GAP
PER PERIOD.................. (464,463) 131,569 141,681 97,510 358,245 (86,340)
__________ ___________ __________ __________ __________ __________
CUMULATIVE INTEREST
SENSITIVITY GAP............. $ (464,463) $ (332,894) $ (191,213) $ (93,703) $ 264,542 $ 178,202
========== =========== ========== ========== ========== ==========
CUMULATIVE GAP AS A
PERCENT OF TOTAL INTEREST-
EARNING ASSETS.............. (17.45)% (12.51)% (7.18)% (3.52)% 9.94% 6.70%
======= ====== ====== ====== ====== ======
CUMULATIVE NET INTEREST-
SENSITIVE ASSETS AS A
PERCENT OF INTEREST-
SENSITIVE LIABILITIES....... (18.70)% (13.41)% (7.70)% (3.77)% 10.65% 7.18%
======= ====== ====== ====== ====== ======
(1) Assumes a prepayment rate for fixed rate mortgage loans of 10% for coupons less than 8.00%, a
prepayment rate of 13.00% for coupons ranging from 8.00% to 8.99%, a prepayment rate of 18.00% for
coupons ranging from 9.00% to 9.99%, and prepayment rates of 22.00% to 26.00% for coupons of
10.00% or higher.
(2) Assumes mortgage-backed securities prepay using actual prepayment rates experienced on the
underlying securities.
(3) Assumes NOW accounts, money market deposit accounts and regular savings and club accounts will be
withdrawn at annual rates of 17.00%, 14.00% and 31.00%, respectively, based on their declining
balance.
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net interest income,
which represents the difference between interest and fees earned on loans,
mortgage-backed securities and investments, and the cost of deposits and
borrowings. Net interest income is dependent on the average balances and rates
received on interest-earning assets, the average balances and rates paid on
interest-bearing deposits and borrowings, and the effect of the Savings Bank's
off-balance sheet financial instruments which are used to manage the repricing
characteristics of interest-bearing liabilities. Net income is further affected
by the provision for possible loan losses, other operating income, other
operating expenses and taxes.
12
The following table sets forth certain information relating to the Company's
average consolidated statement of financial condition and reflects the average
yield on assets and average cost of liabilities for the periods indicated. The
impact of interest rate swaps, interest rate caps, and interest rate floors are
included in the table in the respective category to which they relate. The
yields and costs are derived by dividing income or expense by the average
balance of assets (which include nonaccrual loans) or liabilities, respectively,
for the periods shown.
Year Ended September 30,
______________________________________________________________________________________________________
1995 1994 1993
________________________________ _________________________________ _______________________________
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
____________ _________ _______ ____________ __________ _______ ___________ __________ _______
(Dollars in Thousands)
ASSETS:
Interest-earning assets:
First mortgage loans...... $ 1,257,057 $ 104,042 8.28% $ 1,109,571 $ 93,373 8.42% $ 1,103,022 $ 96,586 8.76%
Other loans............... 303,649 25,916 8.53 301,496 24,094 7.99 322,112 26,313 8.17
Mortgage-backed
securities............... 921,198 60,331 6.55 894,938 52,521 5.87 560,416 32,019 5.71
Money market
investments.............. 18,845 1,080 5.73 57,770 2,113 3.66 70,327 2,208 3.14
Trading account securities 12,883 726 5.63 12,689 453 3.57 12,371 361 2.92
Investment securities --
taxable.................. 71,158 4,877 6.85 41,876 2,976 7.11 45,639 3,265 7.15
____________ _________ ____________ _________ ___________ __________
Total interest-earning
assets................... 2,584,790 196,972 7.62 2,418,340 175,530 7.26 2,113,887 160,752 7.60
Non-interest-earning
assets................... 43,442 44,864 52,124
____________ ____________ ___________
Total assets............ $ 2,628,232 $ 2,463,204 $ 2,166,011
============ ============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Deposits.................. $ 1,758,701 62,394 3.55 $ 1,790,985 56,996 3.18 $ 1,760,036 57,688 3.28
Borrowed funds............ 669,090 39,336 5.88 472,954 22,952 4.85 214,830 13,697 6.38
____________ _________ ____________ _________ ___________
Total interest-bearing
liabilities............ 2,427,791 101,730 4.19 2,263,939 79,948 3.53 1,974,866 71,385 3.61
Other liabilities......... 30,720 34,600 56,746
____________ ____________ ___________
Total liabilities....... 2,458,511 2,298,539 2,031,612
Shareholders' equity...... 169,721 164,665 134,399
____________ ____________ ___________
Total liabilities and
shareholders' equity... $ 2,628,232 $ 2,463,204 $ 2,166,011
============ ============ ===========
NET INTEREST INCOME/INTEREST
RATE SPREAD................ $ 95,242 3.43% $ 95,582 3.73% $ 89,367 3.99%
========= ====== ========= ====== ========== ======
NET EARNING ASSETS/NET
INTEREST MARGIN............ $ 156,999 3.68% $ 154,401 3.95% $ 139,021 4.23%
============ ====== ============ ====== =========== ======
PERCENTAGE OF INTEREST-
EARNING ASSETS TO
INTEREST-BEARING
LIABILITIES................ 106.47% 106.82% 107.04%
====== ====== ======
13
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates and changing volumes. The following table describes the extent to
which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to (i) increases and decreases
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) increases and decreases attributable to changes in rates (changes in rates
multiplied by prior volume), and (iii) the net change. The change attributable
to the combined impact of volume and rate has been allocated proportionately to
the change due to volume and the change due to rate.
Year Ended September 30, 1995 Year Ended September 30, 1994
Compared to Year Ended Compared to Year Ended
September 30, 1994 September 30, 1993
Increase (Decrease) Increase (Decrease)
______________________________ ______________________________
Volume Rate Net Volume Rate Net
_________ _________ _________ _________ ________ _________
(In Thousands)
INTEREST INCOME ON INTEREST-EARNING
ASSETS:
First mortgage loans.................... $ 12,178 $ (1,509) $ 10,669 $ 577 $ (3,790) $ (3,213)
Other loans............................. 173 1,649 1,822 (1,657) (562) (2,219)
Mortgage-backed securities.............. 1,577 6,233 7,810 19,609 893 20,502
Money market investments................ (1,828) 795 (1,033) (427) 332 (95)
Trading account securities.............. 7 266 273 9 83 92
Investment securities -- taxable........ 2,003 (102) 1,901 (267) (22) (289)
_________ _________ _________ _________ ________ _________
Total income on interest-
earning assets........................... 14,110 7,332 21,442 17,844 (3,066) 14,778
_________ _________ _________ _________ ________ _________
INTEREST EXPENSE ON INTEREST-
BEARING LIABILITIES:
Deposits................................ (1,005) 6,403 5,398 1,060 (1,752) (692)
Borrowed funds.......................... 10,851 5,533 16,384 11,551 (2,296) 9,255
_________ _________ _________ _________ ________ _________
Total expenses on interest-
bearing liabilities...................... 9,846 11,936 21,782 12,611 (4,048) 8,563
_________ _________ _________ _________ ________ _________
Net interest income....................... $ 4,264 $ (4,604) $ (340) $ 5,233 $ 982 $ 6,215
========= ========= ========= ========= ======== =========
(1) Nonaccrual loans are included in the volume variances.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
GENERAL
The Company's net income for the year ended September 30, 1995 was $11.6 million
as compared to $33.2 million for the year ended September 30, 1994. Comments
regarding the components of net income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1995
increased by $21.5 million, or 12.2%, to $197.0 million as compared with $175.5
million for the year ended September 30, 1994. The increase in interest income
was attributable to a $166.5 million increase in average interest-earning
assets, resulting primarily from an increase in mortgage loans, coupled with a
36 basis point increase in yield on interest-earning assets. The increase in
yield on interest-earning assets for the current year resulted from the
increasing interest rate environment experienced in the second half of fiscal
year 1994 through the first half of fiscal year 1995. The second half of fiscal
year 1995 saw interest rates become more stable, and decline slightly. This
interest rate environment resulted in the upward repricing of adjustable rate
loans and the origination of new loans at higher rates.
Interest and fees on loans for the year ended September 30, 1995 increased by
$12.5 million, or 10.6%, to $130.0 million as compared to fiscal year 1994. The
increase in loan income reflects a $149.6 million increase in the average
balance and a 54 basis point increase in the yield on other loans which,
however, were partially offset by a 14 basis point decrease in the yield on
first mortgage loans. The increase in average balance reflects the purchase of
$114.7 million of loans, combined with increased originations. Interest on
mortgage-backed securities held to maturity and mortgage-backed securities
available for sale for the year ended September 30, 1995 increased by $7.8
million to $60.3 million as compared to fiscal year 1994. The increase in
mortgage-backed securities income reflects a 68 basis point increase in yield to
6.55%, coupled with a $26.3 million increase in the average balance of the
portfolio to $921.2 million. Interest and dividends on investment securities
increased by $1.9 million for the year ended September 30, 1995 to $4.9 million
as compared to fiscal year 1994. The increase in interest and dividends on
investment securities reflects a $29.3 million increase in the average balance
of the portfolio to $71.2 million, partially offset by a 26 basis point decline
in the yield to 6.85%. Money market investment income declined by $1.0 million
to $1.1 million as compared to fiscal year 1994. The decline in money market
investment income reflects a $38.9 million decrease in the average balance of
the portfolio which, however, was partially offset by a 207 basis point increase
in yield to 5.73%. Interest on trading account securities for the year ended
September 30, 1995 increased by $.3 million as compared to fiscal year 1994.
This increase was the result of a 206 basis point increase in yield, coupled
with a $.2 million increase in the average balance of the portfolio.
14
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1995 increased by $21.8 million, or 27.2%, to $101.7 million as compared
with $79.9 million for the year ended September 30, 1994. The increase in
interest expense reflects a $163.9 million increase in the average balance of
total interest-bearing liabilities to $2,427.8 million, coupled with a 66 basis
point increase in the cost of funds. The increase in the cost of
interest-bearing liabilities reflects the increased utilization of short-term
borrowed funds which reprice faster than deposit liabilities. The impact of the
Savings Bank's use of interest rate swaps and other off-balance sheet
instruments was to decrease interest expense by $1.2 million for the year ended
September 30, 1995 and increase interest expense by $1.5 million for the year
ended September 30, 1994. Further, the impact of the Savings Bank's use of
reverse repurchase agreements with imbedded interest rate caps, all of which
have matured, was to decrease interest expense by $1.6 million and $1.1 million
for the years ended September 30, 1995 and 1994, respectively.
Interest expense on deposits increased $5.4 million, or 9.5%, to $62.4 million
for the year ended September 30, 1995 as compared with the year ended September
30, 1994. This increase reflects a 37 basis point increase in the average cost
of deposits from 3.18% in fiscal year 1994 to 3.55% in fiscal year 1995 which,
however, was partially offset by a $32.3 million decrease in the average balance
of deposits to $1,758.7 million. Interest expense on borrowed funds increased
$16.4 million, or 71.4%, to $39.3 million for the year ended September 30, 1995,
as compared to the year ended September 30, 1994. This increase reflects a
$196.1 million increase in the average balance of borrowed funds to $669.1
million, coupled with a 103 basis point increase in the average cost of borrowed
funds from 4.85% in fiscal year 1994 to 5.88% in fiscal year 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $1.7 million and $2.7 million for possible loan losses
during the years ended September 30, 1995 and 1994, respectively. The continued
reduction in the provision for possible loan losses reflects the stabilization
of the Savings Bank's ratio of its allowance for possible loan losses to total
nonaccrual loans which amounted to 70.0% and 70.4% at September 30, 1995 and
1994, respectively.
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 at September 30, 1995 is sufficient to cover anticipated
losses inherent in the loan portfolios.
Activity in the allowance for possible loan losses is summarized as follows:
As of and For the
Year Ended September 30,
__________________________________________
1995 1994 1993
__________ __________ __________
(In Thousands)
Allowance for possible loan losses,
beginning of year.............................................. $ 25,705 $ 26,828 $ 19,455
Charge-offs:
Commercial real estate....................................... 3,435 1,732 682
Residential real estate...................................... 1,422 1,572 1,586
Other loans.................................................. 1,442 901 1,731
__________ __________ __________
Total charge-offs........................................... 6,299 4,205 3,999
Less recoveries:
Commercial real estate.................................... -- (349) (220)
Residential real estate................................... (4) (47) (41)
Other loans............................................... (75) (36) (122)
__________ __________ __________
Total recoveries........................................ (79) (432) (383)
__________ __________ __________
Net charge-offs....................................... 6,220 3,773 3,616
Hamilton's net activity for the quarter
ended December 31, 1994........................................ 87 -- --
Addition to allowance in connection with the
acquisition of Union Savings................................... -- -- 6,289
Addition to allowance, charged to expense....................... 1,700 2,650 4,700
__________ __________ __________
Allowance at end of year........................................ $ 21,272 $ 25,705 $ 26,828
========== ========== ==========
The Savings Bank's allowance for possible loan losses at September 30, 1995 was
$21.3 million which represented 70.0% of nonaccrual loans, or 1.3% of total
loans, compared to $25.7 million at September 30, 1994 which represented 70.4%
of nonaccrual loans, or 1.8% of total loans.
The following table sets forth information regarding nonaccrual loans, real
estate owned, and restructured loans at the dates indicated:
September 30,
___________________________________________
1995 1994 1993
___________ ___________ ___________
(In Thousands)
Nonaccrual loans:
First mortgage loans:
One-to-four family conventional residential................. $ 13,391 $ 14,642 $ 14,322
Commercial real estate...................................... 14,447 20,174 22,984
___________ ___________ ___________
27,838 34,816 37,306
___________ ___________ ___________
Other loans:
Cooperative residential loans............................... 2,534 1,717 1,502
___________ ___________ ___________
Total nonaccrual loans.................................... $ 30,372 $ 36,533 $ 38,808
=========== =========== ===========
Real estate owned............................................... $ 1,967 $ 5,919 $ 6,609
=========== =========== ===========
Restructured loans.............................................. $ 9,104 $ 9,481 $ 6,237
=========== =========== ===========
15
At September 30, 1995, 1994 and 1993, total nonaccrual loans as a percentage of
total assets amounted to 1.11%, 1.42% and 1.73%, respectively. The decrease in
nonaccrual loans and real estate owned at September 30, 1995 reflects the
Savings Bank's increased collection activity and the acceleration of write-offs
of delinquent loans.
The amount of interest income on nonaccrual and restructured loans that would
have been recorded had these loans been current in accordance with their
original terms, was $4,049,000, $3,940,000 and $3,530,000 for the years ended
September 30, 1995, 1994 and 1993, respectively. The amount of interest income
that was recorded on these loans was $1,808,000, $1,181,000 and $1,123,000 for
the years ended September 30, 1995, 1994 and 1993, respectively.
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1995 amounted to $93.5 million, representing an increase of $.6
million, or .7%, from the year ended September 30, 1994. Net interest income for
the current year declined $.3 from the prior year, which was more than offset by
a $.9 million decline in the provision for possible loan losses. The decline in
net interest income resulted from a 27 basis point decline in the Savings Bank's
net interest margin, partially offset by a $166.5 million increase in average
interest-earning assets. The decline in net interest margin resulted primarily
from the increased reliance on short-term borrowed funds which resulted in a
greater upward repricing of the Savings Bank's interest-bearing liabilities
versus interest-earning assets in connection with the current interest rate
environment as compared to last year.
OTHER OPERATING INCOME
Other operating income amounted to $5.7 million for the year ended September 30,
1995 as compared with $7.1 million for the year ended September 30, 1994. The
$1.4 million decline in other operating income is primarily attributable to a
$1.2 million loss on the sale of securities available for sale incurred during
the second quarter of the current year related to the restructuring of the
Hamilton portfolio. Such restructuring and sale were completed in order to make
the acquired portfolio's risk profile more consistent with the Company's.
OTHER OPERATING EXPENSES
Other operating expenses amounted to $68.0 million during the year ended
September 30, 1995 as compared with $50.8 million during the year ended
September 30, 1994. This increase of $17.2 million primarily reflects $19.0
million in merger and restructuring expenses incurred in connection with the
merger with Hamilton (see note 2 to Consolidated Financial Statements).
Compensation and benefits decreased $3.4 million primarily attributable to
consolidation efficiencies from the merger. Excluding the merger and
restructuring expenses, other operating expenses represented 1.86% of average
assets as compared to 2.06% in fiscal year 1994.
INCOME TAX EXPENSE
Income taxes totaled $19.7 million for an effective tax rate of 63.0% during
fiscal year 1995 compared to $21.7 million for an effective tax rate of 44.2%
during fiscal year 1994. The higher effective income tax rate during the current
year resulted from the non-deductibility of certain merger and restructuring
charges.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- INCOME TAXES
Prior to October 1, 1993, deferred income taxes were provided for timing
differences in the recognition of revenues and expenses for tax reporting and
financial statement purposes (an income statement approach), pursuant to
Accounting Principles Board Opinion No. 11.
On October 1, 1993, New York Bancorp adopted SFAS No. 109 which adopted a
balance sheet approach (or liability method) in place of the income statement
approach. The liability method requires that an asset or a liability, as
appropriate, be recorded for financial statement purposes for the deferred tax
consequences of all temporary differences in the recognition of revenue and
expense, which is measured by applying enacted tax laws and rates. Additionally,
SFAS No. 109 permits the recognition of net deferred tax assets based upon the
likelihood of realization of tax benefits in the future. The cumulative effect
at October 1, 1993 of the change in accounting for income taxes which was
implemented on a prospective basis amounted to $5.7 million for the year ended
September 30, 1994.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993
GENERAL
The Company's net income for the year ended September 30, 1994 was $33.2 million
as compared to $25.2 million for the year ended September 30, 1993. Comments
regarding the components of net income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1994
increased by $14.7 million, or 9.2%, to $175.5 million as compared with $160.8
million for the year ended September 30, 1993. The increase in interest income
was attributable to a $304.5 million increase in average interest-earning
assets, resulting primarily from an increase in mortgage-backed securities
purchases. These increases, however, were partially offset by a 34 basis point
decrease in yield on interest-earning assets, reflecting the continued low
interest rate environment throughout the first half of fiscal year 1994 and its
impact upon adjustable rate assets, loan originations and mortgage-backed
securities purchases. The second half of fiscal year 1994 saw the commencement
of an increasing interest rate environment which resulted in increasing yields
on the Savings Bank's interest-earning assets.
Interest and fees on loans for the year ended September 30, 1994 decreased by
$5.4 million, or 4.4%, to $117.5 million, compared with $122.9 million for the
year ended September 30, 1993. The decrease in loan income reflects a 34 basis
point decline in yield on first mortgage loans, an 18 basis point decline in
yield on other
16
loans, and a $14.1 million decrease in the average loan balance to $1,411.1
million. The decrease in yields reflect the effect of the continued low interest
rate environment during much of the early part of the year and during the prior
year and its resulting effect on newly originated loans, refinancings of
existing loans, and repricings in the Savings Bank's adjustable rate loan
portfolios. Interest on mortgage-backed securities held to maturity and
mortgage-backed securities available for sale for the year ended September 30,
1994 increased by $20.5 million to $52.5 million as compared to fiscal year
1993. The increase in mortgage-backed securities income reflects a $334.5
million increase in the average balance of the portfolio to $894.9 million,
coupled with a 16 basis point increase in yield to 5.87%. Interest and dividends
on investment securities decreased by $.3 million for the year ended September
30, 1994 to $3.0 million as compared to fiscal year 1993. The decline in
interest and dividends on investment securities reflects a $3.8 million decrease
in the average balance of the portfolio to $41.9 million, coupled with a 4 basis
point decrease in the yield to 7.11%. Money market investment income decreased
by $.1 million to $2.1 million as compared to fiscal year 1993. The decrease in
money market investment income reflects a $12.6 million decrease in the average
balance of the portfolio which, however, was partially offset by a 52 basis
point increase in yield to 3.66%. Interest on trading account securities for the
year ended September 30, 1994 increased by $.1 million as compared to fiscal
year 1993. This increase was the result of a 65 basis point increase in yield,
coupled with a $.3 million increase in the average balance of the portfolio.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1994 increased by $8.5 million, or 12.0%, to $79.9 million as compared with
$71.4 million for the year ended September 30, 1993. The overall increase in
interest expense reflects a $289.1 million increase in the average balance of
total interest-bearing liabilities to $2,263.9 million. The increase in interest
expense, however, was partially offset by an 8 basis point decline in the cost
of funds which includes the effect of off-balance sheet financial instruments
which are used to manage the repricing characteristics of interest-bearing
liabilities. These off-balance sheet financial instruments had the effect of
increasing interest expense by $1.5 million during the year ended September 30,
1994 and reducing interest expense by $.5 million during the year ended
September 30, 1993.
Interest expense on deposits decreased $.7 million, or 1.2%, to $57.0 million
for the year ended September 30, 1994 as compared with the year ended September
30, 1993. This decrease reflects a 10 basis point decline in the average cost of
deposits from 3.28% in fiscal year 1993 to 3.18% in fiscal year 1994 which,
however, was partially offset by a $30.9 million increase in the average balance
of deposits to $1,791.0 million. Interest expense on borrowed funds increased
$9.3 million to $23.0 million for the year ended September 30, 1994, as compared
to the year ended September 30, 1993. This increase reflects a $258.1 million
increase in the average balance of borrowed funds to $473.0 million. This
increase, however, was partially offset by a 153 basis point decline in the
average cost of borrowed funds from 6.38% in fiscal year 1993 to 4.85% in fiscal
year 1994, reflecting the Savings Bank's expanded use of short-term borrowed
funds. Included in interest on borrowed funds throughout fiscal year 1994 were
the effect of $150.0 million of capped variable rate reverse repurchase
agreements. These borrowings had imbedded interest rate caps ranging from 3.92%
to 4.25% and matured between February 1995 and May 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $2.7 million and $4.7 million for possible loan losses
during the years ended September 30, 1994 and 1993, respectively. The reduction
in the provision for possible loan losses reflects the stabilization of the
Savings Bank's ratio of its allowance for possible loan losses to total
nonaccrual loans which amounted to 70.4% and 69.0% at September 30, 1994 and
1993, respectively.
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1994 amounted to $92.9 million, representing an increase of $8.3
million, or 9.8%, from the year ended September 30, 1993. This increase reflects
a $304.4 million increase in average interest-earning assets to $2,418.3
million. This increase, however, was partially offset by a 28 basis point
decline in the Savings Bank's net interest margin from 4.23% in fiscal year 1993
to 3.95% in fiscal year 1994. The decline in net interest margin resulted
principally from a decrease in yield on loans as a result of the low interest
rate environment during fiscal year 1993 through the first half of fiscal year
1994 and its resulting effect on newly originated loans, refinancings of
existing loans, and repricings on the Savings Bank's adjustable rate loan
portfolios.
OTHER OPERATING INCOME
Other operating income amounted to $7.1 million for the year ended September 30,
1994 as compared with $9.9 million for the year ended September 30, 1993. The
$2.8 million decline in other operating income is primarily attributable to a
$3.6 million reduction in net gain on sales of mortgage loans and securities
available for sale, which was partially offset by a $.5 million net loss on
financial futures transactions during fiscal year 1993.
OTHER OPERATING EXPENSES
Other operating expenses amounted to $50.8 million, or 2.06% of average assets,
during the year ended September 30, 1994 as compared with $48.5 million, or
2.24% of average assets, during the year ended September 30, 1993. This increase
of $2.3 million primarily reflects a $2.5 million increase in compensation and
benefits expenses, which includes a $.9 million increase in Hamilton's ESOP and
RRP expense over the prior year, coupled with a $.5 million expense associated
with the Savings Bank's postretirement benefits other than pensions during
fiscal year 1994.
INCOME TAX EXPENSE
Income taxes totaled $21.7 million for an effective tax rate of 44.2% during
fiscal year 1994 compared to $20.9 million for an effective tax rate of 45.4%
during fiscal year 1993. The lower effective income tax rate during the fiscal
year 1994 resulted principally from the recognition of tax benefits associated
with the provision for possible loan losses and lost interest on nonaccrual
loans. Prior
17
to the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS No. 109") these differences were accounted
for as permanent differences.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- INCOME TAXES
Prior to October 1, 1993, deferred income taxes were provided for timing
differences in the recognition of revenues and expenses for tax reporting and
financial statement purposes (an income statement approach), pursuant to
Accounting Principles Board Opinion No. 11.
On October 1, 1993, New York Bancorp adopted SFAS No. 109 which adopted a
balance sheet approach (or liability method) in place of the income statement
approach. The liability method requires that an asset or a liability, as
appropriate, be recorded for financial statement purposes for the deferred tax
consequences of all temporary differences in the recognition of revenue and
expense, which is measured by applying enacted tax laws and rates. Additionally,
SFAS No. 109 permits the recognition of net deferred tax assets based upon the
likelihood of realization of tax benefits in the future. The cumulative effect
at October 1, 1993 of the change in accounting for income taxes which was
implemented on a prospective basis amounted to $5.7 million for the year ended
September 30, 1994.
ANALYSIS OF FINANCIAL CONDITION
In managing its financial condition, the Company establishes objectives to
maximize the appropriate levels of asset and liability mix to meet profit, risk
and capital goals. Total assets increased $147.6 million to $2.7 billion at
September 30, 1995. The increase in total assets primarily reflects a $232.6
million increase in loans receivable, net, partially offset by an $86.1 million
decrease in mortgage-backed securities. The increase in total assets was
primarily funded through the Savings Bank's $188.2 million increase in borrowed
funds. Although the Savings Bank's strategy is to fund asset growth with core
deposits, the Savings Bank will also continue to utilize borrowings to fund the
balance sheet expansion when such expansion can be conducted profitably within
the Savings Bank's asset/liability management parameters and regulatory capital
constraints.
Loans serviced for others at September 30, 1995 amounted to $523.7 million as
compared to $530.3 million at September 30, 1994.
CAPITAL
As required by regulation of the Office of Thrift Supervision (the "OTS"),
savings institutions are required to maintain regulatory capital in the form of
a "tangible capital requirement," a "core capital requirement" and a "risk-based
capital requirement."
As of September 30, 1995, the Savings Bank is considered a "well-capitalized"
institution under the prompt corrective action regulations of the OTS and
continues to exceed all regulatory capital requirements as detailed in the
following table (dollars in thousands):
TANGIBLE CAPITAL CORE CAPITAL(1) RISK-BASED CAPITAL(2)
__________________________ _________________________ __________________________
Amount Percentage(3) Amount Percentage(3) Amount Percentage(3)
___________ _____________ ___________ _____________ ___________ _____________
Total Savings Bank equity........... $ 146,169 5.35% $ 146,169 5.35% $ 146,169 11.38%
Add (subtract):
o Allowable portion of
subordinated capital
notes..................... -- .-- -- .-- 3,268 .25
o Other...................... (648) (.02) (590) (.02) 7,849 .61
___________ ______ ___________ ______ ___________ _______
Capital for regulatory purposes..... 145,521 5.33 145,579 5.33 157,286 12.24
Minimum regulatory requirement...... 40,955 1.50 81,913 3.00 102,775 8.00
___________ ______ ___________ ______ ___________ _______
Excess.............................. $ 104,566 3.83% $ 63,666 2.33% $ 54,511 4.24%
=========== ====== =========== ====== =========== =======
(1) Beginning December 19, 1992, the core capital requirement was effectively increased to 4.00% since OTS
regulations stipulate that as of that date an institution with less than 4.00% core capital will be deemed to
be classified as "undercapitalized."
(2) In August 1993, the OTS adopted a final regulation which incorporates an interest rate risk component into its
existing risk-based capital standard. The regulation requires certain institutions with more than a "normal
level" of interest rate risk to maintain capital in addition to the 8.0% risk-based capital requirement. The
Savings Bank does not anticipate that its risk-based capital requirement will be materially affected as a
result of the new regulation.
(3) For tangible and core capital the ratio is to adjusted total assets. For risk-based capital, the ratio is to
total risk-weighted assets.
The ability of New York Bancorp to pay dividends depends upon dividend payments
by the Savings Bank to New York Bancorp, which is New York Bancorp's primary
source of income. The Savings Bank is not permitted to pay dividends on its
capital stock or repurchase shares of its stock if its shareholder's equity
would be reduced below the amount required for the liquidation account or
applicable regulatory capital requirements. The Savings Bank is currently
allowed under regulation to pay cash dividends to New York Bancorp in an amount
not to exceed 100% of its net income to date, during a calendar year, plus an
amount not to exceed one-half of its surplus capital ratio at the beginning of
the calendar year. Additionally, under terms of its subordinated capital note
agreements, the Savings Bank is permitted to pay, on a cumulative basis, cash
dividends to New York Bancorp in an amount not to exceed 75% of its net income
from November 30, 1988 to date, plus $5.0 million.
During the past five years, the Company's net income has amounted to $3.2
million in fiscal year 1991, $16.9 million in fiscal year 1992, $25.2 million in
fiscal year 1993, $33.2 million in fiscal year 1994, and $11.6 million in fiscal
year 1995 (which included $16.1 million in after tax non-recurring expenses and
$.7 million in an after tax loss on the sale of securities, both of which were
incurred in connection with the Hamilton merger). The Company's regular
quarterly dividend has increased 98% since September 1992. During this same
period the Savings Bank has continued to exceed the OTS's regulatory capital
requirements.
18
LIQUIDITY
The maintenance of an appropriate level of liquid resources to meet not only
regulatory requirements but also to provide the funding necessary to meet the
institution's business activities and obligations is an integral element in the
successful management of the Company's assets. Federal regulations currently
require that for each calendar month, a savings institution maintain an average
daily balance of cash and cash equivalents and certain uncommitted marketable
securities equal to 5% of net withdrawable accounts and borrowings payable in
one year or less. Under OTS regulations, the percentage of assets which must be
liquid assets may vary between 4% and 10% of the obligation of the savings
institution on withdrawable accounts and borrowings payable on demand or with
unexpired maturities of one year or less. During September 1995, the Savings
Bank's liquidity ratio was 5.28% compared to 5.73% for the month of September
1994. The liquidity levels will vary dependent upon savings flows, future loan
fundings, operating needs and general prevailing economic conditions. Because of
the Savings Bank's diverse available funding sources, including cash flows from
the Savings Bank's regular amortization and interest received in connection with
the loan and mortgage-backed securities portfolios and borrowings, available on
a collateralized basis, the Company does not foresee any problems in generating
liquidity to meet its operational, debt repayment and other requirements.
The Savings Bank's lending and investment activities are predominately funded by
deposits, Federal Home Loan Bank of New York ("FHLB-NY") advances, reverse
repurchase agreements with primary government securities dealers, subordinated
capital notes, scheduled amortization and prepayments on loans and
mortgage-backed securities, and funds provided by operations.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and accompanying notes presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time and due to inflation. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary. As
a result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). In
October 1994, the FASB issued Statement of Financial Accounting Standards No.
118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" ("SFAS No. 118") which amended SFAS No. 114 (collectively the
"Statements"). Both Statements are effective for financial statements issued for
fiscal years beginning after December 15, 1994. These Statements address the
accounting by creditors for impairment of certain loans which, among other
things, include all loans that are restructured in a troubled debt restructuring
involving a modification of terms. They require that impaired loans that are
within the scope of these Statements be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Based upon a review
of these Statements, management has determined that the adoption of SFAS No. 114
and SFAS No. 118 on a prospective basis will not have a materially adverse
effect on the Company.
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets To Be Disposed Of" ("SFAS No. 121 "). The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Statement establishes accounting standards for, among other things, the
impairment of long-lived assets. The Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Based upon a review
of the Statement, management does not believe that the adoption of SFAS No. 121
would have a materially adverse effect on the Company.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting standards for mortgage servicing rights, which are the
contractual right to service loans owned by others, typically for a fee. Prior
to this Statement, only purchased mortgage servicing rights were capitalized as
an asset. SFAS No. 122 requires originated mortgage servicing rights (OMSR) to
be capitalized as an asset. OMSR represent mortgage servicing rights acquired
when an institution originates and subsequently sells mortgage loans but retains
the servicing rights. The Statement also requires all capitalized mortgage
servicing rights to be evaluated for impairment based on their value. Management
is reviewing its options for adopting SFAS No. 122, which includes the
possibility of adopting the Statement as of October 1, 1995. The Statement will
be adopted on a prospective basis, and the positive impact on future earnings
would depend on the level of future mortgage loan sales, with servicing
retained. To the extent that a servicing right asset is capitalized, future
earnings could be negatively impacted when capitalized mortgage servicing rights
are subsequently evaluated for impairment.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting and reporting standards for stock-based employee
compensation awards granted in fiscal years that begin after December 15, 1994.
Examples of such plans are stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Statement defines a fair value based
method of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting. Entities may
elect, however, to remain with previous accounting standards which do not
require the fair value method of accounting. Those entities electing not to
adopt the fair value method of accounting must make pro forma disclosures of net
income and earnings per
19
share as if the fair value method of accounting defined in the Statement were
adopted. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Management has not yet performed a
review to determine the effect this Statement could have on the Company.
However, if the Company adopts fair value accounting for its stock-based
compensation plans, compensation and benefit expense would be increased, and
earnings decreased, for options granted in future periods.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). Under SFAS No. 115, investment and mortgage-backed securities which a
company has the positive intent and ability to hold until maturity are carried
at cost, adjusted for amortization of premiums and accretion of discounts on a
level yield method. Investment and mortgage-backed securities to be held for
indefinite periods of time and not intended to be held to maturity and
marketable equity securities are classified as available for sale securities and
are recorded at fair value, with unrealized appreciation and depreciation, net
of tax, reported as a separate component of shareholders' equity. In November
1995, the FASB issued an implementation guide for SFAS No. 115. The
implementation guide provides guidance in the form of a question and answer
format and would allow an opportunity from mid-November 1995 to December 31,
1995 for companies to reclassify securities in the held to maturity portfolio to
securities in the available for sale portfolio without tainting the remainder of
the portfolio. Management has not yet performed a review to determine the effect
this implementation guide could have on the Company.
PROPOSED REGULATORY MATTERS
The Savings Bank is subject to extensive regulation, supervision, and
examination by the OTS, as its chartering authority and primary Federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
Such regulation and supervision establish a comprehensive framework of
activities in which an institution can engage and are intended primarily for the
protection of the insurance fund and depositors. Any change in such regulation,
whether by the OTS, the FDIC, or the United States Congress, could have a
material impact on the Savings Bank and its operations.
Currently, approximately 81.4% of the deposits of the Savings Bank are insured
by the Savings Association Insurance Fund ("SAIF") and 18.6% of the deposits of
the Savings Bank are insured by the Bank Insurance Fund ("BIF"). On August 8,
1995, in recognition of the BIF achieving its mandated reserve ratio of 1.25% of
insurance deposits, the FDIC revised the premium schedule for BIF members
beginning June 1, 1995 to provide a new range of .04% to .31% of deposits (as
compared to .23% to .31% of deposits which represents the previous range for BIF
insured deposits and the current range for SAIF insured deposits). 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. Without a substantial
increase in premium rates, or the imposition of special assessments or other
significant developments, such as a merger of the SAIF and BIF, it is not
anticipated that SAIF will meet its mandated reserve ratio of 1.25% of insured
deposits until 2002. As a result of the disparity in BIF and SAIF premium rates,
SAIF members could be placed at a significant competitive disadvantage in
relation to BIF members with respect to pricing of loans and deposits and the
ability to lower their operating costs.
Legislation currently before the United States Congress reportedly provides for
a one-time, special assessment on all SAIF insured deposits of approximately
$.85 to $.90 per $100 of deposits. This one-time assessment which is intended to
recapitalize the SAIF to the required level of 1.25% of insured deposits, may be
an expense of the first or second quarter of fiscal year 1996, depending on the
enactment, timing and final wording of such legislation. If the assessment is
made at the proposed rates, the effect on the Savings Bank would be a charge of
approximately $12.2 million to $13.0 million. It is anticipated that if the
one-time assessment is levied, and the SAIF brought to its required level, the
Savings Bank may see a decrease in the annual deposit premium in future periods.
There have also been proposals to merge the SAIF with the BIF, and to eliminate
the thrift charter. If such proposals are approved, the Savings Bank would be
required to convert its existing thrift charter to a bank charter. The
elimination of the thrift charter would also eliminate the current tax method of
allowing the Savings Bank to take a percentage of income deduction for bad debts
in determining its taxable income. The Savings Bank may also be required, under
certain conditions, to recapture a portion of its Federal, state and local bad
debt reserves maintained for 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 $5.0 million on an after tax basis.
No assurance can be given that the legislation when it is eventually signed into
law will conform with the above and that the impact of such legislation will not
have a significant impact upon the Company's financial results.
20
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30,
__________________________________
1995 1994(1)
______________ ________________
ASSETS
Cash and due from banks..................................................... $31,189 20,021
Money market investments (note 3)........................................... 13,915 21,844
Trading account securities.................................................. 2,003 12,939
Investment securities held to maturity (estimated market
value of $21,107 and $51,390 at September 30, 1995
and 1994, respectively) -- (notes 4 and 14)................................ 21,179 52,984
Investment securities available for sale, at market value (note 5).......... 46,273 180
Federal Home Loan Bank stock (note 14)...................................... 20,288 17,409
Mortgage-backed securities held to maturity (estimated
market value of $637,503 and $730,500 at September 30,
1995 and 1994, respectively) -- (notes 6 and 14)........................... 664,726 785,593
Mortgage-backed securities available for sale (notes 7, 14 and 21).......... 206,794 171,983
Loans receivable, net (notes 8, 9 and 14):
First mortgage loans....................................................... 1,389,776 1,158,604
Other loans................................................................ 296,439 299,455
______________ ______________
1,686,215 1,458,059
Less allowance for possible loan losses................................... (21,272) (25,705)
______________ ______________
Total loans receivable, net.............................................. 1,664,943 1,432,354
Accrued interest receivable (note 10)....................................... 21,723 19,104
Premises and equipment, net (note 11)....................................... 12,851 14,804
Other assets (notes 12 and 16).............................................. 25,708 34,767
______________ ______________
Total assets.............................................................. $ 2,731,592 $ 2,583,982
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (note 13)........................................................ $ 1,748,874 $ 1,791,514
Borrowed funds, including securities sold under
agreements to repurchase of $344,860 and $244,891 at
September 30, 1995 and 1994, respectively (note 14)...................... 767,138 578,897
Mortgagors' escrow payments............................................... 16,520 15,247
Accrued expenses and other liabilities (notes 15 and 18).................. 42,674 27,033
______________ ______________
Total liabilities....................................................... 2,575,206 2,412,691
______________ ______________
Commitments, contingencies and contracts (notes 8, 16 and 20)
SHAREHOLDERS' EQUITY (NOTES 16, 17 AND 19):
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued................................................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 14,746,850 and 14,756,005 shares issued at
September 30, 1995 and 1994, respectively; 12,138,974
and 13,223,698 shares outstanding at September 30,
1995 and 1994, respectively.............................................. 147 147
Additional paid-in capital................................................ 63,575 62,812
Retained earnings, substantially restricted............................... 125,593 125,528
Treasury stock, at cost, 2,607,876 and 1,532,307
shares at September 30, 1995 and 1994, respectively...................... (33,740) (9,995)
Employee stock ownership plan............................................. -- (2,174)
Recognition and retention plan............................................ -- (1,130)
Unrealized appreciation (depreciation) on securities
available for sale, net of tax effect.................................... 811 (3,897)
______________ ______________
Total shareholders' equity.............................................. 156,386 171,291
______________ ______________
Total liabilities and shareholders' equity.............................. $ 2,731,592 $ 2,583,982
============== ==============
(1) Restated to reflect the merger with Hamilton Bancorp, Inc., which was accounted for as a pooling of interests.
See accompanying notes to consolidated financial statements.
21
CONSOLIDATED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended September 30,
________________________________________________
1995 1994(1) 1993(1)
____________ ____________ ___________
INTEREST INCOME:
Interest and fees on loans:
First mortgage loans...................................... $ 104,042 $ 93,373 $ 96,586
Other loans............................................... 25,916 24,094 26,313
____________ ___________ ___________
Total interest and fees on loans........................ 129,958 117,467 122,899
Money market investments.................................... 1,080 2,113 2,208
Trading account securities.................................. 726 453 361
Investment securities - taxable............................. 4,877 2,976 3,265
Mortgage-backed securities.................................. 60,331 52,521 32,019
____________ ___________ ___________
Total interest income..................................... 196,972 175,530 160,752
____________ ___________ ___________
INTEREST EXPENSE:
Deposits (notes 13 and 21).................................. 62,394 56,996 57,688
Borrowed funds (notes 14 and 21)............................ 39,336 22,952 13,697
____________ ___________ ___________
Total interest expense.................................... 101,730 79,948 71,385
____________ ___________ ___________
Net interest income....................................... 95,242 95,582 89,367
Provision for possible loan losses (note 9)................. (1,700) (2,650) (4,700)
____________ ___________ ___________
Net interest income after provision for
possible loan losses..................................... 93,542 92,932 84,667
____________ ___________ ___________
OTHER OPERATING INCOME:
Loan fees and service charges............................... 2,566 3,292 3,341
Net gain (loss) on the sales of mortgage loans and
securities available for sale (notes 5, 7 and 8)........... (1,088) 214 3,857
Net loss on financial futures transactions.................. -- -- (495)
Real estate operations, net (note 12)....................... (883) (880) (1,296)
Other ...................................................... 5,134 4,494 4,481
____________ ___________ ___________
Total other operating income.............................. 5,729 7,120 9,888
____________ ___________ ___________
OTHER OPERATING EXPENSES:
Compensation and benefits (notes 18 and 19)................. 21,809 25,197 22,703
Occupancy, net (notes 11 and 20)............................ 8,751 8,346 8,220
Advertising and promotion................................... 2,565 2,370 2,363
Federal deposit insurance premiums.......................... 4,464 4,756 4,241
Merger and restructuring (note 2)........................... 19,024 -- --
Other....................................................... 11,379 10,176 10,928
____________ ___________ ___________
Total other operating expenses............................ 67,992 50,845 48,455
____________ ___________ ___________
Income before taxes on income and cumulative
effect of change in accounting principle................. 31,279 49,207 46,100
____________ ___________ ___________
TAXES ON INCOME (NOTE 16):
Federal expense............................................. 13,460 14,214 13,489
State and local expense..................................... 6,257 7,526 7,423
____________ ___________ ___________
Total taxes on income..................................... 19,717 21,740 20,912
____________ ___________ ___________
Income before cumulative effect
of change in accounting principle........................ 11,562 27,467 25,188
Cumulative effect of change in accounting for income taxes.... -- 5,685 --
____________ ___________ ___________
Net income................................................ $ 11,562 $ 33,152 $ 25,188
============ =========== ===========
EARNINGS PER COMMON SHARE (NOTE 17):
Income before cumulative effect
of change in accounting principle.......................... $ .87 $ 2.02 N/M (2)
Cumulative effect of change in accounting for income taxes.. $ .-- $ .42 N/M (2)
Net income................................................ $ .87 $ 2.44 N/M (2)
(1) Restated to reflect the merger with Hamilton Bancorp, Inc., which was accounted for as a pooling of interests.
(2) N/M -- Hamilton converted to stock ownership on April 1, 1993. Accordingly, per share data is not meaningful.
See accompanying notes to consolidated financial statements.
22
CONSOLIDATED
STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Unrealized
Common Appreciation
Common Stock (Depreciation)
Additional Stock Acquired on Securities
Common Paid-in Retained Treasury Acquired by Available
Stock Capital Earnings Stock by ESOP MRP/RRP for Sale Total
______ ___________ _________ __________ _________ _________ ___________ ___________
Balance at September 30, 1992(1)....... $ 78 $ 15,780 $ 90,718 $ (6,607) $ -- $ (36) $ -- $ 99,933
Net income for the year ended
September 30, 1993.................... -- -- 25,188 -- -- -- -- 25,188
Dividends declared on common stock..... -- -- (4,660) -- -- -- -- (4,660)
Issuance of 6,862,625 shares........... 69 41,212 -- -- -- -- -- 41,281
Employee stock ownership plan.......... -- -- -- -- (3,043) -- -- (3,043)
Recognition and retention plan......... -- -- -- -- -- (1,739) -- (1,739)
Compensation amortized to expense...... -- -- -- -- 326 297 -- 623
Cash paid in lieu of 210
fractional shares in the aggregate
resulting from stock splits........... -- (4) -- -- -- -- -- (4)
Purchase of 72,200 shares of
treasury stock........................ -- -- -- (1,116) -- -- -- (1,116)
Purchase and retire 361,887 shares..... (3) (3,134) -- -- -- -- -- (3,137)
Exercise of 66,236 shares of
stock options......................... -- -- (86) 529 -- -- -- 443
_____ _________ __________ _________ ________ ________ ________ __________
Balance at September 30, 1993(1)....... 144 53,854 111,160 (7,194) (2,717) (1,478) -- 153,769
Net income for the year ended
September 30, 1994.................... -- -- 33,152 -- -- -- -- 33,152
Dividends declared on common stock..... -- -- (5,720) -- -- -- -- (5,720)
Distribution of 10% stock dividend..... 7 12,133 (12,140) -- -- -- -- --
Cash paid in lieu of 221
fractional shares in the aggregate,
resulting from stock dividend......... -- (3) -- -- -- -- -- (3)
Compensation amortized to expense...... -- 600 -- -- 543 348 -- 1,491
Purchase of 339,280 shares of
treasury stock........................ -- -- -- (4,544) -- -- -- (4,544)
Purchase and retire 283,030 shares..... (4) (3,772) -- -- -- -- -- (3,776)
Exercise of 92,791 shares of
stock options......................... -- -- (924) 1,743 -- -- -- 819
Unrealized appreciation on securities
available for sale at October 1,
1993, net of taxes of $377............ -- -- -- -- -- -- 449 449
Change in unrealized depreciation
on securities available for
sale, net of tax benefits of $3,428... -- -- -- -- -- -- (4,346) (4,346)
_____ _________ __________ _________ _______ ________ ________ __________
Balance at September 30, 1994(1)....... 147 62,812 125,528 (9,995) (2,174) (1,130) (3,897) 171,291
Net income for the year
ended September 30, 1995.............. -- -- 11,562 -- -- -- -- 11,562
Dividends declared on common stock..... -- -- (9,114) -- -- -- -- (9,114)
Exercise of 385,464 shares of
stock options......................... 3 -- (603) 1,544 -- -- -- 944
Purchase of 1,453,016 shares of
treasury stock........................ -- -- -- (28,784) -- -- -- (28,784)
Purchase and retire 196,643 shares .... (2) (3,710) -- -- -- -- -- (3,712)
Net proceeds from sale of 298,375
shares of treasury stock (note 2)..... -- 1,035 -- 3,495 -- -- -- 4,530
ESOP and RRP activity,
including tax benefit (note 2)........ (1) 3,438 -- -- 2,174 1,130 -- 6,741
Hamilton Bancorp's net income
for the three months ended
December 31, 1994 (note 2)............ -- -- (1,780) -- -- -- -- (1,780)
Change in unrealized
appreciation on securities
available for sale, net
of taxes of $3,690.................... -- -- -- -- -- -- 4,708 4,708
_____ _________ __________ _________ ________ ________ ________ __________
Balance at September 30, 1995.......... $ 147 $ 63,575 $ 125,593 $ (33,740) $ -- $ -- $ 811 $ 156,386
===== ========= ========== ========= ======== ======== ======== ==========
(1) Restated to reflect the merger with Hamilton Bancorp, Inc., which was accounted for as a pooling of interests.
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
(IN THOUSANDS)
Year Ended September 30,
_________________________________________________
1995 1994(1) 1993(1)
_______________ _______________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before cumulative effect of change in
accounting principle..................................... $ 11,562 $ 27,467 $ 25,188
Cumulative effect of change in accounting
for income taxes......................................... -- 5,685 --
_______________ _______________ _____________
Net income................................................ 11,562 33,152 25,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................... 2,064 1,817 1,784
Amortization and accretion of deferred fees,
discounts and premiums................................. 1,538 8,414 (3,247)
Provision for possible loan losses...................... 1,700 2,650 4,700
Provision for losses on foreclosed real estate.......... 361 -- 200
Net loss (gain) on sale of foreclosed real estate....... 82 (190) (20)
Net loss (gain) on sale of mortgage loans and
securities available for sale.......................... 1,088 (214) (3,857)
Deferred income taxes................................... (1,965) (6,832) (188)
Amortization of ESOP and RRP compensation
expense................................................ 464 1,491 623
Termination of ESOP and RRP............................. 4,992 -- --
Net (increase) decrease in trading account.............. 10,936 (452) (245)
(Increase) decrease in accrued interest receivable...... (2,579) (5,446) 1,058
Increase (decrease) in accrued interest payable......... 838 1,161 (1,302)
Increase (decrease) in accrued expenses and
other liabilities...................................... 3,779 (1,981) 359
(Increase) decrease in other assets..................... 2,751 (491) 3,672
_______________ _______________ _____________
Total adjustments....................................... 26,049 (73) 3,537
_______________ _______________ _____________
Net cash provided by operating activities................. 37,611 33,079 28,725
_______________ _______________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on loans............................... 201,852 211,300 231,307
Principal payments on mortgage-backed securities.......... 80,169 350,694 409,632
Principal payments, maturities and calls
on investment securities................................. 30,987 1,477 22,971
Proceeds on sales of loans................................ 38,799 109,063 128,921
Proceeds on sales of mortgage-backed securities
available for sale....................................... 77,279 39,058 70,000
Proceeds on sales of investment securities
available for sale....................................... 7,737 181 120,145
Investment in first mortgage loans........................ (432,050) (341,555) (458,692)
Investment in other loans................................. (71,057) (49,798) (48,422)
Investment in mortgage-backed securities
available for sale....................................... (45,789) (80,978) (207,298)
Investment in mortgage-backed securities
held to maturity......................................... -- (589,083) (366,009)
Investment in investment securities available for sale.... (52,221) (135) (120,504)
Investment in investment securities held to maturity...... -- (49,985) (934)
Proceeds on sales of foreclosed real estate............... 7,927 3,896 4,048
Proceeds from sale of interest rate floor agreements...... 10,835 -- --
Purchases of Federal Home Loan Bank Stock, net............ (2,879) 4,325 (858)
Other, net................................................ (3,470) (2,466) (2,175)
_______________ _______________ _____________
Net cash used in investing activities..................... (151,881) (394,006) (217,868)
_______________ _______________ _____________
(Continued)
24
CONSOLIDATED
STATEMENTS OF CASH
FLOWS (CONTINUED)
(IN THOUSANDS)
Year Ended September 30,
_________________________________________________
1995 1994(1) 1993(1)
________________ _______________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
demand, savings, money market,
and NOW accounts......................................... $ (187,214) $ (56,591) $ 44,263
Net increase (decrease) in time deposits.................. 152,542 90,003 (68,925)
Net increase in borrowings with original maturities
of three months or less.................................. 248,715 160,304 147,469
Proceeds from long-term borrowings........................ 10,000 200,000 101,743
Repayment of long-term borrowings......................... (66,517) (75,100) (178,369)
Proceeds from issuance of common stock.................... -- -- 41,281
Purchase of common stock by ESOP.......................... -- -- (3,043)
Purchase of common stock by RRP........................... -- -- (1,739)
Purchaes of common stock for treasury
or retirement............................................ (32,496) (8,320) (4,253)
Payment of common stock dividends......................... (8,156) (5,582) (4,421)
Exercise of stock options................................. 872 819 443
Proceeds from sale of treasury stock...................... 4,530 -- --
Cash paid in lieu of fractional shares
resulting from stock dividend............................ -- (3) (4)
Increase (decrease) in mortgagors' escrow accounts........ 1,004 (810) (2,569)
_______________ _______________ _____________
Net cash provided by financing activities................. 123,280 304,720 71,876
_______________ _______________ _____________
Net increase (decrease) in cash and cash equivalents...... 9,010 (56,207) (117,267)
Hamilton activity for the three months ended
December 31, 1994 (note 2)............................... (5,771) -- --
Cash and cash equivalents at beginning of year............ 41,865 98,072 215,339
_______________ _______________ _____________
Cash and cash equivalents at end of year.................. $ 45,104 $ 41,865 $ 98,072
=============== =============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned.................... $ 4,455 $ 5,784 $ 6,285
=========== =========== ============
Transfer of mortgage-backed securities available
for sale to mortgage-backed securities
held to maturity (note 6)................................ $ -- $ 71,492 $ --
=========== =========== ============
Transfer of mortgage-backed securities held
to maturity to mortgage-backed securities
available for sale (notes 2 and 6)....................... $ 69,817 $ 78,067 $ --
=========== =========== ============
Securitization and transfer of loans to
mortgage-backed securities available for sale............ $ 11,418 $ 18,817 $ 53,023
=========== =========== ============
Transfer of investment securities held to maturity to
investment securities available for sale (note 2)........ $ 7,465 $ -- $ --
=========== =========== ============
(1) Restated to reflect the merger with Hamilton Bancorp, Inc., which was accounted for as a pooling of interests.
See accompanying notes to consolidated financial statements.
25
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New York Bancorp Inc. ("New York Bancorp" or the "Holding Company") is a savings
and loan holding company under the savings and loan holding company act, as
amended ("SLHCA"). The Holding Company, through its savings bank subsidiary,
Home Federal Savings Bank (the "Savings Bank") operates as a community savings
bank. On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent
company of Hamilton Federal Savings F.A. ("Hamilton Savings"), was merged with
and into New York Bancorp (see note 2) and Hamilton Savings was merged into the
Savings Bank. The merger was accounted for as a pooling of interests and, as a
result, the Holding Company's consolidated financial statements have been
retroactively restated for all reporting periods to include the consolidated
accounts of Hamilton. The more significant accounting and reporting policies are
summarized below.
(A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting and include the accounts of New York Bancorp and its wholly
owned subsidiary, Home Federal Savings Bank (collectively the "Company"). All
material intercompany transactions and balances have been eliminated.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. The consolidated financial statements for the current year have been
adjusted to conform Hamilton's year-end with that of the Company. The
consolidated financial statements for years prior to fiscal 1995 have been
adjusted to conform Hamilton's fiscal year with that of the Company. The
consolidated financial statements for years prior to fiscal 1995 reflect the
combination of the Company at and for the years ended September 30 with Hamilton
at or for the years ended December 31.
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and money market investments.
(B) MONEY MARKET INVESTMENTS
Money market investments represent short-term instruments (generally ninety days
or less), which are generally held to maturity. These investments are carried at
cost or, if applicable, at cost adjusted for accretion of discount or
amortization of premium using a method which approximates the level-yield method
over the period to maturity. Carrying values of these investments approximate
current market values.
(C) TRADING ACCOUNT SECURITIES
Trading account securities are carried at estimated market value. Net realized
and unrealized gains (losses) are included in other operating income. Interest
on trading account securities is included in interest income.
(D) INVESTMENT AND MORTGAGE-BACKED SECURITIES
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 on a level yield method. Investment and mortgage-backed
securities to be held for indefinite periods of time and not intended to be held
to maturity and marketable equity securities are now classified as available for
sale securities and are recorded at fair value, with unrealized appreciation and
depreciation, net of tax, reported as a separate component of shareholders'
equity.
Prior to October 1, 1993, investment and mortgage-backed securities which the
Company had the ability and the intent 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.
Gains and losses on the sale of securities are determined using the specific
identification method.
(E) LOANS RECEIVABLE
Loans are carried at amortized cost. Interest on loans is recognized on the
accrual basis. The accrual of income on loans is discontinued when certain
factors, such as contractual delinquency of ninety days or more, indicate
reasonable doubt as to the timely collectibility of such income. Interest
previously recognized on past due loans is charged to the allowance for loan
losses when in the opinion of management such interest is deemed to be
uncollectible. Loans on which the accrual of income has been discontinued are
designated as nonaccrual loans and income is recognized subsequently only in the
period collected.
Loan origination fees, less certain direct origination costs, are deferred and
recognized as an adjustment of the loan's yield over the life of the loan by the
interest method, which results in a constant rate of return. When loans are
sold, any remaining unaccreted deferred fees are recognized as income at the
time of sale.
Discounts (premiums) on mortgage loans purchased are deferred and accreted
(amortized) to income over the life of the loans using methods which approximate
the level-yield method.
26
Provisions for possible loan losses are charged to operations based on
management's periodic review and evaluation of the loan portfolio in relation to
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
overall portfolio quality, and underlying collateral values and cash flow
values. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for
possible loan losses. Such agencies could require the Savings Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination. Management believes that the allowance
for possible loan losses is adequate.
(F) LOAN SERVICING
Fees earned for servicing loans owned by investors are reported as income when
the related mortgage loan payments are collected. Loan servicing costs are
charged to expense as incurred. The cost of loan servicing rights acquired is
amortized in proportion to, and over the period of, estimated servicing income.
(G) PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and building improvements, leasehold
improvements and furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings, building improvements and
furniture, fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the respective assets. Leasehold improvements
are amortized using the straight-line method over the terms of the related
leases.
(H) REAL ESTATE OWNED
Real estate owned includes both formally foreclosed and in-substance foreclosed
property. In-substance foreclosed property includes properties for which
borrowers have little or no equity or prospects for building equity in the
collateral and for which the loan repayment can only be expected from the
operation or sale of the collateral. In-substance foreclosed properties are
generally in the process of formal foreclosure. When a property is acquired
through foreclosure or in-substance foreclosure, the excess of the carrying
amount over fair value, if any, is charged to the allowance for loan losses.
An allowance for real estate owned has been established to maintain these
properties at the lower of cost or fair value less estimated cost to sell. Real
estate owned is shown net of the allowance.
The allowance is established through charges to income and are included in real
estate operations, net. Operating results of real estate owned, including rental
income, operating expenses, and gains and losses realized from the sales of
properties owned, are recorded in real estate operations, net.
(I) REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing transactions.
Accordingly, the collateral securities continue to be carried as assets and a
borrowing liability is established for the transaction proceeds.
(J) INCOME TAXES
The Company and its subsidiary file a consolidated Federal income tax return.
The subsidiary pays to or receives from the Company, as appropriate, an
allocated portion of the consolidated income taxes or benefits based upon the
effective current income tax rate of the consolidated group.
Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") which adopts a
balance sheet approach (or liability method) in place of the income statement
approach. The liability method requires that an asset or a liability, as
appropriate, be recorded for financial statement purposes for the deferred tax
consequences of all temporary differences between the tax and financial
statement recognition of revenue and expense, which is measured by applying
enacted tax laws and rates. Additionally, SFAS No. 109 permits the recognition
of net deferred tax assets based upon the likelihood of realization of tax
benefits in the future. A valuation allowance is provided for deferred tax
assets which are determined to not likely be recognized. The cumulative effect
at October 1, 1993 of the change in accounting for income taxes has been
included in the consolidated statement of income for the year ended September
30, 1994.
Prior to October 1, 1993, deferred income taxes were provided for timing
differences in the recognition of revenues and expenses for tax reporting and
financial statement purposes (an income statement approach), pursuant to
Accounting Principles Board Opinion No. 11.
(K) RETIREMENT PLANS
The Company has pension plans covering substantially all employees who have
attained minimum service requirements. The Company's policy is to contribute
annually an amount sufficient to meet Employee Retirement Income Security Act
("ERISA") funding standards.
Postretirement and postemployment benefits are recorded on an accrual basis with
an annual provision that recognizes the expense over the service life of the
employee, determined on an actuarial basis.
(L) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate swaps, caps, floors, options and financial futures agreements are
periodically used to manage the Company's interest rate risk. Generally, the net
settlements on such transactions used as hedges of non-trading assets or
liabilities are accrued as an adjustment to interest income or interest expense
over the lives of the
27
agreements. Further, gains or losses on terminated contracts used as hedges of
non-trading assets or liabilities are generally deferred and amortized over the
life of the original hedge. Contracts which are not matched against specific
assets, liabilities, or the repricing of interest rate floor arrangements or do
not meet correlation criteria are accounted for at market value with the
resulting gain or loss recognized in operations.
(M) EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The weighted average number of shares of common stock and common
stock equivalents used in the computation of earnings per common share for the
years ended September 30, 1995 and 1994 was 13,327,915 and 13,609,867,
respectively.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to 1994 and 1993 amounts to conform to
the 1995 presentation.
(2) BUSINESS COMBINATIONS
HAMILTON
On January 27, 1995, New York Bancorp acquired Hamilton in a transaction
accounted for under the pooling of interests method of accounting. Pursuant to
the merger agreement, New York Bancorp issued 1.705 shares of common stock for
each outstanding share of Hamilton common stock and reserved for issuance
182,824 shares of common stock for Hamilton's stock options outstanding as of
the merger consummation date. In addition, 306,392 shares of common stock were
issued to holders of Hamilton stock options who received stock for the options
calculated in accordance with the formula contained in the merger agreement. As
a condition to the merger, Hamilton, immediately prior to the consummation of
the merger, reissued in an underwritten offering 175,000 shares of Hamilton
treasury stock amounting to net proceeds of $4,530,000, after underwriting
commission and offering costs. As a result of the above, 6,224,921 shares of
common stock were issued in connection with the merger.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. Accordingly, the accompanying Consolidated Statement of Financial
Condition as of September 30, 1994 has been restated to include the financial
position of Hamilton as of December 31, 1994 and the accompanying Consolidated
Statements of Income, Changes in Shareholders' Equity and Cash Flows for the two
years ended September 30, 1994 have been restated to include the operations of
Hamilton for the two years ended December 31, 1994. The effect on the
accompanying consolidated financial statements arising from the inclusion of the
$1,780,000 of net income of Hamilton for the three months ended December 31,
1994 in the Company's results of operations for both fiscal year 1995 and 1994
is presented in the accompanying Consolidated Statement of Changes in
Shareholders' Equity as an adjustment for change in fiscal year of Hamilton.
Additionally, the accompanying Consolidated Statements of Income for both fiscal
year 1995 and 1994 each include $7,948,000 and $1,780,000 representing net
interest income after provision for possible loan losses and net income,
respectively, reflecting those results of Hamilton's operations for the three
months ended December 31, 1994.
In accordance with the pooling of interests method of accounting, the Company's
financial statements have been restated for all periods presented to include the
reported results of Hamilton. The combination of previously reported operating
results of the Company and Hamilton for the two years ended September 30, 1994
are presented below:
1994 1993
___________ ___________
(In Thousands)
Net interest income after provision for loan losses:
New York Bancorp..................................................... $ 61,828 $ 55,726
Hamilton............................................................. 31,104 28,941
___________ ___________
Total combined.................................................... $ 92,932 $ 84,667
=========== ===========
Income before cumulative effect
of a change in accounting principle:
New York Bancorp..................................................... $ 17,927 $ 16,344
Hamilton............................................................. 9,540 8,844
___________ ___________
Total combined.................................................... $ 27,467 $ 25,188
=========== ===========
Cumulative effect of a change
in accounting principle:
New York Bancorp..................................................... $ 5,685 $ --
Hamilton............................................................. -- --
___________ ___________
Total combined.................................................... $ 5,685 $ --
=========== ===========
Net income:
New York Bancorp..................................................... $ 23,612 $ 16,344
Hamilton............................................................. 9,540 8,844
___________ ___________
Total combined.................................................... $ 33,152 $ 25,188
=========== ===========
New York Bancorp's investment in Hamilton was eliminated in the accompanying
Consolidated Statement of Financial Condition as of September 30, 1994, which
resulted in a $4.2 million reduction of the combined shareholders' equity. The
following provides the effect of combining New York Bancorp's shareholders'
equity as of September 30, 1994 with that of Hamilton as of December 31, 1994:
Shareholders'
Equity
____________
(In Thousands)
New York Bancorp........................................................................... $ 91,376
Hamilton................................................................................... 84,129
Elimination of intercorporate investment................................................... (4,214)
___________
$ 171,291
===========
28
The following is a summary of Hamilton Bancorp's cash flows for the three months
ended December 31, 1994 (in thousands):
Net cash provided by operating activities.................................................. $ 678
Net cash used by investing activities...................................................... (4,389)
Net cash provided by financing activities.................................................. 9,482
___________
Net increase in cash and cash equivalents.................................................. $ 5,771
===========
In connection with the merger, the Company recorded certain non-recurring
merger-related and restructuring expenses of approximately $19.0 million and
reclassified $77.3 million of Hamilton's held to maturity securities to
available for sale securities. Of these securities, $66.8 million were
subsequently sold, resulting in a $1.2 million loss. The non-recurring
merger-related and restructuring charges reflected $4.3 million in investment
banking, legal and accounting fees, $6.3 million in severance costs, $5.1
million related to the termination of Hamilton's ESOP and the accelerated
vesting of shares of the RRP pursuant to the requirements of such plans upon a
change in control, and $3.3 million in certain back-office and facilities
consolidation costs and signage costs.
The following table summarizes the activity with respect to the merger-related
and restructuring expenses, on a pre-tax basis, for the current fiscal year.
Merger-Related
and
Restructuring
Accrual
____________
(In Thousands)
Balance at December 31, 1994................................................... $ --
Provision charged against operations........................................... 19,024
Cash outlays................................................................... (12,287)
Noncash items.................................................................. (6,395)
___________
Balance at September 30, 1995.................................................. $ 342
===========
The noncash items relate to the termination of Hamilton's ESOP, the accelerated
vesting of shares of the RRP and the write-off of leasehold improvements. There
were no merger-related and restructuring expenses recorded in the prior year
period.
UNION SAVINGS BANK
In August and October 1992, New York Bancorp, through the Savings Bank, 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.
(3) MONEY MARKET INVESTMENTS
Money market investments are summarized as follows:
September 30,
_____________________________
1995 1994
____________ ___________
(In Thousands)
FHLB overnight deposits..................................................... $ 4,997 $ 11,561
Securities purchased under agreements to resell............................. 8,400 5,031
Commercial paper............................................................ -- 4,002
Federal funds sold.......................................................... 500 1,250
Other....................................................................... 18 --
____________ ___________
$ 13,915 $ 21,844
============ ===========
During the years ended September 30, 1995 and 1994, the Savings Bank entered
into purchases of securities under agreements to resell. The amounts advanced
under these agreements represented short-term loans and are reflected as money
market investments in the consolidated statements of financial condition.
Securities representing collateral for these transactions were delivered by
appropriate entry into the Savings Bank's account maintained at a third-party
custodian. At September 30, 1995 and 1994, these agreements matured within
thirty days. Securities purchased under agreements to resell averaged $1.2
million, $16.2 million and $14.8 million for the years ended September 30, 1995,
1994 and 1993, respectively. The maximum amount of such agreements outstanding
at any month-end during the years ended September 30, 1995, 1994 and 1993 was
$8.4 million, $30.0 million and $59.0 million, respectively.
(4) INVESTMENT SECURITIES HELD TO MATURITY
The carrying values and estimated market values of investment securities held to
maturity are summarized as follows:
September 30, 1995
_____________________________________________________
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
__________ __________ __________ __________
(In Thousands)
BONDS AND NOTES:
U.S. Government and Agency Obligations................. $ 20,000 $ -- $ (75) $ 19,925
Corporate notes........................................ 1,179 5 (2) 1,182
__________ __________ __________ __________
Total.................................................. $ 21,179 $ 5 $ (77) $21,107
========== ========== ========== ==========
September 30, 1994
____________________________________________________
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
__________ __________ __________ __________
(In Thousands)
BONDS AND NOTES:
U.S. Government and Agency Obligations................. $ 51,501 $ 20 $ (1,609) $ 49,912
Corporate notes........................................ 1,483 -- (5) 1,478
__________ __________ __________ __________
Total.................................................. $ 52,984 $ 20 $ (1,614) $ 51,390
========== ========== ========== ==========
29
The amortized cost and contractual maturity of debt securities at September 30,
1995 and 1994 are shown below. Expected maturities may differ from contractual
maturities because borrowers have the right to call or prepay obligations
without call or prepayment penalties.
September 30,
____________________________________________________
1995 1994
_______________________ ________________________
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
__________ __________ __________ __________
(In Thousands)
Due in one year or less................................ $ 502 $ 507 $ 100 $ 101
Due after one year through five years.................. 20,000 19,925 39,510 38,220
Due after five years through ten years................. -- -- 3,718 3,574
Due after ten years.................................... 677 675 9,656 9,495
__________ __________ __________ __________
Total.................................................. $ 21,179 $ 21,107 $ 52,984 $ 51,390
========== ========== ========== ==========
There were no sales of investment securities held to maturity during the years
ended September 30, 1995, 1994 and 1993. (See note 2 regarding the transfer of
securities in connection with the Hamilton merger.)
(5) INVESTMENT SECURITIES AVAILABLE FOR SALE
The cost and estimated market values of investment securities available for sale
are summarized as follows:
September 30, 1995
____________________________________________________
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
__________ __________ __________ __________
(In Thousands)
EQUITY SECURITIES:
Common stocks.......................................... $ 4,082 $ 407 $ -- $ 4,489
Stock in FNMA.......................................... 2 29 -- 31
__________ __________ __________ __________
4,084 436 -- 4,520
BONDS AND NOTES:
U.S. Government and Agency obligations................ 41,740 13 -- 41,753
__________ __________ __________ __________
$45,824 $ 449 $ -- $ 46,273
========== ========== ========== ==========
September 30, 1994
____________________________________________________
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
__________ __________ __________ __________
(In Thousands)
EQUITY SECURITIES:
Common stocks.......................................... $ 134 $ 22 $ -- $ 156
Stock in FNMA.......................................... 2 22 -- 24
__________ __________ __________ __________
$ 136 $ 44 $ -- $ 180
========== ========== ========== ==========
Gains and losses were realized on sales of investment securities available for
sale as follows:
Year ended September 30,
______________________________________
1995 1994 1993
__________ __________ __________
(In Thousands)
Gross gains......................................................... $ 304 $ -- $ 260
Gross losses........................................................ (168) (3) (145)
__________ __________ __________
Net gains (losses)................................................. $ 136 $ (3) $ 115
========== ========== ==========
(6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost and the estimated market values of mortgage-backed securities
held to maturity are summarized as follows:
September 30, 1995
___________________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
____________ _____________ ____________ ____________
(In Thousands)
FHLMC.............................................. $ 21,858 $ 100 $ (137) $ 21,821
FNMA............................................... 35,662 20 (618) 35,064
REMIC & CMO........................................ 607,206 532 (27,120) 580,618
____________ _____________ ____________ ____________
Total............................................ $ 664,726 $ 652 $ (27,875) $ 637,503
============ ============= ============ ============
September 30, 1994
___________________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
____________ _____________ ____________ ____________
(In Thousands)
FHLMC.............................................. $ 27,955 $ 81 $ (838) $ 27,198
FNMA............................................... 47,738 -- (1,120) 46,618
GNMA............................................... 55,073 127 (2,763) 52,437
REMIC & CMO........................................ 654,827 -- (50,580) 604,247
____________ _____________ ____________ ____________
Total............................................ $ 785,593 $ 208 $ (55,301) $ 730,500
============ ============= ============ ============
The amortized cost and estimated market values of mortgage-backed securities
held to maturity, all of which have prepayment provisions, are distributed to a
maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
September 30,
_____________________________
1995
_____________________________
Estimated
Carrying Market
Value Value
____________ _____________
(In Thousands)
Due in one year or less........................................................ $ 3,636 $ 3,633
Due after one year through five years.......................................... 338,482 330,333
Due after five years through ten years......................................... 282,507 266,407
Due after ten years............................................................ 40,101 37,130
____________ ____________
$ 664,726 $ 637,503
============ ============
30
There were no sales of mortgage-backed securities held to maturity during the
years ended September 30, 1995, 1994 and 1993. (See note 2 regarding the
transfer of securities in connection with the Hamilton merger.)
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.
At September 30, 1995 and 1994, $17,568,000 and $79,199,000, respectively, of
the mortgage-backed securities held to maturity portfolio consists of securities
with underlying adjustable rate loans. Such securities had an estimated market
value of $17,474,000 and $76,140,000, respectively.
The privately-issued REMICs and CMOs and privately-issued pass-through
mortgage-backed securities contained in the Savings Bank's held to maturity and
available for sale portfolios have generally been underwritten by large
investment banking firms with the timely payment of principal and interest on
these securities supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of credit or
subordination techniques. Substantially all such securities are rated AAA by one
or more of the nationally recognized securities rating agencies. These
securities are subject to certain credit-related risks normally not associated
with U.S. Government Agency mortgage-backed securities. Among such risks is the
limited loss protection generally provided by the various forms of credit
enhancements as losses in excess of certain levels are not protected.
Furthermore, the credit enhancement itself is subject to the creditworthiness of
the enhancer. Thus, in the event a credit enhancer does not fulfill its
obligations, the mortgage-backed securities holder could be subject to risk of
loss similar to a purchaser of a whole loan pool. Management believes that the
credit enhancements are adequate to protect the Company from losses, thus the
Company has not provided an allowance for losses on its privately issued
mortgage-backed securities.
(7) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The amortized cost and the estimated market value of mortgage-backed securities
available for sale are summarized as follows:
September 30, 1995
___________________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
____________ _____________ ____________ ____________
(In Thousands)
FHLMC.............................................. $ 72,968 $ 1,139 $ (695) $ 73,412
FNMA............................................... 35,191 901 -- 36,092
GNMA............................................... 10,578 486 (7) 11,057
REMIC and CMO...................................... 56,676 82 (999) 55,759
Private-issue pass-through......................... 30,383 162 (71) 30,474
____________ _____________ ____________ ____________
Total............................................ $ 205,796 $ 2,770 $ (1,772) $ 206,794
============ ============= ============ ============
September 30, 1994
___________________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
____________ _____________ ____________ ____________
(In Thousands)
FHLMC.............................................. $ 48,473 $ 15 $ (2,813) $ 45,675
FNMA............................................... 33,568 -- (908) 32,660
GNMA............................................... 2,184 -- (12) 2,172
REMIC and CMO...................................... 64,213 45 (2,588) 61,670
Private-issue pass-through......................... 30,541 53 (788) 29,806
____________ _____________ ____________ ____________
Total............................................ $ 178,979 $ 113 $ (7,109) $ 171,983
============ ============= ============ ============
The amortized cost and estimated market values of mortgage-backed securities
available for sale, all of which have prepayment provisions, are distributed to
a maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
September 30,
_____________________________
1995
_____________________________
Estimated
Amortized Market
Cost Value
____________ _____________
(In Thousands)
Due in one year or less........................................................ $ 4,407 $ 4,384
Due after one year through five years.......................................... 93,334 93,635
Due after five years through ten years......................................... 63,479 63,870
Due after ten years............................................................ 44,576 44,905
____________ ____________
$ 205,796 $ 206,794
============ ============
31
Gains and losses were realized on sales of mortgage-backed securities available
for sale as follows:
Year Ended September 30,
____________________________________________
1995 1994 1993
____________ ___________ ____________
(In Thousands)
Gross gains................................................... $ 60 $ 608 $ 2,363
Gross losses.................................................. (1,044) (3) (39)
____________ ___________ ____________
Net gains (losses)....................................... $ (984) $ 605 $ 2,324
============ =========== ============
(8) LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
September 30,
_________________________________
1995 1994
______________ ______________
FIRST MORTGAGE LOANS:
One-to-four family conventional residential, including loans
with adjustable rates of $632,036 and $384,746
in 1995 and 1994, respectively............................................ $ 906,436 $ 689,783
Commercial real estate..................................................... 451,788 438,531
Partially guaranteed by Veterans Administration or insured by
the Federal Housing Administration or the Small Business
Administration............................................................ 23,596 27,229
Participation in loans fully guaranteed by the Agency for
International Development................................................ 30 34
Construction loans, net of undisbursed portion of
approximately $4,025 and $3,835 in 1995 and 1994,
respectively.............................................................. 8,902 4,966
Reverse annuity loans, net of undisbursed portion of
approximately $2,734 and $2,610 in 1995
and 1994, respectively.................................................... 2,251 2,375
______________ ______________
1,393,003 1,162,918
Unamortized purchase accounting premiums................................... 2,426 2,998
Unearned purchase accounting discounts..................................... (2,757) (3,640)
Unamortized premiums....................................................... 1,433 601
Unearned discounts......................................................... (42) (60)
Deferred loan fees......................................................... (4,287) (4,213)
______________ ______________
1,389,776 1,158,604
______________ ______________
OTHER LOANS:
Consumer loans............................................................. 21,912 13,067
Cooperative residential loans.............................................. 141,902 150,520
Home improvement loans..................................................... 1,526 9,637
Guaranteed student loans .................................................. 56,673 54,693
Commercial business loans.................................................. 11,214 15,336
Loans secured by deposit accounts.......................................... 7,917 8,401
Second mortgage loans...................................................... 2,147 2,605
Home equity loans, net of unused lines of credit of
approximately $12,312 and $13,151 in
1995 and 1994, respectively............................................... 33,513 36,890
Purchased auto leasing..................................................... 21,063 9,385
______________ ______________
297,867 300,534
Unamortized purchase accounting premiums................................... 72 110
Unearned purchase accounting discounts..................................... (70) (105)
Unamortized premiums....................................................... 423 527
Unearned discounts......................................................... (1,621) (1,446)
Deferred loan fees......................................................... (232) (165)
______________ ______________
296,439 299,455
______________ ______________
Less allowance for possible loan losses....................................... (21,272) (25,705)
______________ ______________
$ 1,664,943 $ 1,432,354
============== ==============
The yield on the average investment in first mortgage loans was 8.28%, 8.42% and
8.76% for the years ended September 30, 1995, 1994 and 1993, respectively.
At September 30, 1995 and 1994, the Savings Bank had commitments of $61,369,000
and $51,114,000, respectively, to originate first mortgage, cooperative
residential and home equity loans. Such commitments generally have fixed
expiration dates and may require payment of a fee. Since many of the commitments
may expire without being used, the total commitment amounts do not necessarily
represent future cash requirements. Of the $61,369,000 commitments outstanding
at September 30, 1995, $10,299,000 represent fixed rate loans with interest
rates ranging from 6.75% to 10.375% and $51,070,000 represent adjustable rate
loans.
At September 30, 1995 and 1994, the Company had commitments of $5,414,000 and
$2,750,000, respectively, to sell qualified fixed rate first mortgage loans. The
commitment prices approximated the carrying value of the loans.
During the years September 30, 1995, 1994 and 1993, the Company recognized net
gains (losses) of $(.2) million, $(.4) million and $1.4 million, respectively,
on sales of newly originated first mortgage loans.
Substantially all of the Savings Bank's business activity is through
originations of loans secured by real estate with customers located in the New
York metropolitan area. The risk inherent in this portfolio is dependent not
only upon regional and general economic stability which affects property values,
but also financial well-being and creditworthiness of the borrowers. In order to
minimize the credit risk related to this concentration, the Company utilizes
prudent underwriting standards as well as diversifying the type and locations of
real estate projects underwritten in the area.
At September 30, 1995, 1994 and 1993, the Company was servicing first mortgage
loans of approximately $523,664,000, $530,317,000 and $514,762,000,
respectively, which are either partially or wholly owned by others.
The Savings Bank's risk with respect to servicing loans for others is minimized
due to the fact that loans serviced for others are all without recourse to the
originator/servicer. To date, the Savings Bank has not suffered significant
losses from its mortgage servicing activities.
32
(9) ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
As of and For the
Year Ended September 30,
____________________________________________
1995 1994 1993
____________ ___________ ____________
(In Thousands)
Allowance for possible loan losses,
beginning of year............................................. $ 25,705 $ 26,828 $ 19,455
Charge-offs:
Commercial real estate...................................... 3,435 1,732 682
Residential real estate..................................... 1,422 1,572 1,586
Other loans................................................. 1,442 901 1,731
____________ ___________ ____________
Total charge-offs........................................ 6,299 4,205 3,999
____________ ___________ ____________
Less recoveries:
Commercial real estate................................... -- (349) (220)
Residential real estate.................................. (4) (47) (41)
Other loans.............................................. (75) (36) (122)
____________ ___________ ____________
Total recoveries....................................... (79) (432) (383)
____________ ___________ ____________
Net charge-offs..................................... 6,220 3,773 3,616
Hamilton's net activity for the quarter
ended December 31, 1994........................................ 87 -- --
Addition to allowance in connection with the
acquisition of Union Savings.................................. -- -- 6,289
Addition to allowance, charged to expense....................... 1,700 2,650 4,700
____________ ___________ ____________
Allowance at end of year........................................ $ 21,272 $ 25,705 $ 26,828
============ =========== ============
The following table sets forth the Savings Bank's nonaccrual loans at the dates
indicated:
September 30,
_____________________________________________
1995 1994 1993
____________ ___________ _____________
(In Thousands)
First mortgage loans:
One-to-four family conventional residential.................. $ 13,391 $ 14,642 $ 14,322
Commercial real estate....................................... 14,447 20,174 22,984
____________ ___________ ____________
27,838 34,816 37,306
____________ ___________ ____________
Other loans:
Cooperative residential loans................................ 2,534 1,717 1,502
____________ ___________ ____________
Total nonaccrual loans.......................................... $ 30,372 $ 36,533 $ 38,808
============ =========== ============
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 amount of interest income on nonaccrual loans that would have been recorded
had these loans been current in accordance with their original terms, was
$3,097,000, $2,972,000 and $2,968,000 for the years ended September 30, 1995,
1994 and 1993, respectively. The amount of interest income that was recorded on
these loans was $1,083,000, $441,000 and $649,000 for the years ended September
30, 1995, 1994 and 1993, respectively.
At September 30, 1995, 1994 and 1993 the Savings Bank had $9.1 million, $9.5
million and $6.2 million, respectively, in loans whose terms had been modified
in trouble debt restructurings. The amount of interest income that would have
been recognized for the years ended September 30, 1995, 1994 and 1993 had these
loans remained current in accordance with their original terms was $952,000,
$968,000 and $562,000, respectively. The amount of interest income that was
recorded on these loans was $725,000, $740,000 and $474,000 for the years ended
September 30, 1995, 1994 and 1993, respectively.
(10) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
September 30,
___________________________
1995 1994
___________ ___________
(In Thousands)
Investment securities............................................................. $ 821 $ 1,181
Mortgage-backed securities........................................................ 5,978 5,898
Loans receivable.................................................................. 12,912 10,248
Interest rate swap arrangements................................................... 2,012 1,777
___________ ___________
$ 21,723 $ 19,104
=========== ===========
(11) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
September 30,
___________________________
1995 1994
___________ ___________
(In Thousands)
AT COST:
Land............................................................................ $ 651 $ 651
Office buildings and improvements............................................... 9,928 9,683
Leasehold improvements.......................................................... 5,320 6,225
Furniture, fixtures and equipment............................................... 9,786 9,650
___________ ___________
25,685 26,209
Accumulated depreciation and amortization......................................... (12,834) (11,405)
___________ ___________
$ 12,851 $ 14,804
=========== ===========
Depreciation and amortization of premises and equipment, included in occupancy
expense, was approximately $2,064,000, $1,817,000 and $1,784,000 for the years
ended September 30, 1995, 1994 and 1993, respectively.
33
(12) OTHER ASSETS
Other assets are summarized as follows:
September 30,
___________________________
1995 1994
___________ __________
(In Thousands)
Net deferred tax asset............................................................ $ 14,806 $ 15,726
Investment in the Savings Bank's subsidiaries..................................... 919 837
Real estate owned, net of allowance for losses of
$220,000 in 1995 and $390,000 in 1994............................................ 1,967 5,919
Prepaid expenses.................................................................. 1,417 4,373
Purchased mortgage servicing...................................................... 137 248
Core deposit premium.............................................................. -- 464
Other............................................................................. 6,462 7,200
___________ __________
$ 25,708 $ 34,767
=========== ==========
Activity in the allowance for losses on real estate owned is summarized as
follows:
As of and For the
Year Ended September 30,
_____________________________________________
1995 1994 1993
____________ ___________ _____________
(In Thousands)
Balance at beginning of year.................................... $ 390 $ 750 $ 600
Provision charged to operations................................. 361 -- 200
Charge-offs..................................................... (531) (360) (50)
____________ ___________ ____________
Balance at end of year.......................................... $ 220 $ 390 $ 750
============ =========== ============
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 and
1994, the Savings Bank's investment in AAC amounted to $455,000 and $499,000,
respectively.
Two of the subsidiaries, Home Fed Services, Inc. and HF Investors, Inc., were
primarily established for the Savings Bank's entry into offering annuities
through its branch system. At September 30, 1995 and 1994, the Savings Bank's
investment in these subsidiaries amounted to $386,000 and $240,000,
respectively.
The combined financial condition and results of operations of the Savings Bank's
subsidiaries are not significant to the accompanying consolidated financial
statements.
(13) DEPOSITS
Deposits are summarized as follows:
September 30,
______________________________________________________________
1995 1994
____________________________ ____________________________
Amount Percent Amount Percent
_______________ ________ _______________ _________
(Dollars in Thousands)
Non-interest bearing demand deposits............. $ 32,821 1.88% $ 34,110 1.91%
NOW accounts..................................... 116,726 6.67 109,123 6.09
Passbook accounts................................ 751,374 42.96 878,591 49.04
Variable rate money market
deposit accounts................................ 102,937 5.89 158,413 8.84
_______________ ________ _______________ _________
1,003,858 57.40 1,180,237 65.88
_______________ ________ _______________ _________
Certificate accounts:
Original term of six months.................... 98,674 5.64 95,673 5.34
Original term of 2 1/2years.................... 46,807 2.68 41,332 2.31
Other certificates (various
original terms)............................... 599,535 34.28 474,272 26.47
_______________ ________ _______________ _________
745,016 42.60 611,277 34.12
_______________ ________ _______________ _________
$ 1,748,874 100.00% $ 1,791,514 100.00%
=============== ======== =============== =========
Included in deposits are accounts with denominations of $100,000 or more
totaling approximately $137,337,000 and $114,641,000 at September 30, 1995 and
1994, respectively. The Savings Bank does not use brokered certificates of
deposit as a funding source.
Scheduled remaining maturities of certificate accounts are summarized as
follows:
September 30,
_______________________________________________________________
1995 1994
____________________________ _____________________________
Amount Percent Amount Percent
_______________ ________ _______________ __________
(Dollars in Thousands)
Within 12 months................................. $ 509,750 68.42% $ 371,323 60.75%
12 to 24 months.................................. 86,590 11.62 83,874 13.72
24 to 36 months.................................. 64,480 8.66 57,790 9.45
36 to 48 months.................................. 41,081 5.52 48,257 7.90
48 to 60 months.................................. 41,908 5.63 50,008 8.18
Over 60 months................................... 1,207 .15 25 .--
_______________ ________ _______________ _________
$ 745,016 100.00% $ 611,277 100.00%
=============== ======== =============== =========
Weighted average stated interest rates on interest-bearing deposits, including
the effect of interest rate floors and certain interest rate swaps, as of the
respective dates were as follows:
September 30,
______________________
1995 1994
_______ _______
NOW accounts...................................................... 1.41% 2.83%
______ ______
Passbook accounts................................................. 2.29% 2.56%
______ ______
Variable rate money market deposit accounts....................... 2.83% 2.90%
______ ______
Certificate accounts.............................................. 5.50% 4.65%
______ ______
Total deposits.................................................... 3.59% 3.28%
====== ======
The average cost of deposits, including the effect of interest rate floors and
certain interest rate swaps (net of early withdrawal penalties) approximated
3.55%, 3.18% and 3.28% for the years ended September 30, 1995, 1994 and 1993,
respectively.
34
Interest expense on deposits, including the effect of interest rate floors and
certain interest rate swaps, is summarized as follows:
Year ended September 30,
____________________________________________
1995 1994 1993
____________ ___________ ____________
(In Thousands)
NOW accounts.................................................... $ 2,673 $ 2,610 $ 2,190
Passbook accounts............................................... 19,964 23,846 27,516
Variable rate money market deposit accounts..................... 4,054 3,926 2,514
Certificate accounts............................................ 35,703 26,614 25,468
____________ ___________ ____________
$ 62,394 $ 56,996 $ 57,688
============ =========== ============
(14) BORROWED FUNDS
Borrowed funds are summarized as follows:
September 30,
____________________________
1995 1994
____________ _____________
(In Thousands)
NOTES PAYABLE - FIXED-RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
4.47% to 8.45%, due in 1995.................................................... $ -- $ 27,500
4.13% to 8.45%, due in 1996.................................................... 22,375 22,375
8.10%, due in 1997............................................................. 375 375
____________ _____________
22,750 50,250
____________ _____________
NOTES PAYABLE - VARIABLE RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
4.813% to 6.125%, due in 1995.................................................. -- 207,000
5.883% to 6.625%, due in 1996.................................................. 363,000 --
5.786% to 5.986%, due in 1997.................................................. 20,000 20,000
4.813%, due in 1998............................................................ -- 35,000
____________ _____________
383,000 262,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
FIXED RATE AGREEMENTS:
4.86% to 5.30%, due in 1995................................................... -- 90,191
5.79% to 6.00%, due in 1996................................................... 190,160 --
____________ _____________
190,160 90,191
____________ _____________
OTHER COLLATERALIZED BORROWINGS:
FIXED RATE FLEXIBLE REVERSE REPURCHASE AGREEMENTS:
7.85%, due in 1996............................................................ 4,700 4,700
____________ _____________
VARIABLE RATE REVERSE REPURCHASE AGREEMENTS -
5.7925% to 6.025%, due in 1996................................................ 150,000 --
____________ _____________
VARIABLE RATE CAPPED REVERSE REPURCHASE AGREEMENTS -
3.92% to 4.25%, due in 1995................................................... -- 150,000
____________ _____________
SUBORDINATED CAPITAL NOTES, FIXED RATE - 10.84%:
Due in 1995..................................................................... -- 3,800
Due in 1996..................................................................... 3,800 3,800
Due in 1997..................................................................... 3,800 3,800
Due in 1998..................................................................... 3,800 3,800
Due in 1999..................................................................... 3,800 3,800
____________ _____________
15,200 19,000
____________ _____________
TREASURY, TAX AND LOAN NOTES - 5.75% CALLABLE.................................... 1,328 582
____________ _____________
OTHER (ESOP) - PRIME RATE, DUE IN 2000........................................... -- 2,174
____________ _____________
$ 767,138 $ 578,897
============ =============
Under the terms of a collateral agreement, indebtedness to and outstanding
commitments from the Federal Home Loan Bank of New York (the "FHLB-NY") are
secured by qualifying assets principally in the form of first mortgage loans and
mortgage-backed securities having estimated market values at least equal to 125%
of the amount of total indebtedness and outstanding commitments.
At September 30, 1995, all securities sold under agreements to repurchase were
delivered to the primary dealers who arranged the transactions. The securities
remained registered in the name of the Savings Bank and are returned upon
maturity of the agreement. Securities sold under agreements to repurchase
averaged $307,657,000, $232,916,000 and $84,968,000 during the years ended
September 30, 1995, 1994 and 1993, respectively. The maximum amounts outstanding
at any month-end were $351,855,000, $271,978,000 and $156,410,000 during the
years ended September 30, 1995, 1994 and 1993, respectively.
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.
Additionally, 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 8
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 6 to 11 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 $25,000,000 in 10.95% (Series A
Notes) and $5,000,000 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 $6,000,000 and $5,000,000, respectively, of its Series
A Notes at prices substantially equal to its carrying value. Interest on the
Notes is payable in semiannual installments, commencing May 30, 1989. Principal
on the Series A Notes and Series B Notes are payable in five annual installments
of $2,800,000 and $1,000,000, respectively, beginning on November 30, 1994 and
ending on November 30, 1998. The first installment of $3,800,000 was paid
35
on November 30, 1994. The Notes are fully subordinated to savings deposit
accounts and other general liabilities of the Savings Bank. Further, a portion
of the Notes qualify as capital for purposes of meeting the regulatory
risk-based capital requirements. The Notes are redeemable in whole or in part,
with a prepayment premium, at the option of the Savings Bank, subject to
regulatory approval, at any time. Deferred issuance costs are being amortized
over the period to maturity of the notes.
On February 3, 1989 the 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 $180,000,000, with interest rates to be
established at the time of issuance, and with maturities to be set ranging from
nine months to fifteen years from the date of issuance. No amounts were
outstanding under this program at September 30, 1995 and 1994.
On April 1, 1993, the Savings Bank borrowed $3,043,000 in connection with the
establishment of the former Hamilton's Employee Stock Ownership Plan. The funds
were borrowed at the prime rate. These funds were repaid during the current year
in connection with the termination of the plan.
Weighted average interest rates on borrowed funds at September 30, 1995 and
1994, including the effect of interest rate caps and certain interest rate
swaps, amounted to 6.14% and 5.20%, respectively.
The average cost of borrowed funds for the years ended September 30, 1995, 1994
and 1993, including the effect of interest rate caps and certain interest rate
swaps, was 5.88%, 4.85%, and 6.38%, respectively.
Interest expense on borrowed funds, including the effect of interest rate caps
and certain interest rate swaps, is summarized as follows:
Year ended September 30,
1995 1994 1993
___________ ___________ ___________
(In Thousands)
Notes payable................................................... $ 19,920 $ 10,897 $ 7,175
Securities sold under agreements to repurchase.................. 17,619 9,812 4,375
Subordinated capital notes...................................... 1,716 2,059 2,059
Other........................................................... 81 184 88
___________ ___________ ___________
$ 39,336 $ 22,952 $ 13,697
=========== =========== ===========
(15) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are summarized as follows:
September 30,
___________________________
1995 1994
___________ ___________
(In Thousands)
Federal, state and local income taxes payable .................................... $ -- $ 127
Accrued interest payable.......................................................... 5,157 4,150
Negative goodwill................................................................. 1,262 1,456
Deferred gain on interest rate floor agreements................................... 7,395 --
Accrued expenses and other........................................................ 28,860 21,300
___________ ___________
$ 42,674 $ 27,033
=========== ===========
(16) FEDERAL, STATE AND LOCAL TAXES
FEDERAL INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") effective October 1, 1993. Prior
to October 1, 1993, deferred income taxes were provided for timing differences
in the recognition of revenues and expenses for tax reporting and financial
statement purposes (an income statement approach), pursuant to Accounting
Principles Board Opinion No. 11.
SFAS No. 109 adopts a balance sheet approach (or liability method) in place of
the income statement approach. The liability method requires that an asset or a
liability, as appropriate, be recorded for financial statement purposes for the
deferred tax consequences of all temporary differences between the tax and
financial statement recognition of revenue and expense, which is measured by
applying enacted tax laws and rates. Additionally, SFAS No. 109 permits the
recognition of net deferred tax assets based upon the likelihood of realization
of tax benefits in the future. The cumulative effect at October 1, 1993 of the
change in accounting for income taxes which was implemented on a prospective
basis amounted to $5.7 million and is included in the consolidated statement of
income for the year ended September 30, 1994.
Hamilton adopted SFAS No. 109 on a prospective basis effective January 1, 1992.
The cumulative effect adjustment of $447,000 was included in taxes on income in
the Statement of Income for the fiscal year ended September 30, 1992. No
adjustment to Hamilton's historical information has been made to conform
accounting treatments prior to the Company's adoption of SFAS No. 109 in fiscal
year 1994 due to the insignificant impact of any such adjustment.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
September 30,
____________________________
1995 1994
___________ ____________
(In Thousands)
Deferred tax assets:
Allowance for possible loan losses.............................................. $ 8,921 $ 8,101
Nonaccrual interest............................................................. 2,987 2,112
Deferred loan fees.............................................................. 1,831 1,996
Real estate owned............................................................... 742 1,041
Premises and equipment.......................................................... 445 134
Unrealized loss on available for sale securities................................ -- 3,051
Other........................................................................... 2,972 2,553
___________ ___________
Total gross deferred tax assets............................................... 17,898 18,988
___________ ___________
Deferred tax liabilities:
Excess book over tax basis of loans............................................. 684 2,049
Unrealized gain on available for sale securities................................ 639 --
Other........................................................................... 1,769 1,213
___________ ___________
Total gross deferred tax liabilities.......................................... 3,092 3,262
___________ ___________
Net deferred tax asset........................................................ $ 14,806 $ 15,726
=========== ===========
36
Under SFAS No. 109, the Savings Bank has a net deferred tax asset of $14.8
million at September 30, 1995. This represents the anticipated Federal, state
and local tax benefits expected to be realized in future years upon the
utilization of the underlying tax attributes comprising this balance. The
Company has reported taxable income for Federal, state and local income tax
purposes in each of the past three years and in management's opinion, in view of
the Company's previous, current and projected future earnings trend, such net
deferred tax asset will be fully realized. Accordingly, no valuation allowance
was deemed necessary for the net deferred tax asset at September 30, 1995.
Total income tax expense was allocated as follows:
Year ended September 30,
____________________________________________
1995 1994 1993
___________ ___________ ____________
(In Thousands)
Income from operations.......................................... $ 19,717 $ 21,740 $ 20,912
Shareholders' equity - compensation expense for tax
purposes in excess of amounts recognized for
financial reporting purposes................................... (1,488) -- --
Shareholders' equity - unrealized appreciation
(depreciation) on securities available for sale................ 3,690 (3,051) --
___________ ___________ ___________
Total........................................................... $ 21,919 $ 18,689 $ 20,912
=========== =========== ===========
The components of income tax expense on operations are as follows:
Year ended September 30,
____________________________________________
1995 1994 1993
____________ ____________ ___________
(In Thousands)
Current:
Federal....................................................... $ 13,917 $ 15,690 $ 15,427
State and local............................................... 7,765 7,197 6,953
____________ ___________ ___________
21,682 22,887 22,380
____________ ___________ ___________
Deferred:
Federal....................................................... (457) (1,476) (1,938)
State and local............................................... (1,508) 329 470
____________ ___________ ___________
(1,965) (1,147) (1,468)
____________ ___________ ___________
Total....................................................... $ 19,717 $ 21,740 $ 20,912
============ =========== ===========
The principal sources of deferred income taxes for the year ended September 30,
1995 and 1994 are as follows:
1995 1994
___________ ___________
(In Thousands)
Allowance for possible loan losses.............................................. $ (276) $ 956
Deferred loan fees.............................................................. 286 (105)
Premises and equipment.......................................................... (399) (250)
Excess book over tax basis of loans............................................. (1,365) (2,675)
Other, net...................................................................... (211) 927
___________ ___________
Total........................................................................... $ (1,965) $ (1,147)
=========== ===========
The principal sources of deferred income taxes attributable to income from
operations in 1993 result from timing differences created principally from loan
origination fees.
The effective income tax rates for the years ended September 30, 1995, 1994 and
1993 were 63.0%, 44.2% and 45.4%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:
Year ended September 30,
_____________________________________
1995 1994 1993 (1)
________ _______ _________
Tax on income at statutory rate........................................ 35.0% 35.0% 34.9%
Tax effects of:
State and local income tax, net of
Federal income tax benefit........................................ 13.0 9.9 10.5
Nondeductible costs associated with Hamilton merger................ 15.0 .- .-
Other, net......................................................... .- (.7) .-
________ _______ _______
Tax at effective rate.................................................. 63.0% 44.2% 45.4%
======== ======= =======
______________
(1) On August 10, 1993, a change in the statutory Federal tax rate from 34% to 35% was enacted retroactive as of
January 1, 1993. For the fiscal year ended September 30, 1993, a blended 34.9% rate was utilized.
New York Bancorp files consolidated Federal income tax returns on a
calendar-year basis with the Savings Bank and its subsidiaries. If certain
definitional tests and other conditions are met, the Savings Bank is allowed a
special bad debt deduction based on a percentage of taxable income or on a
specified experience formula.
The Savings Bank used the specified experience formula for 1993 and the
percentage of taxable income method in 1994. The Savings Bank anticipates using
the percentage of taxable income method for 1995. The statutory percentage of
the special bad debt deduction is 8% and is allowable only if the Savings Bank
maintains at least 60% of its total assets in qualifying assets, as defined. If
qualifying assets fall below 60%, the Savings Bank would be required to
recapture essentially all of its bad debt reserve for Federal income tax
purposes into taxable income over a four-year period or account for bad debts on
existing loans under a "cutoff" method. The Savings Bank's qualifying assets at
September 30, 1995 and 1994 exceeded 70%.
At September 30, 1995 the Savings Bank's bad debt reserve on qualifying real
property loans for Federal income tax purposes approximated $28,736,000. Such
reserve reflects the cumulative Federal income tax deductions to that date. Any
charges to this reserve for other than a bad debt on a qualified real property
loan would create income for tax purposes only, which would be subject to the
corporate income tax rate in effect at that time. However, it is not
contemplated that amounts allocated to bad debt deductions will be used in any
manner that would create income tax liabilities.
Legislation currently before the United States Congress has proposed to merge
the Savings Association Insurance Fund (the "SAIF") with the Bank Insurance Fund
(the "BIF"), and to eliminate the thrift charter. If this proposal is approved,
the Savings Bank would be required to convert its existing thrift charter to a
bank charter. The elimination of the thrift charter would also eliminate the
current tax method of allowing the Savings Bank to take a percentage of income
deduction for bad debts in determining its taxable income. The Savings Bank may
also be required, under certain conditions, to recapture a portion of its
Federal and/or state and local bad debt reserves maintained for income tax
purposes. If the state and local bad debt recapture is made at the income tax
rates
37
currently in effect, the Company could have a charge to future earnings of $5.0
million on an after tax basis. It is uncertain if, when and in what form this
legislation will be enacted.
STATE AND LOCAL TAXES
New York Bancorp files combined New York State franchise and New York City
financial corporation tax returns with the Savings Bank and its subsidiaries on
a calendar-year basis. The Company's annual tax liability for each tax was the
greater of a tax based on "entire net income," "alternative entire net income,"
"taxable assets" or a minimum tax. Further, the Company is subject to a
temporary surcharge based upon New York State tax liability. The Company's
provision for New York State and New York City taxes is based on "entire net
income" for the calendar years 1994, 1993 and 1992 and for the nine months ended
September 30, 1995. New York State and New York City do not allow for the
utilization of net operating loss carrybacks or carryforwards for banks.
(17) SHAREHOLDERS' EQUITY
DIVIDEND RESTRICTIONS
In connection with the Savings Bank's conversion to stock form in February 1988,
and Hamilton Saving's conversion to stock form in April 1993, special
liquidation accounts were established at the time of conversions, pursuant to
regulations of the Federal Home Loan Bank Board (the "FHLBB"), the predecessor
to the OTS, based on the amount of the Savings Bank's regulatory capital as of
September 30, 1987 and Hamilton Savings' regulatory capital as of September 30,
1992. In the unlikely event of a future liquidation, eligible depositors who
continue to maintain accounts would be entitled to receive a distribution from
the liquidation accounts. The total amount of the liquidation account will be
decreased as the balances of eligible deposits are reduced on annual
determination dates subsequent to the conversions. The balance of the
liquidation accounts aggregated to approximately $20.8 million at September 30,
1995.
The ability of New York Bancorp to pay dividends depends upon dividend payments
by the Savings Bank to New York Bancorp, which is New York Bancorp's primary
source of income. The Savings Bank is not permitted to pay dividends on its
capital stock or repurchase shares of its stock if its shareholder's equity
would be reduced below the amount required for the liquidation account or
applicable regulatory capital requirements. The Savings Bank is presently
authorized to pay cash dividends to New York Bancorp in an amount not to exceed
100% of its net income to date, during a calendar year, plus an amount not to
exceed one-half of its surplus capital ratio at the beginning of the calendar
year. Additionally, under terms of its subordinated capital note agreements, the
Savings Bank is permitted to pay, on a cumulative basis, cash dividends to New
York Bancorp in an amount not to exceed 75% of its net income from November 30,
1988 to date, plus $5.0 million.
3-FOR-2 STOCK SPLITS AND STOCK DIVIDEND
The Company declared two 3-for-2 common stock splits which were distributed on
October 22, 1992 and July 29, 1993, in the form of stock dividends.
Additionally, the Company declared a ten percent stock dividend which became
effective on February 14, 1994. Accordingly, information with respect to shares
of common stock has been restated in all periods presented to fully reflect the
two stock splits and the stock dividend.
TREASURY STOCK TRANSACTIONS
During the year ended September 30, 1995, New York Bancorp repurchased 1,431,700
shares under its present stock repurchase plan. On October 26, 1995 the Board of
Directors approved the repurchase of up to an additional 10% of the Company's
outstanding common stock, bringing the total current authority for repurchase to
1,387,278 shares.
At September 30, 1995, the Company has 2,607,876 shares of Treasury stock which,
among other things, could be held to satisfy obligations under the Company's
stock option plans. Treasury stock is being accounted for using the cost method.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are required to
maintain capital requirements in the form of a "tangible capital requirement," a
"core capital requirement" and a "risk-based capital requirement." As of
September 30, 1995, the Savings Bank continued to exceed all regulatory capital
requirements.
(18) BENEFITS
PENSION PLAN
All eligible employees of the Savings Bank are included in a defined benefit
pension plan (the "Plan"). Benefits contemplated by the Plan are funded through
a group annuity insurance contract. The Savings Bank contributes to the Plan an
amount sufficient to meet ERISA funding standards.
Hamilton had maintained a noncontributory defined benefit plan for all eligible
employees. The plan was funded through a deposit administration contract with an
insurance company. As of May 1, 1994, the plan was curtailed and all future
benefit accruals ceased. The plan curtailment resulted in a net gain of
approximately $181,000. Subsequent to the merger, all former Hamilton employees
retained by the Savings Bank meeting plan requirements became eligible for
participation in the Plan. The Savings Bank intends to merge the former Hamilton
plan with that of the Savings Bank effective December 31, 1995, subject to
regulatory approval.
The following table sets forth the funded status of the Savings Bank's and
Hamilton's plans and amounts recognized in the Company's consolidated financial
statements at September 30 (in thousands):
1995 1994
__________ __________
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $9,781 in 1995 and $9,721 in 1994................................ $ 10,352 $ 10,184
========== ==========
Projected benefit obligations for service rendered to date.................... $ 10,380 $ 10,952
Plan assets at fair value..................................................... 10,284 10,597
__________ __________
Projected benefit obligation in excess of plan assets......................... (96) (355)
Unrecognized net (gain) loss from past experience different from
that assumed and effects of changes in assumptions........................... 1,246 74
Unrecognized prior service cost............................................... (1,072) 180
Unrecognized net obligation at transition being
recognized over fifteen years................................................ 292 (149)
Additional liability.......................................................... (334) (403)
__________ __________
Prepaid (accrued) pension cost................................................ $ 36 $ (653)
========== ==========
38
Net pension cost for the years ended September 30, 1995, 1994 and 1993 included
the following components:
1995 1994 1993
________ ________ ________
(In Thousands)
Service cost - benefits earned during the period................. $ 131 $ 467 $ 601
Interest cost on projected benefit obligation.................... 844 878 986
Actual return on plan assets..................................... (583) (546) (429)
Net amortization and deferral.................................... (439) (233) (359)
________ ________ ________
Net pension cost included in other operating
expenses -- compensation and benefits........................... $ (47) $ 566 $ 799
======== ======== ========
Assumptions used in 1995, 1994 and 1993 to develop the net periodic pension cost
were:
1995 1994 1993
_________ ________ ________
Weighted average discount rate................................... 9.00% 9.00% to 9.25% 7.50%
Rate of increase in future compensation levels................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets...................... 9.50% 9.00% 9.00%
In conjunction with its pension plan, the Savings Bank maintains a Supplemental
Executives Retirement Plan (the "SERP Plan") to provide retirement benefits
which would have been provided under the Plan except for limitations imposed by
Section 415 of the Internal Revenue Code.
The following sets forth the SERP Plan's status and amounts recognized in the
Company's consolidated financial statements at September 30:
1995 1994
___________ ___________
(In Thousands)
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $821 in 1995 and $627 in 1994.................................... $ 1,120 $ 780
=========== ===========
Projected benefit obligations for service rendered to date.................... $ 1,122 $ 1,608
Plan assets at fair value..................................................... -- --
___________ ___________
Projected benefit obligation in excess of plan assets......................... (1,122) (1,608)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions........................... (500) (171)
Unrecognized prior service cost being
recognized over fifteen years................................................ 350 642
___________ ___________
Accrued SERP Plan cost included in other liabilities.......................... $ (1,272) $ (1,137)
=========== ===========
Net SERP Plan cost for the years ended September 30, 1995, 1994 and 1993
included the following components:
1995 1994 1993
________ ________ ________
(In Thousands)
Service cost - benefits earned during the period................. $ 52 $ 271 $ 59
Interest cost on projected benefit obligation.................... 90 113 54
Actual return on plan assets..................................... -- -- --
Net amortization and deferral.................................... (7) 45 5
________ ________ ________
Net pension cost included in other operating
expenses -- compensation and benefits........................... $ 135 $ 429 $ 118
======== ======== ========
Assumptions used in 1995, 1994 and 1993 to develop the net periodic SERP Plan
cost were:
1995 1994 1993
______ ______ ______
Weighted average discount rate................................... 7.50% to 8.00% 9.00% 7.50%
Rate of increase in future compensation levels................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets...................... N/A N/A N/A
A feature of the Savings Bank's SERP Plan is to restore to participants benefits
reduced by the limits of Section 415(c) of the Internal Revenue Code (the
"Code"). Section 415(c) of the Code limits the amount of the contribution that
can be made to a qualified plan each year with respect to each participant.
Hamilton had also maintained a SERP. On January 27, 1995, as a result of the
merger, Hamilton's SERP was terminated in accordance with the plan's change in
control provision and distributions in the aggregate amount of $307,000 were
made to all eligible participants. Included in compensation and benefit expense
is $179,000 and $65,000 for the years ended September 30, 1994 and 1993,
respectively. Fiscal year 1995 includes $63,000 in merger and restructuring
expenses related to the termination of Hamilton's SERP.
401(k) PLAN
The Savings Bank maintains a 401(k) Savings Plan (the "401(k) Plan") for all
qualified employees. The terms of the 401(k) Plan provide for employee
contributions on a pre-tax basis up to a maximum of 10% of total compensation,
with matching contributions to be made by the Savings Bank equal to a minimum of
50% of employee contributions.
Hamilton also had a qualified 401(k) savings plan for its employees in which
Hamilton matched a portion of the employee's contribution. Hamilton's employees
immediately became fully vested in Hamilton's contributions at the time they
were made. The Savings Bank intends to merge the former Hamilton plan with that
of the Savings Bank effective December 31, 1995, subject to regulatory approval.
39
RETIREE'S BENEFIT PLAN
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" effective October 1, 1993. The Savings Bank, as
part of its overall benefits, provides to its eligible retirees health coverage
and life insurance coverage. Eligible participants are retired employees of the
Savings Bank who retire with a minimum age of 55 and 5 years of service. The
Company has elected to defer and amortize to expense over a twenty year period
the accumulated postretirement benefit obligation of $3.2 million at the date of
adoption. The plan is non-contributory for those retirees who retired prior to
July 1992. The plan was amended during the current fiscal year. The amendment
included an increase in the cost for future retirees and placing a cap on the
Savings Bank's share of plan costs. Former Hamilton employees became covered
under this amended plan effective February 1, 1995.
The following table sets forth the plan's status and amounts recognized in the
Company's consolidated financial statements at September 30, 1995 (in
thousands):
Accumulated postretirement benefit obligation:
Retirees including covered dependents and beneficiaries.................... $ 2,169
Eligible active participants............................................... 536
Other active participants.................................................. 401
____________
Total accumulated postretirement benefit obligation.................... 3,106
Plan assets.................................................................... --
____________
Accumulated benefit obligation in excess of plan assets........................ (3,106)
Unrecognized transition obligation............................................. 2,408
Unrecognized prior service cost................................................ (555)
Unrecognized gain.............................................................. (1,538)
____________
Accrued benefit obligation...................................................... $ (2,791)
============
Combined information for the prior year is not available.
Net periodic postretirement benefit cost included the following components for
the years ended September 30 (in thousands):
1995 1994
___________ ___________
Service cost................................................................... $ 51 $ 247
Interest cost.................................................................. 267 390
Amortization of transition obligation of $3.2 million over 20 years............ 146 162
Amortization of prior service cost............................................. (39) --
Amortization of gain........................................................... (87) (293)
___________ ___________
Total postretirement benefit expense.......................................... $ 338 $ 506
=========== ===========
The above plan does not have any assets and the Company presently intends to
maintain the plan as unfunded. The assumed long-term health care cost trend used
to measure the expected cost of benefits under the plan for 1995 is 5.00%. The
discount rate used in determining the accumulated postretirement benefit
obligation is 9.00%. The effect of raising the health care trend by 1% will
increase the service and interest cost and the accumulated benefit obligation by
approximately $54,000 and $303,000, respectively.
The amounts included in compensation and benefit expense for the above plans are
as follows:
Year ended September 30,
1995 1994 1993
__________ __________ __________
(In Thousands)
Pension plan........................................................ $ (47) $ 566 $ 799
Supplemental executives retirement plan............................. 135 608 183
401(k) plan......................................................... 408 424 515
Retirees' benefit plan.............................................. 338 506 49
__________ __________ __________
$ 834 $ 2,104 $ 1,546
========== ========== ==========
Hamilton had also maintained a noncontributory retirement plan for its outside
directors. The plan provided benefits for participants upon reaching age 65, and
required at least 5 years of service, but not exceeding 10 years of service. On
January 27, 1995, the plan was terminated in accordance with the plan's change
in control provisions and distributions, in the aggregate amount of $1,039,600
were made to all eligible participants. Included in compensation and benefit
expense is $25,000, $100,000, and $100,000 for the years ended September 30,
1995, 1994, and 1993, respectively. Fiscal year 1995 also includes $638,000 in
merger and restructuring expense related to the plan.
(19) STOCK PLANS
STOCK OPTION PLANS
The stock option plans permit New York Bancorp common stock to be issued to key
employees and directors of the Company and its subsidiary. The options granted
under the plans are intended to be either incentive stock options or
non-qualified options.
Options have been granted to purchase common stock at the fair market value of
the stock at the date of grant. Options generally vest over a three year period
from the date of grant and generally expire ten years from the date of grant for
employees and five years from the date of grant for directors.
Hamilton maintained incentive stock option plans for its officers, directors and
other key employees. Generally, these plans granted options to individuals at a
price equivalent to the fair market value at the date of grant and were
exercisable over a ten year period from the date of grant. In accordance with
the plans' change in control provisions, the individuals became fully vested in
their stock option grants on the merger date, January 27, 1995. The options were
exchanged for options of the Company, and are set forth separately in the table
below.
Additionally, stock appreciation rights ("SARs") have been granted to key
employees of the Company and its subsidiary. SARs entitle the grantee to receive
cash equal to the excess of the market value of the shares at the date the right
is exercised over the exercise price. An expense is accrued for the earned
portion of the amount by which the market value of the stock exceeds the
exercise price for each SAR outstanding. The expense related to the SARs for the
years ended September 30, 1995, 1994 and 1993 was approximately $171,000,
$360,000 and $228,000, respectively.
40
The following table summarizes certain information regarding the option plans
and has been prepared after giving effect to the two 3-for-2 common stock splits
and the ten percent stock dividend.
Number of sharees of
__________________________________________________ Weighted
Non-qualified Average
Incentive Stock Non-statutory Options to Exercise
SARs Options Stock Options Directors Price
__________ _______________ _____________ _____________ ________
Balance outstanding at
September 30, 1992....... -- 148,766 78,935 81,000 $ 7.12
Forfeited................. -- -- -- (9,000) $ 4.39
Granted................... 153,000 46,055 110,695 45,000 $ 15.00
Exercised................. -- (39,236) -- (27,000) $ 5.34
__________ ___________ ___________ ____________
Balance outstanding at
September 30, 1993....... 153,000 155,585 189,630 90,000 $ 12.11
Effect of 10% stock
dividend................. 15,300 15,559 18,962 9,000 N/A
Forfeited................. -- (2,888) -- -- $ 7.88
Granted................... -- 52,637 152,568 -- $ 17.95
Exercised................. -- (59,891) (32,900) -- $ 8.02
__________ ___________ ___________ ____________
Balance outstanding at
September 30, 1994....... 168,300 161,002 328,260 99,000 $ 13.27
Hamilton options
outstanding at
January 27, 1995......... -- -- 306,392 182,824 $ 2.37
Forfeited................. (9,900) (34,178) (48,033) -- $ 16.51
Granted................... -- 81,031 148,969 -- $ 19.34
Exercised................. (19,800) (60,470) (324,994) -- $ 2.08
__________ ___________ ___________ ____________
Balance outstanding at
September 30, 1995....... 138,600 147,385 410,594 281,824 $ 13.39
========== =========== =========== ============
MANAGEMENT RECOGNITION PLAN AND TRUST ("MRP")
In 1988 the Company established an MRP as a method of providing key management
employees with a proprietary interest in the Company in a manner designed to
encourage such key employees to remain with the Company. The Company contributed
$540,000 to the MRP to enable it to acquire 222,750 shares (adjusted for the
3-for-2 stock splits and the ten percent stock dividend) of common stock in the
Conversion. Such amount represents deferred compensation and has been accounted
for as a reduction of shareholders' equity. During the year ended September 30,
1993, awards, under the MRP's original terms became fully vested. The Company
recorded expense of $36,000 during the year ended September 30, 1993 (none in
fiscal year 1995 and 1994).
Hamilton maintained a Recognition and Retention Plan (the "RRP"), under which
restricted stock awards were made to officers, directors and other key
employees, and an Employee Stock Ownership Plan (the "ESOP"). In accordance with
the plans' change in control provisions, the participants became fully vested on
the merger date, January 27, 1995. Distributions of the shares in the plans have
been made to participants. Included in compensation and benefit expense is
$464,000, $1,491,000, and $623,000 for the years ended September 30, 1995, 1994,
and 1993, respectively. Fiscal year 1995 also includes $4,992,000 in merger and
restructuring expense related to these plans.
(20) COMMITMENTS, CONTINGENCIES AND CONTRACTS
In the normal course of its business, the Company is a defendant in certain
claims and legal actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters will not have a material adverse effect on the
consolidated financial condition of the Company.
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 seek
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.
The Company has obligations under a number of noncancellable leases on property
used for banking purposes. These leases contain escalation clauses which provide
for increased rental expense based on a percentage of increases in real estate
taxes. Rental expense under these leases, included in other operating expenses -
occupancy, for the years ended September 30, 1995, 1994 and 1993 approximated
$2,040,000, $2,025,000 and $1,935,000, respectively.
41
The projected minimum rentals under existing operating leases are as follows:
Year ending
September 30, Amount
_____________ ______
(In Thousands)
1996........................................ $ 1,745
1997........................................ 1,734
1998........................................ 1,722
1999........................................ 1,548
2000........................................ 885
Later years................................. 4,186
________
$ 11,820
========
Legislation currently before the United States Congress reportedly provides for
a one-time, special assessment on all SAIF insured deposits of approximately
$.85 to $.90 per $100 of deposits. This one-time assessment which is intended to
recapitalize the SAIF to the required level of 1.25% of insured deposits, may be
an expense of the first or second quarter of fiscal year 1996, depending on the
enactment, timing and final wording of such legislation. If the assessment is
made at the proposed rates, the effect on the Savings Bank would be a charge of
approximately $12.2 million to $13.0 million. It is anticipated that if the
one-time assessment is levied, and the SAIF brought to its required level, the
Savings Bank may see a decrease in the annual deposit premium in future periods.
(21) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company enters into a variety of financial instruments with off-balance
sheet risk in the normal course of business.
INTEREST RATE SWAP ARRANGEMENTS
The Company enters into interest rate swap arrangements to manage the repricing
characteristics of its interest-bearing liabilities. Such agreements provide for
the concurrent exchange of its current and future interest payments on either
short-term money market certificates of deposit accounts or variable rate
borrowed funds for another party's obligations for interest payments on an
equivalent amount of fixed-rate indebtedness. The principal or notional amounts
of these arrangements are not reflected in the consolidated statements of
financial condition. The incremental revenue or expense associated with interest
rate swaps is recognized over the term of the swap arrangement and is presented
as a component of the interest expense of the related liability. Gains and
losses resulting from the early termination of swap arrangements are amortized
over the remaining term of the swap arrangement.
The effect of interest rate swap arrangements at September 30, 1995 was to fix
the Company's interest cost at a weighted average rate of 5.74% on the
agreed-upon amount of funds for approximately 3 months, the remaining weighted
average terms of the arrangements. Outstanding notional amounts of interest rate
swap arrangements approximated $205,000,000 at September 30, 1995 and 1994. At
September 30, 1995, $5.9 million of mortgage-backed securities were pledged as
collateral on these arrangements. The Savings Bank's credit risk with respect to
the interest rate swap agreements is in the risk of nonperformance by the other
party to the agreements. However, the Savings Bank does not anticipate
nonperformance by the counterparty and controls the risk through its usual
monitoring procedures.
Interest rate swaps outstanding at September 30, 1995 are summarized as follows
(in thousands):
Fixed Variable
Notional Interest Rate Interest Rate
Amount Paying Receiving Maturity
__________ _____________ _______________ __________
$ 10,000 8.323% 5.565% February 1996
5,000 8.120% 5.938% February 1996
5,000 8.120% 5.953% February 1996
10,000 8.390% 5.922% March 1996
5,000 8.380% 5.828% April 1996
5,000 8.310% 5.875% May 1996
65,000 4.040% 5.795% January 1996
35,000 6.515% 5.795% January 1996
____________
$ 140,000
============
In addition to the above $140.0 million, at September 30, 1995 the Savings Bank
had an interest rate swap arrangement with a notional value of $65.0 million
whereby the Savings Bank is receiving a fixed rate of 5.80% and paying a
variable rate based on Federal funds (5.795% on September 30, 1995). This
interest rate swap which matures in January 1996 effectively unwound the $65.0
million interest rate swap noted in the table above at an effective locked in
spread of 176 basis points.
At September 30, 1995 the Company's interest rate swaps had an unrealized loss
amounting to $.5 million. Further, at September 30, 1995 there was $27,000 of
net deferred gains relating to terminated interest rate swap contracts.
INTEREST RATE FLOOR AND INTEREST RATE CAP ARRANGEMENTS
The Company uses interest rate floor and interest rate cap arrangements to
protect the Savings Bank against interest rate risk associated with the
repricing of its interest-bearing liabilities. Premiums paid for interest rate
floor and interest rate cap arrangements are amortized to interest expense of
the related liability over the contractual terms of these arrangements using the
straight-line method. When a liability is prepaid, any related interest rate
floor or cap is re-designated to another interest-bearing liability at the lower
of cost or estimated market value and the loss, if any, is included in the gain
or loss on early extinguishment of the liability. Interest received under the
terms of these arrangements is accrued and recorded as a reduction of interest
expense of the related interest-bearing liability.
During fiscal year 1995 the Savings Bank was a party to $1.0 billion of interest
rate floor agreements which were scheduled to expire on February 22, 1998.
During the year, in an effort to secure the hedge position provided against the
aforementioned interest rate risk, the Savings Bank terminated its position as a
party to the $1.0 billion of interest rate floor agreements. Accordingly, and in
accordance with generally accepted accounting principles, the Company deferred
recognition of the gain on the terminated interest rate floor agreements and is
amortizing such gain as an adjustment to the cost of interest-bearing deposit
liabilities over the original contractual life of the interest rate floor
agreements. At September 30, 1995 the amount of the unamortized gain was $7.4
million.
42
STOCK INDEXED CALL OPTIONS
The Savings Bank uses stock indexed call options for purposes of hedging its
recently introduced MarketSmart CD's and MarketSmart I.R.A. CD's. The call
options hedge the interest rate paid on these 5 year CD deposits which is an
annual percentage yield based on the changes in the Standard & Poor's ("S&P")
500 Composite Stock Price Index during each of the 5 year terms of the CDs.
Premiums paid on the call options are amortized to interest expense over the
terms of the underlying CD using the straight line method. Gains and losses, if
any, resulting from the early termination of the call option are deferred and
amortized to interest expense over the remaining term of the underlying CD.
At September 30, 1995 the Company had approximately $2.6 million in contracts
for purposes of hedging the "Standard & Poor's 500" index. The call options
maturities range from March 1999 through August 1999.
The Company carries stock indexed call options at market value. Further, at
September 30, 1995 there were no deferred gains or losses relating to terminated
contracts.
FINANCIAL FUTURES TRANSACTIONS
The Company from time to time may enter into various financial futures contracts
to protect against changes in the market value of various interest-earning
assets and interest-bearing liabilities, including the repricing of interest
rate floor arrangements. Realized gains and losses on these contracts are
deferred and accounted for as premiums or discounts on the related assets,
liabilities or interest rate floor resets to the extent such contracts are
matched against specific assets, liabilities or interest rate floor resets and
meet specific hedge correlation criteria. Contracts which are not matched
against specific assets, liabilities, or the repricing of interest rate floor
arrangements or do not meet correlation criteria are accounted for at market
value with the resulting gain or loss recognized in operations. At September 30,
1995 and 1994 the Company has no outstanding financial future transactions.
During the years ended September 30, 1995, 1994 and 1993, the Savings Bank's net
interest income increased (decreased) by $1.2 million, ($1.5) million and $.5
million, respectively, as a net result of off-balance sheet financial
instruments.
(22) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet financial
instruments, without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
The following table summarizes the carrying values and estimated fair values of
the Company's on-balance sheet financial instruments:
September 30,
_______________________________________________________________________
1995 1994
_________________________________ __________________________________
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
______________ _______________ _______________ _______________
(In Thousands)
FINANCIAL ASSETS:
Cash and cash equivalents............ $ 45,104 $ 45,104 $ 41,865 $ 41,865
Trading account securities........... 2,003 2,003 12,939 12,939
Investment securities................ 67,452 67,380 53,164 51,570
Federal Home Loan Bank stock......... 20,288 20,288 17,409 17,409
Mortgage-backed securities........... 871,520 844,297 957,576 902,483
Loans receivable, net................ 1,664,943 1,690,532 1,432,354 1,440,865
FINANCIAL LIABILITIES:
Deposits............................. 1,748,874 1,755,704 1,791,514 1,781,604
Borrowed funds....................... 767,138 767,735 578,897 577,756
The following methods and assumptions were utilized in estimating the fair
values of its on-balance sheet financial instruments at September 30, 1995 and
1994:
CASH AND CASH EQUIVALENTS
The estimated fair values are assumed to equal the carrying values as these
financial instruments are either due on demand or mature within 90 days.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Estimated fair values of mortgage-backed securities and investment securities,
both available for sale and held to maturity, are generally predicated upon
quoted market prices or dealer quotes, or in the absence of such quotes, on
quoted market prices for securities with similar credit, maturity and interest
rate characteristics.
LOANS RECEIVABLE, NET
Estimated fair values are calculated for pools of loans with similar
characteristics. The loans are first segregated by type, such as one-to-four
family residential, other residential, commercial, and consumer, and then
further segregated into fixed and adjustable rate categories and seasoned and
nonseasoned categories.
43
Estimated fair values are derived by discounting expected future cash flows.
Expected future cash flows are based on contractual cash flows, adjusted for
prepayments. Prepayment estimates are based on a variety of factors including
the Savings Bank's experience with respect to each loan category, the effect of
current economic and lending conditions, and regional statistics for each loan
category, if available. The discount rates used are based on market rates for
new loans of similar type and purpose, adjusted, when necessary, for factors
such as servicing cost, credit risk, and term.
As mentioned previously, this technique of estimating fair value is extremely
sensitive to the assumptions and estimates used. While management has attempted
to use assumptions and estimates which are the most reflective of the loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than those determined in formal trading marketplaces. As such,
readers are cautioned in using this information for purposes of evaluating the
financial condition and/or value of the Company in and of itself or in
comparison with any other company.
OTHER RECEIVABLES AND PAYABLES
The estimated fair values are estimated to equal the carrying values of
short-term receivables and payables, including accrued interest.
DEPOSITS
The fair value of deposit liabilities with no stated maturity (NOW, money
market, savings accounts and non-interest bearing accounts, which represent
57.4% of all deposit liabilities) are equal to the carrying amounts payable on
demand. The fair value of certificates of deposit represent contractual cash
flows discounted using interest rates currently offered on deposits with similar
characteristics and remaining maturities.
Under generally accepted accounting principles, these estimated fair values do
not include the intangible value of core deposit relationships which comprise a
significant portion of the Savings Bank's deposit base. However, management
believes that the Savings Bank's core deposit relationships provide a relatively
stable, low cost funding source which has a substantial intangible value
separate from the deposit balances.
BORROWED FUNDS
The estimated fair value of borrowed funds is calculated based on the discounted
value of contractual cash flows using interest rates currently in effect for
borrowings with similar maturities and collateral requirements.
At September 30, 1994, the Savings Bank had $150,000,000 of borrowed funds
consisting of capped variable rate repurchase agreements. Such agreements had
imbedded interest rate caps ranging from 3.92% to 4.25% which matured between
February 1995 and May 1995. The borrowed funds reflect the unrealized gain in
the estimated fair value of the imbedded interest rate caps of $.8 million.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair values of interest rate swap agreements, interest rate caps, interest
rate floors and stock indexed call options are obtained from dealer quotes and
represent the cost of terminating the agreements. The estimated fair value of
open off-balance sheet financial instruments results in an unrealized gain
(loss) of $(.5) million and $.1 million at September 30, 1995 and 1994,
respectively.
Further, the estimated fair value of commitments to extend credit is estimated
using the fees charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed interest rates. The fair value of commitments to purchase
mortgage-backed securities is based on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. The estimated fair
value of these off-balance sheet financial instruments results in no unrealized
gain or loss at September 30, 1995 and 1994.
(23) RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). In
October 1994, the FASB issued Statement of Financial Accounting Standards No.
118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" ("SFAS No. 118") which amended SFAS No. 114 (collectively the
"Statements"). Both Statements are effective for financial statements issued for
fiscal years beginning after December 15, 1994. These Statements address the
accounting by creditors for impairment of certain loans which, among other
things, include all loans that are restructured in a troubled debt restructuring
involving a modification of terms. They require that impaired loans that are
within the scope of these Statements be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Based upon a review
of these Statements, management has determined that the adoption of SFAS No. 114
and SFAS No. 118 on a prospective basis will not have a materially adverse
effect on the Company.
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets To Be Disposed Of" ("SFAS No. 121"). The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Statement establishes accounting standards for, among other things, the
impairment of long-lived assets. The Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Based upon a review
of the Statement, management does not believe that the adoption of SFAS No. 121
would have a materially adverse effect on the Company.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting standards for mortgage servicing rights, which are the
contractual right to service loans owned by others, typically for a fee. Prior
to this Statement, only purchased mortgage servicing rights were capitalized as
an asset. SFAS No. 122 requires originated mortgage
44
servicing rights (OMSR) to be capitalized as an asset. OMSR represent mortgage
servicing rights acquired when an institution originates and subsequently sells
mortgage loans but retains the servicing rights. The Statement also requires all
capitalized mortgage servicing rights to be evaluated for impairment based on
their value. Management is reviewing its options for adopting SFAS No. 122,
which includes thepossibility of adopting the Statement as of October 1, 1995.
The Statement will be adopted on a prospective basis, and the positive impact on
future earnings would depend on the level of future mortgage loan sales, with
servicing retained. Future earnings could also be negatively impacted when
capitalized mortgage servicing rights are subsequently evaluated for impairment.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting and reporting standards for stock-based employee
compensation awards granted in fiscal years that begin after December 15, 1994.
Examples of such plans are stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Statement defines a fair value based
method of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting. Entities may
elect, however, to remain with previous accounting standards which do not
require the fair value method of accounting. Those entities electing not to
adopt the fair value method of accounting must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting defined
in the Statement were adopted. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
Management has not yet performed a review to determine the effect this Statement
could have on the Company. However, if the Company adopts fair value accounting
for its stock-based compensation plans, compensation and benefit expense would
be increased, and earnings decreased, for options granted in future periods.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). Under SFAS No. 115, investment and mortgage-backed securities which a
company has the positive intent and ability to hold until maturity are carried
at cost, adjusted for amortization of premiums and accretion of discounts on a
level yield method. Investment and mortgage-backed securities to be held for
indefinite periods of time and not intended to be held to maturity and
marketable equity securities are classified as available for sale securities and
are recorded at fair value, with unrealized appreciation and depreciation, net
of tax, reported as a separate component of shareholders' equity. In November
1995, the FASB issued an implementation guide for SFAS No. 115. The
implementation guide provides guidance in the form of a question and answer
format and would allow an opportunity from mid-November 1995 to December 31,
1995 for companies to reclassify securities in the held to maturity portfolio to
securities in the available for sale portfolio without tainting the remainder of
the portfolio. Management has not yet performed a review to determine the effect
this implementation guide could have on the Company.
(24) PARENT COMPANY ONLY FINANCIAL INFORMATION
New York Bancorp operates a wholly owned subsidiary, Home Federal Savings Bank.
The earnings of the Savings Bank are recognized by the Holding Company using the
equity method of accounting. Accordingly, earnings of the Savings Bank are
recorded as increases in the Holding Company's investment and any dividends
would reduce the Holding Company's investment in the Savings Bank. The following
is the condensed financial statements for New York Bancorp Inc. (parent company
only) as of September 30, 1995 and 1994 and for the years ended September 30,
1995, 1994 and 1993:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30,
___________________________
1995 1994
___________ ____________
(In Thousands)
ASSETS
Cash and due from banks........................................................... $ 112 $ 4,185
Money market investments.......................................................... 8,418 4,002
Investment securities available for sale.......................................... 4,489 156
Mortgage-backed securities available for sale..................................... -- 7,922
Investment in Savings Bank, at equity............................................. 146,169 158,376
Other............................................................................. 80 657
___________ ____________
$ 159,268 $ 175,298
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowed funds.................................................................... $ -- $ 2,174
Other liabilities................................................................. 2,882 1,833
___________ ____________
2,882 4,007
Shareholders' equity.............................................................. 156,386 171,291
___________ ____________
$ 159,268 $ 175,298
=========== ============
CONDENSED STATEMENTS OF INCOME
Year ended September 30,
____________________________________________
1995 1994 1993
____________ ____________ ____________
(In Thousands)
Dividend from Savings Bank...................................... $ 26,200 $ 11,879 $ 5,774
Interest income................................................. 720 685 683
Interest expense................................................ (48) (182) (88)
Other operating income (loss)................................... 353 (4) --
Other operating expenses........................................ (649) (697) (759)
____________ ___________ ____________
Income before income taxes and equity in
undistributed earnings of Savings Bank......................... 26,576 11,681 5,610
Income tax benefit (expense).................................... (154) 90 71
____________ ___________ ____________
Net income before equity in undistributed
earnings of Savings Bank....................................... 26,422 11,771 5,681
Excess of dividends over current year earnings.................. (14,860) -- --
Equity in undistributed earnings of Savings Bank................ -- 21,381 19,507
____________ ___________ ____________
Net income...................................................... $ 11,562 $ 33,152 $ 25,188
============ =========== ============
45
CONDENSED STATEMENTS OF CASH FLOWS
Year ended September 30,
____________________________________________
1995 1994 1993
____________ ___________ ____________
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 11,562 $ 33,152 $ 25,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the Savings Bank.................... 14,860 (21,381) (19,507)
Gain on sale of investment securities available for sale...... (295) -- --
Amortization of premiums...................................... 48 150 259
Amortization of ESOP and RRP.................................. 464 1,491 587
Termination of ESOP and RRP................................... 4,992 -- --
(Increase) decrease in other assets........................... 392 (338) (432)
Increase (decrease) in other liabilities...................... (241) (227) 1,336
____________ ___________ ____________
Total adjustments............................................. 20,220 (20,305) (17,757)
____________ ___________ ____________
Net cash provided by operating activities....................... 31,782 12,847 7,431
____________ ___________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of mortgage-backed securities
available for sale........................................... 6,957 -- --
Proceeds from sale of investment securities
available for sale........................................... 1,159 -- --
Investment in Savings Bank.................................... (105) (1,000) (20,660)
Investment in mortgage-backed securities
available for sale........................................... -- (2,112) --
Investment in mortgage-backed securities
held to maturity............................................. -- -- (11,889)
Investment in investment securities available for sale........ (4,812) (480) (239)
Principal payments on mortgage-backed securities
available for sale........................................... 2,273 5,512 --
____________ ___________ ____________
Net cash provided (used) by investing activities................ 5,472 1,920 (32,788)
____________ ___________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock................................... (32,496) (8,320) (4,253)
Proceeds from issuance of common stock,
net of ESOP and RRP.......................................... -- -- 36,499
Proceeds from sale of treasury stock.......................... 4,530 -- --
Proceeds from long term debt.................................. -- -- 3,043
Repayment of long term debt................................... (217) (543) (326)
Payment of common stock dividends............................. (8,156) (5,582) (4,421)
Cash paid in lieu of fractional shares
resulting from stock splits and dividend..................... -- (3) (4)
Exercise of stock options..................................... 872 819 443
____________ ___________ ____________
Net cash provided (used) by financing activities.................. (35,467) (13,629) 30,981
____________ ___________ ____________
Net increase in cash and cash equivalents........................... 1,787 1,138 5,624
Cash and cash equivalents at beginning of year...................... 8,187 7,049 1,425
Hamilton activity for the three months
ended December 31, 1994............................................ (1,444) -- --
____________ ___________ ____________
Cash and cash equivalents at end of year............................ $ 8,530 $ 8,187 $ 7,049
============ =========== ============
Supplemental schedule of non-cash investing activities:
Transfer of mortgage-backed securities held to maturity
to mortgage-backed securities available for sale................... $ -- $ 11,630 $ --
============ =========== ============
46
(25) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years ended September 30, 1995 and
1994 is presented below:
Fiscal 1995 Fiscal 1994
_________________________________________________ ___________________________________________________
Quarter Ended
_____________________________________________________________________________________________________
September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31,
1995 1995 1995 1994 1994 1994 1994 1993
______________ ________ __________ ____________ _____________ ________ _________ ____________
(In Thousands except per share data)
QUARTERLY OPERATING DATA:
Interest income............... $ 50,843 $ 49,714 $ 48,990 $ 47,425 $ 47,623 $ 45,697 $ 42,014 $ 40,196
Interest expense.............. 27,546 26,514 24,860 22,810 21,643 20,257 19,532 18,516
__________ _________ _________ __________ _________ _________ __________ _________
Net interest income........... 23,297 23,200 24,130 24,615 25,980 25,440 22,482 21,680
Provision for possible loan
losses....................... (400) (400) (400) (500) (500) (550) (800) (800)
__________ _________ _________ __________ _________ _________ __________ _________
Net interest income after
provision for possible
loan losses.................. 22,897 22,800 23,730 24,115 25,480 24,890 21,682 20,880
__________ _________ _________ __________ _________ _________ __________ _________
OTHER OPERATING INCOME
(LOSS):
Loan fees and service
charges.................... 605 610 588 763 723 769 901 899
Net gain (loss) on sales
of mortgage loans
and securities
available for sale......... 303 125 (1,177) (339) (328) (95) 469 168
Real estate operations,
net........................ (223) 59 (345) (374) (370) (375) (96) (39)
Other....................... 1,421 1,316 1,280 1,117 1,013 1,524 1,027 930
__________ _________ _________ __________ _________ _________ __________ _________
Total other operating
income....................... 2,106 2,110 346 1,167 1,038 1,823 2,301 1,958
__________ _________ _________ __________ _________ _________ __________ _________
Other operating expenses...... 10,720 12,533 31,882(1) 12,857 13,050 12,879 12,564 12,352
__________ _________ _________ __________ _________ _________ __________ _________
Income (loss) before taxes
on income and cumulative
effect of change in
accounting principle......... 14,283 12,377 (7,806) 12,425 13,468 13,834 11,419 10,486
Taxes on income............... 6,303 5,458 1,998 5,958 6,293 6,047 4,973 4,427
__________ _________ _________ __________ _________ _________ __________ _________
Income (loss) before
cumulative effect of change
in accounting principle...... 7,980 6,919 (9,804) 6,467 7,175 7,787 6,446 6,059
Cumulative effect of
change in accounting
for income taxes............. -- -- -- -- -- -- -- 5,685
__________ _________ _________ __________ _________ _________ __________ _________
Net income (loss)............. $ 7,980 $ 6,919 $ (9,804) $ 6,467 $ 7,175 $ 7,787 $ 6,446 $ 11,744
========== ========= ========= ========== ========= ========= ========== =========
Earnings per common share:
Income (loss) before
cumulative effect of change
in accounting principle..... $ .63 $ .51 $(.73) $ .48 $ .53 $ .58 $ .47 $ .44
Cumulative effect of
change in accounting
for income taxes............ $ .-- $ .-- $ .-- $ .-- $ .-- $ .-- $ . -- $ .42
Net income (loss)............ $ .63 $ .51 $(.73) $ .48 $ .53 $ .58 $ .47 $ .86
Summation of the quarterly earnings per common share, due to the averaging effect of the number of shares
and share equivalents throughout the year, does not necessarily equal the annual amount.
(1) Amount includes merger and restructuring charge of $19,024 in connection with Hamilton merger.
47
INDEPENDENT
AUDITORS' REPORT
To The Board of Directors and Shareholders of New York Bancorp Inc.:
We have audited the accompanying consolidated statements of financial condition
of New York Bancorp Inc. and Subsidiary as of September 30, 1995 and 1994 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New York Bancorp
Inc. and Subsidiary as of September 30, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 18 to the consolidated financial statements,
effective October 1, 1993, the Company adopted the provisions of Statements of
Financial Accounting Standards No. 115 (Accounting for Certain Investments in
Debt and Equity Securities), No. 109 (Accounting for Income Taxes) and No. 106
(Employers' Accounting for Postretirement Benefits Other Than Pensions).
/s/ KPMG Peat Marwick LLP
October 23, 1995
New York, New York
48
NEW YORK BANCORP INC.
CORPORATE INFORMATION
BOARD OF DIRECTORS
PATRICK E. MALLOY, III
Chairman of the Board
New York Bancorp Inc.
and President of Malloy
Enterprises, Inc.
STAN I. COHEN
Senior Vice President,
Controller and Secretary
New York Bancorp Inc.
GERALDINE A. FERRARO
U.S. Ambassador to the
United Nations Human
Rights Commission, Attorney,
Author and Lecturer
PETER D. GOODSON
President
Goodson Family Foundation
JOHN E. D. GRUNOW, JR.
Chairman and President
The Grunow Group Capital
Management, Inc.
DONALD T. LUTZ*
Retired, W. Theodore Lutz & Son
RONALD H. MCGLYNN
President
Cramer Rosenthal McGlynn, Inc.
MICHAEL A. MCMANUS, JR.
President and C.E.O.
New York Bancorp Inc.
WALTER R. RUDDY
Retired, Swiss Bank Corp.
ROBERT A. SIMMS
Chairman and C.E.O.
Simms Capital Management
DIRECTOR EMERITUS
ROBERT A. HEUBNER*
*Home Federal Savings Bank only
EXECUTIVE OFFICERS
MICHAEL A. MCMANUS, JR.
President and
Chief Executive Officer
STAN I. COHEN
Senior Vice President,
Controller and Secretary
ROBERT J. ANRIG
First Vice President
Lending
CARMINE BRACCO
First Vice President
EDP & Operations
DENNIS HODNE
First Vice President
Retail Banking
RICHARD F. ROTHSCHILD
First Vice President
Marketing
EDWARD J. STEUBE
First Vice President
Business Development
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Company's Annual Meeting
of Shareholders will be held on
January 23, 1996.
CORPORATE HEADQUARTERS
New York Bancorp Building
241-02 Northern Boulevard
Douglaston, NY 11362-1061
STOCK LISTING
New York Stock Exchange
Symbol: NYB
TRANSFER AGENT AND REGISTRAR
Chemical Mellon
J.A.F. Building
P.O. Box 3068
New York, NY 10116-3068
1-800-851-9677
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
INVESTOR RELATIONS
Linda Bishop
Investor Relations Officer
718-631-8100
The following table shows high and low closing sales prices as reported by the
American Stock Exchange through June 20, 1995 and by the New York Stock Exchange
thereafter. Such prices do not necessarily reflect retail markups, markdowns or
commissions.
Fiscal year ended September 30, 1995
____________________________________
Cash
Dividends
High Low Per Share(2)
_______ _______ ____________
4th Quarter $20.750 $19.000 $ .20
3rd Quarter $20.375 $17.250 $ .20
2nd Quarter $19.125 $16.250 $ .20
1st Quarter $19.625 $18.250 $ .20
Fiscal year ended September 30, 1994
____________________________________
Cash
Dividends
High Low Per Share(2)
_______ _______ ____________
4th Quarter $21.000 $19.000 $ .20
3rd Quarter $23.125 $17.875 $ .20
2nd Quarter $21.375 $16.750 $ .20
1st Quarter(1) $20.750 $18.250 $ .18
(1) Restated to fully reflect 10% stock dividend effective February 14, 1994.
(2) Dividends per share have not been restated for the merger with Hamilton.
(BACK COVER)