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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 000-24272
FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3209278
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
144-51 Northern Boulevard, Flushing, New York 11354
(Address of principal executive offices)
(718) 961-5400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$0.01 par value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of January 31, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $131,934,000. This figure is based
on the closing price on the Nasdaq National Market for a share of the
registrant's Common Stock, $0.01 par value, on January 31, 1997, which was
$17.625 as reported in the Wall Street Journal on February 3, 1997.
The number of shares of the registrant's Common Stock outstanding as of
January 31, 1997 was 8,132,597 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the year ended
December 1996 are incorporated herein by reference in Part II, and portions of
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on April 29, 1997 are incorporated herein by reference in Part III.
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 45
Item 3. Legal Proceedings............................................... 46
Item 4. Submission of Matters to a Vote of Security Holders............. 46
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................. 46
Item 6. Selected Financial Data......................................... 47
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 47
Item 8. Financial Statements and Supplementary Data..................... 47
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 47
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 47
Item 11. Executive Compensation.......................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................... 47
Item 13. Certain Relationships and Related Transactions.................. 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 48
2
PART I
Statements contained in this Annual Report on Form 10-K relating to
plans, strategies, economic performance and trends and other statements that are
not descriptions of historical facts may be forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward looking information is inherently
subject to risks and uncertainties, and actual results could differ materially
from those currently anticipated due to a number of factors, which include, but
are not limited to, factors discussed under the captions "Business--General",
"Business--Market Area and Competition" and "Risk Factors" below, and elsewhere
in this Form 10-K and in other documents filed by the Company with the
Securities and Exchange Commission from time to time. The Company has no
obligation to update these forward-looking statements
Item 1. Business.
General
Flushing Financial Corporation (the "Company") is a Delaware
corporation organized in May 1994, at the direction of the Board of Trustees of
Flushing Savings Bank, FSB (the "Bank") for the purpose of acquiring and holding
all of the outstanding capital stock of the Bank issued upon its conversion from
a federal mutual savings bank to a federal stock savings bank (the
"Conversion"). The Conversion was completed on November 21, 1995. In connection
with the Conversion, the Company issued 8,625,000 shares of common stock at a
price of $11.50 per share to the Bank's eligible depositors who subscribed for
shares, and to an employee benefit trust established by the Company for the
purpose of holding shares for allocation or distribution under certain employee
benefit plans of the Company and the Bank (the "Employee Benefit Trust"). The
Company realized net proceeds of $96.5 million from the sale of its common stock
and utilized approximately $48.3 million of such proceeds to purchase 100% of
the issued and outstanding shares of the Bank's common stock.
The primary business of the Company is the operation of its
wholly-owned subsidiary, the Bank. In addition to directing, planning and
coordinating the business activities of the Bank, the Company invests primarily
in U.S. government and federal agency securities, federal funds, mortgage-backed
securities, and investment grade corporate obligations. The Company also holds a
note evidencing a loan that it made to the Employee Benefit Trust to enable the
Employee Benefit Trust to acquire 690,000 shares, or 8% of the common stock
issued in the Conversion. The Company has in the past increased growth through
acquisition of branches of other financial institutions, and will pursue growth
through acquisitions that are accretive to earnings. The Company may also
organize or acquire, through merger or otherwise, other financial services
related companies. The activities of the Company are funded by that portion of
the proceeds of the sale of common stock in the Conversion that the Company was
permitted by the Office of Thrift Supervision ("OTS") to retain, and earnings
thereon, and by dividends, if any, received from the Bank.
The Company is a unitary savings and loan holding company, which, under
existing laws, is generally not restricted as to the types of business
activities in which it may engage, provided that the Bank continues to be a
qualified thrift lender. Under regulations of the OTS the Bank is a qualified
thrift lender if its ratio of qualified thrift investments to portfolio assets
("QTL Ratio") is 65% or more, on a monthly average basis in nine of every 12
months. At December 31, 1996, the Bank's QTL Ratio was 72.57%, and the Bank had
maintained more than 65% of its "portfolio assets" in qualified thrift
investments in at least nine of the preceding 12 months. See
"Regulation--Qualified Thrift Lender Test" and "Regulation--Company Regulation."
The Company neither owns nor leases any property but instead uses the
premises and equipment of the Bank. At the present time, the Company does not
employ any persons other than certain officers of the Bank who do not receive
any extra compensation as officers of the Company. The Company utilizes the
support staff of the Bank from time to time, as needed. Additional employees may
be hired as deemed appropriate by the management of the Company.
3
Unless otherwise disclosed, the information presented in the financial
statements and this Form 10-K reflect the financial condition and results of
operations of the Company and the Bank on a consolidated basis. At December 31,
1996, the Company had total assets of $775.3 million.
The Company's principal business is attracting retail deposits from the
general public and investing those deposits together with funds generated from
operations, primarily in (i) originations and purchases of one-to-four-family
residential mortgage loans, multi-family income-producing property loans and
commercial real estate loans; (ii) mortgage loan surrogates such as
mortgage-backed securities; and (iii) U.S. government and federal agency
securities, corporate fixed-income securities and other marketable securities.
To a lesser extent, the Company originates co-operative apartment loans,
construction and consumer loans. At December 31, 1996, the Company had loans
receivable, net of allowance for loan losses and unearned income, of $382.8
million (approximately 49.38% of the Company's total assets). On a consolidated
basis, the Company held mortgage -backed securities with a carrying value of
$141.0 million (approximately 18.19% of the Company's total assets), including
$37.8 million of fixed-rate mortgage-backed securities that were acquired
through the securitization of Bank-originated fixed-rate mortgage loans in 1994.
The Company's revenues are derived principally from interest on its mortgage and
other loans and mortgage-backed securities portfolio and interest and dividends
on other investments in its securities portfolio. The Company's primary sources
of funds are deposits, principal and interest payments on loans, mortgage-backed
and other securities, proceeds from sales of securities and, to a lesser extent,
proceeds from sales of loans.
Market Area and Competition
The Bank has been, and intends to continue to be, a community oriented
savings institution offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank is headquartered in Flushing, New
York, located in the Borough of Queens. It currently operates out of its main
office and six branch offices, located in the New York City Boroughs of Queens,
Brooklyn and Manhattan, and in Nassau County, New York. Substantially all of the
Bank's mortgage loans are secured by properties located in the New York City
metropolitan area. During the last three years, the unemployment and real estate
values in the New York City metropolitan area have been relatively stable, which
has favorably impacted the Bank's asset quality. See "--Asset Quality." There
can be no assurance that the stability of these economic factors will continue.
The Bank faces intense and increasing competition both in making loans
and in attracting deposits. The Bank's market area has a high density of
financial institutions, many of which have greater financial resources, name
recognition and market presence than the Bank, and all of which are competitors
of the Bank to varying degrees. Particularly intense competition exists for
deposits and in all of the lending activities emphasized by the Bank. The Bank's
competition for loans comes principally from commercial banks, other savings
banks, savings and loan associations, mortgage banking companies, insurance
companies, finance companies and credit unions. Management anticipates that
competition for one-to-four family residential mortgage loans, multi-family
loans and commercial real estate loans will continue to increase in the future.
Thus, no assurances can be given that the Bank will be able to maintain or
increase its current level of such loans, as contemplated by management's
current business strategy The Bank's most direct competition for deposits
historically has come from other savings banks, commercial banks, savings and
loan associations and credit unions. In addition, the Bank faces increasing
competition for deposits from products offered by brokerage firms, insurance
companies and other financial intermediaries, such as money market and other
mutual funds and annuities. Trends toward the consolidation of the banking
industry and the lifting of interstate banking and branching restrictions may
make it more difficult for smaller, community-oriented banks, such as the Bank,
to compete effectively with large, national, regional and super-regional banking
institutions. Notwithstanding the intense competition, the Bank has been
successful in maintaining its deposit base.
For a discussion of the Company's business strategies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy," included in the Annual Report of Stockholders
for the fiscal year ended December 31, 1996 (the "Annual Report"), incorporated
herein by reference.
4
Lending Activities
Loan Portfolio Composition. The Bank's loan portfolio consists
primarily of conventional fixed-rate residential mortgage loans and adjustable
rate mortgage ("ARM") loans secured by one-to-four family residences, mortgage
loans secured by multi-family income producing properties or commercial real
estate, co-operative apartment loans, construction loans and consumer loans. At
December 31, 1996, the Bank had gross loans outstanding of $389.8 million
(before reserves and unearned income), of which $223.3 million, or 57.28%, were
one-to-four family residential mortgage loans (including $17.7 million of
condominium loans, and $6.3 million of home equity loans). Of the one-to-four
family residential loans outstanding on that date, 73.40% were ARM loans and
26.60% were fixed-rate loans. At December 31, 1996, multi-family loans totaled
$104.9 million, or 26.91% of gross loans, commercial real estate loans totaled
$46.7 million, or 11.98% , co-operative apartment loans totaled $13.2 million,
or 3.40%, and consumer and other loans totaled $1.7 million, or 0.43% of gross
loans.
While management continues to place primary emphasis on the origination
of one-to-four family residential mortgage loans, management's strategy calls
for increased emphasis on multi-family and commercial real estate loans. From
December 31, 1995 to December 31, 1996, one-to-four-family residential mortgage
loans increased $66.4 million, or 39.06%, and multi-family loans increased $35.7
million, or 51.68%. Fully underwritten one-to-four family residential mortgage
loans are considered by the banking industry to have less risk than other types
of loans. Multi-family income-producing real estate loans and commercial real
estate loans generally have higher yields than one-to-four family loans and
shorter terms to maturity, but typically involve higher principal amounts and
generally expose the lender to greater risk of credit loss than fully
underwritten one-to-four family residential mortgage loans. The Company's
increased emphasis on multi-family and commercial real estate loans can be
expected to increase the overall level of credit risk inherent in the Company's
loan portfolio. The greater risk associated with multi-family and commercial
real estate loans may require the Company to increase its provisions for loan
losses and to maintain an allowance for loan losses as a percentage of total
loans in excess of the allowance currently maintained by the Company.
The Bank's lending activities are subject to federal and state laws and
regulations. Interest rates charged by the Bank on loans are affected primarily
by the demand for such loans, the supply of money available for lending
purposes, the rate offered by the Bank's competitors and, in the case of
corporate entities, the creditworthiness of the borrower. Many of those factors
are, in turn, affected by regional and national economic conditions, and the
fiscal, monetary and tax policies of the federal government.
5
The following table sets forth the composition of the Bank's loan
portfolio at the dates indicated.
At December 31,
---------------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
(Dollars in thousands)
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
Mortgage loans:
One-to-four family(1)(2) ............... $ 223,273 57.28% $ 155,435 54.20% $ 133,006 51.39%
Co-operative(3) ........................ 13,245 3.40 14,653 5.11 16,155 6.24
Multi-family ........................... 104,870 26.91 69,140 24.11 56,559 21.85
Commercial ............................. 46,698 11.98 45,215 15.77 49,512 19.13
Construction ........................... -- -- -- -- 364 0.14
--------- ----- --------- ----- --------- -----
Gross mortgage loans ................. 388,086 99.57 284,443 99.19 255,596 98.75
Other loans ............................... 1,680 0.43 2,328 0.81 3,231 1.25
--------- ----- --------- ----- --------- -----
Gross loans ............................ 389,766 100.00% 286,771 100.00% 258,827 100.00%
====== ====== ======
Less:
Unearned income, unamortized discounts,
and deferred loan fees, net .......... (1,548) (1,335) (1,341)
Allowance for loan losses .............. (5,437) (5,310) (5,370)
--------- --------- ---------
Loans, net ............................. $ 382,781 $ 280,126 $ 252,116
========= ========= =========
At December 31,
---------------------------------------------------
1993 1992
----------------------- -----------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars in thousands)
Mortgage loans:
One-to-four family(1)(2) ............... $ 134,967 51.61% $ 168,762 56.10%
Co-operative(3) ........................ 17,098 6.54 19,497 6.48
Multi-family ........................... 49,459 18.91 54,481 18.11
Commercial ............................. 54,310 20.77 54,061 17.97
Construction ........................... 1,891 0.72 -- --
--------- ----- --------- -----
Gross mortgage loans ................. 257,725 98.55 296,801 98.66
Other loans ............................... 3,791 1.45 4,043 1.34
--------- ----- --------- -----
Gross loans ............................ 261,516 100.00% 300,844 100.00%
====== ======
Less:
Unearned income, unamortized discounts,
and deferred loan fees, net .......... (1,202) (1,009)
Allowance for loan losses .............. (5,723) (4,555)
--------- ---------
Loans, net ............................. $ 254,591 $ 295,280
========= =========
(1) One-to-four family residential loans also include home equity and
condominium loans. At December 31, 1996, gross home equity loans
totaled $6.3 million and condominium loans totaled $17.7 million.
(2) Excludes loans available for sale of $5.6 million at December 31, 1993.
(3) Consists of loans secured by shares representing interests in
individual co-operative units that are generally owner occupied.
6
The following table sets forth the Bank's loan originations (including
the net effect of refinancings) and the changes in the Bank's portfolio of
loans, including purchases, sales and principal reductions for the years
indicated:
For the Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
Mortgage loans:
At beginning of year .................... $ 284,443 $ 255,596 $ 263,329
Mortgage loans originated:
One-to-four family(1) .............. 51,309 19,298 31,715
Co-operative ....................... 76 140 188
Multi-family ....................... 43,184 19,162 11,822
Commercial ......................... 7,501 2,144 2,559
Construction ....................... -- -- 628
--------- --------- ---------
Total mortgage loans originated .... 102,070 40,744 46,912
Acquired loans(2) .................... 39,873 18,766 4,717
Less:
Principal reductions ................. 37,150 29,384 38,073
Mortgage loans sold(1) ............... -- 626 3,148
Loans securitized .................... -- -- 15,796
Mortgage loan foreclosures ........... 1,150 653 2,345
--------- --------- ---------
At end of year .......................... $ 388,086 $ 284,443 $ 255,596
========= ========= =========
Other loans:
At beginning of year .................... $ 2,328 $ 3,231 $ 3,791
Net activity ............................ (648) (903) (560)
--------- --------- ---------
At end of year .......................... $ 1,680 $ 2,328 $ 3,231
========= ========= =========
- ------------
(1) Includes mortgage loans originated for sale in the secondary market.
(2) For a description of the Bank's loan purchase activity, see
"--One-to-Four Family Mortgage Lending."
7
Loan Maturity and Repricing. The following table sets forth at December
31, 1996, the dollar amount of all loans held in the Bank's portfolio that is
due after December 31, 1997, and whether such loans have fixed or adjustable
interest rates. Non-performing loans are excluded. The Bank's loan portfolio
contained no outstanding construction loans as of the date specified and
therefore the following two tables exclude reference to any such loans.
Due after December 31, 1997
--------------------------------------
Fixed Adjustable Total
-------- ---------- --------
(In thousands)
Mortgage loans:
One-to-four family ............. $ 58,351 $107,382 $165,733
Co-operative ................... 2,903 4,311 7,214
Multi-family ................... 18,167 83,895 102,062
Commercial ..................... 8,269 30,862 39,131
Other loans ....................... 1,123 -- 1,123
-------- -------- --------
Total loans .................... $ 88,813 $226,450 $315,263
======== ======== ========
The following table shows the maturity or period to repricing of the
Bank's loan portfolio at December 31, 1996. Loans that have adjustable-rates are
shown as being due in the period during which the interest rates are next
subject to change. The table does not reflect prepayments or scheduled principal
amortization, which totaled $37.2 million for the year ended December 31, 1996.
Certain adjustable rate loans have features which limit changes in interest
rates on a short-term basis and over the life of the loan.
At December 31, 1996
---------------------------------------------------------------
One-to- Total
Four Multi- Other Loans
Family Co-operative Family Commercial Loans Receivable
------- ------------ ------ ---------- -------- ----------
(In thousands)
Amounts due(1):
Within one year $ 55,705 $ 5,999 $ 2,303 $ 7,567 $ 521 $ 72,095
-------- -------- -------- -------- -------- --------
After one year(1):
One to two years ....... 30,307 1,681 12,753 9,828 430 54,999
Two to three years ..... 21,707 2,067 9,830 9,538 429 43,571
Three to five years .... 38,303 713 61,140 11,522 250 111,928
Five to ten years ...... 32,670 1,430 11,780 7,928 14 53,822
Over ten years ......... 42,746 1,323 6,559 315 -- 50,943
-------- -------- -------- -------- -------- --------
Total due after one year 165,733 7,214 102,062 39,131 1,123 315,263
-------- -------- -------- -------- -------- --------
Total amounts due ... $221,438 $ 13,213 $104,365 $ 46,698 $ 1,644 $387,358
======== ======== ======== ======== ======== ========
============================================================================================
(1) Excludes $2.4 million in non-performing loans.
One-to-Four Family Mortgage Lending. The Bank offers mortgage loans
secured by one-to-four family residences, including townhouses and condominium
units, located in its primary lending area. For purposes of the description
contained in this section, one-to-four family residential mortgage loans and
co-operative apartment loans are collectively referred to herein as "residential
mortgage loans." The Bank offers both fixed-rate and ARM residential mortgage
loans with maturities of up to 30 years and a general maximum loan amount of
$500,000. Loan originations generally result from applications received from
existing or past customers, persons that respond to Bank advertising and other
marketing efforts and referrals from attorneys, real estate brokers, mortgage
brokers and mortgage bankers.
Partly in response to the intense competition for originations of
one-to-four family residential mortgage loans, in the second half of 1994, the
Bank commenced a program of correspondent relationships with several mortgage
bankers and brokers operating in the New York metropolitan area. Under this
program, the Bank purchases individual newly originated one-to-four family loans
originated by such correspondents. Typically, the
8
servicing is purchased as well. The loans are underwritten pursuant to the
Bank's credit underwriting standards and each loan is reviewed by Bank personnel
prior to purchase to ensure conformity with such standards. Generally, the Bank
does not receive loan origination fees on such loans. During 1996, through these
relationships, the Bank purchased $39.9 million in one-to-four family mortgage
loans, as compared to $11.6 million in 1995 and $4.7 million during 1994. In
addition, from time to time, the Bank will selectively purchase packages of
seasoned performing one-to-four family residential loans located within the New
York region. During 1995, the Bank purchased one package of such loans totaling
$7.2 million with an average yield of 7.97%. Servicing was not acquired. The
Bank did not purchase any seasoned loans in 1996.
The Bank generally originates residential mortgage loans in amounts up
to 80% of the appraised value or the sale price, whichever is less. The Bank may
make residential mortgage loans with loan-to-value ratios of up to 95% of the
appraised value of the mortgaged property; however, private mortgage insurance
is required whenever loan-to-value ratios exceed 80% of the appraised value of
the property securing the loan.
The majority of the residential mortgage loans originated by the Bank
are underwritten to FNMA and other agency guidelines to facilitate
securitization and sale in the secondary market. These guidelines require, among
other things, verification of the loan applicant's income. However, from time to
time, and increasingly in 1996, the Bank has originated residential mortgage
loans to self-employed individuals within the Bank's local community without
verification of the borrower's level of income, provided that the borrower's
stated income is considered reasonable for the borrower's type of business.
These loans involve a higher degree of risk as compared to the Bank's other
fully underwritten residential mortgage loans as there is a greater opportunity
for borrowers to falsify or overstate their level of income and ability to
service indebtedness. To mitigate this risk, the Bank typically limits the
amount of these loans to 70% of the appraised value of the property or the sale
price, whichever is less. These loans also are not as readily salable in the
secondary market as the Bank's other fully underwritten loans, either as whole
loans or when pooled or securitized. FNMA does not purchase such loans. The Bank
believes, however, that its willingness to make such loans is an aspect of its
commitment to be a community-oriented bank. Although there are a number of
purchasers for such loans, there can be no assurance that such purchasers will
continue to be active in the market or that the Bank will be able to sell such
loans in the future. During 1995, the Bank originated two ARM loans of this
type, totaling $538,000 and three fixed-rate 15-year loans of this type totaling
$245,000. During 1996, the Bank originated loans of this type totaling $12.3
million in ARM loans and $6.7 million in 15-year fixed-rate loans.
The Bank's fixed-rate residential mortgage loans typically are
originated for terms of 15 and 30 years and are competitively priced based on
market conditions and the Bank's cost of funds. The Bank charges origination
fees of up to 2%; loans with fees of less than 2% generally carry a higher
interest rate. The Bank's current policy is to securitize or sell all its newly
originated conforming fixed-rate 30-year residential mortgage loans in the
secondary market to FNMA and other secondary market purchasers, and to hold its
fixed-rate 15-year residential mortgage loans in its portfolio. The servicing
rights on loans sold ordinarily are retained by the Bank. There were no 30-year
fixed-rate residential mortgage loans originated in 1996.
The Bank offers ARM loans with adjustment periods of one, three, five
or ten years, and the Bank's current emphasis is on adjustment periods of one
year. Interest rates on ARM loans currently offered by the Bank are adjusted at
the beginning of each adjustment period based upon a fixed spread above the
average yield on United States treasury securities, adjusted to a constant
maturity which corresponds to the adjustment period of the loan (the "U.S.
Treasury constant maturity index") as published weekly by the Federal Reserve
Board. From time to time, the Bank may originate ARM loans at an initial rate
lower than the U.S. Treasury constant maturity index as a result of a discount
on the spread for the initial adjustment period. ARM loans generally are subject
to limitations on interest rate increases of 2% per adjustment period and an
aggregate adjustment of 6% over the life of the loan. Origination fees of up to
2% are charged for ARM loans; loans with fees of less than 2% generally carry a
higher interest rate. The Bank originated and purchased one-to-four family
residential ARM loans totaling $11.2 million and $18.4 million, respectively,
during 1995 and $34.0 million and $32.0 million, respectively, during 1996. At
December 31, 1996, $172.8 million, or 73.66%, of the Bank's residential mortgage
loans, consisted of ARM loans.
9
The volume and adjustment periods of ARM loans originated by the Bank
have been affected by such market factors as the level of interest rates, demand
for loans, competition, consumer preferences and the availability of funds. In
general, consumers show a preference for ARM loans in periods of high interest
rates and for fixed-rate loans when interest rates are low. In periods of
falling interest rates, the Bank may experience refinancing activity in ARM
loans, whose interest rates may be fully indexed, to fixed-rate loans. The
Bank's policy regarding this type of refinancing is to allow a maximum reduction
of 200 basis points in the interest rate on a fixed-rate basis and, if the loan
is a 30-year loan, to sell or securitize it in the secondary market.
The retention of ARM loans, as opposed to fixed-rate 30-year loans, in
the Bank's portfolio helps reduce the Bank's exposure to interest rate risks.
However, in an environment of rapidly increasing interest rates as was
experienced in the 1970's, it is possible for the interest rate increase to
exceed the maximum aggregate adjustment on ARM loans and negatively affect the
spread between the Bank's interest income and its cost of funds.
ARM loans generally involve credit risks different from those inherent
in fixed-rate loans, primarily because if interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the value and marketability of the property collateralizing the
loan may be adversely affected. In order to minimize risks, the borrowers of
one-year ARM loans are qualified at the higher of the maximum adjusted rate at
the first adjustment or the FNMA minimum qualifying rate. The Bank has not in
the past, nor does it currently originate ARM loans which provide for negative
amortization.
Home Equity Loans. Home equity loans are included in the Bank's
portfolio of one-to-four family residential mortgage loans. These loans are
offered as adjustable-rate "home equity lines of credit" for terms up to 20
years with monthly payments of principal and interest due from the borrower
commencing when the line of credit is accessed. These loans also may be offered
as fully amortizing closed-end fixed-rate loans for terms up to 15 years. All
home equity loans are made on one-to-four family residential and condominium
units, which are owner-occupied, and are subject to a 75% loan-to-value ratio
computed on the basis of the aggregate of the first mortgage loan amount
outstanding and the proposed home equity loan. They are granted in amounts up to
$100,000 for home equity lines of credit and $100,000 for fixed-rate fully
amortizing loans. The underwriting standards for home equity loans are
substantially the same as those for residential mortgage loans. At December 31,
1996, home equity loans totaled $6.3 million, or 1.62%, of gross loans.
Commercial Real Estate Lending. Loans secured by commercial real estate
constituted approximately $46.7 million, or 11.98%, of the Bank's gross loans at
December 31, 1996. The Bank's commercial real estate loans are secured by
improved properties such as offices, small business facilities, strip shopping
centers, warehouses, religious facilities and mixed-use properties. At December
31, 1996, substantially all of the Bank's commercial real estate loans were
secured by properties located within the Bank's market area. At that date, the
Bank's commercial real estate loans had an average principal balance of
$442,000, and the largest of such loans, which was secured by an office
building, had a principal balance of $1.9 million. Typically, commercial real
estate loans are originated at a range of $100,000 to $3.0 million. Commercial
real estate loans are generally offered at adjustable rates tied to a market
index for terms of five to 15 years, with adjustment periods from one to five
years. On a select and limited basis, commercial real estate loans may be made
at fixed interest rates for terms of seven, 10 or 15 years. An origination fee
of up to 2% is typically charged on all commercial real estate loans.
In underwriting commercial real estate loans, the Bank reviews the
expected net operating income generated by the real estate collateral securing
the loan, the age and condition of the collateral, the financial resources and
income level of the borrower and the borrower's experience in owning or managing
similar properties. The Bank typically requires a debt service coverage of at
least 125% of the monthly loan payment. Commercial real estate loans generally
are made up to 70% of the appraised value of the property securing the loan or
the sales price of the property, whichever is less. The Bank generally obtains
personal guarantees from commercial real estate borrowers and typically orders
an environmental report on the property securing the loan.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
The increased credit risk is a result of several factors, including the
concentration of principal in a smaller number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty in evaluating and monitoring these types of loans.
10
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related property. If
the cash flow from the property is reduced, the borrower's ability to repay the
loan may be impaired. Loans secured by commercial real estate also may involve a
greater degree of environmental risk. The Bank seeks to protect against this
risk through obtaining an environmental report. See "--Asset Quality--REO."
Multi-Family Lending. Loans secured by multi-family income producing
properties (including mixed-use properties) constituted approximately $104.9
million, or 26.91%, of gross loans at December 31, 1996, all of which were
secured by properties located within the Bank's market area. The Bank's
multi-family loans had an average principal balance of $497,000 at December 31,
1996, and the largest multi-family loan held in the Bank's portfolio had a
principal balance of $2.6 million. Multi-family loans are generally offered at
adjustable rates tied to a market index for terms of five to 10 years with
adjustment periods from one to five years. On a select and limited basis,
multi-family loans may be made at fixed rates for terms of seven, 10 or 15
years. An origination fee of up to 2% is typically charged on multi-family
loans.
In underwriting multi-family loans, the Bank employs the same
underwriting standards and procedures as are employed in underwriting commercial
real estate loans.
Multi-family loans generally carry larger loan balances than
one-to-four family residential mortgage loans and involve a greater degree of
credit risk for the same reasons applicable to commercial real estate loans.
Construction Loans. The Bank's construction loans primarily have been
made to finance the construction of one-to-four family residential properties
and, to a lesser extent, multi-family residential real estate properties. The
Bank's policies provide that construction loans may be made in amounts up to 70%
of the estimated value of the developed property and only if the Bank obtains a
first lien position on the underlying real estate. In addition, the Bank
generally requires firm end-loan commitments and personal guarantees on all
construction loans. Construction loans are generally made with terms of two
years or less and with adjustable interest rates that are tied to a market
index. Advances are made as construction progresses and inspection warrants,
subject to continued title searches to ensure that the Bank still has a first
lien position. At December 31, 1996, the Bank had no construction loans
outstanding.
Construction loans involve a greater degree of risk than other loans
because, among other things, the underwriting of such loans is based on an
estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition,
construction lending entails the risk that the project may not be completed due
to cost overruns or changes in market conditions.
Consumer and Other Lending. The Bank originates other loans primarily
for personal, family or household purposes, which generally consist of passbook
loans, overdraft lines of credit, student loans, automobile loans and other
personal loans. Total consumer and other loans outstanding at December 31, 1996
amounted to $1.7 million, or 0.43%, of gross loans. Generally, unsecured loans
in this category are limited to amounts of $5,000 or less for terms of up to
five years. Certain student loans may be made in amounts up to the maximum
amount permitted by the New York State Higher Education Services Corporation,
currently $138,500, for terms of up to 10 years. Since 1992, the Bank has sold
all student loans to EXPORT, a subsidiary of Sallie Mae (Student Loan Marketing
Association) which administers all such loans sold by the Bank. The Bank offers
credit cards to its customers through a third party financial institution and
receives an origination fee and transactional fees for processing such accounts,
but does not underwrite or finance any portion of the credit card receivables.
The underwriting standards employed by the Bank for consumer and other
loans include a determination of the applicant's payment history on other debts
and assessment of the applicant's ability to meet payments on all of his or her
obligations. In addition to the creditworthiness of the applicant, the
underwriting process also includes a comparison of the value of the security, if
any, to the proposed loan amount. Unsecured loans tend to have higher risk, and
therefore command a higher interest rate. With the exception of a portfolio of
consumer loans acquired by the Bank in 1991 at a discount in connection with the
acquisition of a failed savings and loan association, the level of delinquencies
in the Bank's consumer and other loan portfolio generally has been within
industry standards; however, there can be no assurance that delinquencies will
not increase in the future.
11
Loan Approval Procedures and Authority. The Bank's Board-approved
lending policies establish loan approval requirements for its various types of
loan products. Pursuant to the Bank's Residential Mortgage Lending Policy, all
residential mortgage loans require three signatures for approval, at least one
of which must be from the President, Executive Vice President or a Senior Vice
President (collectively, "Authorized Officers") and the other two may be from
the Bank's Senior Mortgage Officer, Loan Underwriting Manager or Senior
Underwriter. Residential mortgage loans in excess of $500,000 also must be
approved by the Loan Committee, the Executive Committee or the full Board of
Directors. Pursuant to the Bank's Commercial Real Estate Lending Policy, all
loans secured by commercial real estate properties and multi-family income
producing properties, must be approved by the President or the Executive Vice
President upon the recommendation of the Commercial Loan Department Manager.
Such loans in excess of $400,000 also require Loan or Executive Committee or
Board approval. In accordance with the Bank's Consumer Loan Policy, all consumer
loans require two signatures for approval, one of which must be from an
Authorized Officer. The Bank's Construction Loan Policy requires that all
construction loans must be approved by the Loan or Executive Committee or the
Board of Directors of the Bank. Any loan, regardless of type, that deviates from
the Bank's written loan policies must be approved by the Loan or Executive
Committee or the Bank's Board of Directors.
For all loans originated by the Bank, upon receipt of a completed loan
application, a credit report is ordered and certain other financial information
is obtained. An appraisal of the real estate intended to secure the proposed
loan is required. Such appraisals currently are performed by the Bank's staff
appraiser or an independent appraiser designated and approved by the Bank. The
Bank's Board of Directors annually approves the independent appraisers used by
the Bank and approves the Bank's appraisal policy. It is the Bank's policy to
require borrowers to obtain title insurance and hazard insurance on all real
estate first mortgage loans prior to closing. Borrowers generally are required
to advance funds on a monthly basis together with each payment of principal and
interest to a mortgage escrow account from which the Bank makes disbursements
for items such as real estate taxes and, in some cases, hazard insurance
premiums.
Loan Concentrations. The maximum amount of credit that the Bank can
extend to any single borrower or related group of borrowers generally is limited
to 15% of the Bank's unimpaired capital and surplus. Applicable law and
regulations permit an additional amount of credit to be extended, equal to 10%
of unimpaired capital and surplus, if the loan is secured by readily marketable
collateral, which generally does not include real estate. See "Regulation."
However, it is currently the Bank's policy not to extend such additional credit.
At December 31, 1996, the Bank had no loans in excess of the maximum dollar
amount of loans to one borrower that the Bank was authorized to make. At that
date, the three largest concentrations of loans to one borrower consisted of
loans secured by apartment buildings, with an aggregate principal balance of
$3.3 million, $2.7 million and $2.4 million for each of the three borrowers.
Loan Servicing. At December 31, 1996, loans aggregating $48.8 million
were being serviced for others by the Bank. The Bank's policy is to retain the
servicing rights to the mortgage loans that it sells in the secondary market. In
order to increase revenue, management intends to continue this policy.
Asset Quality
Loan Collection. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to induce the borrower to cure the
delinquency and restore the loan to current status. In the case of residential
mortgage loans and consumer loans, the Bank generally sends the borrower a
written notice of non-payment when the loan is first past due. In the event
payment is not then received, additional letters and phone calls generally are
made in order to encourage the borrower to meet with a representative of the
Bank to discuss the delinquency. If the loan still is not brought current and it
becomes necessary for the Bank to take legal action, which typically occurs
after a loan is delinquent 45 days or more, the Bank may commence foreclosure
proceedings against real property that secures the loan and attempt to repossess
personal property that secures a consumer loan or co-operative apartment loan.
If a foreclosure action is instituted and the loan is not brought current, paid
in full, or refinanced before the foreclosure sale, the real property securing
the loan generally is sold at foreclosure or by the Bank as soon thereafter as
practicable. Decisions as to when to commence foreclosure actions for
multi-family, commercial real estate and construction loans are made on a case
by case basis. Since foreclosure typically halts the sale of the collateral and
may be a lengthy procedure in the State of New York, the
12
Bank may consider loan work-out arrangements to work with multi-family or
commercial real estate borrowers in an effort to restructure the loan rather
than foreclose, particularly if the borrower is, in the opinion of management,
able to manage the project. In certain circumstances, on rental properties, the
Bank may institute proceedings to seize the rent.
On mortgage loans or loan participations purchased by the Bank, the
Bank receives monthly reports from its loan servicers with which it monitors the
loan portfolio. Based upon servicing agreements with the servicers of the loans,
the Bank relies upon the servicer to contact delinquent borrowers, collect
delinquent amounts and initiate foreclosure proceedings, when necessary, all in
accordance with applicable laws, regulations and the terms of the servicing
agreements between the Bank and its servicing agents.
13
Delinquent Loans and Non-performing Assets. The following table sets
forth delinquencies in the Bank's loan portfolio at the dates indicated:
At December 31,
-----------------------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More 60-89 Days 90 Days or More
----------------------------------------------------------------------------------------------------------
Number Number Number Number Number Number
of Principal of Principal of Principal of Principal of Principal of Principal
Loans Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans Balance
----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
One-to-four family ...... 2 $ 705 15 $1,835 1 $ 149 25 $2,276 3 $ 198 24 $2,389
Co-operative ............ -- -- 2 32 1 53 2 109 4 245 3 153
Multi-family ............ -- -- 3 505 1 441 4 2,119 -- -- 3 890
Commercial .............. -- -- -- -- -- -- 3 427 1 88 5 1,452
Construction ............ -- -- -- -- -- -- -- -- -- -- 1 364
----- ------ ----- ------ ----- ------ ----- ------ ------ ------ ----- -------
Total mortgage loans .. 2 705 20 2,372 3 643 34 4,931 8 531 36 5,248
Other loans ............. 3 2 6 36 2 1 5 50 4 4 6 63
Total loans ----- ------- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------
delinquent .......... 5 $ 707 26 $2,408 5 $ 644 39 $4,981 12 $ 535 42 $5,311
===== ======= ===== ======= ===== ======= ===== ====== ===== ======= ===== =======
Delinquent loans to
gross loans ........... 0.18% 0.62% 0.22% 1.74% 0.21% 2.05%
14
The Bank reviews the problem loans in its portfolio on a monthly basis
to determine whether any loans require classification in accordance with
internal policies and applicable regulatory guidelines. Generally, all
non-performing loans delinquent 90 days or more, commercial real estate loans
pending foreclosure and real estate owned ("REO") require classification. See
"--Classified and Special Mention Assets."
The Bank generally discontinues accruing interest on delinquent loans
when a loan is 90 days past due or foreclosure proceedings have been commenced,
whichever first occurs. Loans in default 90 days or more as to their maturity
date but not their payments, however, continue to accrue interest. With respect
to loans on non-accrual status, previously accrued but unpaid interest is
deducted from interest income six months after the date it becomes past due.
The following table sets forth information regarding all non-accrual
loans, loans which are 90 days or more delinquent, and REO at the dates
indicated. During the years ended December 31, 1996, 1995 and 1994, the amounts
of additional interest income that would have been recorded on non-accrual
loans, had they been current, totaled $145,000, $344,000 and $371,000,
respectively. These amounts were not included in the Bank's interest income for
the respective periods.
At December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands)
Non-accrual mortgage loans ............... $ 2,372 $ 4,697 $ 5,234 $11,548 $21,615
Other non-accrual loans .................. 36 50 63 142 --
--------- --------- --------- --------- ---------
Total non-accrual loans ............. 2,408 4,747 5,297 11,690 21,615
--------- --------- --------- --------- ---------
Mortgage loans 90 days or more delinquent
and still accruing..................... -- 234 14 4 195
Other loans 90 days or more delinquent
and still accruing .................... -- -- -- 1 415
--------- --------- --------- --------- ---------
Total non-performing loans .......... 2,408 4,981 5,311 11,695 22,225
--------- --------- --------- --------- ---------
In-substance foreclosed real estate ...... -- -- 372 4,772 5,123
Foreclosed real estate ................... 1,218 1,869 3,096 2,990 3,409
--------- --------- --------- --------- ---------
Total REO ........................... 1,218 1,869 3,468 7,762 8,532
--------- --------- --------- --------- ---------
Total non-performing assets ......... $ 3,626 $ 6,850 $ 8,779 $19,457 $30,757
========= ========= ========= ========= =========
Troubled debt restructurings ............. -- -- $ 3,220 $ 6,029 $ 1,429
========= ========= ========= ========= =========
Non-performing loans to gross loans (1) .. 0.62% 1.74% 2.05% 4.47% 7.39%
Non-performing assets to total assets (1). 0.47% 0.97% 1.48% 3.16% 5.16%
- ----------
(1) Ratios do not include troubled debt restructurings where the loans are
performing in accordance with the agreement.
REO. The Bank has been aggressively marketing its REO properties. Total
REO, including in-substance foreclosed loans, had consistently decreased from
$8.5 million at December 31, 1992 to $1.2 million at December 31, 1996. To
facilitate the sale of REO, the Bank originated eight loans totaling $492,000
during 1995, and nine loans totaling $307,000 during 1996.
At December 31, 1996, the largest single REO property resulted from a
commercial real estate loan secured by an office building with a net book value
of $729,000. REO properties are carried at the lower of carrying amount or fair
value less estimated costs to sell. This determination is made on an individual
asset basis. "Carrying amount" represents the book value of the loan at the time
a property is foreclosed (after any charge-off against the allowance for loan
losses to reflect any difference between the book value of the loan and the fair
market value of the collateral), less any payments subsequently received in
respect of such loan such as payments from private mortgage insurance or court
appointed receivers. See "--Allowance for Loan Losses." If the subsequent fair
value is less than the carrying amount, the deficiency is recognized as an REO
valuation allowance and, accordingly, is charged against earnings through a
provision for losses on REO.
15
The following table sets forth the activity in the Bank's REO portfolio
for the three months ended on each of the indicated dates:
For the Three Months Ended
-------------------------------------------
March June September December
1996 1996 1996 1996
--------- --------- ----------- -----------
(Dollars in thousands)
Balance, beginning of period........ $1,869 $1,667 $1,764 $1,929
Foreclosures and other acquisitions. 207 415 364 --
Less: Sales......................... 466 313 190 756
Reductions(1)................. (57) 5 9 (45)
--------- --------- ----------- -----------
Balance, end of period.............. $1,667 $1,764 $1,929 $1,218
========= ========= =========== ===========
(1) Reductions include provisions for losses on REO and payments received
subsequent to foreclosure from private mortgage insurance and from
court appointed receivers.
The following table sets forth the approximate change in the allowance
for losses on REO for the three years ended December 31, 1996:
For the Years Ended December 31,
----------------------------------
1996 1995 1994
---------- -------- -----------
(Dollars in thousands)
----------------------------------
Balance, beginning of year ....... $ 388 $ 774 $1,028
Provision ........................ 219 311 575
Less: Reduction due to sale of ORE (326) 697 829
---------- -------- --------
Balance, end of year ............. $ 281 $ 388 $ 774
========== ======== ========
Although the Bank currently obtains environmental reports in connection
with the underwriting of commercial real estate loans, it obtains environmental
reports in connection with the underwriting of multi-family and other loans only
if the nature of the current or, to the extent known to the Bank, prior use of
the property securing the loan indicates a potential environmental risk.
However, the Bank may not be aware of such uses or risks in any particular case,
and, accordingly, there is no assurance that real estate acquired by the Bank in
foreclosure is free from environmental contamination or that, if any such
contamination or other violation exists, the Bank will not have any liability
therefor.
Classified and Special Mention Assets. Federal regulations and Bank
policy require the classification of loans and other assets, such as debt and
equity securities considered to be of lesser quality, as "substandard,"
"doubtful" or "loss" assets. An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the institution will sustain
"some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectable" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted. Assets which do not currently expose the Bank to sufficient
risk to warrant classification in one of the aforementioned categories but
possess weaknesses are designated "special mention."
The Bank has a loan secured by a fully occupied one-story retail
building with six stores, located in Queens, that is listed as special mention.
The Bank has completed its foreclosure action and has been granted judgment on
foreclosure. The mortgagor has agreed to make full monthly payments plus
additional payments to be applied towards the arrears. At December 31, 1996, all
payments due under the borrower's agreement were current and the net book value
of the loan was $1.5 million. Since this loan is performing in accordance with
the terms of the borrower's agreement, it is recorded on an accrual basis. At
December 31, 1996, the Bank had no other classified asset (or group of assets)
listed as substandard or special mention with a net book value of
16
$1.0 million or more. Net book value of REO is the lower of carrying amount or
fair value less estimated selling costs.
Allowance for Loan Losses
The Bank has established and maintains on its books an allowance for
loan losses that is designed to provide reserves for estimated losses inherent
in the Bank's overall loan portfolio. The allowance is established through a
provision for loan losses based on management's evaluation of the risk inherent
in the various components of its loan portfolio and other factors, including
historical loan loss experience, changes in the composition and volume of the
portfolio, collection policies and experiences, trends in the volume of
non-accrual loans and regional and national economic conditions. The
determination of the amount of the allowance for loan losses includes estimates
that are susceptible to significant changes due to changes in appraisal values
of collateral, national and regional economic conditions and other factors. In
connection with the determination of the allowance, the market value of
collateral ordinarily is evaluated by the Bank's staff appraiser; however, the
Bank may from time to time obtain independent appraisals for significant
properties. Current year charge-offs, charge-off trends, new loan production and
current balance by particular loan categories also are taken into account in
determining the appropriate amount of the allowance.
In assessing the adequacy of the allowance, management reviews the
Bank's loan portfolio by separate categories which have similar risk and
collateral characteristics; e.g. commercial real estate, multi-family real
estate, one-to-four family loans, co-operative apartment loans and consumer
loans. General provisions are established against performing loans in the Bank's
portfolio in amounts deemed prudent from time to time based on the Bank's
qualitative analysis of the factors described above. The determination of the
amount of the allowance for loan losses also includes a review of loans on which
full collectability is not reasonably assured. The primary risk element
considered by management with respect to each consumer and one-to-four family
and cooperative apartment loan is any current delinquency on the loan. The
primary risk elements considered with respect to commercial real estate and
multi-family loans are the financial condition of the borrower, the sufficiency
of the collateral (including changes in the value of the collateral) and the
record of payment. When a judgment is made that a specific loan involves a risk
of default and loss that is greater than the norm for loans in the relevant
category, that loan or a portion thereof may be classified loss, doubtful or
substandard. In addition, loans that are judged not to require specific
classification at a particular time, but require close monitoring, are
categorized as "special mention" loans. See "--Classified Assets."
The Bank establishes two types of reserves: specific reserves and
general valuation reserves. Specific reserves are established to reflect an
actual loss or the best estimate of the risk of loss on a specific loan as of a
certain date. All specific reserves are equivalent to direct charge-offs and are
reflected as direct reductions to the allowance for loan losses and the related
loan balances. Specific reserves are established for 100% of the portion of
loans that are classified as loss.
General valuation reserves represent allowances that have been
established to recognize the inherent risk associated with lending activities.
With respect to loans classified by the Bank as substandard and the portion of
loans classified doubtful or categorized as special mention, the Bank will make
additional provision to its general valuation reserves in an amount equal to a
percentage of principal amount outstanding at the time, currently ranging from
1.5% to 15%, which is determined from time to time by the Bank according to loan
type and classification. Additional provisions may be made to the general
valuation allowance to cover loans which are deemed not to require
classification or categorization as special mention, but are performing loans
where the Bank has knowledge that the financial condition of the borrower has
deteriorated. Provisions to the Bank's general valuation allowance are charged
against net income.
In addition, when real estate loans are foreclosed, the loan balance is
compared to the fair value of the property. The Bank evaluates the fair market
value of properties on the basis of information readily available to the Bank at
the time the properties are classified as REO. If the carrying value of the loan
at the time of foreclosure exceeds the fair value of the property, the
difference is charged to the allowance for loan losses and the fair value of the
property becomes the book value of the REO. The REO is subsequently carried at
the lower of
17
the carrying value of the loan or the fair value of the property less estimated
costs of sale with any further adjustment reflected as a charge against
earnings. See "--Asset Quality--REO."
The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS and the
Federal Deposit Insurance Corporation ("FDIC"), which can require the
establishment of additional general allowances or specific loss allowances or
require charge-offs. Such authorities may require the Bank to make additional
provisions to the allowance based on their judgments about information available
to them at the time of their examination. An OTS policy statement provides
guidance for OTS examiners in determining whether the levels of general
valuation allowances for savings institutions are adequate. The policy statement
requires that if a savings institution's general valuation allowance policies
and procedures are deemed to be inadequate, the general valuation allowance
would be compared to certain ranges of general valuation allowances deemed
acceptable by the OTS depending in part on the savings institution's level of
classified assets.
The Bank's provision for loan losses was $418,000, $496,000 and
$246,000 for the years ended December 31, 1996, 1995 and 1994, respectively. At
December 31, 1996, the total allowance for loan losses was $5.4 million,
representing 225.79% of non-performing loans and 149.94% of non-performing
assets, an increase from the December 31, 1995 ratios of 106.61% and 77.52%
respectively. The Bank continues to monitor and modify the level of its
allowance for loan losses in order to maintain the allowance at a level which
management considers adequate to provide for potential loan losses based on
available information.
Management of the Bank believes that the current allowance for loan
losses is adequate in light of current economic conditions and the composition
of its loan portfolio and other available information and the Board of Directors
concurs in this belief. However, many factors may require additions to the
allowance for loan losses in future periods beyond those reasonably anticipated.
These factors include future adverse changes in economic conditions, changes in
interest rates and changes in the financial capacity of individual borrowers
(any of which may affect the ability of borrowers to make repayments on loans),
changes in the local real estate market and the value of collateral, or a review
and evaluation of the Bank's loan portfolio in the future. The determination of
the amount of the allowance for loan losses includes estimates that are
susceptible to significant changes due to changes in appraisal values of
collateral, national and regional economic conditions, interest rates and other
factors. In addition, the Bank's increased emphasis on commercial real estate
and multi-family loans can be expected to increase the overall level of credit
risk inherent in the Bank's loan portfolio. The greater risk associated with
commercial real estate and multi-family loans may require the Bank to increase
its provisions for loan losses and to maintain an allowance for loan losses as a
percentage of total loans that is in excess of the allowance currently
maintained by the Bank. Provisions for loan losses are charged against net
income. See "--Lending Activities" and "--Asset Quality."
The following table sets forth the Bank's allowance for loan losses at
and for the dates indicated.
For the Years Ended December 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance at beginning of year ............... $5,310 $5,370 $5,723 $4,555 $3,242
Provision for loan losses .................. 418 496 246 2,522 2,809
Loans charged-off:
One-to-four family .................... 220 312 341 287 494
Co-operative .......................... 162 183 71 33 120
Multi-family .......................... 41 251 14 344 389
Commercial ............................ 68 260 303 716 669
Construction .......................... -- -- -- -- --
Other ................................. 44 46 65 147 83
-------- -------- -------- -------- --------
Total loans charged-off ............... 535 1,052 794 1,527 1,755
-------- -------- -------- -------- --------
Recoveries:
Mortgage loans ........................ 244 496 195 173 --
Other ................................. -- -- -- -- 259
-------- -------- -------- -------- --------
Total recoveries ...................... 244 496 195 173 259
-------- -------- -------- -------- --------
Balance at end of year ..................... $5,437 $5,310 $5,370 $5,723 $4,555
======== ======== ======== ======== ========
Ratio of net charge-offs during the year to
average loans outstanding during the year 0.09% 0.21% 0.24% 0.47% 0.47%
18
For the Years Ended December 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
Ratio of allowance for loan losses to
gross loans at end of year ................ 1.39% 1.85% 2.07% 2.19% 1.51%
Ratio of allowance for loan losses to
non-performing loans at the end of year.... 225.79% 106.61% 101.11% 48.94% 20.49%
Ratio of allowance for loan losses to
non-performing assets at the end of year... 149.94% 77.52% 61.17% 29.41% 14.81%
19
The following table sets forth the Bank's allocation of its allowance
for loan losses to the total amount of loans in each of the categories listed at
the dates indicated. The numbers contained in the "Amount" column indicate the
allowance for loan losses allocated for each particular loan category. The
numbers contained in the column entitled "Percentage of Loans in Category to
Total Loans" indicate the total amount of loans in each particular category as a
percentage of the Bank's total loan portfolio.
At December 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- -------------------- --------------------- ------------------ -------------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Loan Category Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------------- ------- -------- -------- -------- -------- -------- -------- -------- -------- ------
(Dollars in thousands)
Mortgage Loans:
One-to-four family ..... $223,273 57.28% $ 1,126 54.20% $ 1,132 51.39% $ 957 51.61% $ 866 56.10%
Co-operative ........... 13,245 3.40 407 5.11 125 6.24 38 6.54 68 6.48
Multi-family ........... 104,870 26.91 1,625 24.11 1,024 21.85 1,171 18.91 1,207 18.11
Commercial ............. 46,698 11.98 2,139 15.77 3,070 19.13 3,507 20.77 2,164 17.97
Construction ........... -- -- -- -- -- 0.14 -- 0.72 -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total mortgage loans . 388,086 99.57 5,297 99.19 5,351 98.75 5,673 98.55 4,305 98.66
Other loans ............ 1,680 0.43 13 0.81 19 1.25 50 1.45 250 1.34
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total ................ $389,766 100.00% $ 5,310 100.00% $ 5,370 100.00% $ 5,723 100.00% $ 4,555 100.00%
======== ======== ======== ======== ======== ======== ======== ======== ======== -======
20
Investment Activities
General. The investment policy of the Company, which is approved by the
Board of Directors, is designed primarily to manage the interest rate
sensitivity of its overall assets and liabilities, to generate a favorable
return without incurring undue interest rate and credit risk, to complement the
Bank's lending activities and to provide and maintain liquidity. In establishing
its investment strategies, the Company considers its business and growth
strategies, the economic environment, its interest rate sensitivity "gap"
position, the types of securities to be held, and other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Management Strategy," included in the Annual Report and incorporated
herein by reference.
Federally chartered savings institutions have authority to invest in
various types of assets, including U.S. government obligations, securities of
various federal agencies, mortgage-backed and mortgage-related securities,
certain certificates of deposit of insured banks and savings institutions,
certain bankers acceptances, repurchase agreements, loans of federal funds, and,
subject to certain limits, corporate securities, commercial paper and mutual
funds. All mortgage-backed securities held by the Bank are directly or
indirectly insured or guaranteed by FNMA, FHLMC or the Government National
Mortgage Association ("GNMA").
The Investment Committee of the Bank and the Company meets quarterly to
monitor investment transactions and to establish investment strategy. The Board
of Directors reviews the investment policy on an annual basis and investment
activity on a monthly basis.
SFAS 115, which was adopted by the Company, effective December 31,
1993, requires that investments in equity securities that have readily
determinable fair values and all investments in debt securities are to be
classified in one of the following three categories and accounted for
accordingly: (1) trading securities; (2) securities available for sale; and (3)
securities held to maturity. Unrealized gains or losses on trading securities
would be included in the determination of net income; however, the Company does
not intend to trade securities. Unrealized gains and losses for
available-for-sale securities are excluded from earnings and reported as a net
amount in a separate component of equity, net of taxes. At December 31, 1996,
the Company had $331.9 million in securities available for sale which
represented 42.81% of total assets. These securities had an aggregate market
value at that date that was approximately 2.5 times the amount of the Company's
equity at that date. The cumulative balance of unrealized loss on securities
available for sale was $1.2 million, net of taxes, at December 31, 1996. As a
result of SFAS 115 and the magnitude of the Company's holdings of securities
available for sale, changes in interest rates could produce significant changes
in the value of such securities and could produce significant fluctuations in
the equity of the Company. See Note 7 of "Notes to Consolidated Financial
Statements," included in the Annual Report and incorporated herein by reference.
The Company may from time to time sell securities and realize a loss if the
proceeds of such sale may be reinvested in loans or other assets offering more
attractive yields.
In November 1995, the Financial Accounting Standards Board ("FASB")
issued a special report entitled "A Guide to Implementation of Statement #115 on
Accounting for Certain Investments in Debt and Equity Securities", which gave
the Company a one-time opportunity to reconsider its ability and intent to hold
securities to maturity, and allowed the Company to transfer securities from
held-to-maturity to other categories without tainting its remaining
held-to-maturity securities. Accordingly, on December 29, 1995, the Company
moved all securities classified as held-to-maturity to available-for-sale,
totaling $94.7 million, net of a $1.4 million unrealized gain.
At December 31, 1996, the Company had no investment in a particular
issuer's securities that either alone, or together with any investments in the
securities of any affiliate(s) of such issuer, exceeded 10% of the Company's
equity.
21
The table below sets forth certain information regarding the amortized
cost and market values of the Company's securities portfolio at the dates
indicated. Securities held for investment/to maturity are recorded at amortized
cost. Securities available for sale are recorded at market value. See Note 7 of
Notes to Consolidated Financial Statements, included in the Annual Report,
incorporated herein by reference.
At December 31,
-------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ----------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
-------- -------- -------- -------- -------- --------
(In thousands)
Securities held for investment/to
maturity:
Bond and other debt securities: ...................... -- -- -- -- -- --
U.S. government and agencies ....................... -- -- -- -- -- --
Obligations of states &
political subdivisions .......................... -- -- -- -- $ 1,241 $ 1,243
Corporate debt ..................................... -- -- -- -- 876 876
Public utility ..................................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total bonds and other debt securities .............. -- -- -- -- 2,117 2,119
-------- -------- -------- -------- -------- --------
Equity securities:
Redeemable preferred stock(1) ...................... -- -- -- -- 5,736 5,641
-------- -------- -------- -------- -------- --------
Total equity securities: ........................... -- -- -- -- 5,736 5,641
-------- -------- -------- -------- -------- --------
Mortgage-backed securities:
FHLMC .............................................. -- -- -- -- 37,076 35,537
FNMA ............................................... -- -- -- -- 40,453 36,210
GNMA ............................................... -- -- -- -- 5,563 5,119
Collateralized mortgage ............................ -- -- -- -- -- --
obligations
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities ................... -- -- -- -- 83,092 76,866
-------- -------- -------- -------- -------- --------
Total debt and equity
securities held
for investment/to maturity ...................... -- -- -- -- 90,945 84,626
======== ======== ======== ======== ======== ========
Securities available for sale:
Bonds and other debt securities:
U.S. government and agencies ....................... $150,045 $148,141 $116,296 $116,728 50,776 46,949
Corporate debentures ............................... 37,656 38,171 77,227 78,662 54,620 52,995
Public utility ..................................... 4,305 4,294 6,389 6,501 3,979 3,975
-------- -------- -------- -------- -------- --------
Total bonds and other debt
securities ......................................... 192,006 190,606 199,912 201,891 109,375 103,919
-------- -------- -------- -------- -------- --------
Equity securities:
Perpetual preferred stock(1) ....................... 250 251 250 256 250 211
-------- -------- -------- -------- -------- --------
Total equity securities ............................ 250 251 250 256 250 211
-------- -------- -------- -------- -------- --------
Mortgage-backed securities:
FHLMC .............................................. 47,217 46,406 61,529 61,845 24,760 22,709
FNMA ............................................... 83,727 83,756 105,374 106,265 67,936 62,205
GNMA ............................................... 10,973 10,876 11,354 11,190 7,537 6,933
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities.................... 141,917 141,038 178,257 179,300 100,233 91,847
-------- -------- -------- -------- -------- --------
Total debt and equity securities
available for sale: ................................ 334,173 331,895 378,419 381,447 209,858 195,977
======== ======== ======== ======== ======== ========
Interest-bearing deposits and
federal funds sold ................................. 27,465 27,465 7,438 7,438 9,000 9,000
FHLB - New York stock ................................ 4,158 4,158 3,787 3,787 1,881 1,881
-------- -------- -------- -------- -------- --------
Total debt and equity securities ................... $365,796 $363,518 $389,644 $392,672 $311,684 $291,484
======== ======== ======== ======== ======== ========
- ----------------
(1) Acquired prior to the Bank's Conversion to federal mutual charter.
Generally, federal savings banks are not permitted to invest in equity
securities. In connection with the Bank's conversion to a federal charter,
the OTS has permitted the Bank to retain such securities up to May 10,
1997.
Mortgage-backed securities. All of the mortgage-backed securities
currently held by the Company are issued or guaranteed by FNMA, FHLMC or GNMA.
At December 31, 1996, the Company had $141 million invested in mortgage-backed
securities, of which $50.2 million was invested in adjustable-rate
mortgage-backed securities. The Company anticipates that investments in
mortgage-backed securities may continue to be used in the future to offset any
significant decrease in demand for mortgage loans.
22
The following table sets forth the Company's mortgage-backed securities
purchases, securitizations, sales and principal repayments for the years
indicated:
For the
Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
At beginning of year ..................................... $ 179,300 $ 174,939 $ 167,338
Purchases of mortgage-backed securities ............. 8,415 21,444 72,180
Loans securitized ................................... -- -- 15,792
Amortization of unearned premium, net of
accretion of unearned discount ................... (908) (849) (1,525)
Net change in unrealized gains (losses) on
mortgage-backed .......................................... (2,249) 9,427 (9,373)
securities available for sale
Less:
Sales of mortgage-backed securities ................. 4,742 -- 28,378
Principal repayments received on mortgage-backed
securities ....................................... 38,778 25,661 41,095
--------- --------- ---------
Net (decrease) increase in mortgage-backed securities (38,262) 4,361 7,601
--------- --------- ---------
At end of year ........................................... $ 141,038 $ 179,300 $ 174,939
========= ========= =========
Mortgage-backed securities are more liquid than individual mortgage
loans and may be used more easily to collateralize obligations of the Bank. In
general, mortgage-backed securities issued or guaranteed by FNMA, FHLMC and GNMA
are weighted at no more than 20% for risk-based capital purposes, compared to
the risk weighting assigned to non-securitized whole loans of 50%.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed
and value of such securities. At December 31, 1996, the Bank held one
collateralized mortgage obligation ("CMO") with a market value of $4.5 million.
The Bank does not have any derivative instruments, including CMO's, with market
values that are extremely sensitive to changes in interest rates.
23
The table below sets forth certain information regarding the carrying
value, annualized weighted average yields, and maturities of the Company's debt
and equity securities at December 31, 1996. The stratification of balances is
based on stated maturities. Assumptions for repayments and prepayments are not
reflected for mortgage-backed securities.
At December 31, 1996
----------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years
------------------ ------------------- -------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Securities available for
sale:
Bonds and other debt securities:
U.S. government agencies ..... $ 500 7.50% $ 21,018 6.30% $121,527 6.91%
Corporate debt ............... 5,677 8.87 26,151 7.72 1,666 7.80
Public Utility ............... -- -- 4,305 7.06 -- --
-------- ---- -------- ---- -------- ----
Total bonds and other
securities ................. 6,177 8.76 51,474 7.08 123,193 6.92
-------- ---- -------- ---- -------- ----
Equity securities:
Perpetual preferred stock .... -- -- -- -- -- --
-------- ---- -------- ---- -------- ----
Total equity securities ...... -- -- -- -- -- --
-------- ---- -------- ---- -------- ----
Mortgage-backed securities:
FHLMC ........................ -- -- 1,310 7.11 892 6.44
FNMA ......................... -- -- 3,462 6.13 730 7.50
GNMA ......................... -- -- -- -- 874 7.44
-------- ---- -------- ---- -------- ----
Total mortgage-backed
securities ................. -- -- 4,772 6.40 2,496 7.10
-------- ---- -------- ---- -------- ----
Federal funds sold ............. 27,465 6.26 -- -- -- --
FHLB - New York stock .......... -- -- -- -- -- --
-------- ---- -------- ---- -------- ----
Total securities ............... $ 33,642 6.72% $ 56,246 7.03% $125,689 6.93%
======== ==== ======== ==== ======== ====
At December 31, 1996
-----------------------------------------------------------
More than Ten Years Total Securities
------------------- --------------------------------------
Average
Weighted Remaining Estimated Weighted
Amortized Average Years to Amortized Market Average
Cost Yield Maturity Cost Value Yield
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Securities available for
sale:
Bonds and other debt securities:
U.S. government agencies ..... $ 7,000 7.06% 8.09 $150,045 $148,141 6.83%
Corporate debt ............... 4,162 5.93 4.10 37,656 38,171 7.70
Public Utility ............... -- -- 3.69 4,305 4,294 7.06
------ ---- ---- ------- ------- ----
Total bonds and other ........
securities ................. 11,162 6.64 7.21 192,006 190,606 7.01
------ ---- ---- ------- ------- ----
Equity securities:
Perpetual preferred stock .... 250 6.72 -- 250 251 6.72
------ ---- ---- ------- ------- ----
Total equity securities ...... 250 6.72 -- 250 251 6.72
------ ---- ---- ------- ------- ----
Mortgage-backed securities:
FHLMC ........................ 45,015 7.14 19.25 47,217 46,406 7.13
FNMA ......................... 79,535 6.99 19.90 83,727 83,756 6.96
GNMA ......................... 10,099 7.10 21.80 10,973 10,876 7.13
------ ---- ---- ------- ------- ----
Total mortgage-backed ........
securities ................. 134,649 7.05 19.83 141,917 141,038 7.03
------ ---- ---- ------- ------- ----
Federal funds sold ............. -- -- -- 27,465 27,465 6.26
FHLB - New York stock .......... 4,158 6.61 -- 4,158 4,158 6.61
------ ---- ---- ------- ------- ----
Total securities ............... $150,219 7.01% 11.48 $365,796 $363,518 6.95%
------ ---- ---- ------- ------- ----
24
Sources of Funds
General. Deposits, principal and interest payments on loans,
mortgage-backed and other securities, proceeds from sales of loans and
securities and, to a lesser extent, Federal Home Loan Bank of New York
("FHLB-NY") borrowings, are the Company's primary sources of funds for lending,
investing and other general purposes.
Deposits. The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Bank's deposits principally consist of passbook
accounts, money market accounts, demand accounts, NOW accounts and certificates
of deposit. The Company has a relatively stable retail deposit base drawn from
its market area through its seven full service offices. The Company seeks to
retain existing depositor relationships by offering quality service and
competitive interest rates, while keeping deposit growth within reasonable
limits. It is management's intention to balance its goal to remain competitive
in interest rates on deposits while seeking to manage its cost of funds to fund
its strategies
The Company's core deposits, consisting of passbook accounts, NOW
accounts, money market, and non-interest bearing demand accounts, are typically
more stable and lower cost than other sources of funding. However, the flow of
deposits into a particular type of account is influenced significantly by
general economic conditions, changes in money market and prevailing interest
rates and competition. During the low interest rate environment in 1995 and
1996, the Company experienced a shift by depositors from passbook accounts to
higher costing certificate of deposit accounts. Although the Company has not had
to raise interest rates on its passbook accounts to remain competitive, it has
had to increase the rates offered on its certificates of deposit. These trends
contributed to the increase in the Company's higher average cost of funds from
3.37% for 1994, to 4.15% for 1995 and to 4.39% for 1996. A continuation of these
trends could result in a further increase in the Company's cost of funds and a
narrowing of the Company's net interest margin.
At December 31, 1996, $22.0 million, or 3.77% of the Bank's total
deposits consisted of certificates of deposit accounts with a balance of
$100,000 or greater.
25
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented.
At December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
Passbook accounts(1) ................... $209,690 35.88% 2.86% $215,578 38.52% 2.86% $255,037 47.93% 2.86%
NOW accounts(1) ........................ 21,408 3.66 1.90 19,565 3.49 1.90 18,773 3.53 1.90
Demand accounts(1) ..................... 10,293 1.76 -- 10,372 1.85 -- 10,003 1.88 --
Mortgagors' escrow deposits(1) ......... 3,425 0.59 2.00 2,457 0.44 2.00 2,701 0.51 2.00
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total ............................. 244,816 41.89 2.64 247,972 44.30 2.66 286,514 53.85 2.69
-------- ------ ---- -------- ------ ---- -------- ------ ----
Money market accounts(1) ............... 25,180 4.31 2.81 27,590 4.93 2.81 36,293 6.82 2.81
-------- ------ ---- -------- ------ ---- -------- ------ ----
Certificate of deposit accounts:
$100,000 or more ..................... 22,047 3.77 5.86 16,819 3.00 5.93 10,345 1.94 5.00
CD's original maturity of:
6 months and less ................. 50,228 8.59 5.04 46,617 8.33 5.05 39,795 7.48 4.04
6 to 12 months .................... 74,063 12.67 5.15 71,235 12.72 5.70 45,075 8.47 4.19
12 to 30 months ................... 86,853 14.87 6.20 71,297 12.73 6.06 39,235 7.37 4.54
30 to 48 months ................... 15,307 2.62 6.10 10,340 1.85 5.86 7,348 1.38 5.21
48 to 72 months ................... 47,079 8.05 6.10 47,445 8.47 6.25 43,821 8.23 6.14
72 months or more ................. 901 0.15 5.90 929 0.17 5.90 1,940 0.37 5.99
IRA and Keogh accounts ................. 18,005 3.08 5.54 19,620 3.50 5.89 21,775 4.09 4.87
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total ............................. 314,483 53.80 5.69 284,302 50.77 5.81 209,334 39.33 4.80
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits ......................... $584,479 100.00% 4.29% $559,864 100.00% 4.27% $532,141 100.00% 3.53%
======== ====== ==== ======== ====== ==== ======== ====== ====
(1) Weighted average nominal rate as of the year end date equals the stated
rate offered.
26
The following table presents by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated and the years
to maturity of the certificate accounts outstanding at December 31, 1996.
At December 31, 1996
--------------------------------------
At December 31, Within One to
---------------------------- One Three There-
1996 1995 1994 Year Years after Total
---- ---- ---- ---- ----- ----- -----
(In thousands)
Certificate of deposit
accounts:
2.99 or less............... $ 37 $ 47 $ 125 $ 37 -- -- $ 37
3.00 to 3.99............... -- 2 57,886 -- -- -- --
4.00 to 4.99............... 28,283 21,338 64,476 27,647 $ 636 -- 28,283
5.00 to 5.99............... 192,557 150,410 53,040 133,944 50,321 $ 8,292 192,557
6.00 to 6.99............... 59,822 75,448 22,990 23,783 25,147 10,892 59,822
7.00 to 7.99............... 33,784 37,057 8,976 534 31,423 1,827 33,784
8.00 to 8.99............... 1,841 --
-------- -------- -------- -------- -------- ------- --------
Total.................... $314,483 $284,302 $209,334 $185,945 $107,527 $21,011 $314,483
======== ======== ======== ======== ======== ======= ========
The following table presents by various maturity categories the amount
of certificate of deposit accounts with balances of $100,000 or more at December
31, 1996 and their annualized weighted average interest rates.
Weighted
Average
Amount Rate
------- ----
(In thousands)
Maturity Period
Three months or less .................. $ 6,693 5.73%
Over three through six months ......... 3,286 5.39
Over six through 12 months ............ 3,818 5.57
Over 12 months ........................ 8,250 6.29
------- ----
Total ............................... $22,047 5.86%
======= ====
The following table presents the deposit activity of the Bank for the
periods indicated.
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
Deposits(1)(2) ...................... $ 626,121 $ 793,356 $ 773,835
Withdrawals(2) ...................... 625,668 787,980 822,453
--------- --------- ---------
Net deposits\(withdrawals) ....... 453 5,376 (48,618)
Interest credited on deposits ....... 24,162 22,347 19,303
--------- --------- ---------
Total increase in deposits ..... $ 24,615 $ 27,723 $ (29,315)
========= ========= =========
- ------------
(1) Includes mortgagors' escrow deposits.
(2) Reflects deposits attributable to subscription orders in the first
proposed stock conversion discontinued in 1994, in the amounts of
$162.9 million deposited and $163.8 million