-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYohTMzXD0xmpeZkAlFOO1/NriLn/DsgbFXG5JEwGktcTDF1lskvbYyMEOUSKg7x JN+LcpkjIFNc8j73plb1uw== 0000950172-96-000553.txt : 19960913 0000950172-96-000553.hdr.sgml : 19960913 ACCESSION NUMBER: 0000950172-96-000553 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960912 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960912 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10458 FILM NUMBER: 96629035 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5162985000 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________ September 12, 1996 Date of Report (Date of Earliest Event Reported) NORTH FORK BANCORPORATION, INC. (Exact Name of Registrant as Specified in Charter) Delaware 0-1280 36-315468 (State or Other (Commission File (I.R.S. Employer Jurisdiction Number) Identification No.) of Incorporation) 275 Broad Hollow Road Melville, New York (Address of Principal Executive Offices) 11747 (Zip Code) (516) 298-5000 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of the Business Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Exhibits. Unless otherwise included herein, exhibits to the following documents are not included in, or made a part of, this Current Report on Form 8-K. 99.1 North Side Savings Bank Annual Report on Form F-2 for the fiscal year ended September 30, 1995. 99.2 North Side Savings Bank Quarterly Report on Form F-4 for the quarter ended December 31, 1995. 99.3 North Side Savings Bank Quarterly Report on Form F-4 for the quarter ended March 31, 1996. 99.4 North Side Savings Bank Quarterly Report on Form F-4 for the quarter ended June 30, 1996. 99.5 North Side Savings Bank Current Report on Form F-3 for the month of January 1996. 99.6 North Side Savings Bank Current Report on Form F-3 for the month of March 1996. 99.7 North Side Savings Bank Current Report on Form F-3 for the month of April 1996. 99.8 North Side Savings Bank Current Report on Form F-3 for the month of July 1996. 99.9 North Side Savings Bank Proxy Statement, dated December 22, 1995. 99.10 Description of North Side Capital Stock (as included in North Side's Offering Circular dated March 24, 1986) 99.11 North Side Savings Bank Registration Statement on Form F- 10, dated April 23, 1996. 99.12 North Side Savings Bank Amendment No. 1 to the Registration Statement on Form F-10, dated as of August 21, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORTH FORK BANCORPORATION, INC. By: /s/ Daniel M. Healy _____________________________ Name: Daniel M. Healy Title: Executive Vice President and Chief Financial Officer Date: September 12, 1996 EX-99 2 EXHIBIT 99.1 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. FORM F-2 ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: Federal Deposit Insurance Corporation September 30, 1995 Certificate Number: 16007 NORTH SIDE SAVINGS BANK ------------------------------------------------------ (Exact name of bank as specified in its New York 13-1723204 - ------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 170 Tulip Avenue Floral Park, New York 11001 ------------------------ ---------- (Address of principal office) (Zip Code) Bank's telephone number, including area code: (516) 488-6900 Securities Registered Under Section 12(g) of the Act: Common Stock, $1.00 par value (Title of Class) Indicate by check mark if the bank, as a "small business issuer" as defined under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for small business issuers in this Form F-2. [ ] Indicate by check mark if disclosure of delinquent filers pursuant to item 10 is not contained herein, and will not be contained, to the best of the bank's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form F-2 or any amendment of this Form F-2. [ ] Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Bank was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ As of December 22, 1995, the aggregate market value of the 4,570,950 shares of Common Stock of the Registrant issued and outstanding on such date, excluding 231,729 shares held by all directors and executive officers as a group (which includes 38,331 shares held by the Registrant's Management Development and Recognition Plan Trust and a 29.2% undivided interest of principal officers in 47,143 shares (as of September 30, 1995) held by the Registrant's 401(k) Savings Plan, but does not include 108,384 shares held by the Registrant's Retirement Plan Trust II) was $128,007,020. This figure is based on the last sale price of $29.50 per share of the Bank's Common Stock on December 22, 1995. Number of shares of Common Stock outstanding as of December 22, 1995: 4,802,679. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the Form F-2 into which the document is incorporated: (1) Portions of the Annual Report to Shareholders for the year ended September 30, 1995 are incorporated by reference into Part II, Items 5, 6, 7, and 8 and Part IV, Item 11 of this Form F-2. (2) Portions of the definitive Proxy Statement for the 1996 Annual Meeting of Shareholders are incorporated by reference into Part I, Item 4 and Part III, Items 9 and 10 of this Form F-2. PART I. ITEM 1. BUSINESS GENERAL North Side Savings Bank ("North Side" or the "Bank") is a New York State chartered, stock savings bank which was chartered in 1905. North Side is currently celebrating the 90th anniversary of its founding. Deposits at the Bank are insured, up to the maximum legal limits, by the Bank Insurance Fund ("BIF"), administered by the Federal Deposit Insurance Corporation ("FDIC"). During fiscal 1995, the Bank completed the purchase of two branches from Chemical Bank located in Co-op City, Bronx and East Elmhurst, Queens. The Bank assumed approximately $48.6 million in deposits. The Bank currently has a 17 full service branch retail network serving the Bronx, Queens, Nassau and Suffolk Counties with average deposits of $70.5 million per branch at September 30, 1995. At September 30, 1995, the Bank had total assets of $1.59 billion, deposits of $1.20 billion and shareholders' equity of $116.3 million. North Side Savings Bank had net income of $15.1 million or $3.15 per share for the fiscal year ended September 30, 1995 as compared to $13.4 million or $2.82 per share for the fiscal year ended September 30, 1994. The fiscal 1995 results represent the second consecutive year of record earnings for the Bank. On a fully diluted basis, earnings per share were $3.06 for the fiscal year ended September 30, 1995. The Bank's fiscal 1995 financial performance was highlighted by increased net interest income, which was achieved primarily through additional leveraging of the Bank's capital base, continued improvements in asset quality (which resulted in a substantially reduced provision for loan losses and lower other real estate owned expense) and overall reduced operating expenses, reflecting the Bank's continuing cost control management efforts. During fiscal 1995, the yield curve generally flattened, that is, short-term rates generally were increasing over the course of the year while intermediate and long-term rates generally were decreasing during the same time period. This interest rate environment had a greater impact on the Bank's overall cost of funds than on rates earned on interest-earning assets, as average rates paid rose by 87 basis points (100 basis points being equal to 1.0%) to 3.89%, while overall asset yields increased 64 basis points to 7.08% for fiscal 1995. Consequently, the Bank's interest rate spread decreased to 3.19% for the year ended September 30, 1995 from 3.42% for the year ended September 30, 1994 and the net interest margin (net interest income divided by average interest-earning assets) decreased to 3.39% in fiscal 1995 as compared to 3.51% in fiscal 1994. However, a strong capital base coupled with substantial improvement in credit quality enabled the Bank to leverage its growth, primarily through the use of collateralized financings as a source of funds for additional assets yielding higher rates of return than the rates of interest charged on such borrowings. During fiscal 1995, average earning assets increased by $80.8 million. This growth in earning assets more than offset the decrease in the Bank's interest rate spreads and margins, and as a result net interest income increased by $1.0 million during fiscal 1995. Asset quality again improved significantly during fiscal 1995. This improvement was accomplished primarily through the bulk sale of a non-performing loan package, the sale of properties held as other real estate owned ("OREO") and specific loan charge-offs related to other non- performing loans. Non-performing loans were $4.9 million at September 30, 1995, a decrease of $9.0 million, or 64.6%, from the level at September 30, 1994. OREO also reflected a significant decrease of $5.9 million, or 69.9%, during the current fiscal year. As a result, management deemed it prudent to reduce the provision for loan losses to $2.8 million during fiscal 1995 as compared to $3.6 million during fiscal 1994. The allowance for loan losses was $6.4 million or 130.83% of non-performing loans at September 30, 1995 as compared to $11.2 million or 80.65% of non-performing loans at September 30, 1994. In addition, because of the significant decrease in OREO, OREO related expenses decreased by $750,000 for the current fiscal year. See "ASSET QUALITY" and Note 8 of the Notes to Consolidated Financial Statements. Management continued to maintain strong control over operating expenses as compensation and benefits, occupancy and equipment and other operating expenses declined by $714,000 in fiscal 1995 as compared to fiscal 1994. In addition, because of lower premiums which became effective on June 1, 1995, the Bank's BIF deposit insurance expense decreased $1.2 million in fiscal 1995 and is expected to again decrease significantly in fiscal 1996. The Bank's efficiency ratio (operating expense before OREO expense, net and restructuring expenses as a percentage of net interest income, customer service fees and other income, excluding gains and losses) was 43.59%, 47.56% and 45.65% for the fiscal years ended September 30, 1995, 1994 and 1993, respectively. The Bank strives to maintain net interest spreads and margins within relatively stable ranges in all types of interest rate environments. The Bank uses its best efforts to reduce what it perceives as inordinate interest rate risk in its asset mix. To accomplish this in fiscal 1995, the Bank continued to purchase fixed-rate mortgage-backed securities and other investments with relatively short (generally less than five years) estimated average lives or with adjustable rate features as considered appropriate. North Side has been able to maintain a significant core deposit base over time despite changes in the interest rate environment. Such core deposits help to limit interest rate risk by providing a fairly stable, low cost funding base. Because of its strong liquidity levels and cash flow, which continued during fiscal 1995, the Bank has been able to invest in higher yielding investments or repay outstanding borrowings when deemed appropriate by management. Also, because of its continuing profitability and emphasis on improving overall asset quality, North Side has utilized borrowings to a greater extent during the past several fiscal years. This has provided the Bank with the ability to more effectively leverage its capital base at incremental yields. In addition, during fiscal 1995, North Side became a member of the Federal Home Loan Bank of New York ("FHLBNY"). This membership will permit the Bank to access additional alternative funding sources when it is deemed advantageous by management to do so. North Side is subject to examination and comprehensive regulation by the Superintendent of Banks (the "Superintendent") of the Department of Banking of the State of New York ("Banking Department"), which is its primary regulator, and by the FDIC. The Bank is subject to further regulation by the Federal Reserve Board governing reserves required to be maintained against deposits and certain other matters. At December 22, 1995, the Bank had 4,802,679 shares of Common Stock issued and outstanding. North Side's Common Stock is traded over the counter and is listed on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market under the symbol "NSBK". LENDING ACTIVITIES Loan Portfolio Composition. North Side's gross loans receivable portfolio of $430.1 million at September 30, 1995 is primarily comprised of loans secured by first mortgages on one-to four-family dwellings, and, to a lesser extent, loans secured by commercial real estate, multi-family dwellings and construction loans. The Bank's loans secured by residential properties are primarily long-term, with adjustable or fixed rates of interest, and are either conventional (not insured or guaranteed by a Federal agency) or insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Veteran's Administration ("VA"). The remainder of the loan portfolio consists of loans secured by commercial real estate, commercial business loans, construction loans and other loans, which are primarily consumer loans, including secured and unsecured personal loans. Under New York law, there are no restrictions as to the percentage of assets that may be invested in any loan category. The Bank has taken extensive measures to improve the risk characteristics of its loan portfolio over the past several fiscal years. These measures have consisted of reducing exposure to loans generally deemed to be of higher risk than single-family residential loans, including commercial real estate and construction loans and, to a lesser extent, multi-family residential real estate loans. The Bank's ratio of commercial real estate, multi-family and construction loans as a percentage of total assets has declined steadily from 11.7% at September 30, 1993 to 9.1% and 7.9% at September 30, 1994 and 1995, respectively. During fiscal 1995, the gross loan portfolio decreased $57.0 million to $430.1 million at September 30, 1995. The primary reasons for the decrease were $50.5 million of loan amortizations and satisfactions, $7.9 million of loan charge-offs, $5.0 million of loans sold, and $.5 million of loans transferred to OREO. These decreases were partially offset by loan purchases and originations of $6.9 million. During fiscal 1994, the gross loan portfolio increased $97.0 million primarily as a result of the purchase of $203.4 million of seasoned mortgage loans secured by one-to four-family residences and co-op units, partially offset by $2.9 million of loan sales and $113.3 million of loan amortizations, repayments and other deductions. The following table sets forth the composition of North Side's loan portfolio by loan type and security type as of the years indicated.
September 30, 1995 1994 1993 Amount Percent Amount Percent Amount Percent (Dollars in Thousands) LOANS BY TYPE OF LOAN: Real estate mortgage loans: Conventional: One-to four-family $285,161 66.30% $322,751 66.27% $200,051 51.27% Commercial(1) 80,212 18.65 89,961 18.47 102,791 26.35 Multi-family 45,286 10.53 50,027 10.27 58,191 14.92 Construction loans 211 0.05 931 0.19 1,583 0.41 Insured or guaranteed: FHA 8,071 1.88 9,998 2.05 10,124 2.60 VA 5,049 1.17 6,153 1.26 5,566 1.43 Other loans 6,090 1.42 7,269 1.49 11,794 3.02 ------- ----- ------- ------ ------- ------ Gross loans receivable $430,080 100.00% $487,090 100.00% $390,100 100.00% ======= ======= ======= ====== ======= ====== LOANS BY TYPE OF SECURITY: Secured: One-to four-family $297,689 69.22% $338,445 69.47% $215,573 55.25% Commercial real estate and construction loans 80,423 18.70 90,892 18.66 104,374 26.76 Other dwelling units 46,241 10.75 51,007 10.47 59,195 15.17 Commercial loans (2) 2,715 0.63 3,987 0.82 5,762 1.48 Guaranteed student 1,889 0.44 1,782 0.37 1,549 0.40 Taxi medallion 181 0.04 345 0.07 720 0.18 Collateralized Personal loans 476 0.11 392 0.08 492 0.13 Automobile 52 0.01 6 0.01 46 0.01 Passbook 115 0.03 - - 7 0.01 Unsecured: Personal loans 299 0.07 234 0.05 2,382 0.61 ------- ------ ------- ------ ------- ------ Gross loans receivable $430,080 100.00% $487,090 100.00% $390,100 100.00% ======== ======= ======= ====== ======= ======
- --------------------------------------------------------------------------- (1) Includes loans secured by unimproved land (Land Loans). (2) Generally secured by mortgages or liens on real property, accounts receivable and/or other assets. The level of lending activity of North Side is affected principally by the demand for loans, competition and the supply of funds available for lending purposes. These factors are in turn affected by general economic conditions, monetary policies of the Federal government, including the Federal Reserve Board, legislative tax policies and governmental budgetary matters. Origination, Purchase and Sale of Loans. Approximately $370 million of North Side's loan portfolio is secured by first mortgages on real estate located in the New York metropolitan area and approximately $32 million of such loans are secured by properties located in California. The policy of the Bank is primarily to originate and/or purchase residential mortgage loans in its market area for the Bank's own portfolio. Residential loan originations are generally attributable to referrals from real estate brokers and builders, depositors and walk-in-customers. Commercial real estate originations are obtained primarily from real estate brokers, builders and mortgage bankers. Consumer loan originations are attributable largely to depositors and walk-in-customers. All loan applications are independently underwritten by the Bank's staff in accordance with the Bank's and regulatory standards. It is North Side's policy to obtain title insurance on all real estate loans. Borrowers also must obtain hazard insurance and, if required, flood insurance prior to closing. Borrowers may be required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which North Side makes disbursements for items such as real estate taxes, hazard insurance premiums and private mortgage insurance premiums as they become due. The directors of North Side have approved maximum lending limits for the Bank's loan personnel. Commercial and multi-family mortgage loans up to $1.0 million require the approval of two of the following: the President and CEO, the Executive Vice President and CFO or the Senior Vice President - Loan Origination. Residential mortgage loans can be approved individually up to $600,000 by the President and CEO, up to $400,000 by the Senior Vice President - Loan Origination and up to $250,000 by the Second Vice President - Loan Origination. All loans in excess of these limits must be approved by the Executive Committee of the Board of Directors. All new loans are reviewed by the Executive Committee, generally on a monthly basis. The following table shows the loan origination, purchase and sale activity of North Side on a consolidated basis during the periods indicated.
Years Ended September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Gross loans receivable at beginning of year $487,090 $390,100 $621,855 Loans purchased: Real estate mortgage loans: One-to four-family -- 203,439 -- Other loans 117 -- -- ---- -------- ------- Total 117 203,439 -- ---- -------- ------- Loans originated: Real estate mortgage loans: One-to four-family 762 1,199 2,714 Commercial 2,918 3,386 2,346 Multi-family 525 150 2,209 ------ ----- ------- Total 4,205 4,735 7,269 ------ ------- ------- Other Loans: Guaranteed student 1,349 2,064 1,253 Other 1,211 2,973 6,210 ------ ------- ------- Total 2,560 5,037 7,463 ------ ------- ------- Total loans originated, advanced or purchased 6,882 213,211 14,732 ------ ------- ------- Whole loans sold: Real estate mortgage loans: One-to four-family 1,810 -- 90,224 Commercial real estate 1,470 -- 25,235 Multi-family 258 -- 19,247 Other Loans: Guaranteed student 1,154 1,355 1,638 Other 282 1,592 -- ---- ----- Total loans sold 4,974 2,947 136,344 ------ ----- ------- Loan repayments and other deductions: Real estate mortgage loans 56,498 106,659 98,910 All other loans 2,420 6,615 11,233 ------- ------ ------- Total loan repayments and other deductions 58,918 113,274 110,143 ------- ------- ------- Total loans sold, loan repayments and other deductions 63,892 116,221 246,487 ------- ------- ------- Net loan activity (57,010) 96,990 (231,755) -------- ------ -------- Gross loans receivable at end of year 430,080 487,090 390,100 Allowance for loan losses (1) (6,417) (11,178) (11,114) Net unearned discounts and deferred fees (437) (690) (1,058) Unamortized purchase premium (discount), net 2,537 3,483 (1,012) ------ ------ ------- Net loans receivable at end of year $425,763 $478,705 $376,916 ========= ======= =======
(1) See - "Allowance for Loan Losses." Residential Real Estate Lending. At September 30, 1995, $285.2 million or 66.3% of North Side's total loan portfolio consisted of conventional one-to four-family residential mortgage loans. Residential loans are made on one-to four-family residential properties (including individual units in co-operatives), generally for up to $400,000 (although the largest loan in this portfolio is $443,000) and a maximum maturity of 30 years, and have been predominantly originated in amounts up to 80% of appraised value for owner-occupied residences. The percentage of the portfolio consisting of one-to four-family residential loans has remained stable at 66.3% at September 30, 1995 and September 30, 1994. The Bank's originations of one-to four-family residential mortgage loans decreased from $1.2 million in fiscal 1994 to $.8 million in fiscal 1995. North Side's conventional fixed-rate first mortgage loans customarily include due-on-sale clauses giving North Side the right (if applicable law permits) to declare a loan immediately due and payable in the event, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid. North Side has enforced due-on-sale clauses in its mortgage contracts for the purpose of increasing its loan portfolio yield, often through the authorization of assumptions of existing loans at higher rates of interest and/or with the imposition of assumption fees. North Side currently offers one-year adjustable-rate residential mortgage loans which have terms of up to 30 years and annual interest rate adjustments limited to 2%, with the rate adjustments based upon the weekly average yield on U.S. Treasury securities, annualized, plus 275 basis points. North Side presently limits the amount by which the interest rate can increase during the life of the loan to 7% above the initial interest rate. The adjustable-rate loans offered by North Side (as is the case with loans offered by many other institutions) may provide for initial rates of interest below the market rates which are charged on fixed-rate loans. However, the Bank underwrites all loans on the basis of the borrower's ability to pay at the rate which would be in effect without the discount, if any. The Bank also offers various fixed-rate mortgage loans with terms ranging from 10 to 30 years. At September 30, 1995, residential mortgage loans with an aggregate principal balance of $2.3 million were more than 90 days delinquent or had been placed in foreclosure, compared to $3.5 million at September 30, 1994. See "-Allowance for Loan Losses." Commercial and Multi-family Real Estate Lending. At September 30, 1995, North Side had $45.3 million, or 10.5% of its total loan portfolio, secured by conventional multi-family residential properties (over four units) and $80.2 million, or 18.7% of its total loans, secured by non-residential commercial properties, such as retail office buildings (hereinafter, such multi-family residential loans and commercial real estate loans may be referred to collectively as "income producing properties"). During the fiscal year ended September 30, 1995, the Bank originated $3.4 million in loans secured by income producing properties, compared to $3.5 million in fiscal 1994. The Bank's goal is to continue to reduce its commercial and multi-family loan portfolio, generally through loan amortization and repayments and limited new originations. Real estate lending on income producing property entails significant additional risks as compared with residential property lending. Loans secured by income producing properties typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. Supply and demand conditions in the market for office and retail space can significantly impact these rates, and therefore these loans as such may be subject to a greater extent to adverse conditions in the economy generally. In dealing with these risk factors, North Side presently limits its originations to a real estate market and/or to borrowers with which it has substantial knowledge and experience. The Bank's current policy is to limit commercial loan originations to properties in New York City, Westchester and Rockland Counties, Long Island and northern New Jersey. The Bank has not originated or purchased commercial real estate loans secured by properties outside of these areas for at least the past eight fiscal years. At September 30, 1995, the commercial and multi-family real estate loan portfolio consisted of 345 loans ranging in outstanding principal amount from less than $2,000 to $2.7 million, with an average principal balance of $367,000. North Side's loans on income producing properties are secured primarily by apartment complexes, office buildings, retail properties, unimproved land being held for development (short-term loans) and, to a lesser extent, restaurants and shopping centers. At September 30, 1995, seven commercial real estate, construction and land, and multi-family loans, with an aggregate principal balance of $2.6 million, were delinquent for more than 90 days or in foreclosure proceedings, compared to 15 loans, with an aggregate principal balance of $9.6 million, at September 30, 1994. See "-Non-Performing Assets" for discussion of collection procedures and remedies regarding delinquencies. The majority of loans on income producing properties currently offered by North Side are underwritten with a maximum term to maturity of three to five years, typically with a maximum amortization period of 20 years. Generally, the Bank's loans for improved commercial real estate do not exceed $5 million. The Bank's short-term (generally less than one year) loans on land, which generally provide interim financing until the borrower obtains construction or permanent financing, have typically not exceeded $10 million on any one loan. In setting interest rates and origination fees on new loans and loan extensions, management considers both current economic and market conditions and the risk associated with the particular project. North Side's underwriting policies with respect to loans on income producing properties are designed to ensure that a project's cash flow will be sufficient to cover operating expenses and debt service payments. A detailed analysis of the project is undertaken by North Side's commercial real estate loan underwriters. Loan-to-value ratios on commercial real estate loans made by North Side generally do not exceed 65% at origination. All income producing property loans in excess of $1.0 million are inspected, generally on an annual basis, by an officer of North Side's commercial real estate loan division or a third party contractor specializing in such services, and, in addition, appraisals are made upon origination and generally at least every three years thereafter on loans in excess of $1.0 million, or sooner, if management deems it prudent, by an approved M.A.I. (Member, Appraisal Institute) appraiser. North Side requires that the borrower obtain title insurance and hazard insurance (and, if required, flood insurance) in appropriate amounts, naming North Side as loss payee. In addition, the Bank requires that the ratio of income to debt service on income producing properties be 1.25 times or higher. Construction Lending. Due to the higher degree of risk of construction loans compared to permanent mortgage loans, North Side did not originate any construction loans in the last four fiscal years and does not intend to pursue this line of business. At September 30, 1995, the Bank had two construction loans remaining in its portfolio with an aggregate principal balance of $.2 million, or less than 1% of the gross loan portfolio, with virtually no commitment for additional funding. Commercial Business Loans. The Bank did not make any commercial business loans in the last four fiscal years. At September 30, 1995, the Bank had 35 commercial loans in its portfolio with an aggregate principal balance of $2.7 million. The majority of the Bank's commercial loans are secured, have maturities of five years or less (although generally with amortization schedules exceeding five years) and have adjustable rates of interest at a fixed percentage over the prime rate of a New York money center bank. At September 30, 1995, approximately $2.6 million of the Bank's commercial loans were secured by first or second mortgages on real estate, primarily single-family residential units. In addition, a substantial portion of the Bank's commercial loans are also secured by personal guarantees of the principals of the borrower. At September 30, 1995, there were no commercial business loans 90 days delinquent or in foreclosure, compared to eight loans with an aggregate principal balance of $.7 million at September 30, 1994. See "- Non-Performing Assets." Consumer Lending. New York law permits North Side to engage in virtually all types of consumer lending. As of September 30, 1995, a total of $3.4 million, or .8% of the gross loans receivable portfolio, consisted of consumer loans, compared to $3.3 million or .7% at September 30, 1994. The Bank's consumer loans (with the exception of guaranteed student loans and home improvement loans) have maturities of not greater than five years. Home improvement loans may have a maturity of up to ten years and student loans have a maturity which varies according to the student's tenure in school. Student loans are guaranteed by the New York State Higher Education Assistance Corporation and are routinely sold to the Student Loan Marketing Association ("Sallie Mae") by the Bank as a student approaches graduation and prior to the time any payments are required to be made to the Bank. Generally, the Bank makes secured and unsecured consumer loans in amounts ranging from $500 to $25,000 with rates ranging from 8.25% to 18.00%. A 0.5% discount is offered (except on guaranteed student loans) to depositors who authorize automatic transfer of payments from deposit accounts. Consumer loans generally involve more risk of collectibility than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. As a result, consumer lending collec- tions are dependent on the borrower's continuing financial stability, and are more likely to be adversely affected by job loss, divorce, illness, personal bankruptcy and adverse economic conditions. At September 30, 1995, the Bank's net consumer loans portfolio was comprised of $.6 million in personal loans, of which $.2 million were unsecured, with an average balance of $4,400, $1.9 million of student loans (all of which were guaranteed as to principal), $52,000 of automobile loans, $.2 million of loans secured by New York City taxi medallions, $.4 million of secured home improvement loans, $.1 million of loans secured by passbook accounts, and $.1 million of other loans. Loan Commitment Fees and Origination Fees. Loan origination fees vary with the volume and type of loans made and with competitive conditions in the market. Loan demand, new construction activity and availability of money affect these market conditions. The recognition of income from loan origination fees and certain related direct loan origination costs is deferred and amortized over the life of the related loans as an adjustment to the yield of such related loans. In addition, commitment fees are offset against related direct costs and the resulting net amount is generally recognized over the life of the related loans as an adjustment of yield, if the commitment is exercised, or if the commitment expires unexercised, recognized upon expiration of the commitment. The Bank recognized $81,000 in loan commitment and origination fees in fiscal 1995, compared to $166,000 in fiscal 1994. Under certain circumstances the Bank may agree to extend the term of a loan (generally on income producing property) which has reached maturity and generally receives a fee for doing so. Mortgage extension fees are generally deferred and recognized into income over the life of the extension. During fiscal 1995 mortgage extension fees amounted to $146,000 compared to $171,000 in fiscal 1994. Non-Performing Assets. When a borrower fails to make a scheduled payment on a loan, North Side takes steps to have the borrower cure the delinquency. Most loan delinquencies are cured within 90 days and no legal action is required. The Bank stops accruing interest on delinquent loans when payment is 90 days past due or sooner if management deems appropriate or when a loan is placed in foreclosure and remains delinquent. If the delinquency exceeds 90 days on a residential property or 30 days on an income producing property and is not cured through North Side's normal collection procedures, North Side will institute measures to enforce its remedies resulting from the default, including, in the case of mortgage loans, commencing a foreclosure action. In certain cases, North Side will also consider accepting from the mortgagor a voluntary deed to the mortgaged premises in lieu of foreclosure. Property acquired by North Side as a result of foreclosure or by deed in lieu of foreclosure is classified as OREO. OREO also includes loans deemed to be in-substance foreclosures, which are loans considered foreclosed because the borrower has no equity in the collateral at its current estimated fair value and proceeds for repayment are expected to come only from the operation or sale of the collateral. The borrower, in these cases, may or may not have abandoned control of the collateral and it is generally doubtful that the borrower will rebuild equity in the collateral or repay the loan. Generally loan delinquencies are remedied by repossessing the collateral and selling it to pay off the loan balance. In the case of unsecured installment loans, North Side either commences legal action to collect the balance or negotiates a "work-out" schedule. The Bank's asset quality level continued to improve during fiscal 1995 as non-performing assets decreased to $7.4 million or .47% of total assets at September 30, 1995 from $22.2 million or 1.44% of total assets at September 30, 1994. Non-performing assets were $26.1 million or 1.89% of total assets at September 30, 1993. At September 30, 1995 non-performing assets consisted of $4.9 million of non-performing loans, of which $2.3 million were one-to four-family residential mortgage loans, and $2.5 million of OREO. The Bank's non-performing loan portfolio was significantly reduced during fiscal 1995 to $4.9 million as compared to $13.9 million at September 30, 1994. Non-performing loans were $17.3 million at September 30, 1993. The $9.0 million, or 64.6%, decrease in fiscal 1995 non-performing loans was accomplished primarily through a $3.6 million bulk sale of non-performing loans, of which $1.6 million was charged against the Bank's allowance for loan losses, and a $4.4 million specific loan charge-off related to a non-performing land loan. In addition, eleven loans with an aggregate principal balance of $.5 million, net of $.2 million of charge-offs, were transferred to OREO during fiscal 1995. Total non-performing loans amounted to 0.31%, 0.90% and 1.25% of total assets at September 30, 1995, 1994 and 1993, respectively, and 1.13%, 2.83% and 4.46% of total loans (net of premium, discount and deferred fees) respectively at such dates. OREO decreased $5.9 million from $8.4 million at September 30, 1994 to $2.5 million at September 30, 1995. The fiscal 1995 decrease was primarily the result of the sale of 14 properties with a net carrying value of $6.1 million, at a net pre-tax loss of $.5 million. These sales included the disposition of the Bank's largest OREO property, which had a net carrying value of $3.4 million, at a pre-tax loss of $.4 million. The remaining activity in the OREO balance was due to a $.3 million provision to the allowance for OREO, which was partially offset by approximately $.5 million in additions to OREO. The following table sets forth information with respect to non-accrual loans and other real estate owned at the dates indicated.
- ------------------------------------------------------------------------------------------------------------- September 30, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Non-performing loans (1) Non-accrual mortgage loans: One-to four-family $ 2,319 $ 3,549 $ - Commercial 13 2,303 3,245 Multi-family 546 739 2,142 Construction and Land 2,027 6,596 10,175 - ----------------------------------------------------------------------------------------------------------- Total non-performing mortgage loans (2) 4,905 13,187 15,562 Non-performing commercial business loans - 673 1,721 Non-performing other loans - - 32 - ----------------------------------------------------------------------------------------------------------- Total non-performing loans 4,905 13,860 17,315 Other real estate owned, net 2,515 8,369 8,789 - ----------------------------------------------------------------------------------------------------------- Total non-performing assets $ 7,420 $ 22,229 $ 26,104 =========================================================================================================== Total non-performing loans as a percentage of: Total loans 1.13% 2.83% 4.46% Total assets 0.31% 0.90% 1.25% Total non-performing assets as a percentage of total assets .47% 1.44% 1.89% Allowance for loan losses as a percentage of non-performing loans 130.83% 80.65% 64.16% Total Loans $ 432,180 $ 489,883 $ 388,030 Allowance for loan losses 6,417 11,178 11,114 Total Assets 1,588,003 1,541,051 1,383,659 ===========================================================================================================
(1) Consists of loans more than 90 days delinquent and non-accruing loans. (2) Includes loans in foreclosure. Allowance for Loan Losses. The adequacy of the allowance for loan losses is based on management's periodic review of the loan portfolio. Such reviews are performed by a loan review committee of the Bank on a quarterly basis. During this review, the committee classifies loans based upon its evaluation of the risk elements of the Bank's loan portfolio. Considered in this evaluation are such factors as a borrower's ability to repay, the estimated value of collateral, general economic conditions, conditions in the real estate market in the Bank's lending areas, past loss experience and the level of non-performing loans. The results of such reviews form the basis of management's determination of the amount of the allowance for loan losses at that point in time. In the event that it is determined that the allowance should be increased, such an increase is accomplished through a provision for loan losses, which is charged to operations. As a result of management's evaluation of the adequacy of the allowance for loan losses, which considered, among other things, the significant and continuing decline in the amount of the Bank's non-performing loans, and because of management's conclusion that the Bank's risk profile has been significantly improved, the Bank deemed it appropriate to reduce the level of provisions for loan losses to $2.8 million for fiscal 1995 as compared to $3.6 million for fiscal 1994. The Bank's provision for loan losses was $16.3 million in fiscal 1993. After net charge-offs of $7.6 million during fiscal 1995 the allowance for loan losses was $6.4 million at September 30, 1995. The following summarizes transactions in the allowance for loan losses for the years ended September 30, 1995, 1994 and 1993.
September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Balance, beginning of year $11,178 $11,114 $15,012 Provision charged to operations 2,825 3,550 16,308 Loans charged off (5,477) (2,144) (8,410) Charge-off due to sale of loans (2,156) - (9,069) Charge-off due to transfer of loans to loans held for sale - - (1,894) Charge-off due to transfer of loans to OREO (225) (1,846) (1,113) Recoveries 272 504 280 ------- ------ ------ Balance, end of year $ 6,417 $11,178 $11,114 ======= ====== ======
Management believes that the Bank's allowance for loan losses are adequate and is committed to continuing to carefully assess the loan portfolio in an effort to further reduce the level of non-performing assets. Although it appears that the real estate market in the Bank's primary lending areas has stabilized, given the cyclical nature of this market no assurance can be given that future additional loan loss provisions may not be required. INVESTMENT ACTIVITIES North Side's investment strategy is set by an Investment Committee composed of the Bank's two most senior officers and the Treasurer. The Investment Committee also reviews and sets objectives as to liquidity and funds management on a quarterly basis. The Committee's actions are reviewed monthly by the Executive Committee of the Board of Directors, which also reviews investment policies on an annual basis. Over the past several fiscal years the strategy has been to maintain net interest margins within relatively stable ranges while reducing credit risk. During this period the Bank has allocated most of its investment funds to the purchase of mortgage-backed securities. Effective October 1, 1994, the Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), which requires classification of securities as either held to maturity or available for sale. At the time of adoption, the Bank classified as held for sale those securities it intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates and/or resultant prepayment risk changes or other factors related to interest rates and prepayment risk changes. As a result of the adoption of SFAS No. 115, the Bank reclassified $180.6 million of mortgage-backed securities and $22.0 million of investment securities as available for sale. Securities purchased subsequent to October 1, 1994 have been designated either as available for sale using this same criteria or, if appropriate, as held to maturity. During fiscal 1995, the Bank purchased $222.7 million of mortgage-backed securities, of which $174.4 million were backed by fixed-rate loans and $48.3 million were backed by one year adjustable-rate loans. As in previous fiscal years, the fixed-rate purchases were generally concentrated on higher coupon investment grade securities with relatively short estimated average lives. In fiscal 1995 the Bank also invested, to a lesser extent, in par and discount securities as the yield curve leveled during the latter part of the fiscal year. The Bank's fixed-rate mortgage-backed securities portfolio provided higher yields in fiscal 1995 compared to fiscal 1994 due to slower premium amortization as a result of the continued decrease in fiscal 1995 in prepayment levels. Mortgage-backed securities available for sale, a portfolio comprised entirely of fixed-rate securities, were $300.0 million at September 30, 1995 and had an estimated average life of approximately 3.8 years. At September 30, 1995, the held to maturity mortgage-backed securities portfolio amounted to $651.2 million, of which $493.9 million, or 75.9%, was backed by fixed-rate loans and $157.3 million, or 24.1%, was backed by adjustable-rate loans. At such date this portfolio had an estimated average life of approximately 5.4 years and a fair market value of $642.9 million, or $8.3 million less than the book value. At September 30, 1995 the Bank's mortgage-backed securities (both available for sale and held to maturity) amounted to $951.2 million. At September 30, 1995, 66.6% of these securities were insured or guaranteed by the Government National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") or Federal Agency Guaranteed Collateralized Mortgage Obligations. The remaining balance is comprised of investment grade, privately insured, participation certificates and collateralized mortgage obligations. The following table sets forth the amortized cost and estimated market value of North Side's mortgage-backed securities available for sale portfolio at September 30, 1995.
Amortized Market Cost Value (In Thousands) Mortgage backed securities available for sale: FHLMC and FNMA $ 273,811 $ 275,438 CMOs 24,593 24,584 ------ ------ Total mortgage-backed securities available for sale 298,404 300,022 ======= =======
The following table summarizes the activity in the mortgage-backed securities available for sale portfolio for the year ended September 30, 1995. September 30, 1995 (In Thousands) Balance, beginning of year, net $ - Transferred from held to maturity 180,642 Purchases 174,408 Principal repayments (54,532) Net unrealized appreciation, net of taxes 1,618 Other - net (2,114) -------- Balance, end of year, net $ 300,022 ======= The following table sets forth the carrying value and estimated market value of North Side's mortgage-backed securities held to maturity portfolio at September 30, 1995, 1994 and 1993.
September 30, 1995 (1) 1994 1993 Estimated Estimated Estimated Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value (In Thousands) Government National Mortgage Association $ 8,130 $ 8,265 $ 9,125 $ 9,042 $ 10,821 $ 11,401 Federal Home Loan Mortgage Corporation 63,842 63,577 230,283 226,660 294,072 299,609 Federal National Mortgage Association 252,094 250,263 286,003 275,996 146,252 147,139 Other 327,087 320,759 333,289 314,968 298,917 299,387 ------- ------- ------- ------- ------- ------- Total mortgage-backed securities $ 651,153 $ 642,864 $ 858,700 $ 826,666 $ 750,062 $ 757,536 ========= ======== ======= ======= ======= =======
(1) Included in mortgage-backed securities at September 30, 1995 were $157.3 million of adjustable rate mortgage-backed securities with an estimated market value of $156.8 million and $493.9 million of fixed rate mortgage-backed securities with an estimated market value of $486.0 million. The following table summarizes the activity in the mortgage-backed securities held to maturity portfolio for the periods indicated:
September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Balance, beginning of year, net $858,700 $750,062 $720,494 Purchases 48,320 466,886 454,399 Transferred to available for sale (180,642) - - Principal repayments (72,951) (348,194) (414,332) Sales - - (596) Other - net (2,274) (10,054) (9,903) -------- --------- --------- Balance, end of year, net $651,153 $858,700 $750,062 ======== ======= =======
North Side has authority to purchase a wide range of investment securities deemed to be prudent by management, subject to various regulatory restrictions on investments including certain restrictions on equity investments imposed by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), none of which have been material to North Side's investment activities. See "Regulation." The Bank seeks to maintain a varied investment portfolio, consistent with its overall objectives concerning asset/liability management. At September 30, 1995, $26.5 million of this portfolio was classified as available for sale, of which $26.3 million, or 99.1%, consisted of various equity securities such as an adjustable rate mortgage mutual fund, common stock and adjustable rate preferred stock. Also at September 30, 1995, $93.3 million of the investment portfolio was classified as held to maturity, consisting of Federal Agency and other bonds and preferred stocks. During the past two fiscal years, including fiscal 1995, purchases for this segment of the portfolio have consisted primarily of various federal agency multiple step-up callable notes. These notes are rated to be of the highest investment grade and have varying final maturities of between ten and fifteen years. These notes are callable each year at the option of the issuer but, if not called, have a predetermined upward adjustment of the interest rate. As of September 30, 1995, the Bank had $60.0 million of such notes, all of which were called subsequent to the end of fiscal 1995. All of the investment portfolio is investment grade and management estimates the average weighted maturity of the investment portfolio, excluding equity securities, was approximately 10.3 years at September 30, 1995, compared to approximately 8.8 years at September 30, 1994. The following table sets forth the amortized cost and estimated market value of North Side's available for sale investment portfolio at September 30, 1995.
Weighted Estimated Average Weighted Amortized Market Life Average Cost Value (In Years) Yield (Dollars in Thousands) Investment securities available for sale: United States Government Securities $ 230 $ 229 .3 5.38% Equity securities 23,626 26,291 - 5.03 ------- ------- ---- Total investment securities available for sale $ 23,856 $ 26,520 5.03 ======= =======
The following table sets forth North Side's investment securities held to maturity portfolio, at carrying value except as otherwise indicated at the dates indicated.
September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Bonds and other debt securities: U.S. Government and Federal Agencies $ 62,837 $ 76,663 $ 3,375 State and municipal 1,663 1,758 1,846 Corporate and other: Public utility - 200 200 Railroad 14 22 29 Other: Financial institutions - - 2,000 Captive finance companies - - 5,182 Other (1) (2) 22,682 35,110 28,168 ------ ------ ------ Total bonds and other debt securities 87,196 113,753 40,800 ------ ------- ------ Equity securities 6,105 22,219 19,542 ----- ------- ------- Total investment securities, net $93,301 $ 135,972 $ 60,342 ====== ========= ======= (1) Includes $1.5 million, $1.7 million and $1.9 million of floating-rate debt securities at Septembe 30, 1995, 1994 and 1993 respectively. (2) Includes debt securities which are insured as to principal and interest by private insurers or backed by letters of credit.
The following table sets forth the carrying value, estimated market value, weighted average maturity and weighted average yield of North Side's investment securities held to maturity portfolio at September 30, 1995.
September 30, 1995 Weighted Estimated Average Weighted Carrying Market Maturity Average Value Value (In Years) Yield (Dollars in Thousands) Bonds and other debt securities: U.S. Government and federal agencies $ 62,837 $ 62,586 10.3 7.48% State and municipal 1,663 1,663 18.9 8.61 Corporate and other 22,696 22,106 9.4 6.90 -------- ------ Total bonds and other debt securities 87,196 86,355 10.3 7.35 ------- ------ Equity securities(1): 6,105 6,105 - 5.13 ------ ----- Total investment securities, net $ 93,301 $92,460 - 7.20 ======== ======
(1) Carried at lower of cost or market value. The following table presents the average maturities of North Side's investment securities held to maturity portfolio at September 30, 1995.
Maturing After After One Five Year Years In One Through Through After Year Five Ten Ten Total Or Less Years Years Years Amount (Dollars in Thousands) Bonds and other debt securities: U.S. government and federal agencies (1) $ - $ - $ 37,837 $ 25,000 $ 62,837 State and municipal - 483 - 1,180 1,663 Corporate and other(2) 6,106 13,333 2,007 1,250 22,696 ----- ------ ----- ----- ------ Total bonds and other debt securities $ 6,106 $ 13,816 $ 39,844 $ 27,430 $ 87,196 ======= ======== ========= ======== ======== Equity securities 6,105 ----- Total investment securities, net $ 93,301 ========
(1) Includes $60.0 million Federal Home Loan Bank notes which were called subsequent to September 30, 1995. (2) Includes $1.5 million of floating-rate debt securities. DEPOSITS North Side has a number of programs designed to attract both short-term and long-term deposits from the general public by providing a wide assortment of accounts bearing interest rates consistent with market and economic conditions and applicable regulations. Included among these programs are savings accounts, checking accounts, Negotiable Order of Withdrawal ("NOW") accounts, money market accounts, fixed-rate time deposits, individual retirement accounts and Keogh accounts. North Side has no brokered deposits and has no intention to solicit or to accept deposits outside of its primary market area. The Bank emphasizes customer service and traditionally has been able to maintain a relatively high level of core deposits, which management believes helps to limit interest rate risk by providing a relatively stable, low cost, long-term funding base. Savings accounts represented 48.1% of total deposits at September 30, 1995. In fiscal 1995, the Bank bought two branches, one in the Bronx and the other in Queens, to complement its existing branches in these boroughs of New York City. These acquisitions added $48.6 million in deposits and added to the Bank's established customer base. Generally the Bank prices its deposit products substantially consistent with the average rates offered in the competitive market area in which it operates. However, the Bank's strategy, which was included as a part of its overall asset/liability management strategy in fiscal 1995, was to be more competitive in pricing (by offering higher rates) when it believes there is an opportunity to increase long-term deposits at favorable terms. As a result, time deposits increased by $66.2 million or 15.0% during fiscal 1995. At September 30, 1995, $74.0 million or 14.6% of time deposits are scheduled to mature in more than three years, compared to $47.4 million or 11% at September 30, 1994. Of the Bank's time deposits outstanding on September 30, 1995 of $508.3 million, only a relatively small amount and percentage ($30.5 million and 6.0% respectively) were in denominations of $100,000 or more. As of September 30, 1995, the Bank had $576.6 million of savings accounts, or 48.1% of total deposits at such date. The Bank's savings accounts are variable-rate accounts, allowing the Bank to change the interest rate as it deems appropriate. The Bank generally reviews interest rates paid on savings accounts on a weekly basis and, pursuant to such reviews, the rates on savings accounts were revised upward from 2.20% at September 30, 1994 to the September 30, 1995 rate of 2.50%. Interest on passbook savings accounts is compounded daily and credited quarterly, while interest on statement savings accounts is compounded and credited monthly. The Bank will continue to monitor rates and adjust them in accordance with the Bank's overall asset/liability and funds management and liquidity objectives. North Side offers time deposits with maturities ranging from 91 days to five years. As of September 30, 1995, the Bank had a total of $508.3 million of time deposits, which constituted 42.39% of total deposits at such date. Interest rates offered on new or renewing time deposits, which are fixed for the term of the deposit, are established by the Bank on a periodic, generally weekly, basis after consideration of the Bank's cash flow requirements, rates offered by competitors and income objectives. Interest is compounded daily on time deposits and credited monthly. North Side also offers money market accounts and NOW accounts. The Bank currently requires minimum deposits to open its savings, money market and NOW accounts and the money market account requires the maintenance of a specified minimum daily balance in order to earn interest. As of September 30, 1995, the Bank had $55.8 million in money market accounts, or 4.65% of all deposits at such date. Interest on money market accounts is compounded daily and credited monthly. NOW accounts, which accounted for $19.9 million or approximately 1.7% of the Bank's total deposits at September 30, 1995, provide for interest which is compounded daily and credited monthly. In addition, at September 30, 1995, the Bank had $35.8 million, or approximately 3.0% of total deposits, in non-interest bearing checking accounts. Deposit accounts, exclusive of time deposits, in North Side at September 30, 1995 were as follows: Weighted Average Percentage of Nominal Type of Account Amount Total Deposits Rate (Dollars in Thousands) Passbook and Statement Savings accounts $576,593 48.09% 2.50% NOW accounts 19,869 1.66 1.50 Money market accounts 55,806 4.65 2.85 Checking accounts 35,759 2.98 - Other 2,787 .23 2.48 ------- ------- ---- Total $690,814 57.61% 2.37% ======= ======= ===== The following table presents, by the weighted average interest rate being paid on such deposits, the amount of time deposit accounts at September 30, 1995 which mature during the periods indicated.
Amounts at September 30, 1995 Maturing Less Than More Than One More Than Two More Than One But Less Than But Less Than Three Total Year Two Years Three Years Years (Dollars in Thousands) Total Maturities $508,263 $309,907 $ 91,231 $ 33,158 $ 73,967 ========== ========== ========== ========== ======== Weighted Average Rate 5.61% 5.30% 5.76% 5.73% 6.67% ===== ===== ===== ===== =====
The following table sets forth the deposits and the changes in dollar amount of deposits in the various accounts offered by North Side for the periods indicated. The net decrease in deposits during the period is inclusive of the effects of interest credited. See Note 9 of the Notes to Consolidated Financial Statements incorporated by reference into Item 8 hereof.
Years Ended September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Deposits at beginning of year $ 1,191,509 $ 1,280,288 $ 1,340,570 Deposits acquired by acquisitions 48,652 (1) -- -- Deposits sold -- (22,457)(2) (5,108)(3) Mortgagors' escrow accounts at beginning of year 4,372 4,779 8,102 ------ ----- ----- 1,244,533 1,262,610 1,343,564 ---------- --------- --------- Increases (decreases) in: Passbook and statement savings accounts (77,512) (30,680) (17,476) NOW accounts (1,916) (1,110) (3,177) Money market accounts (11,623) (9,552) (11,548) Time deposits 51,842 (23,958) (26,670) Other (1,875) (1,022) 3,697 Mortgagors' escrow accounts 235 (407) (3,323) -------- ------- --------- Net decrease in deposits and mortgage escrow during the year (40,849) (66,729) (58,497) --------- --------- -------- Deposits at end of year 1,199,077 1,191,509 1,280,288 Unamortized acquisition discount -- -- 7 ------------ ------------ ----------- Deposits at end of year, net 1,199,077 1,191,509 1,280,295 Mortgagors' escrow accounts at end of year 4,607 4,372 4,779 ---------- --------- --------- $1,203,684 $1,195,881 $1,285,074 ========== ========= ========= (1) Purchase of deposits from Chemical Bank during fiscal 1995. (2) Sale of deposits of the Cortlandt Branch during fiscal 1994. (3) Sale of deposits of the Third Avenue Bronx County Branch during fiscal 1993.
The following table sets forth deposit activity for the periods indicated:
Years Ended September 30, 1995 1994 1993 ---- ---- ---- (In Thousands) Net decrease before interest credited $ (32,604) $ (124,381) $ (102,379) Interest credited 40,172 35,602 42,097 -------- -------- ------- Net deposit increase (decrease) $ 7,568 $ (88,779) $ (60,282) ======== ========= =========
The net decreases in North Side's deposit balances before interest crediting for fiscal 1995, fiscal 1994 and fiscal 1993 are primarily due to customer withdrawals, which the Bank generally attributes to customers seeking other higher yielding investment opportunities. Management believes that the withdrawals noted above are consistent with that of the industry generally and with the experience of other financial institutions in its service area. North Side's deposits are insured by BIF, which is administered by the FDIC. North Side must therefore meet the FDIC's standards of safety and soundness. Adherence to these standards is determined through regular bank examinations. In general, individual accounts of the same depositor are added together and insured up to $100,000 in the aggregate. Subject to certain exceptions, deposits maintained in different capacities are separately insured. BORROWINGS As part of its asset/liability management strategy, the Bank uses wholesale funding sources when deemed appropriate by management to supplement its retail deposit base. These wholesale funding sources, which are generally collateralized financings, provide the Bank with the opportunity to increase the level of interest-earning assets at incremental yields through the investment of proceeds from such borrowings. Because of continued capital growth through earnings, as well as continued improvement in asset quality, the Bank utilized borrowed funds to a greater extent during the past fiscal year as the average balance of borrowed funds increased by $115.4 million to $248.9 million in fiscal 1995 compared to $133.5 million in fiscal 1994. Taking advantage of the level yield curve, the Bank also extended the maturities of certain borrowings. At September 30, 1995, $111.0 million of the Bank's borrowings mature within one year while $140.0 million mature within three years. These borrowings are accounted for as financing transactions. Accordingly, the collateral securities continue to be carried as an asset, and a liability is established for the transaction proceeds. The Bank anticipates continued use of these borrowings in fiscal 1996. The average interest rate of such borrowings during the fiscal year was 6.05%. The maximum month-end balance during fiscal 1995 was $339.0 million. The Bank was active in the market during fiscal 1994 and had borrowings outstanding of $226.9 million at September 30, 1994. The Bank believes it has access to, and sufficient assets to secure, borrowings in amounts adequate to fund unexpected deposit outflows. SAVINGS BANKS LIFE INSURANCE North Side offers savings banks life insurance ("SBLI") to its customers, up to a maximum of $50,000 per insured, or $350,000 under a group life plan. North Side also offers certain annuity programs as part of its SBLI business. North Side's SBLI department is separate and distinct from North Side's operations, is controlled by New York law, is operated on a break-even basis, and does not contribute to the earnings of North Side. The assets, liabilities and operating results of North Side's SBLI Department are not reflected in the Bank's financial statements. At September 30, 1995, North Side's SBLI department had $44.3 million of insurance in force. Subsequent to September 30, 1995, the SBLI Department of Republic Bank for Savings was transferred to North Side's SBLI Department, adding $908.8 million of insurance in force. North Side believes that offering SBLI is beneficial to its relations with its depositors and the public. INVESTMENT IN SUBSIDIARIES North Side Capital Corporation ("NSCC") is a limited purpose finance subsidiary of the Bank. NSCC was organized for the purpose of acquiring, owning, holding, assigning, pledging or dealing in mortgage-backed securities issued and guaranteed by GNMA, FNMA or FHLMC; and issuing, selling, and delivering Collateralized Mortgage Obligations that are collateralized by the mortgage-backed securities. In February 1988, NSCC issued $100.1 million of its Collateralized Mortgage Obligations, Series 1 ("CMO's"), all but $49,000 principal amount of which was sold to the public. The balance was sold by NSCC to North Side. Net proceeds to NSCC were $106,128,027. Such proceeds were used to purchase $100,018,251 outstanding principal balance of GNMA 11% mortgage-backed securities which collateralized the offering. During fiscal 1993, the Bank sold its investment in NSCC residual interest. While North Side owns 100% of the outstanding common stock of NSCC, it does not own any portion of the residual bond, and the financial results of NSCC are not consolidated for financial reporting purposes with the Bank's financial reports. The Bank also owns several wholly-owned nominee corporations whose sole purpose is to hold title on foreclosed real estate. Once such real estate is disposed of, such nominee corporations are normally dissolved. PERSONNEL As of September 30, 1995, North Side had 288 full-time and 72 part-time employees. The employees are not represented by any collective bargaining unit, and North Side considers its relationship with its employees to be good. DATA PROCESSING SERVICES North Side's data processing needs were handled during fiscal 1995 by Institutional Group Information Corp., which operates out of Great Neck, New York. The entire system is subject to audit by the Bank's regulators and independent auditors. COMPETITION North Side faces significant competition in attracting deposits. Its most direct competition for deposits historically has come from commercial banks and other thrift institutions located in its market area. North Side also faces additional significant competition for investors' funds from various mutual funds. North Side competes for deposits principally by offering depositors a wide variety of deposit programs, convenient branch locations and hours, tax deferred retirement programs, and other services. North Side does not rely upon any individual group or entity for a material portion of its deposits. North Side's competition for real estate loans comes principally from other savings institutions, mortgage banking companies and commercial banks. North Side competes for loan originations primarily through the interest rates and loan fees it charges, and the efficiency and quality of services it provides borrowers, real estate brokers and builders. Factors which affect competition include the general availability of lendable funds and credit, general and local economic conditions, current interest rate levels and volatility in the lending markets. Legislation enacted in New York provides that, upon prior approval of the Superintendent, insured institutions, including savings banks, and insured institution holding companies can acquire or be acquired by insured institutions or holding companies on a national basis. The acquiror must be located in a state which has reciprocal legislation in effect on substantially the same terms and conditions as provided by New York law. In addition, the laws of the acquiror's state cannot affect the powers or privileges of the New York banking institution. The Superintendent reviews each state law on a case-by-case basis to determine whether a particular state's law complies with the requirements of New York law. Recent federal legislation will also permit interstate banking under certain circumstances. See "Regulation -Recent Regulatory Developments - Interstate Banking and Branching." North Side is unable to predict what impact, if any, New York's law or the recently-nacted federal law will have on it. These regulatory provisions and changes may increase the opportunities of the Bank to expand into additional markets. However, they also may increase the number and the size of financial institutions competing in the Bank's general market area. REGULATION North Side is a stock savings bank chartered under the laws of the State of New York, and its deposits are insured up to applicable limits by the FDIC through the BIF. The Bank derives its lending, investment, and other powers from the applicable provisions of New York law and the regulations of the New York State Banking Board, subject to limitation or modification under applicable federal laws and regulations of such federal agencies as the FDIC and the Federal Reserve Board. The Bank is subject to the supervision and periodic examination of the FDIC and the Banking Department and is required to file annual and periodic reports and such other information as the FDIC and the Banking Department may require. The Banking Department and the FDIC have substantial enforcement powers with respect to violations of laws or regulations or practices deemed to be unsafe or unsound. Acquisitions of control, as defined, of the Bank are subject to prior approval under New York and federal banking laws and regulations. Recent Regulatory Developments Interstate Banking and Branching In the past, interstate banking has been limited under the Bank Holding Company Act (the "BHCA") to those states that permitted interstate banking by statute. New York was one of a number of states that, subject to the reciprocity conditions of the New York Banking Law (the "Banking Law"), permitted out-of-state bank holding companies to acquire New York banks. By 1994, most states had adopted statutes permitting multistate bank holding companies. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act") was enacted on September 29, 1994. The Interstate Banking Act now permits approval under the BHCA of the acquisition by a bank holding company that is well capitalized and managed of a bank outside the holding company's home state regardless of whether the acquisition is permitted under the law of the state of the acquired bank. The Federal Reserve Board may not approve an acquisition under the BHCA that would result in the acquiring holding company controlling more than 10% of the deposits in the United States or more than 30% of the deposits in any particular state. In the past, branching across state lines was not generally available to a state bank, such as the Bank. Out-of-state branches are authorized under the Banking Law, but similar authority does not exist generally under the laws of most other states. The Interstate Banking Act, beginning June 1, 1997, permits the responsible banking agencies to approve merger transactions between banks located in different states, regardless of whether the merger would be prohibited under state law. Accordingly, the Interstate Banking Act will permit a bank to have branches in more than one state. A state may "opt in" to the provisions of the Interstate Banking Act prior to June 1, 1997, and a state may "opt out" of the provisions of the Interstate Banking Act by adopting appropriate legislation before that date. The Interstate Banking Act will facilitate the consolidation of the banking industry that has taken place over recent years and will allow the creation of larger, presumably more efficient, banking networks, which may affect the competition the Bank faces in the future. The effect of the Interstate Banking Act on the Bank, if any, is likely to occur as banking institutions, state legislators and bank regulators respond to the new federal regulatory structure. The states will have to establish appropriate corporate law, tax and regulatory structures to adjust to the growth of new interstate banks. FDICIA FDICIA, which was enacted on December 19, 1991, and the regulations adopted pursuant thereto, continued the increased regulation and supervision of federally insured depository institutions. FDICIA limits the powers of such institutions, and it makes major revisions in the supervision, examination and audit processes for insured depository institutions. Management believes that no element of FDICIA has or will have a material adverse effect on the Bank. Investments and Other Activities FDICIA imposes or authorizes significant limitations on the powers of insured banks and savings banks chartered under state law to make equity investments and to engage as principal in other activities otherwise authorized under state law. FDICIA prohibits insured state banks from engaging as principal in any type of activity, or from acquiring or retaining any equity investment, not permissible for a national bank. FDICIA makes certain exceptions to these general rules, and the act authorizes the FDIC to permit other exceptions for institutions that are and continue to be in compliance with applicable regulatory capital standards. These restrictions became wholly effective on December 19, 1993. FDICIA establishes transition periods in which an institution may divest its non-conforming equity investments. Under these provisions of FDICIA, state-chartered institutions need the permission of the FDIC to continue certain equity investment activities. FDICIA does not affect the Bank's ability to continue its SBLI activities as such activities are currently conducted. In addition, FDIC regulations adopted pursuant to FDICIA permit investments in common and preferred stocks listed on a national securities exchange or the shares of registered investment companies, generally up to an aggregate amount equal to the institution's Tier 1 capital, if, (1) the bank held such types of investments during the 14-month period from September 30, 1990 through November 26, 1991, (2) the state in which the bank is chartered permitted such investments as of September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from the FDIC to make or retain such investments. The Bank applied for, and received, such FDIC approval. Examination and Audit Requirements FDICIA requires closer supervision by the FDIC and other federal banking regulators of insured depository institutions. Beginning on December 19, 1993, the Bank became subject to an annual full-scale, on-site examination by the FDIC. The FDIC may accept an examination by the Banking Department in alternate years. On June 2, 1993, the FDIC adopted a final rule and related guidelines implementing the external audit, audit committee and management reporting requirements of FDICIA. Under the FDIC rule, which became effective on July 2, 1993, each insured depository institution with $500 million or more in total assets as of the beginning of each fiscal year beginning after December 31, 1994 must have an annual audit of its financial statements by an independent accountant in accordance with generally accepted accounting principles ("GAAP") and file an annual report with the FDIC, its federal regulator and any appropriate state banking agency. The annual report required by the rule must contain financial statements audited by an independent public accountant; a statement of management's responsibilities for preparing the annual financial statements, establishing and maintaining adequate internal controls and procedures for financial reporting, and complying with laws and regulations relating to safety and soundness designated by the FDIC; a separate assessment by management of effectiveness of the internal controls and procedures and the institution's compliance with the designated safety and soundness laws and regulations; and the independent public accountant's report on management's assertions concerning the internal controls and procedures. In addition, insured depository institutions with total assets of $500 million or more are required to establish an audit committee comprised entirely of independent outside directors to review the annual audit findings and reports with management and the independent public accountant. The Bank has an audit committee in place which complies with this requirement. Capital Requirements The Bank is subject to the FDIC's minimum capital requirements. Insofar as applicable to state-chartered, nonmember banks, the FDIC requires the most highly rated banks to have a leverage ratio to assets of at least 3% and other banking organizations are required to maintain higher levels (100 to 200 basis points), based on their particular circumstances, as defined in the regulation. At September 30, 1995, the Bank's leverage ratio, calculated in accordance with the FDIC requirement, was 7.02%. Effective December 31, 1992, the Bank was required to meet certain capital to risk-weighted asset ratios. Generally, the Bank is required to maintain a total capital to risk-based asset ratio of 8% and a Tier I risk-based asset ratio of 4%, as more fully defined in the regulations. At September 30, 1995, the Bank's total capital to risk-based asset ratio and Tier I risk-based asset ratio was 16.89% and 15.98%, respectively. FDICIA requires the federal banking agencies to revise their risk-based capital guidelines to, among other things, take adequate account of interest rate risk. The federal banking agencies continue to consider modifications of the capital requirements applicable to banking organizations. In August 1995, the Federal banking agencies amended their risk-based capital guidelines to provide that the banking agencies will include in their evaluations of a bank's capital adequacy an assessment of the bank's exposure to declines in the economic value of the bank's capital due to changes in interest rates. The agencies also issued a proposed policy statement that describes the process that the agencies will use to measure and assess the exposure of a bank's capital to changes in interest rates. The agencies stated that after they and the banking industry gain sufficient experience with the measurement process, the agencies would issue proposed regulations for establishing explicit charges against capital to account for interest rate risk. Standards for Safety and Soundness The FDI Act, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994 ("Community Development Act"), requires the FDIC, together with the other federal bank regulatory agencies, to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation, and compensation, fees and benefits and such other operational and managerial standards as the agencies deem appropriate. The FDIC and the federal bank regulatory agencies have adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA as amended. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. The FDIC and the other agencies determined that stock valuation standards were not appropriate. In addition, the FDIC adopted regulations that authorize, but do not require, the FDIC to order an institution that has been given notice by the FDIC that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the FDIC must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapi- talized association is subject under the "prompt corrective action" provisions of FDICIA. If an institution fails to comply with such an order, the FDIC may seek to enforce such order in judicial proceedings and to impose civil money penalties. The FDIC and the federal bank regulatory agencies also proposed guidelines for asset quality and earnings standards. Deposit Insurance Assessments On June 17, 1993, the FDIC adopted a final rule establishing a new risk-based deposit insurance premium system that was implemented beginning with the semi-annual assessment period commencing on January 1, 1994, as required under FDICIA. Except for limited changes, the structure of the new risk-based system is substantially the same as the structure of the transitional system it replaced, in which the FDIC assigned an institution to one of three capital categories (well-capitalized, adequately capitalized or undercapitalized) and one of three supervisory categories. An institution's assessment rate under this system depends on the capital and supervisory categories to which it is assigned. Under the transitional system, there were nine assessment risk classifications (i.e., combinations of capital categories and supervisory subgroups within each capital group) to which differing assessment rates were applied. Under the FDIC rule implementing the new risk-based system, an institution's deposit insurance assessment rate is determined by assigning the institution to a capital category and a supervisory subgroup to determine which of the nine risk classification categories is applicable, in substantially the same manner as for the transitional system. The FDI Act requires that the BIF, which insures the Bank and other savings and commercial banks, and the SAIF, which insures state and federal savings associations, each be recapitalized until reserves are at least 1.25% of the deposits insured by that fund. After a fund has reached the 1.25% reserve ratio, the assessment rates for that fund could be reduced. The FDIC has announced that the BIF reached the required reserve ratio during May 1995. As a result of the recapitalization of the BIF, the FDIC reduced BIF assessment rates. Beginning in 1993, the assessment rates for the BIF and the SAIF had ranged from 0.23% of deposits for an institution in the highest category (i.e., well-capitalized and financially sound, with no more than a few minor weaknesses) to 0.31% of deposits for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concern). Effective June 1, 1995, the FDIC reduced the BIF assessment rates to a range of 0.04% to 0.27% of deposits for such institutions. The Bank's assessment rates for 1995 were 0.23% of deposits through May 31, 1995 and were 0.04% of deposits beginning on June 1, 1995. On November 14, 1995, the FDIC again decided to reduce the BIF assessments. Having determined that the BIF had sufficient reserves in excess of the required 1.25% ratio, the FDIC decided that "well capitalized" institutions without any significant supervisory concerns should begin paying assessments at the statutory minimum of $2,000 annually. Beginning with the first quarter of 1996, the BIF assessment rates for other institutions will range from 0.03% to 0.27% of deposits. Effective January 1, 1996, the Bank's assessment rate will be reduced to $2,000 per year. Certain proposed new legislation will provide that the BIF cannot assess regular insurance assessments unless required to maintain or achieve the designated reserve ratio of 1.25%, or such higher ratio found by the FDIC to be justified because of a significant risk of losses to the BIF, except on those of its member institutions that have been found to have "moderately severe" or "unsatisfactory" financial, operational or compliance weaknesses. The Bank has not been so classified by the FDIC. Accordingly, assuming that the legislation is adopted as described above and the BIF maintains the designated reserve ratio, the Bank would continue to pay substantially reduced regular BIF deposit assessments as long as the Bank maintained its regulatory status. Bad Debt Reserves. See "Taxation - Federal Taxation - Proposed Legislation." ------------------ Extensions of Credit Under FDICIA, the federal banking agencies are required to adopt uniform regulations prescribing standards for extensions of credit that are secured by liens on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate. Under joint regulations adopted by the banking agencies, which became effective March 19, 1993, all financial institutions must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators. Prompt Corrective Action FDICIA requires the federal banking regulators to take prompt corrective action if a bank fails to satisfy certain minimum capital requirements. As implemented by the FDIC's regulations for insured state nonmember banks, the capital requirements include a leverage limit and risk-based capital requirements that are used to define five categories of banks ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized"). All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any of its capital requirements. Any institution that fails to meet the minimum level for any relevant capital measure (any of the three "undercapitalized" categories) will be subject to a wide range of limitations on its activities and operations and requirements as to remedial actions. Community Reinvestment Act Under the Community Reinvestment Act ("CRA"), as implemented by the FDIC's regulations, a savings bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of a savings bank, to assess the bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA rating in its most recent examination. In April 1995, the FDIC and the other federal banking agencies adopted amendments revising their CRA regulations. Among other things, the amended CRA regulations substitute for the prior process-based assessment factors a new evaluation system that would rate an institution based on its actual performance in meeting community needs. In particular, the proposed system would focus on three tests: (a) a lending test, to evaluate the institution's record of making loans in its service areas; (b) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (c) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices. The amended CRA regulations also clarify how an institution's CRA performance would be considered in the application process. Dividend Restrictions New York law imposes certain restrictions on the payment of dividends, including a provision that, without regulatory approval, the Bank cannot declare and pay dividends in any calendar year in excess of its "net profits" for such year combined with its "retained net profits" of the two preceding years, less any required transfer to surplus. TAXATION Federal Taxation. For Federal income tax purposes, North Side reports its income and expenses on the accrual method of accounting and files its federal income tax returns on a fiscal year basis. General. The Bank is subject to federal income taxation under the Internal Revenue Code ("Code") in the same general manner as other corporations, with some exceptions, including particularly the reserve for bad debts discussed below. The Tax Reform Act of 1986, as amended, ("1986 Act") made major changes in the provisions of the Code which are applicable to insured institutions. The Revenue Act of 1987 (the "1987 Act") made certain further changes to the Code which affect insured institutions and their borrowers. The following discussion of federal taxation is a summary of certain pertinent federal income tax matters as affected by the 1986 Act and the 1987 Act. Statement of Financial Accounting Standards No. 109 During fiscal 1994, the Bank adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109,"). SFAS No. 109 requires the Bank to change its method of accounting for deferred income taxes to the asset and liability method. SFAS No. 109 requires that a deferred tax asset or liability be recorded for all differences between book and tax bases of assets. The realization of any deferred tax assets set up is to be assessed and a valuation allowance provided for that portion of the asset for which it is more likely than not that it will not be realized. The adoption resulted in a cumulative effect credit to earnings and an increase in deferred tax assets of $5.3 million. Bad Debt Reserves. Savings institutions such as the Bank, which meet certain definitional tests primarily relating to their assets and the nature of their businesses, are permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions may, within specified formula limits, be deducted in arriving at the Bank's Federal taxable income. For purposes of computing the deductible addition to its bad debt reserve, the Bank's loans are separated into "qualifying real property loans" (i.e., generally those loans secured by interests in real property) and all other loans ("non-qualifying loans"). The deduction with respect to non-qualifying loans must be computed under the experience method. For taxable years beginning on or after January 1, 1987, the following formulas could be used to compute the bad debt deduction with respect to qualifying real property loans; (i) actual loss experience or (ii) a percentage of taxable income. Reasonable additions to the reserve for losses on non-qualifying loans must be based upon actual loss experience and would reduce the current year's addition to the reserve for losses on qualifying real property loans, unless that addition is also determined under the experience method. The sum of the additions to each reserve for each year is the Bank's annual bad debt deduction. Under the experience method, the deductible annual addition to the Bank's bad debt reserves is the amount necessary to increase the balance of the reserve at the close of the taxable year to the greater of (a) the amount which bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during the current and five preceding taxable years bear to the sum of the loans outstanding at the close of those six years or (b) the lower of (i) the balance in the reserve account at the close of the base year which is the last taxable year beginning before 1988, or (ii) if the amount of loans outstanding at the close of the taxable year is less than the amount of loans outstanding at the close of the base year, the amount which bears the same ratio to loans outstanding at the close of the taxable year as the balance of the reserve at the close of the base year bears to the amount of loans outstanding at the close of the base year. Under the percentage of taxable income method, for taxable years beginning after December 31, 1986, the bad debt deduction equals 8% of taxable income determined without regard to that deduction and with certain adjustments. The availability of the percentage of taxable income method has permitted a qualifying savings institution to be taxed at a lower maximum effective marginal federal income tax rate rather than that applicable to corporations in general. Generally, the maximum effective marginal federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction permitted under the percentage of taxable income method, in the absence of other factors affecting taxable income, was 32.20% exclusive of any minimum tax or environmental tax (as compared to 35% for corporations generally). Any savings institution at least 60% of whose assets are qualifying assets as described in Section 7701 (a) (19) (C) of the Code will generally be eligible for the full deduction of 8% of taxable income. As of September 30, 1995, at least 60% of the Bank's assets were "qualifying assets," as described in Section 7701(a)(19)(C) of the Code, and the Bank anticipates that at least 60% of its assets will continue to be qualifying assets in the immediate future. If this ceases to be the case, the Bank may be required to restore some portions of its bad debt reserve to taxable income in the future. Under the percentage of taxable income method, the bad debt deduction for an addition to the reserve for qualifying real property loans cannot exceed the amount necessary to increase the balance in this reserve to an amount equal to 6% of such loans outstanding at the end of the taxable year. The bad debt deduction is also limited to the amount which when added to the addition to the reserve for losses on non-qualifying loans, equals the amount by which 12% of deposits at the close of the year exceeds the sum of surplus, undivided profits and reserves at the beginning of the year. Based on experience, it is not expected that this restriction will be a limiting factor in the immediate future. In addition, the deduction for qualifying real property loans is reduced by an amount equal to the deduction for non-qualifying loans. The Bank has used the experience method in determining the provision for income taxes in fiscal 1993 and 1994 and expects to use such method in fiscal 1995. In future years, the Bank intends to elect to utilize whatever available method provides the maximum tax benefits. Distributions. If the Bank makes a distribution to stockholders, and the distribution is treated as being from its accumulated bad debt reserves, the distribution will cause the Bank to have additional taxable income. A distribution to stockholders is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a "non-dividend distribution." A distribution in respect of stock is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, exceeds the Bank's current and post-1951 accumulated earnings and profits. The amount of additional taxable income created by a non-dividend distribution is an amount that when reduced by the tax attributable to the inclusion of such amount in gross income is equal to the amount of the distribution. Minimum Tax. For taxable years beginning after December 31, 1986, the Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally will apply to a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI") less an exemption amount and will be payable to the extent such alternative minimum tax is in excess of the regular tax for the taxable year. The Code provides that an item of tax preference is the excess of the bad debt deduction allowable for a taxable year pursuant to the percentage of taxable income method over the amount allowable under the experience method. The other items of tax preference that constitute AMTI include (a) tax-exempt interest on newly-issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) for taxable years including 1987 through 1989, 50% of the excess of (i) the taxpayer's pre-tax adjusted net book income over (ii) AMTI (determined without regard to this latter preference and prior to reduction by net operating losses). For taxable years beginning after 1989, this latter preference will be replaced by 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). For any taxable year beginning after 1986, net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Bank has not been subject to the alternative minimum tax and has no such amounts available as credits for carryover. In addition, for taxable years after 1986, corporations, including thrift institutions, are also subject to an environmental tax equal to 0.12% of the excess of AMTI for the taxable year (determined without regard to net operating losses and the deduction for the environmental tax) over $2.0 million. Net Operating Loss Carryovers. Under the 1986 Act, a financial institution may carry back net operating losses to the preceding three taxable years and forward to the succeeding 15 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. The 1986 Act permits losses incurred by savings institutions in years beginning after 1981 and before 1986 to be carried back 10 years and forward eight years. Losses attributable to the 1986 taxable year and to years before 1982 may be carried back 10 years and forward five years. As of September 30, 1995, the Bank and its subsidiaries had no net operating loss carryforwards for federal income tax purposes. See Note 11 of Notes to Consolidated Financial Statements on page 36 of the 1995 Annual Report. Capital Gains and Corporate Dividends-Received Deduction. The capital gains tax which was previously imposed at a rate of 28% on a corporation's net long-term capital gains was repealed effective December 31, 1986. Consequently, corporate net capital gains would be taxed at a maximum rate of 34% after December 31, 1986. Subsequently, the Omnibus Budget Reconciliation Act of 1994 increased the maximum corporate capital gains tax rate to 35% effective January 1, 1994. The 1986 Act reduced the corporate dividends-received deduction from 85% to 80%, in case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return. The 1987 Act further amended the dividends received deduction provisions of the Code to provide that corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of the dividends received or accrued on their behalf. However, the 1986 Act and the 1987 Act preserved prior law which allows a corporation to deduct 100% of dividends from a member of the same affiliated group of corporations. Other Matters. In addition to the changes in the income tax laws that affect the Bank's federal income tax liability, the 1986 Act instituted other changes in the system of federal income taxation that could significantly affect the Bank's business. The most significant of these changes include the denial of any interest deduction to individuals with respect to interest incurred for consumer loans, such as car loans and education loans. Interest would continue to be deductible, subject to certain limitations, for loans secured by the principal or secondary residence of the taxpayer. The Bank's federal income tax returns for tax years beginning in October 1991 are open under the statute of limitations and are subject to review by the Internal Revenue Service ("IRS"). Proposed Legislation. Legislation recently has been introduced which would repeal Section 593 of the Internal Revenue Code of 1986, as amended, which provides for the methods of accounting for bad debts. Under the proposal, effective for taxable years beginning after December 31, 1995, thrift institutions which are treated as large banks (with total assets in excess of $500 million), such as the Bank, would generally be required to take into income the balance of their post-1987 bad debt reserves. If enacted into law, the pending legislation could require the Bank to realize an increased tax liability over a six year period beginning in 1996. Management of the Bank does not believe that any such increase would be material. New York State Taxation. North Side is subject to an annual New York State franchise tax equal to the greater of a minimum basic tax (the "State Basic Tax"), or an alternative minimum tax (the "State Alternative Minimum Tax") and to a New York City financial corporation tax. These taxes are currently deductible for federal income tax purposes. The State Basic Tax is computed at the rate of 9% on North Side's entire net income (which is substantially similar to taxable income under the Code, with certain modifications) allocable to New York State during North Side's taxable year. The State Alternative Minimum Tax is the greater of the following: (1) A tax computed at the rate of 3% on North Side's alternative entire net income allocable to New York State for the taxable year. North Side's alternative entire net income consists of its entire net income, increased by the amount of certain deductions taken in computing entire taxable income that are not allowed in computing alternative entire taxable income. (2) A tax computed annually on North Side's taxable assets allocated to the State of New York. Such taxable assets consist of the average total value of North Side's statement of condition assets, with certain modifications. The tax is generally computed at the rate of 1/10 of a mil per dollar of taxable assets, but lower rates apply for banks with at least 33% of their assets in mortgages or that have a "net worth ratio" of less than 5% determined under June 1, 1984 regulations of the Federal Home Loan Bank Board used to determine net worth assistance. (3) $250. Because of the State Alternative Minimum Tax, North Side may incur tax liability under New York State law even though it has no taxable income or a loss for the year under federal law. In addition to the foregoing, the New York State tax law also imposes a temporary surcharge equal to 17% of that portion of the franchise tax otherwise payable which is attributable to a savings bank's activities in New York City and in several other New York counties in the New York City metropolitan area. For tax years ending after June 30, 1989, an additional surcharge at the rate of 15% on income tax before applicable credits, if any, has been imposed on financial institutions. This surcharge has been reduced to 10% effective July 1, 1995. For the taxable year ended September 30, 1995 the blended surcharge rate is 12.5%. Further reductions become effective July 1, 1995 to 5% and July 1, 1996 to zero. The blended rate for the tax years end September 30, 1995 and 1996 will be 7.5% and 2.5% respectively. The New York State and New York City tax laws provide for a bad debt deduction of four times the federal amount when the federal amount is determined under the percentage of taxable income method, subject to separate limitation calculations. The New York City banking corporation tax is imposed in an annual amount equal to the greater of: (1) 9% of a savings bank's "Entire Net Income" allocable to New York City during the taxable year, or (2) the City Alternative Minimum Tax. This City Alternative Minimum Tax is equal to the greater of: (a) .01% of the value of a bank's assets allocable to New York City during the taxable year; (b) 3% of a bank's "Alternative Entire Net Income" allocable to New York City; or (c) $125. ITEM 2. PROPERTIES North Side currently conducts its business from 17 full service offices and one public accommodation office located in New York City, Nassau and Suffolk Counties. All such offices are owned by the Bank without any material encumbrances, except the offices located at Co-op City and Marine Air Terminal (77-22 21st Avenue), which are leased. The lease for the Co-Op City branch expires on May 31, 1997 and contains five 5-year renewal options. The lease for Marine Air Terminal expires on May 31, 1996, and the Bank expects to enter into a new or renewal lease for such branch. The following table sets forth certain information relating to each of North Side's offices as of September 30, 1995. Net Book Value at Own or September 30, Lease 1995 Office Location (In Thousands) Bronx County: Main Office 185 West 231st Street Bronx, New York 10463 Own $ 244 4201 White Plains Road Bronx, New York 10466 Own $ 483 3159 Bainbridge Avenue Bronx, New York 10467 Own $ 391 5977 Riverdale Avenue Bronx, New York 10471 Own $ 333 1941 Williamsbridge Road Bronx, New York 10461 Own $ 1,808 3030 Buhre Avenue Bronx, New York 10461 Own $ 888 725 Co-Op City Bronx, New York 10475 Lease $ 11 Queens County: 115-20 Jamaica Avenue Richmond Hill, New York 11418 Own $ 1,117 114-19 Liberty Avenue Richmond Hill, New York 11419 Own $ 699 257-03 Hillside Avenue Floral Park, New York 11004 Own $ 772 103-42 Lefferts Boulevard Richmond Hill, New York 11419 Own $ 938 77-22 21st Avenue East Elmhurst, New York 11370 Lease $ 9 Public Accommodation Office 115-02 Jamaica Avenue Richmond Hill, New York 11418 Own $ 319 Nassau County: Administrative Office 170 Tulip Avenue Floral Park, New York 11001 Own $ 3,033 1800 Grand Avenue Baldwin, New York 11510 Own $ 693 550 Franklin Avenue Franklin Square, New York 11010 Own $ 675 2303 Grand Avenue Baldwin, New York 11510 Own $ 715 Suffolk County: 150 North Main Street Sayville, New York 11782 Own $ 408 --------- $ 13,536 ITEM 3. LEGAL PROCEEDINGS North Side is not involved in any legal proceeding that it believes is material to its financial condition. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2 through 4 of the definitive Proxy Statement filed with the FDIC on December 26, 1995 pursuant to Section 335.204 of the FDIC Rules and Regulations ("Proxy Statement"). PART II. ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The information contained in Note 18 of Notes to Consolidated Financial Statements and in the section captioned "Shareholder Information - - Price Range of Stock" in the Bank's Annual Report to Shareholders for the year ended September 30, 1995 ("1995 Annual Report") is incorporated herein by reference. As of December 18, 1995 there were 643 shareholders of record. ITEM 6. SELECTED FINANCIAL DATA The information contained in the table captioned "Selected Financial and Operating Data" on page 3 of the Bank's 1995 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned "Management's Discussion and Analysis" in the Bank's 1995 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required are contained in the Bank's 1995 Annual Report and are incorporated herein by reference. PART III. ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK Incorporated by reference to pages 6 and 7 of the definitive Proxy Statement. The principal officers of the Bank, all of whom are subject to election annually by the Board of Directors, are: Thomas M. O'Brien - Mr. O'Brien, age 45, has been Chairman of the Board, President and Chief Executive Officer of the Bank since October 1, 1987. Donald C. Fleming - Mr. Fleming, age 46, has been the Executive Vice President and Chief Financial Officer of the Bank since October 1989. Marie Alleva - Ms. Alleva, age 53, has been a Senior Vice President of the Bank since June of 1991. Previously, from 1983 through November 1990, she served as a First Senior Vice President of the Dime Savings Bank of New York, with responsibilities at various times in the areas of branch operations, mortgage originations and asset recovery. Martin J. Brady - Mr. Brady, age 42, has been a Senior Vice President of the Bank since September 1990. Previously, Mr. Brady was a Vice President of the Bank in the mortgage area. Alissa E. Ballot - Ms. Ballot, age 40, has been the General Counsel of the Bank since March 30, 1992. Previously, Ms. Ballot served as Associate General Counsel and then as Deputy General Counsel of American Savings Bank from June 1985 through March 1992. Joseph R. Kwasnik - Mr. Kwasnik, age 44, has served as Vice President and Comptroller of the Bank since March 1986. Felix G. Gonzalez - Mr. Gonzalez, age 60, has been a Senior Vice President - - Loan Servicing of the Bank since January 1994 and had served as the Bank's Auditor since March 1989. Kathleen Mallon - Ms. Mallon, age 51, has been the Treasurer of the Bank since 1989. Previously, she was Vice President/Investment Officer of Richmond Hill Savings Bank, which merged with North Side in late 1988. Judith A. MacGregor - Ms. MacGregor, age 43, has served as Corporate Secretary of the Bank since October 1, 1990. Previously, she was the executive secretary to the Bank's Chairman of the Board. Samy F. Sapek - Mr. Sapek, age 47, has served as the Bank's Auditor since March 1994. Previously, Mr. Sapek served as Assistant Vice President and Deputy Auditor of The Peoples Westchester Savings Bank from 1988 through March 1994. ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS Incorporated by reference to page 13 through the section entitled "Certain Transactions" on page 18, and the section entitled "Compliance with Section 16(a) of the Exchange Act" on page 19, of the definitive Proxy Statement. PART IV. ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3 (a) (1) The following financial statements are contained in the Bank's 1995 Annual Report to Shareholders attached hereto as Exhibit 6 and are incorporated herein by reference. Consolidated Statements of Condition as of September 30, 1995 and 1994 Consolidated Statements of Operations for the Years Ended September 30, 1995, 1994 and 1993 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended September 30, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Independent Auditors' Report (a) (2) Financial Statement Schedules - Financial Statement Schedules are omitted due to inapplicability or because required information is shown in the Consolidated Financial Statements or the Notes thereto. (b) Reports on Form F-3 filed during the last quarter of the period covered by this report: No reports on Form F-3 were filed during the last quarter of the period covered by this report. However, a Current Report on Form F-3 for the month of September, 1995, was filed on October 3, 1995. Such Current Report on Form F-3 reported the acquisition of two branches from Chemical Bank in September 1995. (c) Exhibits. The following exhibits are either filed as part of this report or are incorporated herein by reference: No. Exhibit 1a (1) Restated Organization Certificate. 1b (2) Bylaws, as amended. 1c (3) Amendment to Article III, Section 12 of the Bylaws. 3(i)a (4) Material Contract - Purchase and Assumption Agreement dated as of March 13, 1995 by and between the Bank and Chemical Bank 3(i)b (4) Material Contract - Real Property Agreement dated as of March 13, 1995 between the Bank and Chemical Bank, as amended by side letter amendment dated March 14, 1995. 3(ii)a (5) Material Contract - Amended and Restated Long-Term Incentive and Capital Accumulation Plan. 3(ii)b (2) Material Contract - Employment Contract dated February 1, 1989 between the Bank and Thomas M. O'Brien. 3(ii)c (2) Material Contract - Amendment to Employment Contract between the Bank and Thomas M. O'Brien. 3(ii)d (6) Material Contract - Management Development and Recognition Plan, as amended. 3(ii)e (7) Material Contract - North Side Savings Bank Board of Directors Deferred Compensation Plan. 3(ii)f (8) Material Contract - Amendment No. 1 to North Side Savings Bank Board of Directors Deferred Compensation Plan. 3(ii)g (7) Material Contract - North Side Savings Bank Benefit Preservation Plan. 6 Annual Report to Shareholders for the Year Ended September 30, 1995. 9 List of Registrant's Subsidiaries. (1) Incorporated herein by reference to the Form F-1 Registration Statement filed by the Bank on June 23, 1986. (2) Incorporated herein by reference to the Bank's Annual Report on Form F-2 for the year ended September 30, 1989. (3) Incorporated herein by reference to the Bank's Current Report on Form F-3 for the month of November, 1993, filed on December 2, 1993. (4) Incorporated by reference to the Bank's Current Report on Form F-3 for the month of March, 1995, filed on April 4, 1995. (5) Incorporated herein by reference to Exhibit A to the Bank's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders. (6) Incorporated herein by reference to the Bank's Annual Report on Form F-2 for the year ended September 30, 1987. (7) Incorporated herein by reference to the Bank's Annual Report on Form F-2 for the year ended September 30, 1993. (8) Incorporated herein by reference to the Bank's Annual Report on Form F-2 for the year ended September 30, 1994. EXHIBIT 9 List of Subsidiaries Subsidiary State of Incorporation North Side Capital Corporation Delaware North Ski Holding Corporation New York Kent Road Development Corp. New York BSSN, Inc. New Jersey NS 138 Holding Corp. New York NS 160 Holding Corp. New York NS Hilltop Holding Corp. New York NS Sprout Brook Holding Corp. New York NS 30 Holding Corp. New York NS MIR Holding Corp. New York NS 43 Holding Corp. New York North Front Street Holding Corp. New Jersey NS 10 Holding Corp. New York SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH SIDE SAVINGS BANK Bank By: /s/ Thomas M. O'Brien Date: December 26, 1995 -------------------------------- --------------------- Thomas M. O'Brien Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Irvin L. Cherashore Date: December 26, 1995 -------------------------------- ---------------------- Irvin L. Cherashore Director -------------------------------- ----------------------- Greg L. Collins Director /s/ Richard D. Gidron Date: December 26, 1995 -------------------------------- ---------------------- Richard D. Gidron Director /s/ Margaret M. Healy Date: December 26, 1995 -------------------------------- ----------------------- Margaret M. Healy Director /s/ Ralph J. Marino Date: December 26, 1995 -------------------------------- ----------------------- Ralph J. Marino Director /s/ John J. Murphy Date: December 26, 1995 ------------------------------- ---------------------- John J. Murphy Director /s/ Stephen J. Schildwachter Date: December 26, 1995 -------------------------------- --------------------- Stephen J. Schildwachter Director /s/ Thomas M. O'Brien Date: December 26, 1995 -------------------------------- ----------------------- Thomas M. O'Brien Chairman of the Board, President and Chief Executive Officer /s/ Donald C. Fleming Date: December 26, 1995 -------------------------------- ----------------------- Donald C. Fleming Director, Executive Vice President and Chief Financial Officer /s/ Joseph R. Kwasnik Date: December 26, 1995 -------------------------------- ----------------------- Joseph R. Kwasnik Vice President and Comptroller EXHIBIT 6 - ANNUAL REPORT TABLE OF CONTENTS SELECTED FINANCIAL AND OPERATING DATA 1 LETTER TO SHAREHOLDERS 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 4 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CONDITION 25 CONSOLIDATED STATEMENTS OF OPERATIONS 26 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 27 CONSOLIDATED STATEMENTS OF CASH FLOWS 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29 SHAREHOLDER INFORMATION 51 CORPORATE DIRECTORY 52 BRANCH LOCATIONS 53
NORTH SIDE SAVINGS BANK AND SUBSIDIARIES NORTH SIDE SAVINGS BANK ANNUAL REPORT 1995 Selected Financial and Operating Data _______________________________________________________________________________________________ SEPTEMBER 30, 1995 1994 1993 1992 1991 _______________________________________________________________________________________________ (Dollars in Thousands) FINANCIAL CONDITION DATA: Total Assets $1,588,003 $1,541,051 $1,383,659 $1,487,218 $1,508,072 Loans 432,180 489,883 388,030 611,988 652,144 Allowance for loan losses 6,417 11,178 11,114 15,012 12,600 Total securities available for sale 326,542 - - - - Investment securities, net 93,301 135,972 60,342 75,614 123,240 Mortgage-backed securities, net 651,153 858,700 750,062 720,494 514,176 Money market investments 29,456 1,200 113,400 5,449 102,101 Deposits 1,199,077 1,191,509 1,280,295 1,340,584 1,364,404 Borrowed funds 251,000 226,875 - 22,276 25,646 Shareholders' equity 116,284 100,998 87,953 99,739 95,628 Full service banking offices 17 15 16 18 21 SELECTED ANNUAL RATIOS: Return (loss) on average assets 0.98% 0.90% (0.85%) 0.32% 0.35% Return (loss) on average equity 14.24% 14.21% (13.60%) 5.12% 4.91% Tier I regulatory capital to average assets 7.02% 6.52% 5.90% 5.87% 6.14% ================================================================================================ YEARS ENDED SEPTEMBER 30, 1995 1994 1993 1992 1991 ________________________________________________________________________________________________ (Dollars in Thousands, Except Per Share Amounts and Stock Prices) OPERATIONS DATA: ________________________________________________________________________________________________ Total interest income $ 105,775 $ 90,931 $ 97,415 $ 118,874 $ 112,200 Total interest expense 55,230 41,349 43,984 70,223 76,305 Net interest income 50,545 49,582 53,431 48,651 35,895 Provision for loan losses 2,825 3,550 16,308 10,837 6,162 Gain (loss) on redemptions and sales of securities 355 - (136) 564 - Loss on disposition of assets - - (11,063) - - (Loss)gain on sales of bank building, mortgages and other real estate owned (520) 180 (273) (950) (298) Other operating income 2,461 2,928 2,930 3,301 3,252 Amortization of excess cost over fair value of net assets acquired - - 10,192 920 920 OREO expense, net 475 1,225 11,002 388 765 Other operating expenses 23,063 24,972 27,128 28,581 22,047 _______________________________________________________________________________________________ Income (loss) before provision (benefit) for income taxes and cumulative effect of accounting changes 26,478 22,943 (19,741) 10,840 8,955 Provision (benefit) for income taxes 11,371 9,576 (3,961) 5,769 4,288 Income (loss) before cumulative effect of accounting changes 15,107 13,367 (15,780) 5,071 4,667 _______________________________________________________________________________________________ Cumulative effect of accounting changes Postretirement benefits cost - - (2,300) - - Income taxes - - 5,329 - - Net income (loss) $ 15,107 $ 13,367 $(12,751) $ 5,071 $ 4,667 =============================================================================================== Primary earnings (loss) per common share before cumulative effect of accounting changes (1) $ 3.15 $ 2.82 $ (3.35) $ 1.08 $ 1.00 Primary earnings (loss) per common share (1) 3.15 2.82 (2.71) 1.08 1.00 Fully diluted earnings per common share 3.06 N/A N/A N/A N/A Cash dividends paid per common share .675 .125 .20 .40 .40 Book value per share (1) 24.24 21.18 18.63 21.25 20.39 Tangible book value per share (1) 23.97 21.18 18.63 19.09 18.02 Common stock price range (1) High 31 1/2 24 3/4 20 10 3/8 9 7/8 Low 16 16 3/4 8 3/4 6 3 1/4 Common shares outstanding (1) 4,798,022 4,768,121 4,720,781 4,693,081 4,690,269 ================================================================================================ (1) Prior years are restated to reflect the 5% stock dividends paid during fiscal 1993,1994 and 1995.
NORTH SIDE SAVINGS BANK TO OUR SHAREHOLDERS The fruits of our labor were enjoyed again during fiscal 1995. North Side Savings Bank reached several significant milestones during the year marking the 90th anniversary of its founding. Perhaps the most readily apparent evidence of this success was the market value appreciation in the Bank's common stock. Fueled by a favorable market for banking and thrift stocks in general, North Side's consistent quarterly financial performance directed investors' attention to its value. Not unlike the results reported in 1994, North Side continued to report impressive net income throughout 1995. For the year North Side is reporting net income of $15.1 million or $3.15 per share compared to $13.4 million or $2.82 per share in 1994. The 13% increase in net income accompanied continued improvement in credit quality and resulting reduction in the quarterly provision for loan losses. At the end of 1995, North Side's non-performing assets were a low $7.4 million or .47% of total assets. Reserve coverage improved to 130.8% of non-performing loans. North Side's Return on Equity for the year was an impressive 14.24%. As these favorable results were reported, the Board of Directors continued to provide for shareholders tangible participation in the Bank's success. Consequently, over the course of the year the Board declared a 5% stock dividend and increased the cash dividend on three occasions. As a result of these actions the current quarterly cash dividend of $.25 per share represents an effective 110% increase from the rate of just one year ago. The Bank continues to be managed prudently be resisting the temptations to compromise on credit quality or terms. Competition for quality loans is intense in the metropolitan New York market and elsewhere. North Side has resisted the trend to growing market share through unhealthy loan pricing. At this point in the business cycle, loan growth at concessionary terms would appear to be a Pyrrhic victory and certainly an accomplishment that we prefer to avoid. North Side's credit exposure is carefully monitored with the fragility of the current economy prudently considered. It is expected that this disciplined approach will best serve the long term interests of the Bank and its shareholders. During 1995, North Side produced modest asset growth, and net interest margins were under some pressure due to the flattening of the yield curve. Despite these challenges, North Side's financial performance ratios are at or near the high end of the thrift industry. Net interest income increased to $50.5 million while operating expenses were reduced to $23.1 million. Management of operating expenses continues to be critical during periods of limited profitable growth opportunities. As a BIF- insured bank, North Side benefitted from the reduction in deposit insurance premiums announced by the FDIC. Furthermore, the FDIC has indicated a further reduction in such premiums beginning in January 1996. In addition, current trends suggest a further reduction in credit costs for the year ahead. This Annual Report contains a few nostalgic reminders from the past 90 years. The efforts of our dedicated predecessors form the solid foundation on which North Side rests today. On behalf of all of us at North Side, I extend my heartfelt thanks for their hard work. North Side Savings Bank is positioned for a bright and successful future because of the commitment and talent of its people. My sincere thanks go to the staff, officers and directors for their dedication to the prosperity of the Bank. It is an honor to be the Chief Executive Officer of North Side and my job is made easier through their contributions. Finally, I am delighted to be issuing this report to the Bank's shareholders and am most grateful for their continued interest and support. Sincerely, Thomas M. O'Brien Chairman of the Board, President and Chief executive Officer DECEMBER 15, 1995 NORTH SIDE SAVINGS BANK MANAGEMENT'S DISCUSSION AND ANALYSIS North Side Savings Bank ("North Side" or the "Bank") is a stock savings bank founded in 1905 and chartered by New York State. North Side is currently celebrating the 90th anniversary of its founding. Deposits at the Bank are insured, up to the maximum legal limits, by the Bank Insurance Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC"). During fiscal 1995, the Bank completed the purchase of two branches from Chemical Bank located in Co-op City, Bronx and East Elmhurst, Queens. The Bank assumed approximately $48.6 million in deposits. The Bank currently has a 17 full service branch retail network serving the Bronx, Queens, Nassau and Suffolk Counties with average deposits of $70.5 million per branch at September 30, 1995. During the second quarter of fiscal 1995, the Board of Directors declared, and the Bank paid, a 5% stock dividend. At the regular meeting of the Bank's Board of Directors held on October 24, 1995, the Board declared a $.25 per share quarterly cash dividend payable on November 24, 1995 to shareholders of record on November 10, 1995. This was the sixth such cash dividend declared since the Board reinstated and increased the regular quarterly dividend in the fourth quarter of fiscal 1994. The increased cash dividend coupled with the stock dividend distributed in fiscal 1995 resulted in a cumulative dividend increase of 110% since the end of fiscal 1994. GENERAL North Side Savings Bank had net income of $15.1 million or $3.15 per share for the fiscal year ended September 30, 1995 as compared to $13.4 million or $2.82 per share for the fiscal year ended September 30, 1994. The fiscal 1995 results represent the second consecutive year of record earnings for the Bank. On a fully diluted basis, earnings per share were $3.06 for the fiscal year ended September 30, 1995. The Bank's fiscal 1995 financial performance was highlighted by increased net interest income, which was achieved primarily through additional leveraging of the Bank's capital base, continued improvements in asset quality (which resulted in a substantially reduced provision for loan losses and lower other real estate owned expense) and overall reduced operating expenses, reflecting the Bank's continuing cost control management efforts. During fiscal 1995, the yield curve generally flattened, that is, short-term rates generally were increasing over the course of the year while intermediate and long-term rates generally were decreasing during the same time period. This interest rate environment had a greater impact on the Bank's overall cost of funds than on rates earned on interest-earning assets, as average rates paid rose by 87 basis points (100 basis points being equal to 1.0%) to 3.89%, while overall asset yields increased 64 basis points to 7.08% for fiscal 1995. Consequently, the Bank's interest rate spread decreased to 3.19% for the year ended September 30, 1995 from 3.42% for the year ended September 30, 1994 and the net interest margin (net interest income divided by average interest-earning assets) decreased to 3.39% in fiscal 1995 as compared to 3.51% in fiscal 1994. However, a strong capital base coupled with substantial improvement in credit quality enabled the Bank to leverage its growth, primarily through the use of collateralized financings as a source of funds for additional assets yielding higher rates of return than the rates of interest charged on such borrowings. During fiscal 1995, average earning assets increased by $80.8 million. This growth in earning assets more than offset the decrease in the Bank's interest rate spreads and margins, and as a result net interest income increased by $1.0 million during fiscal 1995. Asset quality again improved significantly during fiscal 1995. This was accomplished primarily through the bulk sale of a non- performing loan package, the sale of properties held as other real estate owned ("OREO") and specific loan charge-offs related to other non-performing loans. Non-performing loans were $4.9 million at September 30, 1995, a decrease of $9.0 million, or 64.6%, from the level at September 30, 1994. OREO also reflected a significant decrease of $5.9 million, or 69.9%, during the current fiscal year. As a result, management deemed it prudent to reduce the provision for loan losses to $2.8 million during fiscal 1995 as compared to $3.6 million during fiscal 1994. The allowance for loan losses was $6.4 million or 130.83% of non-performing loans at September 30, 1995 as compared to $11.2 million or 80.65% of non-performing loans at September 30, 1994. In addition, because of the significant decrease in OREO, OREO related expenses decreased by $750,000 for the current fiscal year. See "ASSET QUALITY" and Note 8 of the Notes to Consolidated Financial Statements. Management continued to maintain strong control over operating expenses as compensation and benefits, occupancy and equipment and other operating expenses declined by $714,000 in fiscal 1995 as compared to fiscal 1994. In addition, because of lower premiums which became effective on June 1, 1995, the Bank's BIF deposit insurance expense decreased $1.2 million in fiscal 1995 and is expected to again decrease significantly in fiscal 1996. The Bank's efficiency ratio (operating expense before OREO expense, net and restructuring expenses as a percentage of net interest income, customer service fees and other income, excluding gains and losses) was 43.59%, 47.56% and 45.65% for the fiscal years ended September 30, 1995, 1994 and 1993, respectively. ASSET AND LIABILITY MANAGEMENT The Bank strives to maintain net interest spreads and margins within relatively stable ranges in all types of interest rate environments. The Bank uses its best efforts to reduce what it perceives as inordinate interest rate risk in its asset mix. To accomplish this in fiscal 1995, the Bank continued to purchase fixed-rate mortgage-backed securities and other investments with relatively short (generally less than five years) estimated average lives or with adjustable rate features as considered appropriate. North Side has been able to maintain a significant core deposit base over time despite changes in the interest rate environment. Because of its strong liquidity levels and cash flow, which continued during fiscal 1995, the Bank has been able to invest in higher yielding investments or repay outstanding borrowings when deemed appropriate by management. Also, because of its continuing profitability and emphasis on improving overall asset quality, North Side has utilized borrowings to a greater extent during the past several fiscal years. This has provided the Bank with the ability to more effectively leverage its capital base at incremental yields. In addition, during fiscal 1995, North Side became a member of the Federal Home Loan Bank of New York ("FHLBNY"). This membership will permit the Bank to access additional alternative funding sources when it is deemed advantageous by management to do so. During fiscal 1995, the Bank purchased $222.7 million of mortgage-backed securities, of which $174.4 million were backed by fixed-rate loans and $48.3 million were backed by one year adjustable-rate loans. As in previous fiscal years, the fixed- rate purchases were generally concentrated on higher coupon premium securities with relatively short estimated average lives. In fiscal 1995 the Bank also invested, to a lesser extent, in par and discount securities as the yield curve leveled during the latter part of the fiscal year. The Bank's fixed-rate mortgage- backed securities portfolio provided higher yields in fiscal 1995 compared to fiscal 1994 due to slower premium amortization as a result of the continued decrease in fiscal 1995 in prepayment levels. Effective October 1, 1994, the Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), which requires classification of securities as either held to maturity or available for sale. At the time of adoption, the Bank classified as held for sale those securities it intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates and/or resultant prepayment risk changes or other factors related to interest rates and prepayment risk changes. As a result of the adoption of SFAS No. 115, the Bank reclassified $180.6 million of mortgage-backed securities and $22.0 million of investment securities as available for sale. Securities purchased subsequent to October 1, 1994 have been designated either as available for sale using this same criteria or, if appropriate, as held to maturity. Mortgage-backed securities available for sale, a portfolio comprised of entirely of fixed rate securities, were $300.0 million at September 30, 1995 and had an estimated average life of approximately 3.8 years. At September 30, 1995, the held to maturity mortgage-backed securities portfolio amounted to $651.2 million, of which $493.9 million, or 75.9%, was backed by fixed-rate loans and $157.3 million, or 24.1%, was backed by adjustable-rate loans. At such date this portfolio had an estimated average life of approximately 5.4 years and a fair market value of $642.9 million, or $8.3 million less than the book value. At September 30, 1995 the Bank's mortgage-backed securities (both available for sale and held to maturity) amounted to $951.2 million. As of September 30, 1995, 66.6% of these securities were insured or guaranteed by the Government National Mortgage Association ("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") or Federal Agency Guaranteed Collateralized Mortgage Obligations. The remaining balance is comprised of high grade, privately insured, participation certificates and collateralized mortgage obligations. The Bank seeks to maintain a varied investment portfolio, consistent with its overall objectives concerning asset/liability management. At September 30, 1995, $26.5 million of this portfolio was classified as available for sale, of which $26.3 million, or 99.1%, consisted of various equity securities such as an adjustable rate mortgage mutual fund, common stock and adjustable rate preferred stock. Also at September 30, 1995, $93.3 million of the investment portfolio was classified as held to maturity, consisting of federal agency and other bonds and preferred stocks. During the past two fiscal years, including fiscal 1995, purchases for this segment of the portfolio have consisted primarily of various federal agency multiple step-up callable notes. These notes are rated to be of the highest investment quality and have varying final maturities of between ten and fifteen years. These notes are callable each year at the option of the issuer but, if not called, have a predetermined upward adjustment of the interest rate. As of September 30, 1995, the Bank had $60.0 million of such notes, all of which were called subsequent to the end of fiscal 1995. Substantially all of the investment portfolio is investment grade and management estimates the average weighted maturity of the investment portfolio, excluding equity securities, was approximately 10.3 years at September 30, 1995, compared to approximately 8.8 years at September 30, 1994. The Bank continued in fiscal 1995 to improve its risk profile by reducing its exposure to loans generally deemed to be of higher risk than single-family residential loans, including commercial real estate and construction loans and, to a lesser extent, multi-family residential real estate loans. Commercial real estate loans are generally underwritten with terms that provide for maturity or repricing after either three or five years. The percentage of higher risk loans to total assets has steadily decreased from 11.7% at September 30, 1993 to 9.1% at September 30, 1994 and 7.9% at September 30, 1995. The percentage of the loan portfolio consisting of one-to four-family residential loans, including FHA insured and VA guaranteed loans, has remained stable (70.0% of mortgage loans, net, at September 30, 1995, compared to 70.2% at September 30, 1994). Also at September 30, 1995, $197.1 million or 69.3% of the one-to four- family residential loan portfolio was comprised of adjustable- rate loans, a slight increase from 67.1% at September 30, 1994. During the past fiscal year the Bank originated $4.2 million of mortgage loans, primarily commercial mortgage loans. Because of the Bank's continued strong liquidity position and positive cash flow, management has reduced the average balance of money market investments over the past several fiscal years. This strategy, has enabled the Bank to invest in alternative investments yielding higher rates or to repay outstanding borrowings when deemed appropriate by management. The Bank emphasizes customer service and traditionally has been able to maintain a relatively high level of core deposits, which management believes helps to limit interest rate risk by providing a relatively stable, low cost, long-term funding base. Savings accounts represented 48.1% of total deposits at September 30, 1995. In fiscal 1995, the Bank bought two branches, one in the Bronx and the other in Queens, to complement its existing branches in these boroughs of New York City. These acquisitions added $48.6 million in deposits and added to the Bank's established customer base. Generally the Bank prices its deposit products substantially consistent with the average rates offered in the competitive market area in which it operates. However, the Bank's strategy, which was included as a part of its overall asset/liability management strategy in fiscal 1995, is to be more competitive in pricing (by offering higher rates) when it believes there is an opportunity to increase long-term deposits at favorable terms. As a result, time deposits increased by $66.2 million or 15.0% during fiscal 1995. At September 30, 1995, $74.0 million or 14.6% of time deposits are scheduled to mature in more than three years, compared to $47.4 million or 11% at September 30, 1994. Of the Bank's time deposits outstanding on September 30, 1995 of $508.3 million, only a relatively small amount and percentage ($30.5 million and 6.0% respectively) were in denominations of $100,000 or more. As part of its asset/liability management strategy, the Bank uses wholesale funding sources when deemed appropriate by management to supplement its retail deposit base. These wholesale funding sources, which are generally collateralized financings, provide the Bank with the opportunity to increase the level of interest- earning assets at incremental yields through the investment of proceeds from such borrowings. Because of continued capital growth through earnings, as well as its continued improvement in asset quality, the Bank utilized borrowed funds to a greater extent during the past fiscal year as the average balance of borrowed funds increased by $115.4 million to $248.9 million in fiscal 1995 compared to $133.5 million in fiscal 1994. Taking advantage of the level yield curve described earlier, the Bank also extended the maturities of certain borrowings. At September 30, 1995 $111.0 million of the Bank's borrowings mature within one year while $140.0 million mature within three years. INTEREST-SENSITIVITY ANALYSIS During the past fiscal year, the Bank established an Interest Rate Risk Committee comprised of several members of senior management and one outside director. This committee meets on a quarterly basis or on a more frequent basis if considered appropriate. The purpose of this committee is to monitor and assess the Bank's level of interest rate risk and to make recommendations as to the proper management of this risk. One of the methods used to measure this sensitivity is GAP analysis. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity GAP is defined as the difference between the amount of interest- earning assets maturing or repricing within a specified time and the amount of interest-bearing liabilities maturing or repricing within that same time period. A GAP is considered positive when the amount of interest-sensitive assets exceeds the amount of interest-sensitive liabilities. Conversely, a GAP is considered negative when the amount of interest-sensitive liabilities exceeds the amount of interest-sensitive assets. During a period of rising interest rates a negative GAP would tend to adversely affect net interest income. During a period of falling interest rates, a negative GAP would tend to increase net interest income, while a positive GAP would tend to adversely affect net interest income. ASSET MIX DEPOSIT MIX SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 | | __| | Investment Cash and Due | Money Market Securities from banks (2.6%) | Demand accounts (6.5) | | (4.7%) | | | | | Securities Time | __| Available accounts | | for Sale (42.4%) | Loans, net (20.6%) | | (26.8%) | | Savings | | | accounts | | | (48.1%) Other Assets | Now accounts | (2.5%) | (1.7%) | | | |___________________| | Mortage-Backed | |________________Securities (41.0%) Checking accounts (3.1%) The following table sets forth, as of the dates shown, information regarding the interest-sensitive assets and liabilities of the Bank. For purposes of this table, assets and liabilities are deemed to be interest-sensitive if they reprice or mature within one year or less. Certain shortcomings are inherent in the "GAP" method of analysis of interest rate sensitivity. This table is presented for the purpose of illustrating interest rate sensitivity and does not necessarily indicate the impact of general interest rate movements on the Bank's net interest income. For example, it does not take into consideration the fact that repricing of various assets and liabilities may vary and that repayments are also subject to 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. This is particularly true in the presentation of passbook accounts in the table. The Bank considers these accounts as interest-sensitive, however, changes in interest rates with respect to these accounts in either increasing or decreasing rate environments generally lag behind the shift in general market rates of interest. In addition, the interest sensitivity of passbook, NOW and money market accounts can be measured by several different methods. One common method utilizes national deposit withdrawal pattern assumptions previously published by the Office of Thrift Supervision ("OTS"). Using the OTS assumptions as of December 31, 1993 which contemplate withdrawal or "decay" rates within the first year of 14%, 17% and 31%, respectively, for passbook accounts, NOW accounts and money market accounts, the Bank would report a positive one-year GAP of 7.29% at September 30, 1995. Actual experience may differ substantially from the assumptions used in preparing the table. Because of these inherent limitations in utilizing GAP analysis, the Bank has emphasized financial modeling techniques in order to more fully assess and manage its exposure to interest rate risk. Financial modeling is much more flexible in approach and permits income simulation in various interest rate scenarios and within different time horizons. _____________________________________________________________________ SEPTEMBER 30, 1995 1994 1993 ____________________________________________________________________ (Dollars in Thousands) INTEREST-SENSITIVE ASSETS: Loans, net (1) $ 256,760 $ 277,019 $ 176,015 Investment securities 81,433 106,789 13,007 Money market investments 29,356 1,200 113,400 Mortgage-backed securities (2) 270,890 287,294 433,500 TOTAL INTEREST-SENSITIVE ASSETS $ 638,439 $ 672,302 $ 735,922 INTEREST-SENSITIVE LIABILITIES: Passbook accounts (3) $ 579,362 $ 633,442 $ 672,890 Negotiable Order of Withdrawal ("NOW") accounts (3) 19,869 19,072 20,984 Money market accounts 55,806 64,747 75,778 Certificates of deposit due within one year 309,907 269,945 290,889 Borrowed Funds 111,000 226,875 - TOTAL INTEREST-SENSITIVE LIABILITIES $1,075,944 $1,214,081 $1,060,541 (Deficiency) of interest- sensitive assets over interest-sensitive liabilities (GAP) $ (437,505) $ (541,779) $ (324,619) Ratio of interest-sensitive assets to total assets 40.20% 43.63% 53.19% Ratio of interest-sensitive liabilities to total liabilities 73.11% 84.31% 81.85% Ratio of interest-sensitive assets to interest-sensitive liabilities 59.34% 55.38% 69.39% Ratio of (negative) GAP to total assets (27.55%) (35.16%) (23.46%) (1) Includes total prepayments and repayments of mortgage loans based upon the timing of certain loans repricing and the Bank's estimate of loan prepayments. (2) Includes Bank estimates of prepayments and repayments of principal based on actual experience. (3) Passbook (which includes lease security and club accounts), and NOW accounts are considered to be interest-sensitive. The following table summarizes the estimated aggregate maturity/repricing structure of North Side's assets and liabilities at September 30, 1995.
__________________________________________________________________________________________ SEPTEMBER 30, 1995 ASSETS(1) LIABILITIES AND NET WORTH (2) __________________________________________________________________________________________ CUMULATIVE CUMULATIVE AMOUNT PERCENT PERCENT AMOUNT PERCENT PERCENT __________________________________________________________________________________________ (DOLLARS IN THOUSANDS) 180 DAYS OR LESS $ 319,272 20.10% 20.10% $ 898,939 56.61% 56.61% 181 DAYS TO 1 YEAR 319,167 20.10 40.20 177,005 11.15 67.76 OVER 1 YEAR TO 3 YEARS 439,819 27.70 67.90 264,389 16.65 84.41 OVER 3 YEARS TO 5 YEARS 353,536 22.26 90.16 73,436 4.62 89.03 OVER 5 YEARS TO 10 YEARS 79,975 5.04 95.20 531 0.03 89.06 OVER 10 YEARS 28,422 1.79 96.99 31,954 2.01 91.07 NON-INTEREST-BEARING 47,812 3.01 100.00 141,749(3) 8.93 100.00 TOTAL $1,588,003 100.00% $1,588,003 100.00%
(1) Assumes prepayments and repayments of mortgage loans and mortgage-backed securities based upon actual experience and the timing of certain loans repricing in the future along with the Bank's estimate of loan prepayments. (2) Assumes that passbook (which includes lease security and club accounts), and NOW accounts are considered to be interest- sensitive and, accordingly, 100% of such amounts are included in "180 days or less." (3) Includes $116.3 million of shareholders' equity. ASSET QUALITY The Bank's asset quality level continued to be enhanced during fiscal 1995 as non-performing assets decreased to $7.4 million or .47% of total assets at September 30, 1995 from $22.2 million or 1.44% of total assets at September 30, 1994. Non-performing assets were $26.1 million or 1.89% of total assets at September 30, 1993. At September 30, 1995 non-performing assets consisted of $4.9 million of non-performing loans, of which $2.3 million were one- to four-family residential mortgage loans, and $2.5 million of OREO. The Bank's non-performing loan portfolio consists of loans on which the Bank is no longer accruing interest because such loans are more than 90 days overdue or because the Bank has initiated legal proceedings to foreclose on the collateral securing such loans. The Bank's non-performing loan portfolio was significantly reduced during fiscal 1995 to $4.9 million as compared to $13.9 million at September 30, 1994. Non-performing loans were $17.3 million at September 30, 1993. The $9.0 million, or 64.6%, decrease in fiscal 1995 non-performing loans was accomplished primarily through a $3.6 million bulk sale of non-performing loans, of which $1.6 million was charged against the Bank's allowance for loan losses, and a $4.4 million specific loan charge-off related to a non-performing land loan. In addition, eleven loans with an aggregate principal balance of $.5 million, net of $.2 million of charge-offs, were transferred to OREO during fiscal 1995. Total non-performing loans amounted to 0.31%, 0.90% and 1.25% of total assets at September 30, 1995, 1994 and 1993, respectively, and 1.13%, 2.83% and 4.46% of total loans (net of premium, discount and deferred fees) respectively at such dates. The adequacy of the allowance for loan losses is based on management's periodic review of the loan portfolio. Such reviews are performed by a loan review committee of the Bank on a quarterly basis. During this review, the committee classifies loans based upon its evaluation of the risk elements of the Bank's loan portfolio. Considered in this evaluation are such factors as a borrower's ability to repay, the estimated value of collateral, general economic conditions, conditions in the real estate market in the Bank's lending areas, past loss experience and the level of non-performing loans. The results of such reviews form the basis of management's determination of the amount of the allowance for loan losses at that point in time. In the event that it is determined that the allowance should be increased, such an increase is accomplished through a provision for loan losses, which is charged to operations. As a result of management's evaluation of the adequacy of the allowance for loan losses, which considered, among other things, the significant and continuing decline in the amount of the Bank's non-performing loans, and because of management's conclusion that the Bank's risk profile has been significantly improved, the Bank deemed it appropriate to reduce the level of provisions for loan losses to $2.8 million for fiscal 1995 as compared to $3.6 million for fiscal 1994. The Bank's provision for loan losses was $16.3 million in fiscal 1993. After net charge-offs of $7.6 million during fiscal 1995 the allowance for loan losses was $6.4 million at September 30, 1995. As a result of the decrease in the non-performing loan portfolio, the allowance for loan losses as a percentage of non-performing loans has continued to increase to 130.83% at September 30, 1995, compared to 80.65% at September 30, 1994 and 64.16% at September 30, 1993. Continued loan amortizations and satisfactions, along with the $4.4 million specific loan charge-off related to a non-performing land loan and $1.2 million of higher risk loans sold as part of the fiscal 1995 bulk sale of non-performing loans, have reduced the balance of higher risk commercial real estate, construction and, to a lesser extent, multi-family loans in the Bank's portfolio by $15.2 million from $140.9 million at September 30, 1994 to $125.7 million at September 30, 1995. The balance of these loans at September 30, 1993 was $162.6 million. The ratio of these loans to total assets was also reduced from 11.7% at September 30, 1993 to 9.1% and 7.9% at September 30, 1994 and 1995, respectively. NON-PERFORMING ASSETS AS ALLOWANCE FOR LOAN LOSSES AS A % OF TOTAL ASSETS A % OF NON-PERFORMING LOANS SEPTEMBER, 30, SEPTEMBER 30, 3.00%_________________________ 150%_____________________________ | | | | | | 130%|____________________130.83% | | | | | | | | 110%|______________________| | 2.00%|_______________________| | | | | 1.89% | 90%|______________________|_____| | | 1.44% | | 80.85% | | | | | | 70%|___64.16%_____|_______|_____| 1.00%|______|______|_________| | | | | | | | | | 50%|_____|________|_______|_____| | | | | | | | | | | | | | 30%|_____|________|_______|_____| | | | .47% | | | | | | | | | | | 10%|_____|________|_______|_____| 0.00%|______|______|____|____| 0%|_____|________|_______|_____| 1993 1994 1995 1993 1994 1995 Management believes that the Bank's loan loss reserves are adequate and is committed to continuing to carefully assess the loan portfolio in an effort to further reduce the level of non- performing assets. Although it appears that the real estate market in the Bank's primary lending areas has stabilized, given the cyclical nature of this market no assurance can be given that future additional loan loss provisions may not be required. OREO includes properties on which the Bank has secured legal title, either through foreclosure or by accepting a deed from the borrower in lieu of foreclosure, as well as loans deemed to be in-substance foreclosures. In-substance foreclosed loans are loans considered foreclosed because (i) the borrower has no equity in the collateral at its current estimated fair value; (ii) proceeds for repayment are expected to come only from the operation or sale of the collateral; and (iii) the borrower may or may not have abandoned control of the collateral and it is doubtful the borrower will rebuild equity in the collateral or repay the loan. OREO decreased $5.9 million from $8.4 million at September 30, 1994 to $2.5 million at September 30, 1995. The fiscal 1995 decrease was primarily the result of the sale of 14 properties with a net carrying value of $6.1 million, at a net pre-tax loss of $.5 million. These sales included the disposition of the Bank's largest OREO property, which had a net carrying value of $3.4 million, at a pre-tax loss of $.4 million. The remaining activity in the OREO balance was due to a $.3 million provision to the allowance for OREO, which was partially offset by approximately $.5 million in additions to OREO. The following is a summary of non-performing assets by type: SEPTEMBER 30, 1995 1994 1993 (Dollars in Thousands) Non-performing loans (1) : Non-performing mortgage loans One-to four-family $ 2,319 $ 3,549 $ - Commercial 13 2,303 3,245 Multi-family 546 739 2,142 Construction and Land 2,027 6,596 10,175 Total non-performing mortgage loans (2) 4,905 13,187 15,562 Non-performing commercial business loans - 673 1,721 Non-performing other loans - - 32 Total non-performing loans 4,905 13,860 17,315 Other real estate owned 2,515 8,369 8,789 Total non-performing assets $ 7,420 $ 22,229 $ 26,104 Total non-performing loans as a percentage of: Total loans 1.13% 2.83% 4.46% Total assets 0.31% 0.90% 1.25% Total non-performing assets as a percentage of total assets 0.47% 1.44% 1.89% Allowance for loan losses as a percentage of non-performing loans 130.83% 80.65% 64.16% Total Loans $432,180 $ 489,883 $388,030 Allowance for loan losses 6,417 11,178 11,114 Total Assets 1,588,000 1,541,051 1,383,659 (1) Consists of loans more than 90 days delinquent and non- accruing loans. (2) Includes loans under foreclosure. FINANCIAL CONDITION The Bank's total assets were $1.6 billion at September 30, 1995, of which mortgage-backed securities totaled $651.2 million, or 41.0%, loans, net totaled $425.8 million, or 26.8%, securities available for sale totaled $326.5 million, or 20.6%, and investment securities (including FHLBNY Stock) totaled $102.7 million, or 6.5%. Total deposits were $1,199.1 million, borrowed funds totaled $251.0 million and shareholders' equity totaled $116.3 million, or 7.32% of total assets. Tangible book value per share was $23.97 at September 30, 1995. The $47.0 million increase in total assets during fiscal 1995 was achieved primarily through the use of borrowings to leverage the Bank's Statement of Condition, and net deposit inflows (principally as a result of the acquisition of two branches during the latter part of the fiscal year) and earnings. Mortgage-backed securities available for sale increased to $300.0 million at September 30, 1995 due to $180.6 million of securities transferred from mortgage-backed securities held to maturity as a result of the Bank's adoption of SFAS No. 115 on October 1, 1994 and subsequent purchases of $174.4 million of fixed-rate mortgage-backed securities. Partially offsetting this was $54.5 million of principal repayments received during fiscal 1995. At September 30, 1995 there was $1.6 million of unrealized appreciation, net of taxes, in the Bank's portfolio of mortgage- backed securities available for sale. The mortgage-backed securities held to maturity balance decreased $207.5 million primarily due to the $180.6 million that was transferred to available for sale as described above along with $73.0 million of principal repayments, which were partially offset by the purchase of $48.3 million of adjustable rate mortgage-backed securities during the first quarter of fiscal 1995. Money market investments, which consist of Federal Home Loan Bank overnight deposits, Federal Home Loan Bank balances, Federal funds sold and certificates of deposit in other institutions, amounted to $29.5 million, or 1.9% of total assets at September 30, 1995 as compared to $1.2 million or 0.08% of total assets at September 30, 1994. The $28.3 million increase is considered temporary as it was primarily due to the funds received in connection with the purchase of the two Chemical Bank branches during the last month of fiscal 1995. Investment securities available for sale increased to $26.5 million at September 30, 1995, primarily due to the $22.0 million of securities transferred from held to maturity as a result of the adoption of SFAS No. 115. During the remainder of the year, the Bank purchased $8.0 million of securities designated as available for sale, which was partially offset by bond maturities and redemptions totaling $6.6 million. At September 30, 1995, the portfolio had $2.7 million of net unrealized appreciation, net of taxes. Investment securities held to maturity decreased $42.7 million during fiscal 1995. This was due to the transfer of $22.0 million of securities to available for sale as described above, $5.2 million of principal repayments and $25.5 million of maturities and redemptions. These decreases were partially offset by $10.3 million of purchases, primarily a $10.0 million Federal Home Loan Bank note which was called subsequent to September 30, 1995. In the past fiscal year, the Bank became a member of the FHLBNY and, in connection with this membership, purchased $9.4 million of FHLBNY stock. The Bank's loans receivable portfolio was $432.2 million at September 30, 1995, which is a decrease of $57.7 million from $489.9 million at September 30, 1994. The primary reasons for the decrease were $50.5 million of loan amortizations and satisfactions, $7.9 million of loan charge-offs, $5.0 million of loans sold, $.5 million of loans transferred to OREO and a decrease of $.7 million in loan premiums. These decreases were partially offset by loan originations of $6.9 million. The allowance for loan losses decreased $4.8 million during fiscal 1995 to $6.4 million at September 30, 1995 from $11.2 million at September 30, 1994. Management deems the allowance for loan losses to be adequate based on its review of the status of the loan portfolio. See "ASSET QUALITY." OREO decreased $5.9 million from $8.4 million at September 30, 1994 to $2.5 million at September 30, 1995. The decrease was due to the sale of 14 properties with a net carrying value of $6.1 million and $.3 million of provisions to the allowance for OREO, which was partially offset by approximately $.5 million in additions to OREO. The decrease of $7.8 million in other assets during fiscal 1995 was primarily due to a $7.4 million decrease in net deferred tax assets and a $1.3 million decrease in prepaid expenses and other miscellaneous investments offset partially by the premium on acquired deposits of $1.3 million due to the purchase of the two branches from Chemical Bank. Total liabilities increased by $31.7 million during fiscal 1995 mainly due to an increase in borrowings of $24.1 million and a $7.6 million increase in deposits, which increase in deposits was due primarily to the acquisition of two branch offices. Shareholders' equity increased 15.1% or $15.3 million to $116.3 million at September 30, 1995 from $101.0 million at September 30, 1994. Tangible book value per common share outstanding was $23.97 at September 30, 1995, an increase of $2.79 from $21.18 in the prior year. These increases were primarily due to the net income for the fiscal year and the net unrealized appreciation on securities available for sale, net of taxes at September 30, 1995, reduced by cash dividends paid during the fiscal year. The Bank's leverage ratio of Tier 1 or core capital to average assets was 7.02% at September 30, 1995 and 6.52% at September 30, 1994. See "REGULATORY CAPITAL" and Note 14 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS The operating results of the Bank depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, primarily investments, loans and mortgage-backed securities, and interest expense on interest- bearing liabilities, primarily deposits and borrowings. North Side's operating results also are affected by the level of its other operating income, including customer service and other fees, its other operating expenses and the amount of the provision required for loan losses. The Bank realized record earnings growth from fiscal 1993 through fiscal 1995, with net income increasing to $15.1 million in fiscal 1995 from $13.4 million in fiscal 1994 and a loss of $12.8 million in fiscal 1993. North Side's earnings increased $1.7 million, or 13%, for the fiscal year ended September 30, 1995 compared to the fiscal year ended September 30, 1994. This increase is attributable to a rise of $1.0 million in net interest income, a reduction of $.7 million in the provision for loan losses and a $2.7 million reduction in other operating expenses. Offsetting these increases to income were a $1.8 million increase in the provision for income taxes and an $.8 million decrease in other income. The following table sets forth for and at the periods indicated, information regarding (i) the total dollar amounts of interest income from interest-earning assets and the resulting average yields; (ii) the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs; (iii) net interest income; (iv) the interest rate spread; (v) the ratio of total interest-earning assets to total interest-bearing liabilities, and (vi) the net interest margin. Average balances are calculated on a daily basis.
YEARS ENDED SEPTEMBER 30, 1995 1994 1993 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate (Dollars in Thousands) Interest-earning assets: Mortgage loans $ 456,414 $ 35,610 7.80% $ 522,667 $ 38,631 7.39% $ 539,182 $ 42,566 7.89% Mortgage-backed securities 881,892 59,604 6.76 772,473 44,682 5.78 741,522 47,911 6.46 Investment securities (1) 136,737 9,271 6.78 91,485 6,164 6.74 64,269 4,745 7.38 Money market investments 11,006 642 5.83 15,905 534 3.36 29,941 894 2.99 Other loans 7,134 648 9.08 9,810 920 9.38 14,408 1,299 9.02 Total interest-earning assets $1,493,183 105,775 7.08 $1,412,340 90,931 6.44 $1,389,322 97,415 7.01 Interest-bearing liabilities: Deposits and mortgagors' escrow payments $1,169,319 40,172 3.44 $1,236,660 35,602 2.88 $1,307,684 42,097 3.22 Borrowed funds 248,897 15,058 6.05 133,509 5,747 4.30 43,601 1,887 4.33 Total interest-bearing liabilities $1,418,216 55,230 3.89 $1,370,169 41,349 3.02 $1,351,285 43,984 3.25 Net interest income $ 50,545 $ 49,582 $ 53,431 Interest rate spread 3.19% 3.42% 3.76% Ratio of interest-earning assets to interest-bearing liabilities 1.05X 1.03x 1.03x Net interest margin 3.39% 3.51% 3.85% (1) Includes investment in FHLBNY stock in the year ended September 30, 1995.
The following table presents changes in interest income and interest expense attributable to (i) changes in volume (change in volume multiplied by prior year rate), and (ii) changes in rate (change in rate multiplied by prior year volume). The net 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.
FISCAL 1995 COMPARED FISCAL 1994 COMPARED TO FISCAL 1994 TO FISCAL 1993 INCREASE (DECREASE) INCREASE (DECREASE) VOLUME RATE NET VOLUME RATE NET (In Thousands) Interest income on interest-earning assets: Mortgage loans $ (5,082) $ 2,061 $ (3,021) $ (1,282) $ (2,653) $ (3,935) Mortgage-backed securities 6,792 8,130 14,922 1,946 (5,175) (3,229) Investment securities (1) 3,070 37 3,107 1,860 (441) 1,419 Money market investments (200) 308 108 (460) 100 (360) Other loans (244) (28) (272) (429) 50 (379) Total 4,336 10,508 14,844 1,635 (8,119) (6,484) Interest expense on interest-bearing liabilities: Deposits and mortgagors' escrow payments (2,030) 6,600 4,570 (2,206) (4,289) (6,495) Borrowed funds 6,331 2,980 9,311 3,873 (13) 3,860 Total 4,301 9,580 13,881 1,667 (4,302) (2,635) Net interest income $ 35 $ 928 $ 963 $ (32) $ (3,817) $ (3,849) (1) Includes investment in FHLBNY stock in the year ended September 30, 1995.
NET INTEREST INCOME Net interest income depends primarily upon the volume, distribution and repricing characteristics of interest-earning assets and interest-bearing liabilities along with the associated movements in interest rates earned or paid. Net interest income for fiscal 1995 rose $1.0 million to $50.5 million due to an improvement in the Bank's ratio of average interest-earning assets to average interest-bearing liabilities. This ratio increased from 1.03 at September 30, 1994 to 1.05 at September 30, 1995. During fiscal 1995, average interest-earning assets increased $80.8 million, which exceeded the increase of $48.0 million in average interest-bearing liabilities. This was offset to some extent by the decrease in the Bank's interest rate spread to 3.19% for fiscal 1995 from 3.42% for fiscal 1994. This decrease in interest rate spread was the result of the upward trend in short-term rates for most of fiscal 1995, which had a more dramatic impact on the Bank's average cost of interest-bearing liabilities than on its average earnings on interest-earning assets. Net interest income decreased $3.8 million to $49.6 million during fiscal 1994 compared to fiscal 1993. The decrease was primarily due to the decrease in the average yield earned on total interest-earning assets exceeding the decrease in the rate paid on total interest-bearing liabilities. During fiscal 1994, compared to fiscal 1993, the average yield earned on total interest-earning assets declined by 57 basis points, while the average rate paid on interest-bearing liabilities declined by only 23 basis points. The Bank's interest rate spread decreased from 3.76% in fiscal 1993 to 3.42% in fiscal 1994.
INTEREST RATE SPREAD/NET INTEREST MARGIN SEPTEMBER 30, _ |*| _____________________________________________________________________________ Yield on Interest 10%|_________________________|_________________________|_________________________| Earnings Assets 9%|_________________________|_________________________|_________________________| _ 8%|_________________________|_________________________|_________________________| |_| 7%|_7.01%___________________|_________________________|_7.08%___________________| Cost of Funds 6%|__*______________________|_6.44%___________________|__*______________________| _ 5%|__*______________________|__*______________________|__*______________________| |#| 4%|__*__________3.76%_3.85%_|__*__________3.42%_3.51%_|__*____3.89%_____________| Interest Rate 3%|__*____3.25%__#_____/____|__*____3.02%__#_____/____|__*_____|____3.19%_3.39%_| Spread 2%|__*______|____#_____/____|__*_____|_____#_____/____|__*_____|_____#_____/____| _ 1%|__*______|____#_____/____|__*_____|_____#_____/____|__*_____|_____#_____/____| |/| 0%|__*______|____#_____/____|__*_____|_____#_____/____|__*_____|_____#_____/____| Net Interest 1993 1994 1995 Margin
INTEREST INCOME Interest income amounted to $105.8 million for the fiscal year ended September 30, 1995 compared to $90.9 million for the fiscal year ended September 30, 1994. The $14.9 million, or 16.3%, increase was the result, in part, of the increase in the average balance of interest-earning assets of $80.8 million during fiscal 1995. In addition, the increase in income was aided by a 64 basis point increase in the average yield earned on interest- earning assets to 7.08% for fiscal 1995 compared to 6.44% for fiscal 1994. Interest income on mortgage loans decreased by $3.0 million or 7.8% in fiscal 1995 and by $3.9 million or 9.2% in fiscal 1994. The decrease in fiscal 1995 was primarily the result of a $66.3 million decrease in the average balance of mortgage loans, which was partially offset by a 41 basis point increase in the average yield earned. The decrease in average balance was primarily the result of loan amortizations and satisfactions while the increase in the average yield earned reflects the continuation of the upward trend in rates that continued through the first half of fiscal 1995. The decrease in fiscal 1994 was primarily due to a decrease of 50 basis points in the average yield earned combined with a $16.5 million decrease in the average balance of mortgage loans. Such decrease in the average yield was primarily the result of the general decline in market rates of interest in fiscal 1993 and the first half of fiscal 1994. The decrease in mortgage loan income in fiscal 1995 was more than offset by the $14.9 million increase in mortgage-backed securities interest income to $59.6 million. Such interest income decreased $3.2 million in fiscal 1994 to $44.7 million from $47.9 million in fiscal 1993. The fiscal 1995 increase was the result of the combined effects of a $109.4 million, or 14.2%, increase in the average balance of mortgage-backed securities along with a 98 basis point increase in the average yield earned from 5.78% in fiscal 1994 to 6.76% in fiscal 1995. The increase in yield in fiscal 1995 was generally the result of higher rates earned on investments made in the beginning of the fiscal year as well as decreased premium amortization because of lower prepayment rates. The decrease in fiscal 1994 was attributable to a decrease of 68 basis points in the average yield earned from 6.46% in fiscal 1993 to 5.78% in fiscal 1994, which was partially offset by a $31.0 million increase in the average balance of mortgage-backed securities from the prior year. Interest income on investment securities (including FHLBNY stock) increased by $3.1 million, or 50.4%, to $9.3 million in fiscal 1995. Such interest income in fiscal 1994 represented a $1.4 million, or 29.9%, increase compared to $4.7 million in fiscal 1993. The fiscal 1995 increase was the result of a $45.3 million increase in the average balance of such securities during the fiscal year along with a slight increase in the average yield earned on the securities to 6.78% during fiscal 1995 from 6.74% during fiscal 1994. The fiscal 1994 increase was the result of a $27.2 million, or 42.3%, increase in the average balance of such securities during the fiscal year, which was partially offset by a 64 basis point decrease in the average yield earned on such securities to 6.74%. INTEREST EXPENSE Total interest expense increased by $13.9 million from $41.3 million in fiscal 1994 to $55.2 million in fiscal 1995. During fiscal 1994 interest expense decreased by $2.7 million from $44.0 million in fiscal 1993. The fiscal 1995 increase was due to the combination of a $48.0 million, or 3.5%, increase in the average balance of interest-bearing liabilities along with an 87 basis point increase to 3.89% in the average cost of funds for fiscal 1995 compared to fiscal 1994. The average rate paid on interest- bearing liabilities decreased 23 basis points from 3.25% in fiscal 1993 to 3.02% in fiscal 1994. The decrease in average rates paid in fiscal 1994 was partially offset by an $18.9 million increase in the average balance of interest-bearing liabilities. Interest expense on deposits increased by $4.6 million to $40.2 million for fiscal 1995. This increase reflects a 56 basis point increase in the average rate paid on such deposits to 3.44% in fiscal 1995 from 2.88% for fiscal 1994. The increase in average rates reflects the higher rates paid on time deposits for the fiscal year because of the overall upward trend in short-term interest rates for the period as well as a shift to some extent from lower cost savings accounts to higher rate time deposits. This was partially offset by a $67.3 million decrease in the average balance of deposits for fiscal 1995. Interest expense on deposits decreased by $6.5 million, or 15.4%, in fiscal 1994 to $35.6 million, due to a decrease of $71.0 million in the average deposit balance and a decrease in the average rates paid of 34 basis points. The decrease in the average balances was due in part to the effects of the sale during fiscal 1994 of an aggregate of $22.5 million in deposits as well as deposit outflow, which the Bank attributes to customers seeking other higher-yielding investment opportunities. Interest expense on borrowings increased $9.3 million to $15.1 million in fiscal 1995, primarily due to an increase of $115.4 million in the average balance of borrowings, which reflects the Bank's overall asset/liability strategy during fiscal 1995 to provide growth through alternative funding sources. In addition, the average rate paid on these borrowings increased 175 basis points to 6.05% for fiscal 1995 from 4.30% for fiscal 1994. Interest expense on borrowings increased $3.9 million to $5.7 million in fiscal 1994, primarily due to an increase of $89.9 million in the average balance of borrowings, which was offset by a 3 basis point decrease in the average rate paid to 4.30%. PROVISION FOR LOAN LOSSES As a result of management's evaluation of the adequacy of the allowance for loan losses and in view of the decline in the Bank's non-performing loan portfolio to $4.9 million at September 30, 1995 compared to $13.9 million at September 30, 1994 the Bank deemed it appropriate to reduce the level of provisions for loan losses to $2.8 million for fiscal 1995 as compared to $3.6 million for fiscal 1994. The Bank's non-performing loans were $17.3 million at September 30, 1993 and the fiscal 1993 provision for loan losses was $16.3 million, of which $6.4 million was due to the fiscal 1993 Statement of Condition restructuring. See discussion above regarding "ASSET QUALITY". OTHER OPERATING INCOME (LOSS) Total other operating income decreased by $.8 million during fiscal 1995 to $2.3 million from $3.1 million in fiscal 1994. In fiscal 1993 there was an other operating loss of $8.5 million. The primary reason for the decrease in other operating income in fiscal 1995 was the $.5 million loss incurred on the disposition of fourteen OREO properties compared to the $.2 million loss on the disposition of OREO properties in fiscal 1994. The Bank also recognized a $.4 million gain on redemptions of securities during fiscal 1995 which was offset by the absence of the $.4 million gain on the sale of bank-owned property recognized in fiscal 1994. Customer service fees also decreased by $.3 million in fiscal 1995, which was attributable to lower loan and deposit fees. The primary reason for the increase in other operating income in fiscal 1994 was the absence of a fiscal 1993 $11.1 million loss on the disposition of assets in connection with the restructuring of the Bank's Statement of Condition. OTHER OPERATING EXPENSES The Bank's other operating expenses consist of non-interest expense items, including general and administrative expenses and costs associated with the operation and disposition of OREO properties. The Bank has closely monitored and continues its efforts to reduce operating expenses. The following is a summary of other operating expenses: YEARS ENDED SEPTEMBER 30, 1995 1994 1993 (In Thousands) Employee compensation $ 7,709 $ 8,029 $ 8,244 Employee benefits 3,073 2,938 2,787 Occupancy expense 2,451 2,630 2,723 Equipment expense 953 882 994 Postage, stationery and supplies 322 318 380 Telecommunications 209 223 293 Professional services 1,613 2,052 2,087 BIF deposit insurance premiums 2,054 3,249 3,355 Insurance 682 761 718 Computer costs 1,763 1,447 1,909 Entrance and exit fees 596 585 565 Mortgage service fees 144 221 306 Other 1,494 1,637 1,367 Operating expense before OREO expense and restructuring expenses 23,063 24,972 25,728 OREO expense, net before restructuring expenses 475 1,225 1,502 Restructuring expenses - - 21,092 Total $ 23,538 $26,197 $48,322 Efficiency Ratio (1) 43.59% 47.56% 45.65% (1) Operating expense before OREO expense, net and restructuring expenses as a percentage of net interest income, customer service fees and other income, excluding gains and losses. The major component of the decrease in total other operating expenses in fiscal 1995 was a $1.2 million reduction in BIF insurance premiums primarily due to lower assessment rates. The Bank had lower net OREO expenses of $.8 million in fiscal 1995 as a result of the $5.9 million decrease in other real estate owned during such year. The remaining decrease in other operating expenses was in large part the result of the Bank's continuing effort to maintain strong control over and reduce other operating costs. Fiscal 1994 total other operating expenses declined $22.1 million to $26.2 million from $48.3 million in fiscal 1993. The primary reason for the significant decrease was the absence of certain fiscal 1993 expenses resulting from the restructuring of the Bank's Statement of Condition. The major components affecting the restructuring and other operating expenses included the $10.2 million write-off of goodwill, the establishment of a $9.5 million allowance for OREO, a charge of $.7 million relating to the elimination of investments and borrowings in connection with two unit investment trusts and a charge of $.7 million regarding advances made in connection with certain non-performing loans. INCOME TAXES The provision for income taxes increased by $1.8 million from $9.6 million in fiscal 1994 to $11.4 million in fiscal 1995, primarily due to the increase in income before the provision for income taxes of $3.5 million. See Note 11 of Notes to Consolidated Financial Statements. In fiscal 1994, the provision for income taxes increased by $13.6 million to a provision of $9.6 million from a benefit of $4.0 million in fiscal 1993, primarily due to an increase in income before the provision (benefit) for income taxes of $42.7 million. Legislation recently has been introduced which would repeal Section 593 of the Internal Revenue Code of 1986, as amended (the "Code"), which provides for the methods of accounting for bad debts. Under the proposal, effective for taxable years beginning after 1995, thrift institutions which are treated as large banks (one with total assets in excess of $500 million), such as the Bank, would generally be required to take into income the balance of their post-bad debt reserves. If enacted into law, the pending legislation could require the Bank to realize an increased tax liability over a six year period beginning in 1996, however, management of the Bank does not believe that any such increase would be material. NET INCOME Net income increased $1.7 million in fiscal 1995 to $15.1 million from $13.4 million for the year ended September 30, 1994. Fiscal 1994 net income increased $26.2 million to $13.4 million from a net loss of $12.8 million for the year ended September 30, 1993. The following table summarizes the dollar increases (decreases) in key components of the Bank's Statement of Operations: FISCAL 1995 FISCAL 1994 COMPARED TO COMPARED TO INCREASE (DECREASE) IN: FISCAL 1994 FISCAL 1993 (In Thousands) Total interest income $ 14,844 $ (6,484) Total interest expense 13,881 (2,635) Net interest income 963 (3,849) Provision for loan losses (725) (12,758) Net gain (loss) on redemptions and sales of securities, mortgages and OREO (345) 589 Loss on disposition of assets - (11,063) Other operating income (467) (2) Amortization of excess cost over fair value of net assets acquired - (10,192) OREO expenses, net (750) (9,777) Other operating expenses (except OREO expenses, net and amortization expense) (1,909) (2,156) Income before provision for income taxes and cumulative effect of accounting change 3,535 42,684 Provision for income taxes 1,795 13,537 Income before cumulative effect of accounting changes 1,740 29,147 Cumulative effect of changes: Postretirement benefits cost - 2,300 Income taxes - (5,329) Net income (loss) $ 1,740 $ 26,118 LIQUIDITY AND CAPITAL RESOURCES Liquidity refers to the ability of the Bank to generate sufficient cash to meet cash funding needs, depositor withdrawals and operating expenses. Liquidity is measured by the ratio of cash and cash equivalents (not committed, pledged or required to liquidate specific liabilities) to the sum of net withdrawable deposits and borrowings payable within one year. Managing liquidity is a component of the Bank's asset/liability strategy, with the most liquid assets being cash and due from banks and money market investments. The balance of these assets are a result of the Bank's operating, financing, lending and investing activities. The Bank's average liquidity ratio was 2.66% in fiscal 1995, 3.91% in fiscal 1994 and 6.03% in fiscal 1993. North Side's primary sources of funds have consisted of deposits, amortization and prepayments of outstanding loans and mortgage- backed securities, bond maturities and other sources. In addition, as previously discussed the Bank increased its borrowings, all of which were collateralized financings, during fiscal 1995 to invest in attractive loan or investment opportunities at favorable spreads. While maturities and scheduled amortizations of loans and investments are a predictable source of funds, deposit flows and mortgage prepayments are substantially influenced by general interest rates, economic conditions and competition from other financial institutions. As shown in the Consolidated Statement of Cash Flows, cash and cash equivalents increased $27.4 million during fiscal 1995 to $40.7 million at September 30, 1995. The increase reflected $30.5 million provided by operating activities and $28.9 million provided by financing activities, which was partially offset by $32.0 million used in investing activities. The cash provided by financing activities was due to increased borrowings, and cash generated by operating activities which reflected $15.1 million of net income. The cash used in investing activities was primarily used for purchases of mortgage-backed securities. At September 30, 1995, total approved loan commitments were $3.4 million and the amount of time deposits scheduled to mature during fiscal 1996 is $309.9 million. Management expects that a substantial portion of these maturing deposits will be redeposited in North Side. IMPACT OF INFLATION The financial statements and related data 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 changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services. In the current interest rate environment, liquidity and the maturity structure of North Side's assets and liabilities are critical to the maintenance of acceptable performance levels. REGULATORY CAPITAL In March 1989, the FDIC adopted a risk-based capital rule which applies to all BIF-insured state-chartered banks that are not members of the Federal Reserve System ("state nonmember banks"), such as the Bank. The guidelines call for a minimum total capital ratio of 8% of risk-weighted assets and off-balance sheet items. At least one-half of that amount must be Tier I or core capital and up to one-half of total capital can consist of Tier II or supplementary capital. Commencing December 31, 1990, the FDIC also required state non-member banks to maintain minimum leverage ratios. For risk-based purposes, Tier I capital for state nonmember banks consists mainly of equity stock and, to a lesser extent, perpetual preferred stock that is non-cumulative with regard to payment of dividends. All intangible assets, other than mortgage servicing rights, are deducted from Tier I capital. Tier II capital consists primarily of hybrid capital instruments, term subordinated debt and intermediate-term preferred stock (limited to fifty percent of Tier I capital), cumulative perpetual preferred stock and, subject to limitations, general allowances for loan losses. Assets are adjusted to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash and GNMA mortgage-backed securities to 100% for the bulk of assets which are typically found in a financial institution's portfolio, including multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Mortgage- backed securities insured or guaranteed by the FHLMC and FNMA are assigned to the 20% risk category. Single-family residential loans are placed in the 50% category if they are performing and have a loan-to-value ratio of 80% or less. Off- balance sheet items also are adjusted to take into account certain risk characteristics. See Note 14 of the Notes to Consolidated Financial Statements.
CAPTIAL RATIOS SEPTEMBER 30, 1995 __________________________________________________________________ 18% |______________________|_______________16.89%_|____________________| _ 17% |______________________|_________________#____|____________________| |*| 16% |_______________15.96%_|_________________#____|____________________| FDIC 15% |_________________#____|_________________#____|____________________| Minimum 14% |_________________#____|_________________#____|____________________| Requirement 13% |_________________#____|_________________#____|____________________| 12% |_________________#____|_________________#____|____________________| _ 11% |_________________#____|_________________#____|____________________| |_| 10% |_________________#____|________10.00%___#____|____________________| FDIC Well 9% |_________________#____|__________|______#____|____________________| Capitalized 8% |_________________#____|__8.00%___|______#____|____________________| Requirement 7% |_________________#____|___*______|______#____|______________7.02%_| 6% |_________6.00%___#____|___*______|______#____|_______________#____| _ 5% |___________|_____#____|___*______|______#____|________5.00%__#____| |#| 4% |__4.00%____|_____#____|___*______|______#____|_________|_____#____| North Side 3% |____*______|_____#____|___*______|______#____|__3.00%__|_____#____| Actual 2% |____*______|_____#____|___*______|______#____|___*_____|_____#____| 1% |____*______|_____#____|___*______|______#____|___*_____|_____#____| 0% |____*______|_____#____|___*______|______#____|___*_____|_____#____|
The Bank's risk-based capital ratios continued to improve and have consistently exceeded minimum regulatory levels of capital. Tier I capital has increased to 15.98% at September 30, 1995 from 13.39% at September 30, 1994. Total risk-based capital also increased during fiscal 1995 to 16.89% at September 30, 1995 from 14.64% at September 30, 1994. Tier I leverage capital increased during fiscal 1995 to 7.02% at September 30, 1995 from 6.52% at September 30, 1994. The Bank's risk-based capital and leverage requirements and ratios at September 30, 1995 are as follows:
FDIC MINIMUM NORTH SIDE'S CAPITAL IN EXCESS CAPITAL REQUIREMENTS ACTUAL CAPITAL OF MINIMUM REQUIREMENTS % OF ADJUSTED % OF ADJUSTED % OF ADJUSTED AMOUNT TOTAL ASSETS AMOUNT TOTAL ASSETS AMOUNT TOTAL ASSETS (Dollars in Millions) Risk-based Capital: Tier 1 Capital $28.2 4.00% $112.7 15.98% $84.5 11.98% Total Capital 56.4 8.00 119.1 16.89 62.7 8.89 Tier 1 Leverage Capital(1) 48.1 3.00 112.7 7.02 64.6 4.02 (1) The FDIC has issued regulations that require insured banks, such as North Side, to maintain minimum levels of capital. In general, current regulations require leverage ratios of core capital of 3.0% of assets for the most highly rated banks and other banking organizations are required to maintain higher levels (100 to 200 basis points) based on their particular circumstances as defined in the regulations. As of September 30, 1995, North Side complied with all capital levels required by the FDIC.
RECENT ACCOUNTING PRONOUNCEMENTS See Note 17 of Notes to Consolidated Financial Statements. INDEPENDENT AUDITORS' REPORT The Shareholders and the Board of Directors North Side Savings Bank: We have audited the accompanying consolidated statements of condition of North Side Savings Bank and subsidiaries (the "Bank") as of September 30, 1995 and 1994 and the related consolidated statements of operations, 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 Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Side Savings Bank and subsidiaries 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 Note 1 to the consolidated financial statements, the Bank adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" effective October 1, 1994. KPMG PEAT MARWICK New York, New York October 18, 1995 Consolidated Statements of Condition _______________ SEPTEMBER 30, 1995 1994 (Dollars in Thousands) ASSETS Cash and due from banks $ 11,530 $ 12,333 Money market investments (Note 2) 29,456 1,200 Securities available for sale: (Note 3) Investment securities 26,520 - Mortgage-backed securities 300,022 - Total securities available for sale 326,542 - Investment securities, net (estimated market value of $92,460 and $132,005, respectively) (Notes 4 and 10) 93,301 135,972 Federal Home Loan Bank of NY stock, at cost 9,430 - Mortgage-backed securities, net (estimated market value of $642,864 and $826,666, respectively) (Note 5) 651,153 858,700 Loans (Notes 6 and 7) 432,180 489,883 Less allowance for loan losses 6,417 11,178 Loans, net 425,763 478,705 Accrued interest receivable 13,230 12,533 Premises and equipment, net 15,215 15,526 Other real estate owned, (net of allowance of $1.1 million and $7.5 million, respectively) (Note 8) 2,515 8,369 Other assets (Note 11) 9,868 17,713 Total assets $1,588,003 $1,541,051 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits (Note 9) $1,199,077 $1,191,509 Mortgagors' escrow 4,607 4,372 Borrowed funds (Note 10) 251,000 226,875 Other liabilities 17,035 17,297 Total liabilities 1,471,719 1,440,053 Shareholders' Equity: Preferred stock, par value $1.00 per share, 5,000,000 shares authorized, none outstanding - - Common stock, par value $1.00 per share, 10,000,000 shares authorized, 4,798,022 shares and 4,541,068 shares issued and outstanding at September 30, 1995 and 1994, respectively 4,798 4,541 Paid-in capital 62,985 57,641 Surplus fund 24,101 24,101 Undivided profits 22,606 15,592 Unrealized depreciation on certain marketable equity securities (Note 4) - (436) Net unrealized appreciation on securities available for sale, net of income taxes (Note 3) 2,360 - Unallocated shares in Management Development and Recognition Plan (Note 15) - (416) Unearned portion of incentive compensation (566) (25) Total shareholders' equity 116,284 100,998 Commitments and contingencies (Notes 12 and 13) Total liabilities and shareholders' equity $ 1,588,003 $ 1,541,051 See accompanying notes to consolidated financial statements. Consolidated Statements of Operations YEARS ENDED SEPTEMBER 30, 1995 1994 1993 (Dollars in Thousands, except per share amounts) INTEREST INCOME: Mortgage loans $ 35,610 $ 38,631 $ 42,566 Mortgage-backed securities 59,604 44,682 47,911 Investment securities (Note 4) 8,964 6,164 4,745 Federal Home Loan Bank of NY Stock 307 - - Money market investments 642 534 894 Other loans 648 920 1,299 Total interest income 105,775 90,931 97,415 INTEREST EXPENSE: Deposits (Note 9) 40,172 35,602 42,097 Borrowings (Note 10) 15,058 5,747 1,887 Total interest expense 55,230 41,349 43,984 Net interest income 50,545 49,582 53,431 Provision for loan losses (Note 7) 2,825 3,550 16,308 Net interest income after provision for loan losses 47,720 46,032 37,123 OTHER OPERATING INCOME (LOSS): Gain(loss) on redemptions and sales of securities 355 - (136) Loss on disposition of assets - - (11,063) Gain on sale of bank property - 356 - Loss on sales of mortgages and other real estate owned (OREO) (520) (176) (273) Customer service fees 1,990 2,265 2,648 Other 471 663 282 Total other operating income (loss) 2,296 3,108 (8,542) OTHER OPERATING EXPENSES: Compensation and benefits (Notes 13 and 15) 10,782 10,967 11,031 Occupancy and equipment 3,404 3,512 3,717 BIF deposit insurance premiums 2,054 3,249 3,355 Amortization of excess cost over fair value of net assets acquired - - 10,192 OREO expense, net 475 1,225 11,002 Other 6,823 7,244 9,025 Total other operating expenses 23,538 26,197 48,322 Income (loss) before provision (benefit) for income taxes and cumulative effect of accounting changes 26,478 22,943 (19,741) Provision (benefit) for income taxes (Note 11) 11,371 9,576 (3,961) Income (loss) before cumulative effect of accounting changes 15,107 13,367 (15,780) Cumulative effect of accounting changes: Postretirement benefits cost - - (2,300) Income taxes - - 5,329 NET INCOME (LOSS) $ 15,107 $ 13,367 $ (12,751) PRIMARY EARNINGS PER COMMON SHARE BEFORE ACCOUNTING CHANGES (1) $ 3.15 $ 2.82 $ (3.35) PRIMARY EARNINGS (LOSS) PER COMMON SHARE (1) $ 3.15 $ 2.82 $ (2.71) FULLY DILUTED EARNINGS PER COMMON SHARE $ 3.06 N/A N/A (1) Prior years are restated to reflect the 5% stock dividends paid during fiscal 1994 and 1995 See accompanying notes to consolidated financial statements. Consolidated Statements of Changes in Shareholders' Equity
UNREALIZED NET UNALLOCATED DEPRECIATION UNREALIZED SHARES IN UNEARNED ON CERTAIN APPRECIATION MANAGEMENT PORTION OF YEARS ENDED MARKETABLE ON SECURITIES DEVELOPMENT INCENTIVE SEPTEMBER 30 COMMON PAID-IN SURPLUS UNDIVIDED EQUITY AVAILABLE & RECOGNITION COMPEN- 1993, 1994 AND 1995 STOCK CAPITAL FUND PROFITS SECURITIES FOR SALE PLAN SATION TOTAL (Dollars in Thousands) BALANCE AT OCTOBER 1, 1992 $ 4,053 $ 49,409 $ 24,101 $ 24,156 $ (80) $ - $ (1,587) $ (313) $ 99,739 Net loss - - - (12,751) - - - - (12,751) Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 161 161 Payment of 401(k) contribution 15 257 - - - - - - 272 Management Development and Recognition Plan sale of 93,627 shares of Common Stock - - - - - - 1,174 - 1,174 Payment of 5% stock dividend 203 3,152 - (3,355) - - - - - Cash dividend paid ($.20 per share) - - - (812) - - - - (812) Dividend Reinvestment 2 14 - - - - - - 16 Exercise of options for 8,828 shares of Common Stock 9 76 - - - - - - 85 Decrease in unrealized depreciation on certain marketable equity securities - - - - 69 - - - 69 BALANCE AT SEPTEMBER 30, 1993 4,282 52,908 24,101 7,238 (11) - (413) (152) 87,953 Net income - - - 13,367 - - - - 13,367 Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 125 125 Forfeiture of 210 shares to Management Development and Recognition Plan - 2 - - - - (3) 2 1 Payment of 401 (k) Contribution 15 277 - - - - - - 292 Payment of 5% stock dividend 215 4,223 - (4,438) - - - - - Cash dividend paid ($.125 per share) - - - (575) - - - - (575) Dividend Reinvestment - 9 - - - - - - 9 Exercise of options for 29,189 shares of Common Stock 29 222 - - - - - - 251 Increase in unrealized depreciation on certain marketable equity securities - - - - (425) - - - (425) BALANCE AT SEPTEMBER 30, 1994 4,541 57,641 24,101 15,592 (436) - (416) (25) 100,998 Net income - - - 15,107 - - - - 15,107 Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 125 125 Awarded 36,506 shares of Common Stock from Management Development and Recognition Plan at $18.25 per share, market value on date of grant - 250 - - - - 416 (666) - Payment of 401 (k) contribution 16 286 - - - - - - 302 Payment of 5% stock dividend 227 4,657 - (4,884) - - - - - Cash dividend paid ($.675 per share) - - - (3,209) - - - - (3,209) Dividend Reinvestment 2 39 - - - - - - 41 Exercise of options for 11,632 shares of Common Stock 12 112 - - - - - - 124 Decrease in unrealized depreciation on certain marketable equity securities - - - - 436 - - - 436 Net unrealized appreciation on securities available for sale, net of taxes of $1,922 - - - - - 2,360 - - 2,360 BALANCE AT SEPTEMBER 30, 1995 $4,798 $ 62,985 $ 24,101 $ 22,606 $ - $2,360 $ - $ (566) $116,284
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows YEARS ENDED SEPTEMBER 30, 1995 1994 1993 (Dollars in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $ 15,107 $ 13,367 $ (12,751) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Change in accounting principles - - (3,029) Amortization of goodwill - - 10,192 Depreciation and amortization 1,327 1,204 1,298 Provision for possible loan losses and real estate losses 3,148 4,330 25,808 (Gain) loss on sale of loans (5) 123 11,063 Amortization of premium, accretion of (discount), net 5,172 11,098 8,837 401(k) contribution 302 292 272 Net (gain) loss on redemption of investments (355) (22) 203 Net losses on sale of OREO 525 53 273 Gain on sale of Bank property - (356) - Losses on Municipal Put - - 907 (Increase) decrease in accrued interest receivable (697) (2,521) 3,522 Decrease (increase) in other assets 5,923 16,201 (7,461) (Decrease) increase in other liabilities (262) 6,665 (8,185) Increase (decrease) in others, net 285 405 ( 120) NET CASH PROVIDED BY OPERATING ACTIVITIES 30,470 50,839 30,829 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and redemptions of investment securities available for sale 6,643 - - Purchases of investment securities available for sale (8,004) - - Proceeds from principal repayments of mortgage-backed securities available for sale 54,514 - - Purchases of mortgage-backed securities available for sale (174,408) - - Proceeds from principal repayments, maturities and redemptions of investment securities held to maturity 30,713 18,006 14,931 Proceeds from redemptions and sales of investment securities held to maturity 574 - 6,313 Purchase of investment securities held to maturity (10,280) (94,043) (27,526) Proceeds from sales of loans held for sale - 2,146 108,386 Purchase of FHLBNY stock (9,430) - - Proceeds from principal repayments of mortgage-backed securities held to maturity 72,951 348,194 414,332 Proceeds from sales of mortgage-backed securities held to maturity - - 460 Purchase of mortgage-backed securities held to maturity (48,320) (466,886) (454,399) Maturities of certificates of deposit 400 400 200 Purchases of certificates of deposit (500) (400) (300) Proceeds from loan repayments and satisfactions 50,514 107,886 80,321 Proceeds from loans sold 3,825 1,464 10,134 Proceeds from student loans sold 1,154 1,592 1,638 Loan purchases and originations (6,882) (218,704) (14,732) Proceeds from sales of bank building - 987 - Proceeds from sales of OREO 5,551 2,589 2,773 Capital expenditures (1,016) (998) (516) NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (32,001) (297,767) 142,015 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposit accounts, net, including deposits purchased of $48.6 million in 1995, deposits sold of $22.5 million in 1994 and $5.1 million in 1993 7,568 (88,786) (60,296) Receipt of borrowed funds 988,500 1,022,752 249,330 Repayment of borrowed funds (964,375) (795,877) (250,775) Receipt (Disbursement) of mortgage escrow (net) 235 (407) (3,323) Proceeds from sale of common stock by Management Development and Recognition Plan - - 1,174 Proceeds from exercise of stock options 124 251 85 Cash dividend paid on common stock, net of dividend reinvestment (3,168) (566) (796) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 28,884 137,367 (64,601) Net increase (decrease) in Cash and Cash Equivalents 27,353 (109,561) 108,243 Cash and Cash Equivalents at Beginning of Year 13,333 122,894 14,651 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,686 $ 13,333 $ 122,894 SUPPLEMENTAL INFORMATION: Cash paid during the year for: Interest $ 55,764 $ 41,349 $ 43,984 Income taxes 6,937 2,419 4,984 Additions to OREO 546 3,032 3,244 Elimination of unit investment trust - - (20,831) See accompanying notes to consolidated financial statements. NORTH SIDE SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of North Side Savings Bank and subsidiaries (the Bank) are prepared in conformity with generally accepted accounting principles using the accrual basis of accounting for financial reporting and tax purposes. Certain reclassifications have been made to prior year financial statements to conform to the fiscal 1995 presentation. The following summarizes the significant accounting policies of the Bank. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of North Side Savings Bank and its wholly-owned subsidiaries. Significant inter-company accounts and transactions are eliminated in consolidation. MONEY MARKET INVESTMENTS Money market investments represent short-term instruments, usually with maturities of six months or less. These investments are carried at cost, adjusted for premiums and discounts which are recognized in interest income over the period to maturity. The carrying values of these investments approximate current market values. SECURITIES AVAILABLE FOR SALE Effective October 1, 1994, the Bank adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Under this statement, mortgage- backed securities and other securities which the Bank intends to hold for indefinite periods of time and does not intend to hold to maturity are classified as securities available for sale and carried at estimated market value. Premiums are amortized and discounts are accreted to maturity using a method which approximates the level-yield method. Securities available for sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates and/or resultant prepayment risk changes or other factors related to interest rates and prepayment risk changes. Gains and losses arising from sales of these securities are included in net gain (loss) on sales of assets and are determined using the specific identification method. Unrealized gains and losses are reported as a separate component of shareholders' equity, net of taxes. INVESTMENT SECURITIES Investment securities consist of debt and equity securities which the Bank has the intent and ability to hold until maturity. Debt securities, which include bonds, notes and debentures, are carried at amortized historical cost. Premiums are amortized and discounts are accreted using a method which approximates the level-yield method. Equity securities are carried at estimated market value. MORTGAGE-BACKED SECURITIES Mortgage-backed securities, exclusive of collateralized mortgage obligations, represent participating interests in pools of long-term, first mortgage loans. Collateralized mortgage obligations are multi-class, mortgage- backed securities that are secured by mortgage loans or other mortgage-backed securities. The Bank has the intent and ability to hold these securities until maturity. Mortgage-backed securities are carried at amortized historical cost. Premiums are amortized and discounts are accreted using a method which approximates the level-yield method. LOANS Mortgage and other loans are carried at cost plus net unamortized premium and deferred loan origination fees and the allowance for loan losses. Premiums are amortized and discounts are accreted over various composite lives using methods which approximate the level-yield method. Loan origination fees and direct loan origination costs are deferred and subsequently recognized in interest income as a yield adjustment using the level-yield method over the contractual loan term, adjusted for estimated prepayments in certain circumstances. Interest is accrued monthly on the outstanding balance of mortgage and other loans unless management considers collection to be doubtful. Loans are placed on a non-accrual basis when principal or interest payments are in arrears ninety days or more, or sooner, if management deems it appropriate. When loans are placed on a non-accrual basis, previously accrued but unpaid interest is reversed and charged against current income and interest is subsequently recognized only to the extent cash is received. ALLOWANCE FOR LOAN LOSSES The Bank uses the reserve method of accounting for loan losses. Under this method, provisions for loan losses are charged to operations and recognized loan losses (recoveries) are charged (credited) to the allowance. The allowance for loan losses is based on management's periodic evaluations of the adequacy of the allowance, which takes into consideration the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations which may affect the borrowers' ability to repay, overall portfolio quality, and current and prospective economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies could require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Management believes that the allowance for loan losses is adequate. PREMISES AND EQUIPMENT Premises, furniture and fixtures and equipment are carried at cost less accumulated depreciation computed on a straight-line basis over the estimated useful lives of the respective assets. Maintenance, repairs and minor improvements are charged to operating expense as incurred. OTHER REAL ESTATE OWNED Other real estate owned ("OREO") consists of property acquired by foreclosure or by deed-in-lieu of foreclosure, or properties classified as in-substance foreclosure. These properties are carried at the lower of estimated fair value or the balance of the loan at the date of acquisition or classification. The Bank maintains an allowance for subsequent declines in fair values of OREO. Expenses for holding costs are charged to operations as incurred. PENSION PLAN The Bank maintains a qualified defined benefit pension plan through the RSI Retirement Trust, a group trust administered by Retirement Systems Group, Inc. The Bank's pension plan is non-contributory and covers substantially all full-time employees. The Bank's funding policy is to make contributions to the plan at least equal to the amounts required by applicable Internal Revenue Service regulations. INCOME TAXES The Bank follows Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires deferred income taxes to be accounted for under the asset and liability method. Deferred income tax expense (benefit) under SFAS No. 109 is determined by recognizing deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The realization of deferred tax assets is assessed and a valuation allowance provided for that portion of the asset for which it is more likely than not that it will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Bank files consolidated Federal, State and Local income tax returns. EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share are computed by dividing net income (loss) by the average number of shares outstanding. Fully diluted earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of fully diluted common shares and common stock equivalents. The common stock equivalents consist of common stock options. All earnings (loss) per share amounts included in the financial statements have been restated to reflect the 5% stock dividends paid during fiscal 1995 and fiscal 1994. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from banks including Federal Home Loan Bank overnight deposits, Federal Home Loan Bank balance, and Federal funds sold. Generally, Federal funds are sold for one-day periods. (2) MONEY MARKET INVESTMENTS Money market investments generally have maturities of six months or less. The following table presents the components of money market investments: SEPTEMBER 30, 1995 1994 (In Thousands) Federal funds sold $ - $ 1,000 Certificates of deposit 300 200 FHLB Bank Balance 356 - FHLB Overnight Deposit 28,800 - Total money market investments $29,456 $ 1,200 (3) SECURITIES AVAILABLE FOR SALE Effective October 1, 1994, the Bank adopted SFAS No. 115 which requires securities available for sale to be carried at estimated fair value with the resultant net unrealized gain or loss from amortized cost reflected as a separate component of stockholders' equity net of related income taxes. At September 30, 1995, the net unrealized gain on securities available for sale was $4.3 million or $2.4 million net of income taxes. Prior to the adoption of SFAS No. 115, the Bank carried securities available for sale at the lower of amortized cost or estimated fair value. There were no securities available for sale at September 30, 1994. The amortized cost and estimated fair values of securities available for sale at September 30, 1995 are summarized as follows: SEPTEMBER 30, 1995 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE (In Thousands) Investment Securities available for sale: United States Government securities $ 230 $ - $ (1) $ 229 Equity Securities 23,626 3,148 (483) 26,291 Total Investment Securities 23,856 3,148 (484) 26,520 Mortgage Backed Securities available for sale: FHLMC & FNMA 273,811 1,846 (219) 275,438 CMOs 24,593 31 (40) 24,584 Total mortgage- backed securities 298,404 1,877 (259) 300,022 Total securities available for sale $ 322,260 $ 5,025 $ (743) $ 326,542 The Bank's portfolio of mortgage-backed securities available for sale had an estimated weighted average expected life of approximately 3.8 years at September 30, 1995. U.S. Government securities at September 30, 1995 had contractual maturities between November 1995 and February 1997. Accrued interest receivable on securities available for sale was $3.1 million at September 30, 1995. (4) INVESTMENT SECURITIES The carrying value and related estimated market value of investment securities as of September 30, 1995 and 1994 are as follows:
SEPTEMBER 30, 1995 1994 GROSS UN- GROSS UN- ESTIMATED Gross Un- Gross Un- Estimated CARRYING REALIZED REALIZED MARKET Carrying Realized Realized Market VALUE GAINS LOSSES VALUE Value Gains Losses Value (In Thousands) Bonds and Other Debt Securities: United States Government and Federal Agencies $ 62,837 $ 13 $ 264 $ 62,586 $ 76,663 $ 3 $ 3,000 $ 73,666 State and Municipal 1,663 - - 1,663 1,758 57 - 1,815 Corporate and other 22,696 - 590 22,106 35,332 77 1,104 34,305 Total bonds 87,196 13 854 86,355 113,753 137 4,104 109,786 Equity Securities 6,105 - - 6,105 22,655 - (436) 22,219 Less allowance for unrealized depreciation - - - - (436) - 436 - Total equity securities 6,105 - - 6,105 22,219 - - 22,219 Total investment securities, net $ 93,301 $ 13 $ 854 $ 92,460 $ 135,972 $ 137 $4,104 $ 132,005
The following is a summary of the carrying value of bonds at September 30, 1995 by remaining term to maturity: UNITED STATES GOVERNMENT ESTIMATED AND FEDERAL STATE AND CORPORATE MARKET SEPTEMBER 30, 1995 AGENCIES MUNICIPAL AND OTHER TOTAL VALUE (In Thousands) 1 year or less $ - $ - $ 6,106 $ 6,106 $ 5,977 Over 1 year to 5 years - 483 13,333 13,816 13,277 Over 5 years to 10 years 37,837 - 2,007 39,844 39,808 Over 10 years 25,000 1,180 1,250 27,430 27,293 TOTAL $ 62,837 $ 1,663 $ 22,696 $ 87,196 $ 86,355 The following is a summary of interest and dividend income by type of investment security for the years ended: SEPTEMBER 30, 1995 1994 1993 (In Thousands) U.S. Government and Federal Agencies $ 5,422 $ 2,172 $ 310 State and Municipal 147 155 999 Corporate and other 1,981 2,974 3,022 Equity Securities 1,414 863 414 Total $ 8,964 $ 6,164 $ 4,745 (5) MORTGAGE-BACKED SECURITIES The carrying values and estimated market values of mortgage-backed securities at September 30, 1995 and 1994 are summarized as follows:
1995 CARRYING VALUE PRINCIPAL BALANCES GNMA FNMA FHLMC CMO OTHER TOTAL (IN THOUSANDS) Fixed-rate $ 8,130 $ 155,499 $ 63,089 $ 260,310 $ 2,221 $ 489,249 Variable-rate - 91,361 - - 63,258 154,619 Total principal balance 8,130 246,860 63,089 260,310 65,479 643,868 Unamortized Premium Fixed-rate - 2,607 822 2,017 - 5,446 Variable-rate - 2,655 - - - 2,655 Total premium - 5,262 822 2,017 - 8,101 Unamortized Discount Fixed-rate - 28 69 697 - 794 Variable-rate - - - - 22 22 Total discount - 28 69 697 22 816 Total mortgage-backed, net 8,130 252,094 63,842 261,630 65,457 651,153 Gross unrealized gains 136 522 285 - 41 984 Gross unrealized losses (1) (2,353) (550) (5,673) (696) (9,273) Estimated market value $ 8,265 $ 250,263 $ 63,577 $ 255,957 $ 64,802 $ 642,864 1994 Carrying Value Principal Balances GNMA FNMA FHLMC CMO OTHER TOTAL ( In Thousands) Fixed-rate $ 9,125 $ 183,474 $ 224,983 $ 307,089 $ 3,812 $ 728,483 Variable-rate - 96,151 - - 20,434 116,585 Total principal balance 9,125 279,625 224,983 307,089 24,246 845,068 Unamortized Premium Fixed-rate - 3,601 5,670 2,946 - 12,217 Variable-rate - 2,821 - - - 2,821 Total premium - 6,422 5,670 2,946 - 15,038 Unamortized Discount Fixed-rate - 44 370 963 - 1,377 Variable-rate - - - - 29 29 Total discount - 44 370 963 29 1,406 Total mortgage-backed, net 9,125 286,003 230,283 309,072 24,217 858,700 Gross unrealized gains 7 207 963 85 41 1,303 Gross unrealized losses (90) (10,214) (4,586) (18,144) (303) (33,337) Estimated market value $ 9,042 $ 275,996 $ 226,660 $ 291,013 $ 23,955 $ 826,666
(6) LOANS The composition of the loan portfolio is summarized as follows: SEPTEMBER 30, 1995 1994 (In Thousands) Mortgage loans: Conventional: One-to four-family $285,161 $322,751 Commercial 80,212 89,961 Multi-family 45,286 50,027 Construction loans 211 931 FHA-insured and VA-guaranteed 13,120 16,151 Unamortized purchase premium, net 2,537 3,483 Other deferred discounts and deferred fees, net (437) (690) Mortgage loans 426,090 482,614 Other loans 6,090 7,269 Total loans 432,180 489,883 Less: Allowance for loan losses (6,417) (11,178) Total Loans, net $425,763 $478,705 The Bank's loan portfolio is varied as to type, geographic location, borrower concentration and fixed or adjustable interest rates. The Bank's lending policy generally requires maximum loan to value ratios of 80% for one-to four-family residential loans and 65% for multi-family and commercial real estate loans. At September 30, 1995 approximately $370 million and $32 million of the Bank's real estate loans were secured by properties located in the New York metropolitan area and California, respectively, and, as such, a substantial portion of the Bank's borrowers' ability to honor their contracts and increases or decreases in market value of the real estate collateralizing such loans may be significantly affected by the level of economic activity of these regions. The Bank services mortgage loans for third parties, primarily the FNMA and FHLMC, as well as certain other investors, and the unpaid principal balance of such serviced loans totalled approximately $53 million and $65 million at September 30, 1995 and 1994, respectively. Custodial escrow balances maintained in connection with such loans amounted to $4.1 million and $4.4 million at the same respective dates. (7) ALLOWANCE FOR LOAN LOSSES The following table summarizes activity in the allowance for loan losses for the years ended September 30, 1995, 1994 and 1993: SEPTEMBER 30, 1995 1994 1993 (In Thousands) Balance, beginning of year $11,178 $11,114 $15,012 Provision charged to operations 2,825 3,550 16,308 Loans charged-off (5,477) (2,144) (8,410) Charge-off due to sale of loans (2,156) - (9,069) Charge-off due to transfer of loans to loans held for sale - - (1,894) Charge-off due to transfer of loans to OREO (225) (1,846) (1,113) Recoveries 272 504 280 Balance, end of year $ 6,417 $11,178 $11,114 Non-accrual loans and renegotiated loans for which interest has been reduced totalled approximately $14.3 million, $20.7 million and $22.9 million at September 30, 1995, 1994 and 1993, respectively. Interest income would have increased by $1.3 million, $1.6 million and $1.7 million for the years ended September 30, 1995, 1994 and 1993, respectively, if interest on non-accrual and restructured loans had been accrued under their original terms. The Bank recorded interest income of $.9 million, $.8 million and $.8 million on such loans for the years ended September 30, 1995, 1994 and 1993, respectively. (8) OTHER REAL ESTATE OWNED Other real estate owned is summarized as follows: SEPTEMBER 30, 1995 1994 (In Thousands) Land $ 2,830 $14,460 Commercial real estate 466 844 One-to four-family 283 289 Multi-family - 315 Less: Allowance for OREO (1,064) (7,539) Total Other Real Estate Owned $ 2,515 $ 8,369 The following table summarizes activity in the allowance for OREO for the years ended September 30, 1995, 1994 and 1993: SEPTEMBER 30, 1995 1994 1993 (In Thousands) Balance, beginning of year $ 7,539 $9,050 $ - Provision charged to operations 323 780 9,500 Charge off due to sale of OREO (6,798) (2,291) (450) Balance, end of year $ 1,064 $7,539 $ 9,050 (9) DEPOSITS Deposits at September 30, 1995 and 1994 are summarized as follows: SEPTEMBER 30, 1995 1994 (In Thousands) NOW accounts $ 19,869 $ 19,072 Money market accounts 55,806 64,747 Checking accounts 35,759 32,184 Savings accounts 576,593 627,707 Time deposits 508,263 442,103 Other 2,787 5,696 Total deposits $ 1,199,077 $1,191,509 At September 30, 1995 and 1994 the aggregate amount of time deposits in denominations of $100,000 or more amounted to approximately $30.5 million and $21.8 million, respectively. Interest expense on deposits for the years ended September 30, 1995, 1994 and 1993 are summarized as follows: SEPTEMBER 30, 1995 1994 1993 (In Thousands) NOW accounts $ 236 $ 247 $ 373 Money market accounts 1,586 1,534 2,146 Savings accounts 14,335 14,272 18,148 Time deposits 23,813 19,336 21,173 Other 202 213 257 Total interest expense $ 40,172 $ 35,602 $ 42,097 The following is a summary of time deposits at September 30, 1995 by remaining term to maturity by the weighted average interest rate being paid on such deposits: AMOUNTS AT LESS THAN MORE THAN ONE MORE THAN TWO MORE THAN SEPTEMBER 30, 1995 ONE YEAR BUT LESS YEARS BUT LESS THREE MATURING YEAR THAN TWO YEARS THAN THREE YEARS YEARS TOTAL (Dollars in Thousands) Total maturities $309,907 $91,231 $33,158 $73,967 $508,263 Weighted Average Interest Rate 5.30% 5.76% 5.73% 6.67% 5.61% (10) BORROWED FUNDS As of September 30, 1995, securities sold under repurchase agreements amounted to $251.0 million as compared to borrowings outstanding of $226.9 on September 30, 1994. The Bank may sell securities to broker/dealers under agreements to repurchase the same securities within a predetermined period of time (reverse repurchase agreements). These agreements are accounted for as financing transactions. Accordingly, the collateral securities continue to be carried as an asset, and a liability is established for the transaction proceeds. The following table presents activity concerning such borrowings for the year ended September 30, 1995: (Dollars in Thousands) Average balance during the year $248,897 Maximum month-end balance during the year 339,000 Average interest rate during the year 6.05% (11) FEDERAL, STATE AND LOCAL TAXES The components of income tax expense (benefit) are as follows: YEARS ENDED SEPTEMBER 30, 1995 1994 1993 (In Thousands) Federal-current $ 2,603 $ 4,115 $ 891 Federal-deferred 5,131 2,399 (4,385) State and local-current 1,344 2,144 226 State and local-deferred 2,293 918 (693) Total tax expense (benefit) $ 11,371 $ 9,576 $ (3,961) The reconciliation of the expected Federal income tax expense (benefit) at the statutory tax rate to the actual expense follows: YEARS ENDED SEPTEMBER 30, 1995 1994 1993 (In Thousands) Federal income tax expense (benefit) computed by applying the statutory rate to income (loss) before income taxes $ 9,267 $8,030 $(7,493) State and local income taxes (benefit) net of Federal taxes (benefit) 2,364 1,990 (1,084) Adjustment to reflect change in tax rates - 252 - Dividend received deduction (135) (64) (81) Amortization of goodwill - - 3,465 Tax exempt interest (52) (54) (63) Other, net (73) (578) 119 Valuation allowance - - 1,176 Actual income tax expense (benefit) $ 11,371 $9,576 $(3,961) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities included in other assets at September 30, 1995 and 1994 are as follows: SEPTEMBER 30, 1995 1994 (In Thousands) Deferred tax assets: Allowance for loan losses $ 2,863 $ 5,018 Allowance for OREO losses 475 3,384 Nonaccrual of interest 247 338 Postretirement benefits costs 1,053 1,165 Discount on mortgages acquired 313 408 Deferred loan fees 192 247 Other 565 735 Total gross deferred tax assets 5,708 11,295 Less valuation allowance (1,176) (1,176) Deferred tax assets, net 4,532 10,119 Deferred tax liabilities: Basis differences of assets acquired in business combination (1,268) (1,298) Mortgage servicing rights (71) (112) Unrealized appreciation on securities available for sale (1,922) - Other (39) (53) Total gross deferred tax liabilities (3,300) (1,463) Net deferred tax asset $ 1,232 $ 8,656 If certain definitional tests and other conditions are met, the Bank is allowed a special bad debt deduction in determining its taxable income for Federal income tax purposes, based upon either specified experience formulas or a percentage of its taxable income, after utilization of available net operating loss carryforwards, if any. The Bank has used the experience method for the fiscal years 1993 and 1994 and expects to use this method for fiscal year 1995. At September 30, 1995, the Bank's bad debt reserve on qualifying real property loans for Federal income tax purposes approximated $23.0 million. Any charges to this reserve for other than 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, management does not contemplate that amounts allocated to bad debt deductions will be used in any manner that would create income tax liabilities. The Bank files New York State franchise and New York City financial corporation tax returns for fiscal periods identical to its Federal income tax return. The Bank's tax liability for each year is the greater of a tax based on "entire net income," "alternative entire net income," "taxable assets" or a minimum tax. A special bad debt deduction based on a percentage of taxable income (currently at 32%) is allowed if the Bank meets certain definitional tests and conditions. The Bank's provision for New York State and New York City taxes is based on "entire net income" for the fiscal years ended September 30, 1995 and 1994. For fiscal 1993, the Bank's provision for New York State taxes was based on "taxable assets" and the provision for New York City taxes was based on "entire net income". The Bank is subject to a temporary surcharge based upon New York State tax liability. (12) COMMITMENTS AND CONTINGENCIES In the normal course of the Bank's business, there are various outstanding legal proceedings. In the opinion of management, after consultation with legal counsel, the financial position of the Bank will not be materially affected as a result of the outcome of such legal proceedings. The principal commitments and contingent liabilities of the Bank are discussed below. LOAN COMMITMENTS At September 30, 1995, outstanding commitments made by the Bank to originate or acquire mortgage loans and other loans approximated $3.4 million. These commitments mature within six months and are principally for loans with interest rates which float or which are adjustable at periodic intervals, or loans with fixed-rates which mature within five years. Such commitments have fixed expirations and consequently, may not represent future cash requirements. LEASE COMMITMENTS The Bank has entered into non-cancelable operating lease agreements for bank equipment having expiration dates not greater than one year. In connection with its acquisition of two branches the Bank assumed two lease agreements for bank premises. One has an expiration date of May 31, 1996 with a rental expense through such date of $16,600. The other lease agreement expires in mid-1997, contains a renewal option and has a minimum annual rental expense of $22,425 per year, plus certain other expenses including real estate taxes. The Bank expects to renew such agreements at expiration in the normal course of business. Occupancy and equipment expense includes rental expense of $51,000, $72,000 and $128,000 for the years ended September 30, 1995, 1994 and 1993 respectively. (13) BENEFIT PLANS RETIREMENT PLAN The Bank's retirement plan covers substantially all of the full-time employees of the Bank. The plan is a defined benefit pension plan. Substantially all full-time employees are eligible after one year of service provided they are at least 21 years of age. The benefits are an annual amount equal to 2.5% of average highest earnings (W-2 compensation over the highest 36 consecutive months, within the final 120 consecutive months of credited service), multiplied by the number of years and any fraction thereof of credited service, not to exceed 30 years, less 1.67% of the participant's Social Security benefit multiplied by the number of years and any fraction thereof of credited service (up to a maximum of 30 years), subject to certain limitations. Pension expense for the years ended September 30, 1995, 1994 and 1993 was $214,000, $221,000 and $53,000, respectively. The status of the pension plan at the valuation dates of September 30, 1995 and 1994 was as follows: SEPTEMBER 30, 1995 1994 (In Thousands) ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested $ 14,077 $ 12,832 Non-vested 391 356 Total accumulated benefit obligation $ 14,468 $ 13,188 Actuarial present value of projected benefit obligation for service rendered to date $ 15,824 $ 14,425 Plan assets at fair value, primarily listed stocks, and US government obligations 18,768 16,317 Plan assets in excess of projected benefit obligation 2,944 1,892 Unrecognized past service liability 463 538 Unrecognized (gain) (3,047) (1,707) Unamortized transition net asset being amortized over 8.9 years (268) (60) Prepaid pension expense $ 92 $ 306 NET PENSION EXPENSE FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994 INCLUDED THE FOLLOWING COMPONENTS: Service cost-benefits earned during the period $ 412 $ 512 Interest cost on projected benefit obligation 1,145 1,109 Expected return on plan assets (1,261) (1,340) Net amortization and deferral (82) (60) Net periodic pension expense $ 214 $ 221 The discount rate used in determining the projected benefit obligation for the years ended September 30, 1995 and 1994 was 8.25% and 7.00%, respectively. The expected long-term rate of return on assets was 8% and the rate of increase in compensation levels was estimated at 6.0% and 5.5% for the years ended September 30, 1995 and 1994. INCENTIVE SAVINGS PLAN The Bank maintains an incentive savings plan (the "401(k) Plan"), which is a defined contribution plan providing for contributions to several trust funds by both the Bank and its employees. Employees are eligible to join the 401(k) Plan upon completion of one year's service. Plan participants may make contributions to the 401(k) Plan in amounts ranging from 1% to 6% of their compensation. The Bank matches the employee's contribution at the rate of 50% during the first two years of an employee's participation and 100% thereafter. Incentive savings expense, which is included in compensation and benefits, amounted to $302,000, $292,000 and $272,000 for the years ended September 30, 1995, 1994 and 1993, respectively. BENEFIT PRESERVATION PLAN The Bank adopted, effective October 1, 1993, an unfunded, non- qualified Benefit Preservation Plan ("BPP") for certain senior officers of the Bank to compensate such individuals who participate in the Retirement Plan and the 401(k) Plan for benefits lost under such plans by reason of benefit limits imposed by Sections 415, 401(a) (17) and 402(g) of the Internal Revenue Code. The Bank expensed $94,000 and $100,000 in respect of the BPP in fiscal 1995 and 1994, respectively. HEALTH CARE AND LIFE INSURANCE In fiscal 1994, the Bank adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106 principally focuses on health care benefits to an employee and the employee's beneficiaries and covered dependents, although it applies to all forms of post- retirement benefits other than pensions. The adoption has changed the Bank's practice of accounting for these benefits from the cash basis to the accrual basis, which recognizes the expense during the years that the employee renders the necessary service. The Bank currently provides postretirement benefits other than pensions in the form of health care and life insurance. The benefits cover retirees aged 60 and over with a minimum of 10 years of service who currently collect their pension and were hired prior to February 1, 1991. Retirees make co-payments for medical coverage and are subject to deductibles. The following table sets forth the composition of the accrued postretirement benefit cost recognized in the Consolidated Statements of Financial Condition at September 30, 1995 and 1994: SEPTEMBER 30, 1995 1994 (In Thousands) ACCUMULATED POSTRETIREMENT BENEFITS OBLIGATIONS("APBO"): Retirees $ (1,052) $ (1,018) Active Plan Participants (526) (429) APBO in excess of plan assets (1,578) (1,447) Unrecognized net loss 664 589 Unrecognized past service liability (1,348) (1,456) Accrued postretirement benefit cost $(2,262) $(2,314) Net periodic postretirement benefit cost included the following components for the fiscal years ended September 30, 1995 and 1994: SEPTEMBER 30, 1995 1994 (In Thousands) Service cost-benefits earned during the period $ 25 $ 44 Interest cost on APBO 117 244 Amortization of unrecognized loss 28 - Amortization of unrecognized past service liability (108) - Net periodic postretirement benefit cost $ 62 $ 288 For measurement purposes, the average annual rate of increase in the per capita cost of covered health benefits was assumed to be .5% for fiscal 1995 and was assumed to increase to 5.5% in fiscal 2005 and remain at that level thereafter. Increasing the assumed health care cost trend rates by 1.0% in each year would have no effect on the APBO and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for fiscal 1995. The Bank utilized a 7.5% weighted average discount rate in determining the APBO. In the calculation of the APBO for the postretirement life insurance plan, the Bank utilized a 5.5% annual rate of increase in future compensation levels. The expense of providing postretirement benefits other than pensions to retirees amounted to approximately $62,000 in fiscal 1995 and $288,000 in fiscal 1994. (14) STOCK CONVERSION, SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL Pursuant to a Plan of Conversion adopted by the Bank's Board of Directors in 1985, the Bank established a liquidation account in the amount of $31.9 million, the total net worth of the Bank at December 31, 1985, for the benefit of all eligible account holders who continue to maintain their deposits in the Bank. In the event of future liquidation of the Bank (and only in such event), an eligible account holder will be entitled to receive a distribution from the liquidation account prior to any payments to holders of common stock. The total amount of the liquidation account is reduced by an amount proportionate to the decrease in the deposit balances of eligible account holders. Richmond Hill Savings Bank was subject to these same requirements and its liquidation account continues to be maintained. At September 30, 1995, the remaining balance of the liquidation account for the combined banks was approximately $4.3 million. Payments of dividends by the Bank on its common stock are subject to various restrictions. According to New York State Banking Law, dividends may be declared and paid only out of net profits of the Bank. The approval of the Superintendent of Banks of the State of New York is required if the total of all dividends declared in any calendar year will exceed net profit for that year plus the retained net profits of the proceeding two years, as defined in the regulations. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was signed into law on December 19, 1991. FDICIA imposed a number of new mandatory supervisory and regulatory measures. The FDICIA requires financial institutions to take certain actions relating to their internal operations, including: providing annual reports on financial condition and management to the appropriate federal banking regulators, having an annual independent audit of financial statements performed and establishing an independent audit committee comprised solely of outside directors. The Bank is subject to certain capital requirements established by the Federal Deposit Insurance Corporation ("FDIC"). In December 1992, the FDIC, jointly with other Bank regulatory agencies, issued regulations implementing the prompt correction provisions of the FDICIA. The regulation defines the capital categories. Insofar as applicable to banks, the FDIC requires the most highly rated banks to have a leverage ratio to assets of at least 3% and other banking organizations are required to maintain higher levels (100 to 200 basis points), based on their particular circumstances, as defined in the regulation. The Bank is required to meet certain capital to risk-weighted asset ratios. Generally, the Bank is required to maintain a capital to risk-based asset ratio of 8% as more fully defined in the regulations. As of September 30, 1995, North Side complied with all capital levels required by the FDIC and all such ratios are in the well capitalized category. The Bank's total risk-based ratio, Tier I risk-based ratio and leverage ratio were 16.89%, 15.98% and 7.02% (unaudited), respectively at September 30, 1995. (15) STOCK OPTION AND MANAGEMENT DEVELOPMENT AND RECOGNITION PLANS STOCK OPTION PLAN North Side Savings Bank's Long-Term Incentive and Capital Accumulation Plan for the benefit of officers and employees of the Bank took effect upon conversion of the Bank to the stock form in 1986. The Board of Directors of the Bank in October 1993 adopted, and the Bank's stockholders subsequently approved an Amended and Restated Long-Term Incentive and Capital Accumulation Plan (the "Option Plan"), which, among other things, authorized an additional 243,934 options to be available for grants to officers and employees of the Bank. Options heretofore granted under the Option Plan generally vest at the rate of 20% per year (beginning generally on the first anniversary of each grant), are exercisable over a ten year period, are not transferable, and will terminate within a period of time following termination of employment with the Bank or its subsidiaries. A summary of the stock options activity is as follows: Options Range of Description Available Options Option Price and Year For Grant Outstanding Per Share (1) SEPTEMBER 30, 1992 47,016 127,312 $4.53 - $10.00 Adjustment for 5% stock dividend 2,484 6,122 Granted (52,050) 52,050 15.65 - 15.65 Exercised - (8,828) 9.52 - 10.00 Canceled 2,550 (2,550) 9.52 - 10.00 SEPTEMBER 30, 1993 - 174,106 4.53 - 15.65 Additional shares authorized 1/24/94 243,934 - Adjustment for 5% stock dividend 6,274 14,460 4.53 - 17.69 Granted (118,481) 118,481 17.69 - 17.69 Exercised - (29,189) 4.76 - 16.43 Canceled 1,063 (1,063) 4.76 - 17.69 SEPTEMBER 30, 1994 132,790 276,795 4.53 - 17.69 Adjustment for 5% stock dividend 6,145 14,285 4.53 - 17.69 Granted (9,900) 9,900 17.69 - 17.69 Exercised - (11,632) 4.53 - 17.69 Canceled 2,484 (2,484) 15.65 - 17.69 SEPTEMBER 30, 1995 131,519 286,864 $4.53 - $17.69 (1) Exercise prices adjusted as applicable to reflect 5% stock dividends paid in June 1993, June 1994 and March 1995. MANAGEMENT DEVELOPMENT AND RECOGNITION PLAN The Bank has a Management Development and Recognition Plan (the "Management Plan"), the objective of which is to enable the Bank to retain its corporate officers and key employees. All salaried employees of the Bank and its subsidiaries are eligible to receive benefits under the Management Plan, although benefits have been provided primarily to officers and key management employees, as determined, with the approval of the Board of Directors, by the Stock and Executive Compensation Committee of the Board of Directors ("the Committee"), a committee comprised of non-employee Directors who administer the Management Plan. Awards are in the form of Common Stock held in trust by the Management Plan for the benefit of participants pending the vesting of such shares, generally in 33-1/3% or 20% increments over three or five years. The Management Plan is authorized to invest in shares of Common Stock in an amount not to exceed 10% of the outstanding shares of Common Stock. Compensation expense in the amount of the fair market value of the common stock at the date of the grant is recognized pro rata over the periods during which the shares are payable. The Board of Directors can terminate the Management Plan at any time. The Board of Directors awarded grants of 36,506 shares during the year ended September 30, 1995, which are all the shares of Common Stock currently held by the Management Plan. No grants were awarded during the years ended September 30, 1994 and 1993. Stock compensation expense amounted to $125,000, $121,000 and $162,000 for the years ended September 30, 1995, 1994 and 1993, respectively. (16) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No.107, "Disclosures about Fair Value of Financial Instruments" ("SFAS NO.107"), as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," requires disclosure of the fair value of financial instruments, both assets and liabilities whether recognized or not recognized, in the consolidated Statements of Condition, for which it is practicable to estimate fair value as of the Statements of Condition date. Changes in market conditions subsequent to that date are not reflected. SFAS No. 107 has no effect on financial position or results of operations in the current year or any future period. Furthermore, the results of implementing SFAS No. 107 are not representative of the Bank's total value. When quoted market prices are not available, SFAS No.107 permits using the present value of anticipated future cash flows. In that regard, the estimated fair value will be affected by prepayment and discount rate assumptions. Such method may not provide the actual proceeds which would be realized in the ultimate sale of the financial instrument. SEPTEMBER 30, 1995 1994 CARRYING ESTIMATED Carrying Estimated VALUE FAIR VALUE Value Fair Value (In Thousands) FINANCIAL ASSETS: Cash and due from banks $ 11,530 $ 11,530 $ 12,333 $ 12,333 Money market investments 29,456 29,456 1,200 1,200 Securities available for sale 326,542 326,542 - - Investment securities 93,301 92,460 135,972 132,005 Federal Home Loan Bank stock 9,430 9,430 - - Mortgage-backed securities 651,153 642,864 858,700 826,666 Loans, net 425,763 423,354 478,705 467,631 Accrued interest receivable 13,230 13,230 12,533 12,533 FINANCIAL LIABILITIES: Deposits 1,199,077 1,202,964 1,191,509 1,193,470 Mortgage escrow payments 4,607 4,607 4,372 4,372 Borrowed funds 251,000 250,576 226,875 226,875 Accrued interest payable 1,505 1,505 2,038 2,038 Outstanding Commitments 3,448 3,448 2,821 2,821 The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value: CASH AND SHORT-TERM INVESTMENTS The carrying amount of cash and due from banks, money market investments, and accrued interest receivable approximates fair value. SECURITIES The estimated fair value of securities available for sale, investment securities and mortgage-backed securities are based on quoted market prices as published by various quotation services or, if quoted market prices are not available, on dealer quotes. The carrying value of the FHLB stock approximates fair value since these securities do not present credit concerns and are redeemable at cost from the issuer only. LOAN RECEIVABLES AND COMMITMENTS TO EXTEND CREDIT Certain homogeneous categories of loans, such as one-to four- family mortgages and co-operative apartment loans, have been valued on a pooled basis using market prices for securities backed by loans with similar characteristics. The fair value of other types of loans and commitments to extend credit are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit risks and for the same remaining maturities. For potential problem loans, the present value result is separately downward adjusted consistent with management's assumptions in evaluating the adequacy of the allowance for loan losses. DEPOSIT LIABILITIES AND BORROWINGS Carrying amount is a reasonable estimate of fair value for savings, demand deposit and money market accounts. Fair value of certificates of deposit and borrowings are estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Carrying amount of mortgage escrow payments, accrued interest payable and outstanding commitments approximate fair value. (17) RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN In June 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), which is effective for fiscal years beginning after December 15, 1994. The statement generally would require all creditors to account for impaired loans, except those loans that are accounted for at fair value or at the lower of cost or fair value, at the present value of the expected future cash flows discounted at the loan's effective interest rate or at the fair value of the loan's collateral if the loan is collateral dependent. SFAS No. 114 also provides that in-substance foreclosed loans should not be included in Real Estate Owned for financial reporting purposes but, rather, should be included in the loan portfolio. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures". This statement applies to all creditors and amends SFAS No. 114. SFAS No. 118 eliminates the income recognition provisions that had been included in SFAS No. 114. Creditors are permitted to use existing methods for recognizing interest income on impaired loans. SFAS No. 118 requires that an entity disclose its policy for recognizing interest income on impaired loans, including how cash receipts are recorded. The Bank adopted SFAS Nos. 114 and 118 on October 1, 1995. The adoption did not have a material impact on the Bank's financial statements. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG- LIVED ASSETS TO BE DISPOSED OF In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 is effective for fiscal years beginning after December 15, 1995 and establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Bank does not expect SFAS No. 121 to have a significant effect on its financial statements. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS In May 1995 the FASB issued SFAS No. 122, " Accounting for Mortgage Servicing Rights" ("SFAS No. 122"). SFAS No. 122 is effective for fiscal years beginning after December 15, 1995 and requires that mortgage banking enterprises recognize as separate assets the rights to service mortgage loans regardless of whether such rights are obtained through the direct purchase of servicing rights or from the origination of mortgage loans intended to be sold with servicing retained. SFAS No. 122 also requires assessments of capitalized servicing rights for impairment based on the fair value of those rights. Based upon the extent of the it's current mortgage banking activities, the Bank does not expect SFAS No. 122 to have a significant effect on its financial statements. ACCOUNTING FOR STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation"("SFAS No. 123"). SFAS No. 123 establishes a fair value based method of accounting for stock-based compensation arrangements with employees, rather than the intrinsic value based method that is contained in APB Opinion No. 25 ("Opinion 25"). However, SFAS No. 123 does not require an entity to adopt the new fair value based method for purposes of preparing its basic financial statements. Entities are allowed (1) to continue to use the Opinion 25 method or (2) to adopt the SFAS No. 123 fair value based method. The SFAS No. 123 fair value based method is considered by the FASB to be preferable to the Opinion 25 method, and thus, once the fair value based method is adopted, an entity cannot change back to the Opinion 25 method. SFAS No. 123 applies to all transactions in which an entity acquires goods or services by issuing equity instruments or by incurring liabilities where the payment amounts are based on the entity's common stock price, except for employee stock ownership plans. For entities not adopting the Statement No.123 fair value based method, Statement No.123 requires the entity to display in the footnotes to the financial statements pro forma net income and earnings per share information as if the fair value based method had been adopted. The accounting requirements of SFAS No. 123 are effective for transactions entered into in fiscal years that begin after December 15, 1995, though they may be adopted on issuance. The disclosure requirements are effective for financial statements for fiscal years beginning after December 15, 1995, or for an earlier fiscal year for which SFAS No. 123 is initially adopted for recognizing compensation cost. Management continues to assess the impact of SFAS No. 123.
- ------------------------------------------------------------------------------------------------------------ FOR THE QUARTER ENDED 12/31/94 3/31/95 6/30/95 9/30/95 12/31/93 3/31/94 6/30/94 9/30/94 - ------------------------------------------------------------------------------------------------------------ (Dollars in Thousands, Except Per Share Amounts and Market Prices) Total interest income $ 25,234 $ 25,977 $ 26,353 $ 28,211 $ 22,451 $ 21,049 $ 23,082 $ 24,349 Total interest expense 12,366 13,311 13,902 15,651 10,136 9,323 10,290 11,600 - ----------------------- ------- ------- ------- ------- ------- ------ ------- ------ Net interest income 12,868 12,666 12,451 12,560 12,315 11,726 12,792 12,749 - ---------------------- ------- ------- ------- ------- ------- ------- ------- ------ Provision for loan losses 850 850 750 375 1,000 850 850 850 Net gain on redemption of securities - 169 142 44 - - - - Net (loss) gain on sale of mortgages and OREO (144) (11) 46 (411) 6 (36) (132) (14) Gain on sale of bank property - - - - - - - 356 Other income 571 535 821 534 722 642 970 594 OREO expense, net 212 11 101 151 142 72 762 249 Other expenses 5,820 6,051 5,871 5,321 6,332 6,011 6,176 6,453 - -------------- ------ ------ ------ ------ ------- ------ ------ ----- Income before provision for income taxes 6,413 6,447 6,738 6,880 5,569 5,399 5,842 6,133 Provision for income taxes 2,819 2,755 2,900 2,897 2,350 2,131 2,456 2,639 - --------------------------- ------ ------ ------ ------ ------ ------ ------ ----- Net income $ 3,594 $ 3,692 $ 3,838 $ 3,983 $ 3,219 $ 3,268 $ 3,386 $ 3,494 - ----------------- --------- --------- --------- --------- --------- --------- --------- -------- Primary earnings per share $ 0.75 $ 0.77 $ 0.80 $ 0.83 $ 0.68 $ 0.70 $ 0.71 $ 0.73 Fully diluted earnings per (1) (1) (1) $ 0.80 (1) (1) (1) (1) share Market price of common stock High $ 22 3/8 $ 22 1/8 $ 24 3/4 $ 31 1/2 $20 3/8 $20 $21 1/2 $ 24 3/4 Low $ 16 $ 17 1/8 $ 20 1/2 $ 23 $16 3/4 $16 3/4 $17 $ 20 3/4 Closing price December 1, 1995 $ 30 (1) Fully diluted earnings per share not represented as dilution is less than 3%.
SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS: North Side Savings Bank 170 Tulip Avenue Floral Park, New York 11001 (516) 488-6900 STOCK LISTING: The common stock of North Side Savings Bank is traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market, under the symbol " NSBK". As of December 1, 1995 the Bank had approximately 650 shareholders of record. PRICE RANGE OF STOCK: QUARTER ENDED HIGH LOW December 31, 1993 $ 20 3/8 $16 3/4 March 31, 1994 20 16 3/4 June 30, 1994 21 1/2 17 September 30, 1994 24 3/4 20 3/4 December 31, 1994 22 3/8 16 March 31, 1995 22 1/8 17 1/8 June 30, 1995 24 3/4 20 1/2 September 30, 1995 31 1/2 23 REGISTRAR AND TRANSFER AGENT: American Stock Transfer and Trust Company 99 Wall Street New York, New York 10005 INVESTOR RELATIONS: Judith A. MacGregor Corporate Secretary North Side Savings Bank 170 Tulip Avenue Floral Park, New York 11001 (516) 488-6900 ANNUAL REPORT: The Bank is required to file an Annual Report on Form F-2 for its fiscal year ended September 30, 1995 with the Federal Deposit Insurance Corporation ("FDIC"). Shareholders may obtain, free of charge, a copy of such annual report (excluding exhibits) by writing to Ms. Judith A. MacGregor, North Side Savings Bank, 170 Tulip Avenue, Floral Park, New York 11001. ANNUAL SHAREHOLDERS' MEETING: The Annual Shareholders' Meeting of North Side Savings Bank will be held at 10:00 am, Monday, January 22, 1996 at The New York Helmsley Hotel, 212 East 42nd Street, New York, New York 10017. INDEPENDENT AUDITORS: KPMG Peat Marwick LLP 345 Park Avenue New York, N.Y. 10154 THIS ANNUAL REPORT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR RELEVANCE, BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
CORPORATE DIRECTORY DIRECTORS IRVIN L. CHERASHORE Director of Winchester Group, Inc. GREG L. COLLINS President of Incline Capital Group DONALD C. FLEMING Executive Vice President and Chief Financial Officer of North Side Savings Bank RICHARD D. GIDRON Chairman of Dick Gidron Cadillac, Inc. and Dick Gidron Ford, Inc. MARGARET M. HEALY Principal PHNetwork RALPH J. MARINO Partner Marino, Bernstein & LeMarca, P.C. JOHN J. MURPHY Senior Vice President and Director of Skandia Investment Management, Inc. THOMAS M. O'BRIEN Chairman of the Board, President and Chief Executive Officer of North Side Savings Bank STEPHEN J. SCHILDWACHTER Field Underwriter New York Life Insurance Co. DIRECTOR EMERITUS ANTHONY F. EARLEY President Ce-Tex, Inc. OFFICERS THOMAS M. O'BRIEN Chairman of the Board , President and Chief Executive Officer DONALD C. FLEMING Executive Vice President and Chief Financial Officer MARTIN J. BRADY Senior Vice President Loan Origination FELIX G. GONZALEZ Senior Vice President Loan Servicing MARIE ALLEVA Senior Vice President Retail Banking ALISSA E. BALLOT General Counsel JOSEPH R. KWASNIK Vice President and Comptroller GEORGE D. CARTER Vice President Human Resources JUDITH A. MACGREGOR Corporate Secretary KATHLEEN MALLON Teasurer STEVEN R. FRESE Administrative Vice President SAMY SAPEK Auditor E. DUKE OKORIE Director of Compliance CHRISTINE J. SANTANGELO Director of Marketing JAMES VANELLA Second Vice President KENNETH J. SAPANSKI Second Vice President KATHLEEN HANRAHAN Second Vice President JOHN J. HERNON, JR. Second Vice President FRANCES SBLENDORIO Second Vice President PAUL DESTEFANO Director of Security MARGARET DONATO Assistant Vice President JOHN D'ANGELO Assistant Vice President MICHAEL GENTILELLA Assistant Vice President CATHERINE PANDOLFO Assistant Vice President WILLIAM PENTECK Assistant Treasurer TANYA MANNING Assistant Treasurer PAULA YASLOWITZ Assistant Treasurer NANCY CHASE Assistant Treasurer BRANCH LOCATIONS BRONX COUNTY: S Main Office 185 West 231st Street Bronx, New York 10463 Nancy Chase Assistant Treasurer and Manager S 4201 White Plains Road Bronx, New York 10466 Patrick Brown Manager S 3159 Bainbridge Avenue Bronx, New York 10467 Paula Yaslowitz Assistant Treasurer and Manager 1941 Williamsbridge Road Bronx, New York 10461 Nicoletta Cartiglia Manager S 5977 Riverdale Avenue Bronx, New York 10471 Margaret Donato Assistant Vice President and Manager S 3030 Buhre Avenue Bronx, New York 10461 Roseann Greco Manager A 725 Co-op City Boulevard S Bronx, New York 10475 Frances Mansi Assistant Manager QUEENS COUNTY: 114-19 Liberty Avenue Richmond Hill, New York 11419 George Portalatin Manager S 257-03 Hillside Avenue Floral Park, New York 11004 Elaine Russo Manager A 103-42 Lefferts Boulevard S Richmond Hill, New York 11419 Saheed Amin Manager 115-20 Jamaica Avenue Richmond Hill, New York 11418 John D'Angelo Assistant Vice President and Manager Public Accommodation Office A 115-02 Jamaica Avenue D Richmond Hill, New York 11418 Marine Air Terminal 77-22 21st. Avenue East Elmhurst, New York 11370 Eileen Greer Manager NASSAU COUNTY: A 170 Tulip Avenue S Floral Park, New York 11001 Ann De Boesche Manager A 1800 Grand Avenue D Baldwin, New York 11510 S Frances Gordis Manager A 2303 Grand Avenue D Baldwin, New York 11510 S Elizabeth Pitelli Manager A 550 Franklin Avenue D Franklin Square, New York 11010 S Catherine Pandolfo Assistant Vice President and Manager SUFFOLK COUNTY: A 150 North Main Street D Sayville, New York 11782 S Joan Fish Manager FOR FURTHER BANKING INFORMATION CONTACT CUS- TOMER SERVICE 1-800-548-5699 HEARING IMPAIRED CUSTOMERS USING TTY/TDD, CALL 1-800-267-4227 "A" Denotes 24 hour NYCE Banking Center "D" Drive up at this location "S" Safe Deposit Boxes at this location North Side Savings Bank Member FDIC EX-99 3 EXHIBIT 99.2 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 Form F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1995 FDIC Insurance Certificate Number 16007 North Side Savings Bank (Exact name of bank as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 13-1723204 (IRS Employer Identification No.) 170 Tulip Avenue, Floral Park, New York (Address of principal executive offices) 11001 (Zip Code) (516) 488-6900 (Bank's telephone number, including area code) Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the bank's classes of common stock, as of the latest practicable date: Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, par value $1.00 per share. Number of shares outstanding at February 1, 1996 - 4,813,346 NORTH SIDE SAVINGS BANK INDEX Item 1. Financial Statements Page No. Consolidated Statements of Condition, December 31, 1995 and September 30, 1995 1 Consolidated Statements of Income, Three Months Ended December 31, 1995 and 1994 2 Consolidated Statements of Changes in Shareholders' Equity, Three Months Ended December 31, 1995 and 1994 3 Consolidated Statements of Cash Flows, Three Months Ended December 31, 1995 and 1994 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CONDITION (Dollars in Thousands) December 31, September 30, 1995 1995 (Unaudited) ASSETS: Cash and due from banks $ 11,392 $ 11,530 Money market investments 90,341 29,456 Securities available for sale: Bonds and equities 18,722 26,520 Mortgage-backed securities 410,015 300,022 Total securities available for sale 428,737 326,542 Investment securities, net (estimated market value of $47,909 and $92,460, respectively) 48,116 93,301 Federal Home Loan Bank of NY stock, at cost 9,430 9,430 Mortgage-backed securities, net (estimated market value of $531,340 and $642,864, respectively) 532,875 651,153 Loans 421,555 432,180 Less allowance for loan losses 6,607 6,417 Loans, net 414,948 425,763 Accrued interest receivable 11,232 13,230 Premises and equipment, net 15,100 15,215 Other real estate owned, net of allowance of $1.0 million and $1.1 million, respectively 2,485 2,515 Other assets 8,027 9,868 Total assets $ 1,572,683 $ 1,588,003 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits $ 1,217,018 $ 1,199,077 Mortgagors' escrow payments 3,242 4,607 Borrowed funds 214,000 251,000 Other liabilities 18,199 17,035 Total liabilities 1,452,459 1,471,719 Shareholders' Equity: Preferred stock, par value $1.00 per share, 5,000,000 shares authorized, none outstanding -- -- Common stock, par value $1.00 per share, 10,000,000 shares authorized, 4,802,679 and 4,798,022 shares issued and outstanding at December 31, 1995 and September 30, 1995, respectively 4,803 4,798 Paid-in capital 63,025 62,985 Surplus fund 24,101 24,101 Undivided profits 27,239 22,606 Net unrealized appreciation on securities available for sale, net of income taxes 1,589 2,360 Unearned portion of incentive compensation (533) (566) Total shareholders' equity 120,224 116,284 Total liabilities and shareholders' equity $ 1,572,683 $ 1,588,003 See accompanying notes to consolidated financial statements. NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) THREE MONTHS ENDED DECEMBER 31, 1995 1994 Interest Income: Mortgage loans $ 8,497 $ 8,827 Mortgage-backed securities 16,653 13,914 Investment securities 1,428 2,318 Money market investments 882 28 Other loans 140 147 Total interest income 27,600 25,234 Interest Expense: Deposits and mortgage escrow accounts 11,636 9,109 Borrowings 3,469 3,257 Total interest expense 15,105 12,366 Net interest income 12,495 12,868 Provision for loan losses 300 850 Net interest income after provision for loan losses 12,195 12,018 Other Operating Income: Net gain on sales of securities 3,086 -- Net loss on sales of other real estate owned (10) (144) Customer service fees 454 502 Other 31 69 Total other operating income 3,561 427 Other Operating Expenses: Compensation and benefits 2,587 2,648 Occupancy and equipment 890 797 BIF deposit insurance premiums 115 790 OREO expense, net 46 212 Other 1,972 1,585 Total other operating expenses 5,610 6,032 Income before provision for income taxes 10,146 6,413 Provision for income taxes 4,312 2,819 Net income $ 5,834 $ 3,594 Primary Earnings per share (a) $ 1.22 $ .75 Fully Diluted Earnings Per Share (b)$ 1.18 $ N/A (a) Based on the weighted average number of shares outstanding for each period of 4,800,936 and 4,768,924 for the three months ended December 31, 1995 and 1994, respectively. (b) Based on the weighted average number of shares outstanding of 4,950,853 for the three months ended December 31, 1995. See accompanying notes to consolidated financial statements. NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Dollars in thousands) (Unaudited)
Unrealized Unallocated Depreciation Unrealized Shares in On Certain Depreciation Management Unearned Marketable On Securities Development Portion of Common Paid-In Surplus Undivided Equity Available & Recognition Incentive Stock Capital Fund Profits Securities For Sale Plan Compensation Total 1994 Balance at September 30, 1994 $ 4,541 $ 57,281 $ 24,101 $ 15,952 $ (436) $ - $ (416) $ (25) $ 100,998 Net Income - - - 3,594 - - - - 3,594 Payment of $.125 per share cash dividend - - - (567) - - - - (567) Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 25 25 Decrease in unrealized depreciation on certain marketable equity securities - - - - 436 - - - 436 Unrealized depreciation on securities available for sale, net of taxes of $ 1,757 - - - - - (2,157) - - (2,157) Exercise of stock options for 992 shares of Common Stock 1 3 - - - - - - 4 ------- -------- --------- -------- ------- --------- -------- --------- -------- Balance at December 31, 1994 $ 4,542 $ 57,284 $ 24,101 $ 18,979 $ - $(2,157) $ (416) $ - $ 102,333 ======= ======== ========= ======== ======= ========== ========= ========== ======== Fiscal 1995 Balance at September 31, 1995 $ 4,798 $ 62,985 $ 24,101 $ 22,606 $ - $ 2,360 $ - $ (566) $ 116,284 Net Income - - - 5,834 - - - - 5,834 Payment of $.25 per share cash dividend - - - (1,201) - - - - (1,201) Dividend reinvestment 1 12 - - - - - - 13 Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 33 33 Decrease on unrealized appreciation on securities available for sale, net of taxes of $1,294 - - - - - (771) - - (771) Exercise of stock options for 4,241 shares of Common Stock 4 28 - - - - - - 32 ------- -------- -------- -------- ------- -------- -------- --------- --------- Balance at December 31, 1995 $ 4,803 $ 63,025 $ 24,101 $ 27,239 $ - $ 1,589 $ - $ (533) $ 120,224 ====== ======= ======= ======= ======= ======== ======== ========= ======== See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three months ended December 31, 1995 1994 - -------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 5,834 $ 3,594 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 362 330 Provision for possible loan and real estate losses 300 999 Amortization of premium, accretion of (discount), net 1,058 2,026 Net gain on sales of securities (3,086) -- Net loss on sales of OREO 10 144 Decrease in accrued interest receivable 1,998 430 Decrease in other assets 2,469 3,232 Increase in other liabilities 1,164 2,058 Other, net 128 25 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net cash provided by operating activities 10,237 12,838 Cash Flows From Investing Activities: Proceeds from maturities and redemptions of investment securities 60,000 2,049 Proceeds from principal repayment of investment securities 1,216 -- Purchase of securities available for sale (233) (2,690) Purchase of investment securities (16,030) (7) Proceeds from principal repayments, maturities and redemptions of securities available for sale 25,243 12,460 Proceeds from principal repayments of mortgage- backed securities 19,407 18,763 Proceeds from sales of securities available for sale 8,098 -- Purchase of mortgage-backed securities (35,647) (48,320) Proceeds from loan repayments and satisfactions 10,997 12,916 Proceeds from loans sold 289 927 Loan purchases and originations (1,085) (1,883) Proceeds from sales of OREO 81 1,606 Capital expenditures (246) (205) - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 72,090 (4,384) Cash Flows From Financing Activities: Increase (decrease) in deposit accounts, net 17,941 (29,700) Receipt of borrowed funds -- 339,500 Repayment of borrowed funds (37,000) (316,875) Disbursements of mortgage escrow (net) (1,365) (897) Proceeds from exercise of stock options 32 4 Cash dividend paid on common stock, net of dividend reinvestment (1,188) (567) - --------------------------------------------------------------------------------------- Net cash used in financing activities (21,580) (8,535) Net increase (decrease) in Cash and Cash Equivalents 60,747 (81) Cash and Cash Equivalents at Beginning of Period 40,686 13,333 - -------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 101,433 $ 13,252 ====================================================================================== Supplemental Information: Cash paid during quarter for: Interest $ 15,930 $ 12,672 Income taxes 444 808 Additions to OREO 61 222 ====================================================================================== See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the Bank's financial condition as of December 31, 1995 and the results of operations, changes in shareholders' equity and cash flows for the periods presented. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the period. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. It is the general policy of the Bank to obtain independent appraisals for significant loans every three years. However, as a matter of general practice, management obtains more frequent appraisals as it deems necessary on significant troubled loans and other real estate owned. Other real estate owned includes real estate acquired in connection with foreclosures or by deed-in-lieu of foreclosure (collectively, "OREO"). The Bank's loan portfolio is varied as to type, geographic location, borrower concentration, and fixed or adjustable-rate mortgages. At December 31, 1995 approximately $360.4 million of the Bank's real estate loans were secured by properties located in New York and, as such, a substantial portion of the Bank's borrowers' ability to honor their contracts and increases or decreases in market value of the real estate collateralizing such loans may be significantly affected by the level of economic activity in New York. The Bank believes that the allowances for loan losses and OREO losses are adequate. While the Bank uses available information to recognize losses on loans and estimate the fair value of OREO, future additions to the allowances for loan losses and OREO may be necessary based on, among other things, changes in economic conditions in the region. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and the net carrying value of OREO. Such agencies may require the Bank to recognize additions to the allowance or reductions in net carrying values based on their judgments about information available to them at the time of their examination. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form F-4. The financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Bank's Annual Report to Stockholders for the year ended September 30, 1995 and in the related Annual Report on Form F-2 for the year ended September 30, 1995. NOTE 2 - CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from banks including Federal Home Loan Bank overnight deposits, Federal Home Loan Bank balance, and Federal funds sold. Generally, Federal funds are sold for one-day periods. NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARD Effective October 1, 1995, the Bank adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These statements prescribe recognition criteria for loan impairment, generally related to commercial type loans, and measurement methods for certain impaired loans and all loans whose terms are modified in troubled debt restructurings subsequent to the adoption of these statements. Loans are identified as impaired when it is probable that all amounts of principal and interest due will not be collected according to the original contractual terms of the loan agreement. The effect of the adoption of these standards was not material to the financial statements. As a result of the adoption of SFAS No. 114, the allowance for possible loan losses related to impaired loans that are identified for evaluation in accordance with SFAS No. 114 is based on the present value of expected cash flows discounted at the loans' initial effective interest rate, except that as a practical expedient, impairment may be measured at the loans' observable market price, or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral. The Bank considers estimated cost to sell when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans. SFAS No. 114 also amends SFAS No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings," by requiring creditors to measure all loans that are restructured in a troubled debt restructuring (subsequent to September 30, 1995) in accordance with the criteria of SFAS No. 114. Loans which were restructured prior to the adoption of SFAS No. 114 and are performing in accordance with their restructured terms are not considered impaired and continue to be accounted for under SFAS No. 15. Prior to the adoption of SFAS No. 114, OREO included both formally foreclosed and in-substance foreclosed real properties, which properties included those where the borrower had little or no equity in the property considering its fair value; where repayment was only expected to come from the operation or sale of the property; and where the borrower had effectively abandoned control of the property or it was doubtful that the borrower would be able to rebuild equity in the property. SFAS No. 114 requires that a loan be classified as an in-substance foreclosure only when the Bank has taken possession of the collateral property regardless of whether formal foreclosure proceedings have taken place. The Bank did not have any in-substance foreclosed properties included in OREO at December 31, 1995 or September 30, 1995. SFAS No. 118 amended SFAS No. 114 and allows creditors to continue to use existing accounting methods for recognizing interest income on impaired loans and requires certain related disclosures. Cash receipts on impaired loans are generally recorded as principal repayments or interest income according to the terms of the loan agreement. At December 31, 1995, the recorded investment in loans that are considered impaired under SFAS No. 114 totaled $2.8 million. Included in this amount is $1.0 million of impaired loans for which the related allowance for credit losses is $191,000. The average recorded investment in impaired loans during the three months ended December 31, 1995 was approximately $2.7 million. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL North Side Savings Bank ("North Side" or the "Bank") is a New York State chartered, stock savings bank which was chartered in 1905. North Side's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the full extent permissible by law and regulation. As of December 31, 1995, the Bank conducted business from seventeen full-service banking offices in the Bronx, Queens, Nassau and Suffolk Counties, New York. The Bank had total assets of $1.57 billion at December 31, 1995, and shareholders' equity at such date of $120.2 million, which constituted 7.64% of total assets. At its Annual Meeting following the Bank's Annual Meeting of Stockholders on January 22, 1996, the Board of Directors declared a $.25 per share cash dividend payable on February 23, 1996 to shareholders of record on February 9, 1996. The Board also authorized management to take the steps necessary to form a holding company for North Side. Such holding company formation will be subject to, among other things, receipt of stockholder and regulatory approvals. Stockholder action on this matter is currently anticipated during the third quarter of fiscal 1996. At the Annual Meeting of Stockholders held on January 22, 1996, shareholders re-elected Irvin L. Cherashore, Greg L. Collins and Thomas M. O'Brien as Directors of the Bank for three- year terms expiring in 1999. Shareholders also ratified the appointment of KPMG Peat Marwick LLP as the Bank's independent auditors for the fiscal year ending September 30, 1996. North Side is subject to examination and comprehensive regulation by the New York State Banking Department, which is its primary regulator, and by the FDIC. The Bank is subject to further regulation of the Federal Reserve Board governing reserves required to be maintained against deposits and certain other matters. At December 31, 1995, the Bank had 4,802,679 shares of common stock issued and outstanding. Its common stock is traded over the counter and quotations for trades of the Bank's common stock are included on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol "NSBK." FINANCIAL CONDITION The Bank's total assets amounted to $1.57 billion at December 31, 1995 as compared to $1.59 billion at September 30, 1995. During the first quarter of fiscal 1996, the Bank took advantage of the one-time opportunity granted by the FASB to reassess the appropriateness of its classification of all securities under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". As a result, the Bank reclassified $134.0 million of mortgage-backed securities from held to maturity to available for sale at an unrealized depreciation of $.1 million, net of income taxes, at the time of transfer. During the first quarter of fiscal 1996, mortgage-backed securities, net decreased by $118.3 million, investment securities held to maturity decreased $45.2 million, loans, net decreased by $10.8 million and bonds and equities available for sale decreased $7.8 million. These decreases were offset by increases in mortgage-backed securities available for sale of $110.0 million and money market investments of $60.9 million. The $118.3 million decrease in mortgage-backed securities, net was primarily due to the transfer described above of $134.0 million to available for sale along with $19.4 million of principal repayments which was partially offset by $35.6 million of purchases during the quarter. Investment securities, net decreased $45.2 million primarily due to $60.0 million of Federal Home Loan Bank bonds being called during the quarter and $1.2 million of principal repayments which were partially offset by purchases of $16.0 million. Loans, net decreased $10.8 million primarily due to $11.0 million of loan amortizations and satisfactions, $.3 million of loans sold, $.1 million of loans charged-off and $.1 million of loans transferred to OREO. These decreases in loans, net were partially offset by $1.1 million of loan originations. The decrease of $7.8 million in bonds and equities available for sale was primarily due to $4.7 million of securities sold at a $3.1 million profit along with a decrease of $3.2 million in net unrealized appreciation on these securities for the quarter ended December 31, 1995. The $110.0 million increase in mortgage-backed securities available for sale is due to the transfer described above of $134.0 million from the mortgage-backed securities portfolio and a $1.8 million increase in net unrealized appreciation on these securities for the quarter ended December 31, 1995. These increases were partially offset by $25.0 million of principal repayments. The $60.9 million increase in money market investments is primarily due to the funds received in connection with the call of $60.0 million of Federal Home Loan Bank bonds. Total liabilities decreased to $1.45 billion at December 31, 1995 as compared to $1.47 billion at September 30, 1995. The change in liabilities consisted of a decrease of $37.0 million in borrowings and $1.4 million in mortgagors' escrow payments which were partially offset by an increase in deposits of $17.9 million and an increase of $1.2 million in other liabilities. Shareholders' equity increased $3.9 million primarily due to net income for the quarter of $5.8 million, which was partially offset by $1.2 million of cash dividends paid along with a decrease of $.8 million in net unrealized appreciation on securities available for sale, net of income taxes, for the quarter ended December 31, 1995. RESULTS OF OPERATIONS The Bank reported net income for the quarter ended December 31, 1995 of $5.8 million compared to $3.6 million for the quarter ended December 31, 1994. Primary earnings per share for the quarter ended December 31, 1995 was $1.22 compared to $0.75 for the same quarter in the prior year. Net income for the current quarter reflects the substantial impact of a gain of $3.1 million, before income taxes, realized upon the sale of securities. On a fully diluted basis, earnings per share was $1.18 for the first quarter of fiscal 1996. The $2.2 million increase in earnings for the first quarter of fiscal 1996 compared to the first quarter of fiscal 1995 was due primarily to a $3.1 million gain on sale of securities and a $.6 million reduction in the provision for loan losses, which were partially offset by an increase of $1.5 million in the provision for income taxes. Net interest income before provision for possible loan losses decreased $.4 million to $12.5 million for the first quarter of fiscal 1996 compared to $12.9 million for the first quarter of fiscal 1995. The decrease was primarily the result of a narrowing of the Bank's interest rate spread from 3.33% for the quarter ended December 31, 1994 to 3.04% for the quarter ended December 31, 1995. This decrease was offset to some extent by an increase in the ratio of average interest-earning assets to average interest-bearing liabilities from 1.05% at December 31, 1994 to 1.06% at December 31, 1995. The yield on average interest-earning assets rose to 7.19% for the quarter ended December 31, 1995 compared to 6.80% for the quarter ended December 31, 1994. The average cost of funds also increased to 4.15% for the quarter ended December 31, 1995 from 3.47% for the quarter ended December 31, 1994. As a result, the Bank's net interest margin decreased from 3.44% for the quarter ended December 31, 1994 to 3.23% for the same quarter this year. INTEREST INCOME AND EXPENSE Aggregate interest income on mortgage loans decreased $.3 million to $8.5 million for the three months ended December 31, 1995 compared to the same period in the prior year. The decrease was primarily due to a $55.3 million, or 11.6%, decrease in the average balance of loans during the first quarter of fiscal 1996 compared to the same period in fiscal 1995, which was partially offset by a 66 basis point increase in the average yield earned from 7.40% for the three months ended December 31, 1994 to 8.06% for the three months ended December 31, 1995, with 100 basis points being equal to 1.0%. Interest income from mortgage-backed securities increased $2.7 million to $16.7 million for the three month period ended December 31, 1995 compared to the same period in the prior year. The increase was attributable to a $94.9 million increase in the average balance of all mortgage-backed securities during the period, along with an 52 basis point increase in the average yield earned from 6.45% during the three months ended December 31, 1994 to 6.97% for the three months ended December 31, 1995. Interest income on investment securities decreased $.9 million from $2.3 million for the three month period ended December 31, 1994 to $1.4 million for the three month period ended December 31, 1995. The decrease was due to a $46.8 million decrease in the average balance of all investment securities along with a 40 basis point decrease in the average yield earned from 6.83% for the three months ended December 31, 1994 to 6.43% for the three months ended December 31, 1995. Interest income on money market investments increased by $.9 million for the three months ended December 31, 1995 compared to the same period in the prior year. The increase was primarily due to a $60.2 million increase in the average balance of money market investments along with a 72 basis point increase in the average yield earned from 4.92% during the three months ended December 31, 1994 to 5.64% for the three months ended December 31, 1995. Interest expense on deposits and mortgage escrow accounts increased $2.5 million to $11.6 million for the three month period ended December 31, 1995 compared to the three month period ended December 31, 1994. This increase was primarily due to an increase in the average balance of deposits and escrow accounts of $33.9 million over the periods along with an increase in the average cost of deposits and mortgage escrow accounts of 74 basis points to 3.80%. The increase in the average balance was primarily due to the purchase of two branch locations during the fourth quarter of fiscal 1995. Interest expense on borrowings increased $.2 million due to a 43 basis point increase in the average cost of borrowings from 5.55% for the three months ended December 31, 1994 to 5.98% for the three months ended December 31, 1995, which was partially offset by a decrease of $5.7 million in the average balance during the first quarter of fiscal 1996 compared to the same period in fiscal 1995. PROVISION FOR LOAN LOSSES The provision for loan losses is based on management's periodic evaluation of the adequacy of the allowance for loan losses which is based on a review of the loan portfolio. Such reviews are performed by a loan review committee of the Bank on a quarterly basis. The committee considers, among other things, the borrower's ability to repay, the estimated value of collateral, general economic conditions, conditions in the real estate market in the Bank's lending areas, past loss experience and the level of non-performing loans. As a result of management's evaluation of the adequacy of the allowance for loan losses, which considered, among other things, the significant decrease in the ratio of non-performing loans to total loans at December 31, 1995 compared to December 31, 1994 and the continued high credit quality of the Bank's loan portfolio, the Bank deemed it appropriate to reduce the level of provisions for loan losses to $300,000 in the first quarter of fiscal 1996 as compared to $850,000 in the first quarter of fiscal 1995. The Bank's level of non-performing loans decreased to $5.4 million at December 31, 1995 compared to $13.9 million at December 31, 1994. Non-performing loans were $4.9 million at September 30, 1995. The increase in non-performing loans at December 31, 1995 compared to September 30, 1995 was mainly attributable to $.3 million of new non-performing commercial loans and $.2 million of additional one-to four-family non- performing loans. Total non-performing loans amounted to .34%, .31% and .91% of total assets at December 31, 1995, September 30, 1995 and December 31, 1994, respectively. At December 31, 1995, the allowance for loan losses was $6.6 million, compared to $6.4 million at September 30, 1995 and $11.5 million at December 31, 1994. The allowance for loan losses as a percentage of non-performing loans was 122.9% at December 31, 1995 compared to 130.8% at September 30, 1995 and 82.9% at December 31, 1994. Charge-offs net of recoveries for the three months ended December 31, 1995 were $.1 million compared to $.6 million for the three months ended December 31, 1994. In addition, total non-performing assets decreased from $20.4 million, or 1.3% of total assets, at December 31, 1994 to $7.9 million, or .50% of total assets, at December 31, 1995. Non- performing assets were $7.4 million, or .47% of total assets, at September 30, 1995. OTHER OPERATING INCOME The Bank had other operating income of $3.6 million for the three months ended December 31, 1995 compared to $.4 million for the three months ended December 31, 1994. The increase was primarily due to a $3.1 million gain on the sale of $4.7 million of bonds and equities available for sale during the quarter ended December 31, 1995. In addition the Bank sold OREO properties at a net loss of $10,000 during the quarter ended December 31, 1995 as compared to a net loss of $144,000 on the sale of OREO properties during the quarter ended December 31, 1994. OTHER OPERATING EXPENSES Total other operating expenses decreased $.4 million from $6.0 million for the three months ended December 31, 1994 to $5.6 million for the three months ended December 31, 1995. This decrease was primarily the result of a $.7 million decrease in deposit insurance premiums and a $.2 million decrease in OREO expense, net. These decreases were partially offset by a $.4 million increase in other operating expenses - other, which increase was primarily the result of higher advertising costs. Effective January 1, 1996, the Bank's deposit insurance premiums will be reduced to $2,000 per year. The Bank continues its effort to maintain strong control over other operating expenses as evidenced by the Bank's efficiency ratio (which is operating expense before net OREO expense as a percentage of net interest income, customer service fees and other income, excluding gains and losses) of 42.9% for the quarter ended December 31, 1995. Provisions for income taxes of $4.3 million and $2.8 million were made for the three month periods ended December 31, 1995 and 1994, respectively. The increase in the provision for income taxes was primarily due to the increase of $3.7 million in income before provision for income taxes to $10.1 million for the first quarter of fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The liquidity of North Side's operations, measured by the ratio of daily average balances for the quarter of cash and cash equivalents (not committed, pledged, or required to liquidate specific liabilities) to the sum of net withdrawable deposits and borrowings payable within one year, averaged 4.49% for the twelve months ended December 31, 1995 compared to 2.66% for the twelve months ended September 30, 1995. North Side's primary sources of funds have consisted of deposits, amortization and prepayments of outstanding loans, mortgage-backed securities and bond maturities. At December 31, 1995, total approved loan commitments amounted to $6.5 million. The amount of time deposits which are scheduled to mature during the twelve months ending December 31, 1996 is $341.4 million. Based on past experience, management expects that a substantial portion of these maturing deposits will be redeposited at North Side. At December 31, 1995, stockholders' equity equaled $120.2 million, or 7.6% of total assets, compared to $116.3 million or 7.3% of total assets at September 30, 1995. The FDIC has issued regulations that require insured banks, such as North Side, to maintain minimum levels of capital. In general, current regulations require a leverage ratio of core capital of 3% of adjusted total assets for the most highly rated banks. Other banks are required to maintain levels 100 to 200 basis points higher, based on their particular circumstances as defined in the regulations. At December 31, 1995, the Bank's leverage ratio was 7.44%. The Bank also is required to maintain minimum capital levels based upon a weighting of its assets according to risk. The Bank is required to maintain a ratio of qualifying total capital to risk-weighted assets and off-balance sheet items of a minimum of 8.00%. At least one-half of that amount must be Tier I or core capital and up to one-half of total capital can consist of Tier II or supplementary capital. On December 31, 1995, the Bank's Tier I capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio, calculated under the FDIC risk-based capital requirement, was 17.34% and 18.32%, respectively. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH SIDE SAVINGS BANK Date: February 9, 1996 /s/ Thomas M. O'Brien ___________________________ Thomas M. O'Brien President and Chief Executive Officer Date: February 9, 1996 /s/ Donald C. Fleming ____________________________ Donald C. Fleming Executive Vice President and Chief Financial Officer EX-99 4 EXHIBIT 99.3 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 Form F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1996 FDIC Insurance Certificate No. 16007 North Side Savings Bank (Exact name of bank as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 13-1723204 (IRS Employer Identification No) 170 Tulip Avenue, Floral Park, New York (Address of principal executive offices) 11001 (Zip code) (516) 488-6900 (Bank's telephone number, including area code) Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the bank's classes of common stock, as of the latest practicable date: Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, par value $1.00 per share. Number of shares outstanding at May 1, 1996: 4,833,576 NORTH SIDE SAVINGS BANK INDEX Item 1. Financial Statements Page No. Consolidated Statements of Condition, March 31, 1996 and September 30, 1995 1 Consolidated Statements of Income, Three and Six Months Ended March 31, 1996 and 1995 2 Consolidated Statements of Changes in Shareholders' Equity, Six Months Ended March 31, 1996 and 1995 3 Consolidated Statements of Cash Flows, Six Months Ended March 31, 1996 and 1995 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CONDITION (Dollars in thousands) March 31, September 30, 1996 1995 (Unaudited) ASSETS: Cash and due from banks $ 11,234 $ 11,530 Money market investments 81,033 29,456 Securities available for sale: Bonds and equities 18,898 26,520 Mortgage-backed securities 384,183 300,022 ----------- ----------- Total securities available for sale 403,081 326,542 Investment securities, net (estimated market value of $25,579 and $92,460, respectively) 25,436 93,301 Federal Home Loan Bank of NY stock, at cost 9,685 9,430 Mortgage-backed securities, net (estimated market value of $599,153 and $642,864, respectively) 608,070 651,153 Loans 411,059 432,180 Less allowance for loan losses 6,855 6,417 ------------ ------------ Loans, net 404,204 425,763 Accrued interest receivable 11,330 13,230 Premises and equipment, net 14,876 15,215 Other real estate owned, net of allowance of $1.1 million and $1.1 million, respectively 2,447 2,515 Other assets 9,039 9,868 ----------- ----------- Total assets $ 1,580,435 $ 1,588,003 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits $ 1,226,902 $ 1,199,077 Mortgagors' escrow payments 4,199 4,607 Borrowed funds 214,000 251,000 Other liabilities 13,037 17,035 ------------ ------------ Total liabilities 1,458,138 1,471,719 ----------- ----------- Shareholders' Equity: Preferred stock, par value $1.00 per share, 5,000,000 shares authorized, none outstanding -- -- Common stock, par value $1.00 per share, 10,000,000 shares authorized, 4,814,751 and 4,798,022 shares issued and outstanding at March 31, 1996 and September 30, 1995, respectively 4,815 4,798 Paid-in capital 63,343 62,985 Surplus fund 24,101 24,101 Undivided profits 30,334 22,606 Net unrealized appreciation on securities available for sale, net of income taxes 204 2,360 Unearned portion of incentive compensation (500) (566) ------------ ------------- Total shareholders' equity 122,297 116,284 ----------- ----------- Total liabilities and shareholders' equity $ 1,580,435 $ 1,588,003 =========== =========== See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1996 1995 1996 1995 ----- ---- ---- ---- Interest Income: Mortgage loans $ 8,220 $ 8,864 $ 16,717 $ 17,691 Mortgage-backed securities 16,524 14,660 33,177 28,574 Investment securities 1,317 2,247 2,745 4,565 Money market investment 1,060 46 1,942 74 Other loans 139 160 279 307 ------- -------- -------- -------- Total interest income 27,260 25,977 54,860 51,211 ------- ------- ------- ------- Interest Expense: Deposits and mortgage escrow accounts 11,488 9,573 23,124 18,682 Borrowings 3,229 3,738 6,698 6,995 ------- ------ ------- ------- Total interest expense 14,717 13,311 29,822 25,677 ------- ------- ------- ------- Net interest income 12,543 12,666 25,038 25,534 Provision for loan losses 200 850 500 1,700 ------- ------- ------- ------ Net interest income after provision for loan losses 12,343 11,816 24,538 23,834 ------- ------- ------- ------- Other Operating Income: Net loss on sale of other real estate owned -- (11) (10) (155) Net gain on sales and redemptions of securities 407 169 3,493 169 Customer service fees 476 499 930 1,001 Other 15 36 46 105 -------- -------- ------- ------- Total other operating income 898 693 4,459 1,120 -------- -------- ------- ------- Other Operating Expense: Compensation and benefits 2,912 2,797 5,499 5,445 Occupancy and equipment 892 879 1,782 1,676 BIF deposit insurance premiums 1 672 116 1,462 OREO expense, net 153 11 199 223 Other 1,873 1,703 3,845 3,288 ------- ------- ------- ------- Total other operating expense 5,831 6,062 11,441 12,094 ------- -------- ------- ------- Income before provision for income taxes 7,410 6,447 17,556 12,860 Provision for income taxes 3,112 2,755 7,424 5,574 ------- ------- ------- ------- Net income $ 4,298 $ 3,692 $ 10,132 $ 7,286 ======= ======= ======== ======= Net income per share (a) $ .86 $ .77 $ 2.04 $ 1.52 ======= ======= ======= ======= (a) Based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding of 4,969,168 and 4,958,377 for the three and six month periods ended March 31, 1996 and the weighted average number of shares of common stock outstanding of 4,781,206 and 4,774,999 for the three and six month periods ended March 31, 1995, respectively. See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands) (Unaudited) Unallocated Unrealized Unreal- Shares in Depreciation ized Appre- Management On Certain ciation on Develop- Unearned Marketable Securities ment & Re- Portion of Common Paid-In Surplus Undivided Equity Available cognition Incentive Stock Capital Fund Profits Securities For Sale Plan Compensation Total - --------------------------------------------------------------------------------------------------------------------------------- Fiscal 1995 Balance at September 30, $ 4,541 $57,281 $24,101 $15,952 $ (436) $ - $ (416) $ (25) $100,998 1994 Net Income - - - 7,286 - - - - 7,286 Prorated portion of Management Development and Recognition Plan awards earned by grantees - - - - - - - 58 58 Awarded 36,506 common shares from Management Development and Recognition Plan at $18.25 per share, market value on date of grant - 250 - - - - 416 (666) - Payment of 401(k) contri- bution 16 286 - - - - - - 302 Distribution of 5% stock dividend 227 4,440 - (4,667) - - - - - Payment of $.275 per share cash dividend - - - (1,286) - - - - (1,286) Dividend Reinvestment 1 15 - - - - - - 16 Exercise of stock options for 2,573 shares of Common Stock 3 23 - - - - - - 26 Decrease in unrealized depre- ciation on certain market- able equity securities - - - - 436 - - - 436 Unrealized appreciation on securities available for sale, net of taxes - - - - - 157 - - 157 ------- ------- --------- -------- ------- -------- -------- -------- -------- Balance at March 31, 1995 $ 4,788 $62,295 $24,101 $ 17,285 $ - $ 157 $ - $ (633) $ 107,993 ======= ======= ======== ======== ======= ======== ======== ======== ========= Fiscal 1996 Balance at September 30, 1995 $ 4,798 $62,985 $24,101 $ 22,606 $ - $ 2,360 $ - $ (566) $ 116,284 Net Income - - - 10,132 - - - - 10,132 Payment of $.50 per share cash dividend - - - (2,404) - - - - (2,404) Dividend Reinvestment 1 24 - - - - - - 25 Prorated portion of Manage- ment Development and Recognition Plan awards earned by grantees - - - - - - - 66 66 Payment of 401(k) contribution 11 298 - - - - - - 309 Exercise of stock options for 5,218 shares of Common Stock 5 36 - - - - - - 41 Decrease on unrealized appre- ciation on securities available for sale, net of taxes - - - - - (2,156) - - (2,156) _______ _______ _______ ________ ________ _________ ________ ________ __________ Balance at March 31, 1996 $ 4,815 $63,343 $24,101 $ 30,334 $ - $ 204 $ - $ (500) $ 122,297 ======= ======= ======= ======== ======== ========= ======== ======== ========= See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) - ---------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED MARCH 31, 1996 1995 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,132 $ 7,286 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 727 665 Provision for possible loan and real estate losses 500 1,849 Amortization of premium, accretion of (discount), net 2,556 2,811 Net gain on sales of securities (3,493) (169) Net loss on sale of OREO 10 155 401(k) contribution 309 144 Decrease in accrued interest receivable 1,900 84 Decrease in other assets 2,585 1,867 Decrease in other liabilities (3,998) (1,800) Other, net 198 51 - -------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,426 12,943 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and redemptions of investment securities 76,003 470 Proceeds from principal repayments of investment securities 7,936 2,812 Purchase of securities available for sale (73,349) (7,399) Purchase of investment securities (16,089) (265) Proceeds from principal repayments, maturities and redemptions of securities available for sale 58,602 28,064 Proceeds from principal repayment of mortgage- backed securities 31,646 34,863 Proceeds from sales of securities available for sale 70,403 -- Purchase of mortgage-backed securities (123,379) (48,320) Purchase of FHLBNY Stock (255) (2,358) Proceeds from loan repayments and satisfactions 25,911 24,496 Proceeds from loans sold 507 1,277 Loan purchases and originations (5,865) (3,293) Proceeds from sales of OREO 91 1,772 Capital expenditures (387) (279) - ---------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 51,775 31,840 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposit accounts, net 27,825 (41,203) Receipt of borrowed funds -- 597,500 Repayment of borrowed funds (37,000) (601,375) (Disbursement) receipt of mortgage escrow (net) (408) 176 Proceeds from exercise of stock options 41 26 Cash dividend paid on common stock, net of dividend reinvestment (2,379) (1,270) ------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,921) (46,146) - ---------------------------------------------------------------------------------------------------------- Net Increase (decrease) in Cash and Cash Equivalents 51,280 (1,363) Cash and Cash Equivalents at Beginning of Period 40,686 13,333 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 91,966 $ 11,970 ========================================================================================================= SUPPLEMENTAL INFORMATION: Cash paid during period for: Interest $ 30,677 $ 26,698 Income taxes 7,044 4,593 Additions to OREO 61 420 ========================================================================================================= See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 Unaudited NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the Bank's financial condition as of March 31, 1996 and the results of operations, changes in shareholders' equity and cash flows for the periods presented. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the period. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. It is the general policy of the Bank to obtain independent appraisals for significant loans every three years. However, as a matter of general practice, management obtains more frequent appraisals as it deems necessary on significant troubled loans and other real estate owned. Other real estate owned includes real estate acquired in connection with foreclosures or by deed- in-lieu of foreclosure (collectively, "OREO"). The Bank's loan portfolio is varied as to type, geographic location, borrower concentration, and fixed or adjustable-rate mortgages. At March 31, 1996 approximately $343.3 million of the Bank's real estate loans were secured by properties located in New York and, as such, a substantial portion of the Bank's borrowers' ability to honor their contracts and increases or decreases in market value of the real estate collateralizing such loans may be significantly affected by the level of economic activity in New York. The Bank believes that the allowances for loan losses and OREO losses are adequate. While the Bank uses available information to recognize losses on loans and estimate the fair value of OREO, future additions to the allowances for loan losses and OREO may be necessary based on, among other things, changes in economic conditions in the region. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and the net carrying value of OREO. Such agencies may require the Bank to recognize additions to the allowance or reductions in net carrying values based on their judgments about information available to them at the time of their examination. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form F-4. The financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Bank's Annual Report to Stockholders for the year ended September 30, 1995 and in the related Annual Report on Form F-2 for the year ended September 30, 1995. NOTE 2 - CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from banks including Federal Home Loan Bank overnight deposits, the Federal Home Loan Bank balance, and Federal funds sold. Generally, Federal funds are sold for one-day periods. NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARD Effective October 1, 1995, the Bank adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These statements prescribe recognition criteria for loan impairment, generally related to commercial type loans, and measurement methods for certain impaired loans and all loans whose terms are modified in troubled debt restructurings subsequent to the adoption of these statements. Loans are identified as impaired when it is probable that all amounts of principal and interest due will not be collected according to the original contractual terms of the loan agreement. The adoption of these standards had no effect on the financial statements. As a result of the adoption of SFAS No. 114, the allowance for possible loan losses related to impaired loans that are identified for evaluation in accordance with SFAS No. 114 is based on the present value of expected cash flows discounted at the loans' initial effective interest rate, except that as a practical expedient, impairment may be measured at the loans' observable market price, or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral. The Bank considers estimated cost to sell when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans. SFAS No. 114 also amends SFAS No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings," by requiring creditors to measure all loans that are restructured in a troubled debt restructuring (subsequent to September 30, 1995) in accordance with the criteria of SFAS No. 114. Loans which were restructured prior to the adoption of SFAS No. 114 and are performing in accordance with their restructured terms are not considered impaired and continue to be accounted for under SFAS No. 15. Prior to the adoption of SFAS No. 114, OREO included both formally foreclosed and in-substance foreclosed real properties, which properties included those where the borrower had little or no equity in the property considering its fair value; where repayment was only expected to come from the operation or sale of the property; and where the borrower had effectively abandoned control of the property or it was doubtful that the borrower would be able to rebuild equity in the property. SFAS No. 114 requires that a loan be classified as an in-substance foreclosure only when the Bank has taken possession of the collateral property regardless of whether formal foreclosure proceedings have taken place. The Bank did not have any in-substance foreclosed properties included in OREO at March 31, 1996 or September 30, 1995. SFAS No. 118 amended SFAS No. 114 and allows creditors to continue to use existing accounting methods for recognizing interest income on impaired loans and requires certain related disclosures. Cash receipts on impaired loans are generally recorded as principal repayments or interest income according to the terms of the loan agreement. At March 31, 1996, the recorded investment in loans that are considered impaired under SFAS No. 114 totaled $2.7 million. Included in this amount is $1.0 million of impaired loans for which the related allowance for credit losses is $230,000. The average recorded investment in impaired loans during the three and six months ended March 31, 1996 was approximately $2.8 million and $2.7 million, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL North Side Savings Bank ("North Side" or the "Bank") is a New York State chartered, stock savings bank which was chartered in 1905. North Side's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the full extent permissible by law and regulation. As of March 31, 1996, the Bank conducted business from seventeen full-service banking offices in the Bronx, Queens, Nassau and Suffolk Counties, New York. North Side had total assets of $1.58 billion at March 31, 1996, and shareholders' equity at such date of $122.3 million, which constituted 7.74% of total assets. At its meeting held April 15, 1996, the Board of Directors of North Side declared a quarterly cash dividend of $.25 per share payable on May 17, 1996 to shareholders of record on May 3, 1996. North Side is subject to examination and comprehensive regulation by the New York State Banking Department, which is its primary regulator, and by the FDIC. The Bank is subject to further regulation of the Federal Reserve Board governing reserves required to be maintained against deposits and certain other matters. At March 31, 1996, the Bank had 4,814,751 shares of common stock issued and outstanding. Its common stock is traded over the counter and quotations for trades of the Bank's common stock are included on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol "NSBK." FINANCIAL CONDITION The Bank's total assets amounted to $1.58 billion at March 31, 1996 as compared to $1.59 billion at September 30, 1995. During the first quarter of fiscal 1996, the Bank took advantage of the one-time opportunity granted by the FASB to reassess the appropriateness of its classification of all securities under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". As a result, the Bank reclassified $134.0 million of mortgage-backed securities from held to maturity to available for sale at an unrealized depreciation of $.1 million, net of income taxes, at the time of transfer. During the six months ended March 31, 1996, mortgage-backed securities, net decreased by $43.1 million, investment securities, net decreased $67.9 million, loans, net decreased by $21.6 million and bonds and equities available for sale decreased $7.6 million. These decreases were offset by increases in mortgage-backed securities available for sale of $84.2 million and money market investments of $51.6 million. The $43.1 million decrease in mortgage-backed securities, net was primarily due to the transfer described above of $134.0 million from the mortgage-backed securities portfolio to available for sale along with $31.6 million of principal repayments which was partially offset by $123.4 million of purchases during the six months. Investment securities, net decreased $67.9 million primarily due to $76.0 million of Federal Home Loan Bank bonds being called during the six months and $7.9 million of principal repayments which were partially offset by purchases of $16.0 million. Loans, net decreased $21.6 million primarily due to $25.9 million of loan amortizations and satisfactions, $.5 million of loans sold, $.1 million of loans charged-off and $.1 million of loans transferred to OREO. These decreases in loans, net were partially offset by $5.9 million of loan originations. The decrease of $7.6 million in bonds and equities available for sale was primarily due to $4.7 million of securities sold at a $3.1 million profit along with a decrease of $3.2 million in net unrealized appreciation on these securities for the six months ended March 31, 1996. The $84.2 million increase in mortgage-backed securities available for sale is due to the transfer described above of $134.0 million from the mortgage-backed securities portfolio and $72.9 million of purchases. These increases were partially offset by $62.2 million of securities sold at a $.4 million profit, $58.4 million of principal repayments and a $.7 million decrease in net unrealized appreciation on these securities for the six months ended March 31, 1996. The $51.6 million increase in money market investments is due to management's decision to increase the Bank's liquidity rather than invest during a period when, in management's opinion rates of return on alternative investments were at a relatively low point. Total liabilities decreased to $1.46 billion at March 31, 1996 as compared to $1.47 billion at September 30, 1995. The change in liabilities consisted of decreases of $37.0 million in borrowings, $4.0 million in other liabilities and $.4 million in mortgagors' escrow payments, which were partially offset by an increase in deposits of $27.8 million. Shareholders' equity increased $6.0 million primarily due to net income of $10.1 million, which was partially offset by $2.4 million of cash dividends paid along with a decrease of $2.2 million in net unrealized appreciation on securities available for sale, net of income taxes, for the six months ended March 31, 1996. RESULTS OF OPERATIONS For the three months and six months ended March 31, 1996, the Bank reported net income of $4.3 million or $.86 per share, and $10.1 million, or $2.04 per share, respectively, compared to $3.7 million or $.77 per share, and $7.3 million, or $1.52 per share, for the same respective periods in the prior year. The $.6 million rise in earnings for the second quarter of fiscal 1996 compared to the second quarter of fiscal 1995 was due primarily to a $.7 million reduction in the provision for loan losses along with lower other operating expenses of $.2 million which were partially offset by an increase of $.4 million in the provision for income taxes. Net interest income before provision for possible loan losses decreased $.1 million to $12.5 million for the second quarter of fiscal 1996 compared to the second quarter of fiscal 1995. The decrease was primarily the result of a narrowing of the Bank's interest rate spread from 3.22% for the quarter ended March 31, 1995 to 2.99% for the quarter ended March 31, 1996. The Bank's interest rate spread was 3.04% for the quarter ended December 31, 1995. The decrease for the second quarter of fiscal 1996 as compared to the second quarter of fiscal 1995 was offset to some extent by an increase in the ratio of average interest-earning assets to average interest-bearing liabilities from 1.05% at March 31, 1995 to 1.07% at March 31, 1996. The Bank's net interest margin was 3.27% for the quarter ended March 31, 1996 compared to 3.50% for the same quarter in the prior year. For the six month period ended March 31, 1996 compared to the same period in the prior year, net income increased $2.8 million. This increase was primarily comprised of a $1.2 million reduction in the provision for loan losses, and a $3.3 million improvement in gain on sales and redemptions of investments, which were partially offset by an increase of $1.9 million in the provision for income taxes. INTEREST INCOME AND EXPENSE Aggregate interest income on mortgage loans decreased from $8.9 million for the three months ended March 31, 1995 to $8.2 million for the three months ended March 31, 1996. The decrease was due to a $53.9 million decrease in the average balance of mortgage loans during the second quarter of fiscal 1996 compared to the same period in fiscal 1995, which was partially offset by a 38 basis point increase in the average yield earned from 7.64% during the three months ended March 31, 1995 to 8.02% for the three months ended March 31, 1996. Interest income on mortgage loans for the six months ended March 31, 1996 decreased $1.0 million from $17.7 million for the six months ended March 31, 1995 to $16.7 million for the six months ended March 31, 1996. The decrease was attributable to a decrease in the average balance of such loans of $54.6 million, which was partially offset by an increase of 52 basis points in the yield from 7.52% during the six months ended March 31, 1995 to 8.04% during the six months ended March 31, 1996. Interest income from mortgage-backed securities increased $1.9 million to $16.5 million for the three month period ended March 31, 1996 compared to the same period in fiscal 1995. The increase was attributable to a $115.3 million increase in the average balance of mortgage-backed securities for the three month period ended March 31, 1996 compared to the three month period ended March 31, 1995, which was partially offset by a 4 basis point decrease in average yield earned during the fiscal 1996 period compared to the fiscal 1995 period. Interest income on mortgage-backed securities for the six months ended March 31, 1996 increased $4.6 million to $33.2 million for the six months ended March 31, 1996. The increase was primarily due to a $105.1 million increase in the average balance of such securities for the six months ended March 31, 1996 compared to the six months ended March 31, 1995 along with a 23 basis point increase in the average interest rate earned from 6.65% for the six months ended March 31, 1995 compared to 6.88% for the six months ended March 31, 1996. Interest income on investment securities decreased $.9 million for the three month period ended March 31, 1996 compared to the same period in fiscal 1995. The average balance of investment securities decreased $63.6 million, which was partially offset by an increase in the average yield earned of 76 basis points from 6.65% for the three months ended March 31, 1995 to 7.41% for the three months ended March 31, 1996. Interest income on investment securities for the six months ended March 31, 1996 decreased $1.8 million to $2.7 million. The average balance of such securities decreased $55.2 million for the six months ended March 31, 1996 compared to the same period in fiscal 1995 and the average interest rate earned increased 12 basis points to 6.86% for the six months ended March 31, 1996 from 6.74% for the same period in fiscal 1995. Interest income on money market investments increased by $1.0 million for the three months ended March 31, 1996 compared to the three months ended March 31, 1995. The increase was primarily due to a $77.0 million increase in the average balance of money market investments which was partially offset by a 31 basis point decrease in yield to 5.28% during the second quarter of fiscal 1996 compared to 5.59% for the same period in fiscal 1995. For the six months ended March 31, 1996 compared to the same period in fiscal 1995, interest income on money market investments increased $1.9 million due to an increase in average balance of $68.6 million along with an increase in average yield earned on such balances of 12 basis points to 5.44% for the six month period in fiscal 1996 compared to 5.32% for the six month period in fiscal 1995. Interest expense on deposits and mortgage escrow accounts increased $1.9 million to $11.5 million for the three month period ended March 31, 1996 compared to the same period in fiscal 1995. This increase was due to an increase in the average cost of deposits and mortgage escrow accounts of 40 basis points to 3.75% during the second quarter of fiscal 1996 compared to 3.35% for the second quarter of fiscal 1995, along with an increase of $70.6 million in the average balance of deposits. Interest expense on deposits and mortgage escrow accounts increased $4.4 million for the six months ended March 31, 1996 compared to fiscal 1995, primarily due to an increase of 57 basis points in the average rates paid on such deposits to 3.77% for the six month period ended March 31, 1996 along with a $52.1 million increase in the average balance of such deposits. The increase in the average balances was primarily due to the purchase of two branch locations during the fourth quarter of fiscal 1995. Interest expense on borrowings decreased $.5 million during the second quarter of fiscal 1996 as compared to the second quarter of fiscal 1995 due to a decrease of $25.4 million in the average balance during the fiscal 1996 period compared to the same period in fiscal 1995, along with a 36 basis point decrease in the average cost of borrowings from 6.33% for the three months ended March 31, 1995 to 5.97% for the three months ended March 31, 1996. Interest expense on borrowings decreased $.3 million for the six months ended March 31, 1996 as compared to the same period in fiscal 1995 due to a decrease of $15.5 million in the average balance of borrowings which was partially offset by a 12 basis point increase in the average cost of borrowings to 6.06% during the fiscal 1996 period. PROVISION FOR LOAN LOSSES The provision for loan losses is based on management's periodic evaluation of the adequacy of the allowance for loan losses, which is based on a review of the loan portfolio. Such reviews are performed by a loan review committee of the Bank on a quarterly basis. The committee considers, among other things, the borrower's ability to repay, the estimated value of collateral, general economic conditions, conditions in the real estate market in the Bank's lending areas, past loss experience and the level of non-performing loans. As a result of management's evaluation of the adequacy of the allowance for loan losses, which considered, among other things, the significant decrease in the ratio of non-performing loans to total loans at March 31, 1996 compared to March 31, 1995 and the continued high credit quality of the Bank's loan portfolio, the Bank deemed it appropriate to reduce the level of provisions for loan losses to $500,000 in the first six months of fiscal 1996 as compared to $1.7 million in the first six months of fiscal 1995. The Bank's level of non-performing loans decreased to $5.7 million at March 31, 1996 compared to $12.9 million at March 31, 1995. Non-performing loans were $4.9 million at September 30, 1995. The increase in non-performing loans at March 31, 1996 compared to September 30, 1995 was mainly attributable to $.5 million of additional one-to four-family non-performing loans and $.3 million of new non-performing commercial loans. Total non- performing loans amounted to .36%, .31% and .86% of total assets at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. At March 31, 1996, the allowance for loan losses was $6.9 million, compared to $6.4 million at September 30, 1995 and $11.8 million at March 31, 1995. The allowance for loan losses as a percentage of non-performing loans was 121.8% at March 31, 1996 compared to 130.8% at September 30, 1995 and 91.9% at March 31, 1995. Charge-offs net of recoveries for the six months ended March 31, 1996 were $.1 million compared to $1.1 million for the six months ended March 31, 1995. In addition, total non-performing assets decreased from $19.6 million, or 1.3% of total assets, at March 31, 1995 to $8.1 million, or .51% of total assets, at March 31, 1996. Non- performing assets were $7.4 million, or .47% of total assets, at September 30, 1995. OTHER OPERATING INCOME For the three months ended March 31, 1996 the Bank reported other operating income of $898,000 compared to $693,000 for the comparable period in fiscal 1995. The increase in other operating income was primarily due to profits of $407,000 on sales of mortgage-backed securities available for sale as compared to a profit of $169,000 on the redemption of an investment security during the second quarter of fiscal 1995. For the six months ended March 31, 1996, other operating income totalled $4.5 million, compared to $1.1 million for the comparable period in fiscal 1995. This was primarily due to the $3.3 million increase in gains on sales and redemptions of securities available for sale during the six months ended March 31, 1996. OTHER OPERATING EXPENSES The Bank's total other operating expenses decreased $.2 million to $5.8 million for the three months ended March 31, 1996 compared to the three months ended March 31, 1995. This decrease was primarily the result of a $.7 million decrease in deposit insurance premiums, which was partially offset by a $.1 million increase in OREO expense, net and a $.2 million increase in other operating expenses - other, which increase was primarily the result of higher advertising costs. Effective January 1, 1996, the Bank's deposit insurance premiums were reduced to $2,000 per year. The Bank continues its effort to maintain strong control over other operating expenses as evidenced by the Bank's efficiency ratio (which is operating expense before net OREO expense as a percentage of net interest income, customer service fees and other income, excluding gains and losses) of 43.6% for the quarter ended March 31, 1996. Total other operating expenses decreased $.7 million for the six month period ended March 31, 1996 over the comparable period in fiscal 1995. This decrease was primarily the result of a $1.3 million decrease in deposit insurance premiums which was partially offset by a $.6 million increase in other operating expenses - other, which increase was primarily the result of higher advertising costs. PROVISION FOR INCOME TAXES Provisions for income taxes of $3.1 million and $2.8 million were made for the three month periods ended March 31, 1996 and 1995, respectively. The increase was due to the $1.0 million increase in income before provision for income taxes for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. Provisions for income taxes of $7.4 million and $5.6 million were made for the six month periods ended March 31, 1996 and 1995, respectively. The increase was due to the increase of $4.7 million in income before provision for income taxes for the six months ended March 31, 1996 compared to the six months ended March 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The liquidity of North Side's operations, measured by the ratio of daily average balances for the quarter of cash and cash equivalents (not committed, pledged, or required to liquidate specific liabilities) to the sum of net withdrawable deposits and borrowings payable within one year, averaged 6.85% for the twelve months ended March 31, 1996 compared to 2.36% for the twelve months ended March 31, 1995. North Side's primary sources of funds have consisted of deposits, amortization and prepayments of outstanding loans and mortgage-backed securities and bond maturities. At March 31, 1996, total approved loan commitments amounted to $15.4 million. The amount of time deposits which are scheduled to mature during the twelve months ending March 31, 1997 is $352.4 million. Based on past experience, management expects that a substantial portion of these maturing deposits will be redeposited at North Side. At March 31, 1996, shareholders' equity equaled $122.3 million or 7.74% of total assets, compared to $116.3 million or 7.32% of total assets at September 30, 1995. The FDIC has issued regulations that require insured banks, such as North Side, to maintain minimum levels of capital. The FDIC's leverage ratio requirements require core capital equal to 3% for the most highly rated banks. Other banks are required to maintain ratios 100 to 200 basis points higher based on their particular circumstances. At March 31, 1996, the Bank's leverage ratio was 7.69%. The Bank also is required to maintain minimum capital levels based upon a weighting of its assets according to risk. The Bank was required to maintain a ratio of qualifying total capital to risk-weighted assets and off-balance sheet items of a minimum of 8%. At least one-half of that amount must be Tier I or Core Capital and up to one-half of total capital can consist of Tier II or supplementary capital. On March 31, 1996, the Bank's Tier I capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio, calculated under the FDIC risk-based capital requirement, were 17.54% and 18.53%, respectively. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH SIDE SAVINGS BANK Date: May 10, 1996 /s/ Thomas M. O'Brien _______________________________ Thomas M. O'Brien President and Chief Executive Officer Date: May 10, 1996 /s/ Donald C. Fleming _______________________________ Donald C. Fleming Executive Vice President and Chief Financial Officer EX-99 5 EXHIBIT 99.4 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 Form F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996 FDIC Insurance Certificate No. 16007 North Side Savings Bank (Exact name of bank as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 13-1723204 (IRS Employer Identification No.) 170 Tulip Avenue, Floral Park, New York (Address of principal executive offices) 11001 (Zip code) (516) 488-6900 (Bank's telephone number, including area code) Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the bank's classes of common stock, as of the latest practicable date: Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, par value $1.00 per share. Number of shares outstanding at August 1, 1996: 4,833,997 NORTH SIDE SAVINGS BANK INDEX Item 1. Financial Statements Page No. Consolidated Statements of Condition, June 30, 1996 and September 30, 1995 1 Consolidated Statements of Income, Three and Nine Months Ended June 30, 1996 and 1995 2 Consolidated Statements of Changes in Shareholders' Equity, Nine Months Ended June 30, 1996 and 1995 3 Consolidated Statements of Cash Flows, Nine Months Ended June 30, 1996 and 1995 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CONDITION (Dollars in thousands) June 30, September 30, 1996 1995 (Unaudited) ASSETS: Cash and due from banks $ 12,530 $ 11,530 Money market investments 3,648 29,456 Loans held for sale 1,530 _ Securities available for sale: Bonds and Equities 5,102 26,520 Mortgage-backed securities 348,639 300,022 Total securities available for sale 353,741 326,542 Investment securities, net (esti- mated market value of $24,937 and $92,460, respectively) 24,754 93,301 Federal Home Loan Bank of NY stock, at cost 9,685 9,430 Mortgage-backed securities, net (estimated market value of $640,223 and $642,864, respectively) 653,458 651,153 Loans 561,269 432,180 Less allowance for loan losses 5,604 6,417 Loans, net 555,665 425,763 Accrued interest receivable 12,047 13,230 Premises and equipment, net 14,859 15,215 Other real estate owned, net of allowance of $.6 million and $1.1 million, respectively 2,320 2,515 Other assets 10,387 9,868 Total assets $ 1,654,624 $ 1,588,003 LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits $ 1,225,179 $ 1,199,077 Mortgagors' escrow payments 3,032 4,607 Borrowed funds 286,000 251,000 Other liabilities 16,882 17,035 Total Liabilities 1,531,093 1,471,719 Shareholders' Equity: Preferred stock, par value $1.00 per share, 5,000,000 shares authorized, none outstanding -- -- Common stock, par value $1.00 per share, 10,000,000 shares authorized, 4,833,997 and 4,798,022 shares issued and outstanding at June 30, 1996 and September 30, 1995, respectively 4,834 4,798 Paid-in capital 63,567 62,985 Surplus fund 24,101 24,101 Undivided profits 33,824 22,606 Net unrealized (depreciation) appre- ciation on securities available for sale, net of income taxes (2,329) 2,360 Unearned portion of incentive compensation (466) (566) Total shareholders' equity 123,531 116,284 Total liabilities and share- holders' equity $ 1,654,624 $ 1,588,003 See accompanying notes to consolidated financial statements. NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 Interest Income: Mortgage loans $ 8,631 $ 9,007 $ 25,347 $ 26,698 Mortgage-backed securities 16,493 14,551 49,671 43,125 Investment securities 1,450 2,503 4,196 7,068 Money market investment 686 132 2,628 206 Other loans 166 160 444 467 Total interest income 27,426 26,353 82,286 77,564 Interest Expense: Deposits and mortgage escrow accounts 11,303 10,501 34,426 29,183 Borrowings 3,437 3,401 10,136 10,396 Total interest expense 14,740 13,902 44,562 39,579 Net interest income 12,686 12,451 37,724 37,985 Provision for loan losses 200 750 700 2,450 Net interest income after provision for loan losses 12,486 11,701 37,024 35,535 Other Operating Income: Net gain (loss) on sale of other real estate owned 564 46 554 (109) Net gain on sales and redemptions of securities 103 142 3,596 311 Customer service fees 497 496 1,427 1,497 Other 37 325 83 430 Total other operating income 1,201 1,009 5,660 2,129 Other Operating Expense: Compensation and benefits 2,714 2,693 8,214 8,138 Occupancy and equipment 892 852 2,673 2,528 BIF deposit insurance premiums - 672 116 2,134 OREO expense, net 187 101 386 324 Other 1,789 1,654 5,634 4,942 Total other operating expense 5,582 5,972 17,023 18,066 Income before provision for income taxes 8,105 6,738 25,661 19,598 Provision for income taxes 3,407 2,900 10,831 8,474 Net income $ 4,698 $ 3,838 $ 14,830 $ 11,124 Net income per share (a) $ .94 $ .80 $ 2.98 $ 2.32 (a) Based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding of 5,000,200 and 4,981,781 for the three and nine month periods ended June 30, 1996 and the weighted average number of shares of common stock outstanding of 4,791,886 and 4,780,628 for the three and nine month periods ended June 30, 1995, respectively. See accompanying notes to consolidated financial statements. NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands) (Unaudited) Unrealized Unallocated Unrealized Apprecia- Shares in Depreciation tion (Depre- Management On Certain tion) on Develop- Unearned Marketable Securities ment & Re- Portion of Common Paid-In Surplus Undivided Equity Available cognition Incentive Stock Capital Fund Profits Securities For Sale Plan Compensation Total - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal 1995 Balance at September 30, $ 4,541 $57,281 $24,101 $15,952 $ (436) $ - $ (416) $ (25) $100,998 1994 Net Income - - - 11,124 - - - - 11,124 Prorated portion of Manage- ment Development and Recog- nition Plan awards earned by grantees - - - - - - - 91 91 Awarded 36,506 common shares from Management Development and Recognition Plan at $18.25 per share, market value on date of grant - 250 - - - - 416 (666) - Payment of 401(k) contribu- tion 16 286 - - - - - - 302 Distribution of 5% stock dividend 227 4,440 - (4,667) - - - - - Payment of $.475 per share cash dividend - - - (2,250) - - - - (2,250) Dividend Reinvestment 2 27 - - - - - - 29 Exercise of stock options for 7,337 shares of Common Stock 7 80 - - - - - - 87 Decrease in unrealized depre- ciation on certain market- able equity securities - - - - 436 - - - 436 Unrealized appreciation on securities available for sale, net of taxes - - - - - 1,407 - - 1,407 ------- ------- --------- -------- ------- -------- -------- -------- -------- Balance at June 30, 1995 $ 4,793 $62,364 $24,101 $ 20,159 $ - $ 1,407 $ - $ (600) $ 112,224 ======= ======= ======== ======== ======= ======== ======== ======== ========= Fiscal 1996 Balance at September 30, 1995 $ 4,798 $62,985 $24,101 $ 22,606 $ - $ 2,360 $ - $ (566) $ 116,284 Net Income - - - 14,830 - - - - 14,830 Payment of $.75 per share cash dividend - - - (3,612) - - - - (3,612) Dividend Reinvestment 1 38 - - - - - - 39 Prorated portion of Manage- ment Development and Recognition Plan awards earned by grantees - - - - - - - 100 100 Payment of 401(k) contri- bution 11 298 - - - - - - 309 Exercise of stock options for 24,043 shares of Common Stock 24 246 - - - - - - 270 Decrease on unrealized appre- ciation on securities available for sale, net of taxes - - - - - (4,689) - - (4,689) _______ _______ _______ ________ ________ _________ ________ ________ __________ Balance at June 30, 1996 $ 4,834 $63,567 $24,101 $ 33,824 $ - $ (2,329) $ - $ (466) $ 123,531 ======= ======= ======= ======== ======== ========= ======== ======== ========= See accompanying notes to consolidated financial statements.
NORTH SIDE SAVINGS BANK CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) ______________________________________________________________________________ NINE MONTHS ENDED JUNE 30, 1996 1995 ______________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 14,830 $ 11,124 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,094 985 Provision for possible loan and real estate losses 819 2,670 Amortization of premium, accretion of (discount), net 3,420 3,707 Net gain on sales of securities (3,596) (311) Net (gain) loss on sale of OREO (554) 109 401(k) contribution 309 222 Decrease in accrued interest receivable 1,183 (481) Decrease in other assets 3,300 3,982 Decrease in other liabilities (153) (1,975) Other, net 480 7 _______________________________________________________________________________ NET CASH PROVIDED BY OPERATING ACTIVITIES 21,132 20,039 - ------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and redemp- tions of investment securities 76,003 2,070 Proceeds from principal repayments of investment securities 8,903 3,867 Purchase of securities available for sale (213,386) (159,597) Purchase of investment securities (16,377) (10,273) Proceeds from principal repayments, maturities and redemptions of securities available for sale 138,925 37,404 Proceeds from principal repayment of mortgage-backed securities 50,772 53,869 Proceeds from sales of securities available for sale 174,724 -- Purchase of mortgage-backed securities (188,291) (48,320) Purchase of FHLBNY Stock (255) (9,430) Proceeds from loan repayments and satisfactions 43,225 37,507 Proceeds from loans sold 734 3,697 Loan purchases and originations (177,234) (5,339) Proceeds from sales of OREO 830 2,405 Capital expenditures (737) (613) ______________________________________________________________________________ NET CASH USED IN INVESTING ACTIVITIES (102,164) (92,753) ______________________________________________________________________________ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposit accounts, net 26,102 (30,169) Receipt of borrowed funds 218,000 966,500 Repayment of borrowed funds (183,000) (854,375) Disbursement of mortgage escrow (net) (1,575) (899) Proceeds from exercise of stock options 270 87 Cash dividend paid on common stock, net of dividend reinvestment (3,573) (2,221) ______________________________________________________________________________ NET CASH PROVIDED BY FINANCING ACTIVITIES 56,224 78,923 ______________________________________________________________________________ Net (decrease) increase in Cash and Cash Equivalents (24,808) 6,209 Cash and Cash Equivalents at Beginning of Period 40,686 13,333 ______________________________________________________________________________ Cash and Cash Equivalents at End of Period $ 15,878 $ 19,542 ============================================================================== SUPPLEMENTAL INFORMATION: Cash paid during period for: Interest $ 45,521 $ 40,009 Income taxes 7,796 4,537 Additions to OREO 206 447 ============================================================================== See accompanying notes to consolidated financial statements NORTH SIDE SAVINGS BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (Unaudited) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the Bank's financial condition as of June 30, 1996 and the results of operations, changes in shareholders' equity and cash flows for the periods presented. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the period. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. It is the general policy of the Bank to obtain independent appraisals for significant loans every three years. However, as a matter of general practice, management obtains more frequent appraisals as it deems necessary on significant troubled loans and other real estate owned. Other real estate owned includes real estate acquired in connection with foreclosures or by deed- in-lieu of foreclosure (collectively, "OREO"). The Bank's loan portfolio is varied as to type, geographic location, borrower concentration, and fixed or adjustable-rate mortgages. At June 30, 1996 approximately $422.1 million of the Bank's real estate loans were secured by properties located in New York and, as such, a substantial portion of the Bank's borrowers' ability to honor their contracts and increases or decreases in market value of the real estate collateralizing such loans may be significantly affected by the level of economic activity in New York. The Bank believes that the allowances for loan losses and OREO losses are adequate. While the Bank uses available information to recognize losses on loans and estimate the fair value of OREO, future additions to the allowances for loan losses and OREO may be necessary based on, among other things, changes in economic conditions in the region. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and the net carrying value of OREO. Such agencies may require the Bank to recognize additions to the allowance or reductions in net carrying values based on their judgments about information available to them at the time of their examination. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form F-4. The financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Bank's Annual Report to Stockholders for the year ended September 30, 1995 and in the related Annual Report on Form F-2 for the year ended September 30, 1995. NOTE 2 - CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash and amounts due from banks including Federal Home Loan Bank overnight deposits, the Federal Home Loan Bank balance, and Federal funds sold. Generally, Federal funds are sold for one-day periods. NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARD Effective October 1, 1995, the Bank adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These statements prescribe recognition criteria for loan impairment, generally related to commercial type loans, and measurement methods for certain impaired loans and all loans whose terms are modified in troubled debt restructurings subsequent to the adoption of these statements. Loans are identified as impaired when it is probable that all amounts of principal and interest due will not be collected according to the original contractual terms of the loan agreement. The adoption of these standards had no effect on the financial statements. As a result of the adoption of SFAS No. 114, the allowance for possible loan losses related to impaired loans that are identified for evaluation in accordance with SFAS No. 114 is based on the present value of expected cash flows discounted at the loans' initial effective interest rate, except that as a practical expedient, impairment may be measured at the loans' observable market price, or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral. The Bank considers estimated cost to sell when determining the fair value of collateral in the measurement of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loans. SFAS No. 114 also amends SFAS No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings," by requiring creditors to measure all loans that are restructured in a troubled debt restructuring (subsequent to September 30, 1995) in accordance with the criteria of SFAS No. 114. Loans which were restructured prior to the adoption of SFAS No. 114 and are performing in accordance with their restructured terms are not considered impaired and continue to be accounted for under SFAS No. 15. Prior to the adoption of SFAS No. 114, OREO included both formally foreclosed and in-substance foreclosed real properties, which properties included those where the borrower had little or no equity in the property considering its fair value; where repayment was only expected to come from the operation or sale of the property; and where the borrower had effectively abandoned control of the property or it was doubtful that the borrower would be able to rebuild equity in the property. SFAS No. 114 requires that a loan be classified as an in-substance foreclosure only when the Bank has taken possession of the collateral property regardless of whether formal foreclosure proceedings have taken place. The Bank did not have any in-substance foreclosed properties included in OREO at June 30, 1996 or September 30, 1995. SFAS No. 118 amended SFAS No. 114 and allows creditors to continue to use existing accounting methods for recognizing interest income on impaired loans and requires certain related disclosures. Cash receipts on impaired loans are generally recorded as principal repayments or interest income according to the terms of the loan agreement. At June 30, 1996, the recorded investment in loans that are considered impaired under SFAS No. 114 totaled $.6 million. None of these impaired loans require a related allowance for loan losses. The average recorded investment in impaired loans during the three and nine months ended June 30, 1996 was approximately $1.6 million and $2.2 million, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL North Side Savings Bank ("North Side" or the "Bank") is a New York State chartered, stock savings bank which was chartered in 1905. North Side's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the full extent permissible by law and regulation. As of June 30, 1996, the Bank conducted business from seventeen full-service banking offices in the Bronx, Queens, Nassau and Suffolk Counties, New York. North Side had total assets of $1.65 billion at June 30, 1996, and shareholders' equity at such date of $123.5 million, which constituted 7.47% of total assets. The Bank entered into an Agreement and Plan of Merger dated as of July 15, 1996 (the "Merger Agreement"), with North Fork Bancorporation, Inc., a Delaware corporation ("North Fork"), pursuant to which North Side will be merged with and into a wholly-owned subsidiary of North Fork (the "Merger"). Pursuant to the Merger Agreement, each share of the common stock, par value $1.00 per share ("North Side Common Stock"), of North Side outstanding on the date of the Merger, with certain exceptions, will be converted into the right to receive 1.556 shares (the "Exchange Ratio") of common stock, par value $2.50 per share, of North Fork ("North Fork Common Stock"). If the "Average Closing Price" (as defined below) is less than $24.00, North Side may, at its option, terminate the Merger Agreement unless North Fork agrees to increase the Exchange Ratio such that the shares of North Fork Common Stock issued in exchange for each share of North Side Common Stock have a value (valued at the Average Closing Price) of at least $37.34. The Average Closing Price is defined as the average closing sales price of North Fork Common Stock on the New York Stock Exchange for the 10 consecutive trading days ending on the 5th business day prior to the date on which approval of the Merger by the Board of Governors of the Federal Reserve Board is obtained, without regard to any requisite waiting period in respect thereof. Consummation of the Merger is subject to certain conditions, including, but not limited to, approval of the Merger Agreement by the stockholders of North Side, approval by the stockholders of North Fork of the issuance of shares of North Fork Common Stock to the stockholders of North Side pursuant to the Merger Agreement and the receipt of all required regulatory approvals, and is expected to close in January 1997. As a condition to the execution and delivery of the Merger Agreement, North Fork and North Side entered into a stock option agreement, dated as of July 15, 1996, pursuant to which North Side granted North Fork an option to purchase up to 961,965 shares of North Side Common Stock at a purchase price of $34.75 per share, subject to adjustment. The option will become exercisable upon the occurrence of certain events described therein, none of which has occurred as of the date hereof. At its meeting held July 16, 1996, the Board of Directors of North Side declared a quarterly cash dividend of $.25 per share payable on August 15, 1996 to shareholders of record on July 25, 1996. North Side is subject to examination and comprehensive regulation by the New York State Banking Department, which is its primary regulator, and by the FDIC. The Bank is subject to further regulation of the Federal Reserve Board governing reserves required to be maintained against deposits and certain other matters. The Bank's common stock is traded over the counter and quotations for trades of the Bank's common stock are included on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol "NSBK." FINANCIAL CONDITION The Bank's total assets amounted to $1.65 billion at June 30, 1996 as compared to $1.59 billion at September 30, 1995. This change of $66.6 million is comprised primarily of increases in mortgage-backed securities available for sale of $48.6 million, and loans, net of $129.9 million, partially offset by decreases in money market investments of $25.8 million, bonds and equities available for sale of $21.4 million and investment securities, net of $68.5 million. During the first quarter of fiscal 1996, the Bank took advantage of the one-time opportunity granted by the FASB to reassess the appropriateness of its classification of all securities under SFAS No.115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, the Bank reclassified $134.0 million of mortgage-backed securities from held to maturity to available for sale at an unrealized depreciation of $.1 million, net of income taxes, at the time of transfer. The increase of $48.6 million in mortgage backed securities available for sale is due to the transfer described above of $134.0 million and subsequent purchases of $143.2 million. These additions were partially offset by $138.0 million of securities sold at a profit of $.7 million, $82.7 million of principal repayments and a $5.6 million decrease in net unrealized appreciation on these securities for the nine months ended June 30, 1996. The increase in loans, net of $129.9 million was primarily due to the purchases of $147.2 million of residential mortgage loans located predominantly in the Bank's market area and $14.3 million of multi-family mortgage loans, all of which are located in the Bank's market area. In addition, the Bank also originated $15.7 million of loans during the nine months ended June 30, 1996. These increases in the loan portfolio were partially offset by $43.2 million of loan amortizations and satisfactions. The decrease of $21.4 million in bonds and equities available for sale was due predominantly to the sale of $89.1 million of securities at a net realized gain of $2.9 million during the nine months ended June 30, 1996. These sales were offset somewhat by purchases of $70.2 million in this portfolio during the same time period. Investment securities, net decreased $68.5 million primarily due to $76.0 million of Federal Home Loan Bank bonds being called during the Bank's first fiscal quarter and $8.9 million of principal repayments that were partially offset by purchases of $16.4 million. The $25.8 million decrease in money market investments was due to management's decision to redirect funds to higher yielding funds as part of the Bank's general investment strategy. Total liabilities increased $59.4 million to $1.53 billion at June 30, 1996. This change was driven predominantly by an increase of $26.1 million in deposits and a $35.0 million increase in borrowings. The increase in borrowings occurred in the latter part of the current fiscal quarter and is consistent with the Bank's overall asset/liability management strategy to leverage its capital base at favorable re-investment spreads when considered appropriate to do so by Bank management. Shareholders' equity increased $7.2 million for the nine months ended June 30, 1996, primarily because of the $14.8 million in net income for the period, which was partially offset by a decrease of $4.7 million in net unrealized appreciation on securities available for sale, net of income taxes and $3.6 million of cash dividends paid. RESULTS OF OPERATIONS For the three and nine months ended June 30, 1996, the Bank reported net income of $4.7 million or $.94 per share, and $14.8 million, or $2.98 per share, respectively, compared to $3.8 million or $.80 per share, and $11.1 million, or $2.32 per share, for the same respective periods in the prior year. The $.9 million increase in earnings for the third quarter of fiscal 1996 compared to the third quarter of fiscal 1995 was due primarily to a $.6 million reduction in the provision for loan losses, a $.5 million improvement in net gain on sales of OREO and lower operating expenses of $.4 million. These improvements were partially offset by an increase of $.5 million in the provision for income taxes. Net interest income before the provision for possible loan losses increased $.2 million to $12.7 million for the third quarter of fiscal 1996 compared to the third fiscal quarter of 1995. This increase was primarily due to an increase in the ratio of average interest-earning assets to average interest- bearing liabilities from 1.05% at June 30, 1995 to 1.07% at June 30, 1996. Offsetting this increase in this ratio to some extent was a decrease in the Bank's interest rate spread from 3.18% for the quarter ended June 30, 1995 to 2.98% for the quarter ended June 30, 1996. The Bank's interest rate spread for the quarter ended March 31, 1996 was 2.99%. The Bank's net interest margin for the quarter ended June 30, 1996 was 3.26% compared to 3.41% for the same quarter of the prior year. Net income increased $3.7 million for the nine months ended June 30, 1996 compared to the nine months ended June 30, 1995. This increase was caused primarily by a $1.8 million lower provision for loan losses, a $.7 million decrease in net loss on sales of OREO, a $3.3 million increase in net gains on sales and redemption of securities and a $1.0 million decrease in operating expenses. These were partially offset by an increase of $2.4 million in the provision for income taxes. INTEREST INCOME AND EXPENSE Aggregate interest income on mortgage loans decreased from $9.0 million for the three months ended June 30, 1995 to $8.6 million for the three months ended June 30, 1996. The decrease was due to a $19.0 million decrease in the average balance of mortgage loans during the third quarter of fiscal 1996 compared to the same period in fiscal 1995, which was partially offset by a slight 2 basis point increase in the average yield earned from 7.96% during the three months ended June 30, 1995 to 7.98% for the three months ended June 30, 1996. Interest income on mortgage loans for the nine months ended June 30, 1996 decreased $1.4 million from $26.7 million for the nine months ended June 30, 1995 to $25.3 million for the nine months ended June 30, 1996. The decrease was attributable to a decrease in the average balance of such loans of $42.7 million, which was partially offset by an increase of 35 basis points in the yield from 7.66% during the nine months ended June 30, 1995 to 8.01% during the nine months ended June 30, 1996. Interest income from mortgage-backed securities increased $1.9 million to $16.5 million for the three month period ended June 30, 1996 compared to the same period in fiscal 1995. The increase was attributable to a $115.1 million increase in the average balance of mortgage-backed securities for the three month period ended June 30, 1996 compared to the three month period ended June 30, 1995, which was partially offset by a 1 basis point decrease in average yield earned during the fiscal 1996 period compared to the fiscal 1995 period. Interest income on mortgage-backed securities for the nine months ended June 30, 1996 increased $6.5 million to $49.7 million for the nine months ended June 30, 1996. The increase was primarily due to a $108.4 million increase in the average balance of such securities for the nine months ended June 30, 1996 compared to the nine months ended June 30, 1995 along with a 15 basis point increase in the average interest rate earned from 6.72% for the nine months ended June 30, 1995 compared to 6.87% for the nine months ended June 30, 1996. Interest income on investment securities decreased $1.1 million for the three month period ended June 30, 1996 compared to the same period in fiscal 1995. The average balance of investment securities decrease $42.8 million and the average yield earned decreased 123 basis points from 6.86% for the three months ended June 30, 1995 to 5.63% for the three months ended June 30, 1996. Interest income on investment securities for the nine months ended June 30, 1996 decreased $2.9 million to $4.2 million. The average balance of such securities decreased $51.2 million for the nine months ended June 30, 1996 compared to the same period in fiscal 1995 and the average interest rate earned decreased 40 basis points to 6.38% for the nine months ended June 30, 1996 from 6.78% for the same period in fiscal 1995. Interest income on money market investments increased by $.6 million for the three months ended June 30, 1996 compared to the three months ended June 30, 1995. The increase was primarily due to a $44.6 million increase in the average balance of money market investments which was partially offset by a 139 basis point decrease in yield to 5.22% during the third quarter of fiscal 1996 compared to 6.61% for the same period in fiscal 1995. For the nine months ended June 30, 1996 compared to the same period in fiscal 1995, interest income on money market investments increased $2.4 million due to an increase in average balance of $60.6 million which was partially offset by a decrease in average yield earned on such balances of 70 basis points to 5.38% for the nine month period in fiscal 1996 compared to 6.08% for the nine month period in fiscal 1995. Interest expense on deposits and mortgage escrow accounts increased $.8 million to $11.3 million for the three month period ended June 30, 1996 compared to the same period in fiscal 1995. This increase was due to an increase in the average cost of deposits and mortgage escrow accounts of 7 basis points to 3.68% during the third quarter of fiscal 1996 compared to 3.61% for the third quarter of fiscal 1995, along with an increase of $66.4 million in the average balance of deposits. Interest expense on deposits and mortgage escrow accounts increased $5.2 million for the nine months ended June 30, 1996 compared to fiscal 1995, primarily due to an increase of 40 basis points in the average rates paid on such deposits to 3.74% for the nine month period ended June 30, 1996 along with a $56.8 million increase in the average balance of such deposits. The increase in the average balances was primarily due to the purchase of two branch locations during the fourth quarter of fiscal 1995. Interest expense on borrowings remained constant at $3.4 million for the third quarters of both fiscal 1996 and fiscal 1995. An increase in the average balance of $9.7 million to $228.5 million during the current fiscal quarter compared to the same period a year ago was offset by a decrease in the average cost of borrowings of 20 basis points during the same period. The average cost of borrowings for the quarter ended June 30, 1996 was 5.95%. Interest expense on borrowings decreased $.3 million for the nine months ended June 30, 1996 as compared to the same period in fiscal 1995 due to a decrease of $7.1 million in the average balance of borrowings which was partially offset by a 1 basis point increase in the average cost of borrowings to 6.05% during the fiscal 1996 period. PROVISION FOR LOAN LOSSES The provision for loan losses is based on management's periodic evaluation of the adequacy of the allowance for loan losses, which is based on a review of the loan portfolio. Such reviews are performed by a loan review committee of the Bank on a quarterly basis. The committee considers, among other things, the borrower's ability to repay, the estimated value of collateral, general economic conditions, conditions in the real estate market in the Bank's lending areas, past loss experience and the level of non-performing loans. As a result of management's evaluation of the adequacy of the allowance for loan losses, which considered, among other things, the significant decrease in the ratio of non-performing loans to total loans at June 30, 1996 compared to June 30, 1995 and the continued high credit quality of the Bank's loan portfolio, the Bank deemed it appropriate to reduce the level of provisions for loan losses to $700,000 in the first nine months of fiscal 1996 as compared to $2.5 million in the first nine months of fiscal 1995. The Bank's level of non-performing loans decreased to $3.1 million at June 30, 1996 compared to $5.2 million at June 30, 1995. Non-performing loans were $4.9 million at September 30, 1995. The decrease in non-performing loans at June 30, 1996 compared to September 30, 1995 was mainly attributable to the repayment of a $1.5 million non-performing land loan which resulted in a recovery of $.2 million to the allowance for loan losses. Total non-performing loans amounted to .18%, .31% and .32% of total assets at June 30, 1996, September 30, 1995 and June 30, 1995, respectively. At June 30, 1996, the allowance for loan losses was $5.6 million, compared to $6.4 million at September 30, 1995 and $6.0 million at June 30, 1995. The allowance for loan losses as a percentage of non-performing loans was 183.5% at June 30, 1996 compared to 130.8% at September 30, 1995 and 114.8% at June 30, 1995. Charge-offs net of recoveries for the nine months ended June 30, 1996 were $1.5 million compared to $7.6 million for the nine months ended June 30, 1995. During the quarter ended June 30, 1996, the Bank took charge-offs of $1.6 million in connection with the transfer of certain marginally performing and non- performing commercial real estate loans to loans held for sale. These loans are carried in loans held for sale at $1.5 million which represents the anticipated net realizable value. In addition, total non-performing assets decreased from $11.3 million, or .69% of total assets, at June 30, 1995 to $5.4 million, or .32% of total assets, at June 30, 1996. Non- performing assets were $7.4 million, or .47% of total assets, at September 30, 1995. OTHER OPERATING INCOME Other operating income was $1.2 million for the three months ended June 30, 1996 compared to $1.0 million for the same period in fiscal 1995. The increase of $.2 million was primarily due to a $.5 million increase in net gains from the sale of OREO, offset by a decrease in other income of $.3 million. For the nine months ended June 30, 1996, other operating income totaled $5.7 million compared to $2.1 million for the same period of fiscal 1995. The increase of $3.6 million was predominantly due to the $3.3 million increase in net gains realized on securities sales and redemptions during the nine months ended June 30, 1996. OTHER OPERATING EXPENSES The Bank's total other operating expenses amounted to $5.6 million for the quarter ended June 30, 1996, a decrease of $.4 million compared to $6.0 million for the same quarter of the prior year. This decrease was primarily the result of a $.7 million decrease in deposit insurance premiums, which was partially offset by increases in OREO expense, net of $.1 million and $.1 million in other operating expenses - other. The Bank's efficiency ratio (which is operating expense before net OREO expense as a percentage of net interest income, customer service fees and other income, excluding gains and losses) was 40.8% for the quarter ended June 30, 1996 and is evidence of the Bank's continuing effort to maintain strong control over operating expenses. Total other operating expenses decreased $1.0 million for the nine month period ended June 30, 1996 over the comparable period in fiscal 1995. This decrease was primarily due to a $2.0 million decrease in deposit insurance premiums which was partially offset by a $.7 million increase in other operating expenses - other, which increase was primarily the result of higher advertising costs. PROVISION FOR INCOME TAXES Provisions for income taxes of $3.4 million and $2.9 million were made for the three month periods ended June 30, 1996 and 1995, respectively. The increase was due to the $1.4 million increase in income before provision for income taxes for the quarter ended June 30, 1996 compared to the quarter ended June 30, 1995. Provisions for income taxes of $10.8 million and $8.5 million were made for the nine month periods ended June 30, 1996 and 1995, respectively. The increase was due to the increase of $6.1 million in income before provision for income taxes for the nine months ended June 30, 1996 compared to the nine months ended June 30, 1995. LIQUIDITY AND CAPITAL RESOURCES The liquidity of North Side's operations, measured by the ratio of daily average balances for the quarter of cash and cash equivalents (not committed, pledged, or required to liquidate specific liabilities) to the sum of net withdrawable deposits and borrowings payable within one year, averaged 7.88% for the twelve months ended June 30, 1996 compared to 2.03% for the twelve months ended June 30, 1995. North Side's primary sources of funds have consisted of deposits, amortization and prepayments of outstanding loans and mortgage-backed securities and bond maturities. At June 30, 1996, total approved loan commitments amounted to $25.6 million. The amount of time deposits which are scheduled to mature during the twelve months ending June 30, 1997 is $353.2 million. Based on past experience, management expects that a substantial portion of these maturing deposits will be redeposited at North Side. At June 30, 1996, shareholders' equity equaled $123.5 million or 7.47% of total assets, compared to $116.3 million or 7.32% of total assets at September 30, 1995. The FDIC has issued regulations that require insured banks, such as North Side, to maintain minimum levels of capital. The FDIC's leverage ratio requirements require core capital equal to 3% for the most highly rated banks. Other banks are required to maintain ratios 100 to 200 basis points higher based on their particular circumstances. At June 30, 1996, the Bank's leverage ratio was 7.74%. The Bank also is required to maintain minimum capital levels based upon a weighting of its assets according to risk. The Bank was required to maintain a ratio of qualifying total capital to risk-weighted assets and off-balance sheet items of a minimum of 8%. At least one-half of that amount must be Tier I or Core Capital and up to one-half of total capital can consist of Tier II or supplementary capital. On June 30, 1996, the Bank's Tier I capital to risk-weighted assets ratio and total capital to risk- weighted assets ratio, calculated under the FDIC risk-based capital requirement, was 17.29% and 18.07%, respectively. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH SIDE SAVINGS BANK Date: August 9, 1996 /s/ Thomas M. O'Brien ______________________________ Thomas M. O'Brien President and Chief Executive Officer Date: August 9, 1996 /s/ Donald C. Fleming ______________________________ Donald C. Fleming Executive Vice President and Chief Financial Officer EX-99 6 EXHIBIT 99.5 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 FORM F-3 CURRENT REPORT Under Section 13 of the Securities Exchange Act of 1934 For the month of January, 1996 North Side Savings Bank (Exact name of bank as specified in charter) 170 Tulip Avenue, Floral Park, New York 11001 (Address of principal office) New York (State or other jurisdiction of incorporation or organization) 16007 (FDIC Certificate No.) 13-1723204 (IRS Employer Identification No.) (516) 488-6900 (Bank's telephone number, including area code) ITEM 9--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of North Side Savings Bank (the Bank ) was held on January 22, 1996. At the Meeting, the following nominees for director received the number of votes, and had the number of votes withheld, set forth opposite their names. Votes Votes For Withheld Irvin L. Cherashore 4,097,696 6,423 Greg L. Collins 4,066,085 38,033 Thomas M. O Brien 4,097,494 6,625 Thus, all the Bank s nominees were re-elected to serve as directors for three-year terms expiring in 1999. At the Annual Meeting, the following votes were cast in favor of and against, and abstained from voting upon, the ratification of the selection of KPMG Peat Marwick LLP as the independent auditors of the Bank for the fiscal year ending September 30, 1996: IN FAVOR: 4,096,321 AGAINST: 2,393 ABSTAIN 5,404 ITEM 13--FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Not applicable. (b) Exhibits None. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH SIDE SAVINGS BANK By: /s/ Thomas M. O Brien Thomas M. O'Brien Date: February 6, 1996 Chairman of the Board, President and Chief Executive Officer EX-99 7 EXHIBIT 99.6 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 FORM F-3 CURRENT REPORT Under Section 13 of the Securities Exchange Act of 1934 For the month of March, 1996 North Side Savings Bank (Exact name of bank as specified in charter) 170 Tulip Avenue, Floral Park, New York 11001 (Address of principal office) New York (State or other jurisdiction of incorporation or organization) 16007 (FDIC Certificate No.) 13-1723204 (IRS Employer Identification No.) (516) 488-6900 (Bank's telephone number, including area code) ITEM 12--OTHER MATERIALLY IMPORTANT EVENTS In accordance with the Bank s By-Laws, the Board of Directors of the Bank, at its meeting on March 18, 1996, increased the size of the Board to ten members, creating a vacancy in the class of directors whose terms expire at the Annual Meeting of Stockholders in January 1999. The Board elected Carmine M. Tenga of New York, New York, a former Acting Superintendent and Deputy Superintendent of the New York State Banking Department, as a director to fill such vacancy. ITEM 13--FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Not applicable. (b) Exhibits None. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH SIDE SAVINGS BANK By: /s/ Thomas M. O Brien Thomas M. O'Brien Date: April 1, 1996 Chairman of the Board, President and Chief Execu- tive Officer EX-99 8 EXHIBIT 99.7 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 ____________________ FORM F-3 CURRENT REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of April, 1996 NORTH SIDE SAVINGS BANK (Exact name of bank as specified in its charter) 170 Tulip Avenue Floral Park, New York (Address of principal office) New York 16007 13-1723204 (State or other jurisdiction (FDIC Certificate No.) (IRS Employer Identification No.) of incorporation or organization)
(516) 488-6900 (Bank's telephone number, including area code) ITEM 12. OTHER MATERIALLY IMPORTANT EVENTS. On April 15, 1996, the Board of Directors of North Side Savings Bank (the "Bank") adopted a shareholder rights plan pursuant to which rights will be distributed as a dividend at the rate of one right for each outstanding share of common stock, par value $1.00 per share, of the Bank held by stockholders of record at the close of business on April 30, 1996. The description and term of the rights are set forth in the Rights Agreement, dated as of April 18, 1996, between the Bank and American Stock Transfer and Trust Company, a New York corporation, as Rights Agent, which was filed as Exhibit 1 to the Bank's Registration Statement on Form F-10, dated April 24, 1996, and is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS. 1 Rights Agreement, dated as of April 18, 1996, between the Bank and American Stock Transfer and Trust Company, as Rights Agent, incorporated herein by reference to Exhibit 1 to the Bank's Registration Statement on Form F-10, dated April 24, 1996. 2 Press Release of the Bank dated April 18, 1996. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. NORTH SIDE SAVINGS BANK By: /s/ Thomas M. O'Brien Name: Thomas M. O'Brien Title: Chairman of the Board; President and Chief Executive Officer Date: May 1, 1996 EXHIBIT 2 NORTH SIDE SAVINGS BANK ADOPTS SHAREHOLDER RIGHTS PLAN North Side Savings Bank, (NASDAQ: NSBK), Floral Park, New York, April 18, 1996 - North Side Savings Bank announced today its Board of Directors adopted a Shareholder Rights Plan pursuant to which rights will be distributed as a dividend at the rate of one Right for each share of common stock, par value $1.00 per share, of the Bank held by shareholders of record as of the close of business on April 30, 1996. The Rights Plan is designed to deter abusive takeover tactics, including the accumulation of a significant amount of shares in the open market or through private transactions, and to prevent an acquiror from gaining control of the Bank without offering a fair price to all of the Bank's shareholders. On March 18, 1996, New York Bancorp, Inc. reported that it had acquired 7.84% of the Bank's common stock and was considering the possibility of seeking to obtain control of the Bank, including through the acquisition of additional shares of the Bank's common stock. North Side's Chairman and Chief Executive, Thomas M. O'Brien, has previously said in response to the New York Bancorp filing that North Side's Board of Directors would take appropriate action against an inappropriate stock accumulation by New York Bancorp. Each Right initially will entitle shareholders to buy one unit of a share of preferred stock for $100. The Rights will be exercisable only if a person or group acquires beneficial ownership of 10% or more of the Bank's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 10% or more of the Bank's common stock. If any person becomes the beneficial owner of 10% or more of the Bank's common stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Bank approved by a majority of the independent directors not affiliated with a 10%-or- more shareholder, then each Right not owned by a 10%-or- more shareholder or related parties will entitle its holder to purchase, at the Right's then current exercise price, shares of the Bank's common stock (or, in certain circumstances as determined by the Board, cash, other property, or other securities) having a value of twice the Right's then current exercise price. In addition, if after any person has become a 10%-or-more shareholder, the Bank is involved in a merger or other business combination transaction with another person in which the Bank does not survive or in which its common stock is changed or exchanged (other than a merger or other business combination that follows an offer described in the previous sentence and meets certain other requirements), or sells 50% or more of its assets or earning power to another person, each Right will entitle its holder to purchase, at the Right's then current exercise price, shares of common stock of such other person having a value of twice the Right's then current exercise price. The Bank will generally be entitled to redeem the Rights at $0.01 per Right at any time until 10 days (subject to extension) following a public announcement that a 10% position has been acquired. The Rights will expire on April 30, 2006. Contact: Thomas O'Brien, Chairman, Chief Executive Officer and President (516) 488-6900, Extension Judith A. MacGregor, Corporate Secretary (516) 488-6900, Extension 209 EX-99 9 EXHIBIT 99.8 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 FORM F-3 CURRENT REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE MONTH OF: JULY 1996 North Side Savings Bank (Exact name of bank as specified in its charter) 170 Tulip Avenue, Floral Park, New York 11001 (Address of principal executive offices) New York (State or other jurisdiction of incorporation or organization) 16007 (FDIC Certificate No.) 13-1723204 (IRS Employer Identification No.) (516) 488-6900 (Bank's telephone number, including area code) ITEM 12 - OTHER MATERIALLY IMPORTANT EVENTS On July 15, 1996, North Side Savings Bank, a New York chartered stock form savings bank ("North Side"), announced that it had entered into an Agreement and Plan of Merger, dated as of July 15, 1996 (the "Merger Agreement"), with North Fork Bancorporation, Inc., a Delaware corporation ("North Fork"), pursuant to which a New York-chartered savings bank to be formed as a wholly owned subsidiary of North Fork will merge with and into North Side (the "Merger"), with North Side thereafter becoming a direct, wholly owned subsidiary of North Fork. Pursuant to the Merger Agreement, each share of the common stock, par value $1.00 per share ("North Side Common Stock"), of North Side outstanding on the date of the Merger (except for shares of North Side Common Stock held by North Side or North Fork or any of their subsidiaries (other than shares of North Side Common Stock (i) held directly or indirectly by North Fork or North Side or any of their respective subsidiaries in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity that are beneficially owned by third parties and (ii) held by North Fork or North Side or any of their respective subsidiaries in respect of a debt previously contracted) will be converted into the right to receive 1.556 shares (the "Exchange Ratio") of common stock, par value $2.50 per share, of North Fork ("North Fork Common Stock"). If the "Average Closing Price" (as defined below) is less than $24.00, North Side may, at its option, terminate the Merger Agreement unless North Fork agrees to increase the Exchange Ratio such that the shares of North Fork Common Stock issued in exchange for each share of North Side Common Stock have a value (valued at the Average Closing Price) of at least $37.34. The Average Closing Price is defined as the average closing sales price of North Fork Common Stock on the New York Stock Exchange for the 10 consecutive trading days ending on the 5th business day prior to the date on which approval of the Merger by the Board of Governors of the Federal Reserve Board is obtained, without regard to any requisite waiting period in respect thereof. The shares of North Fork Common Stock issued in the Merger will include the corresponding number of rights attached to such shares pursuant to North Fork's shareholder rights plan. No fractional shares of North Fork Common Stock will be issued in the Merger, and North Side stockholders who otherwise would be entitled to receive a fractional share of North Fork Common Stock will receive a cash payment in lieu thereof. Consummation of the Merger is subject to certain conditions, including, but not limited to, approval of the Merger Agreement by the stockholders of North Side, approval by the stockholders of North Fork of the issuance of shares of North Fork Common Stock to the stockholders of North Side pursuant to the Merger Agreement and the receipt of all required regulatory approvals. Following the Merger, the Board of Directors of North Fork will be expanded by two members and Mr. Thomas M. O'Brien, the Chairman, Chief Executive Officer and President of North Side, and an additional director of North Side selected by North Side and reasonably acceptable to North Fork will be appointed to such Board of Directors. Mr. O'Brien is also expected to serve as a Vice Chairman of the Board of Directors. As a condition to the execution and delivery of the Merger Agreement, North Fork and North Side entered into a stock option agreement, dated as of July 15, 1996 (the "Stock Option Agreement"), pursuant to which North Side granted North Fork an option to purchase up to 961,965 shares of North Side Common Stock at a purchase price of $34.75 per share, subject to adjustment. The option will become exercisable upon the occurrence of certain events described therein, none of which has occurred as of the date hereof. A copy of the Merger Agreement and the Stock Option Agreement are attached hereto as exhibits 1 and 2, respectively, and incorporated herein by reference in their entirety. The foregoing summaries of the Merger Agreement and the Stock Option Agreement do not purport to be complete and are qualified in their entirety by reference to such exhibits. The press release issued by North Fork and North Side with respect to the announcement of the transactions described herein is attached hereto as Exhibit 3 and is hereby incorporated herein by reference in its entirety. The press release incorporated herein by reference contains certain forward looking statements with respect to the financial condition, results of operations and business of North Fork following the consummation of the Merger, including statements relating to: (a) the cost savings and revenue enhancements that will be realized from the Merger and (b) projected 1997 earnings per share. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) expected cost savings or revenue enhancements from the Merger cannot be fully realized; (2) deposit attrition, customer loss or revenue loss following the Merger is greater than expected; (3) competitive pressure in the banking and financial services industry increases significantly; (4) changes in the interest rate environment reduce margins; and (5) general economic conditions, either nationally or in New York, are less favorable than expected. ITEM 13 - FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Not applicable. (b) Exhibits (1) Agreement and Plan of Merger, dated as of July 15, 1996, among North Fork Bancorporation, Inc., a New York-chartered savings bank to be formed as a wholly-owned subsidiary of North Fork Bancorporation, Inc. and North Side Savings Bank, excluding exhibits thereto. (2) Stock Option Agreement, dated as of July 15, 1996, between North Fork Bancorporation, Inc. and North Side Savings Bank. (3) Press release, dated July 15, 1996. SIGNATURES Under the requirements of the Securities Exchange Act of 1934, North Side Savings Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH SIDE SAVINGS BANK Date: July 24, 1996 By: /s/ Thomas M. O'Brien __________________________ Thomas M. O'Brien Chairman, President and Chief Executive Officer EX-99 10 EXHIBIT 99.9 - PROXY STATEMENT NORTH SIDE SAVINGS BANK NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 22, 1996 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of North Side Savings Bank, Floral Park, New York ("North Side" or the "Bank") will be held at The New York Helmsley Hotel, 212 East 42nd Street, New York, New York 10017 on Monday, January 22, 1996, at 10:00 a.m., Eastern Time, for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement: (1) To elect three directors for a term of three years or until their respective successors have been elected and qualified; (2) To ratify the appointment of KPMG Peat Marwick LLP as the Bank's independent auditors for the fiscal year ending September 30, 1996; and (3) To transact such other business as may properly come before the meeting or any adjournment thereof. Except with respect to procedural matters incident to the conduct of the meeting, management of North Side is not aware of any other matters which may properly come before the meeting. Stockholders of the Bank of record at the close of business on December 8, 1995 are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. BY ORDER OF THE BOARD OF DIRECTORS [SIGNATURE] Judith A. MacGregor Corporate Secretary Floral Park, New York December 22, 1995 YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE POSTAGE PAID ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO ITS EXERCISE. BOWNE CONVERSION NORTH SIDE SAVINGS BANK 170 TULIP AVENUE FLORAL PARK, NEW YORK 11001 (516) 488-6900 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS JANUARY 22, 1996 This Proxy Statement is furnished to the holders of common stock, $1.00 par value per share (the "Common Stock"), of North Side Savings Bank ("North Side" or the "Bank") in connection with the solicitation of proxies on behalf of the Board of Directors, to be used at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at The New York Helmsley Hotel, 212 East 42nd Street, New York, New York 10017 on Monday, January 22, 1996 at 10:00 a.m., Eastern Time, and at any adjournment thereof, for the purposes set forth in the Notice of Annual Meeting. This Proxy Statement is expected to be mailed to stockholders on or about December 26, 1995. All properly executed proxies received in time for the meeting and not revoked will be voted as specified. If no instructions are specified, the proxy will be voted FOR the slate of directors described herein, and FOR the ratification of KPMG Peat Marwick LLP as the Bank's independent auditors for the fiscal year ending September 30, 1996 and, upon the transaction of such other business as may properly come before the meeting, in the discretion of the person appointed as proxy. REVOCATION RIGHTS Any stockholder giving a proxy may revoke it at any time prior to the voting thereof by signing, dating and delivering a subsequent proxy or written notice to the Secretary of the Bank or by attending the Annual Meeting and notifying the Secretary of his or her intention to vote in person. Proxies solicited hereby may be exercised only at the Annual Meeting and any adjournment thereof and will not be used for any other meeting. If you are a stockholder whose shares are not registered in your own name, you will need additional documentation from your record holder to vote personally at the Annual Meeting. Examples of such documentation include a broker's statement, letter or other document that will confirm your ownership of Common Stock on the Voting Record Date. OUTSTANDING SHARES, VOTING RIGHTS AND QUORUM REQUIREMENTS Only stockholders of record at the close of business on December 8, 1995 ("Voting Record Date") will be entitled to vote at the Annual Meeting and at any adjournment thereof. At the close of business on the Voting Record Date, there were 4,802,679 shares of Common Stock of the Bank outstanding, and the Bank had no other class of equity securities outstanding. Each share of Common Stock is entitled to one vote with respect to matters to be voted on at the Annual Meeting and any adjournments thereof. The presence, either in person or by proxy, of the holders of a majority of the shares of Common Stock issued and outstanding as of the Voting Record Date is necessary to constitute a quorum at the Annual Meeting. The election of directors shall be by a plurality of votes cast by the holders of Common Stock present, in person or by proxy, and entitled to vote thereon. The holders of Common Stock may not vote their shares cumulatively with respect to the election of the directors. The ratification of the appointment of independent auditors and any other matters to properly come before the meeting require the affirmative vote of a majority of the votes cast by the holders of Common Stock present, in person or by proxy, and entitled to vote thereon. Abstentions will be counted for purposes of determining the presence of a quorum at the Annual Meeting but will not be counted as votes cast. Under the rules of the New York Stock Exchange, the proposals to elect directors and to ratify the appointment of KPMG Peat Marwick LLP as independent auditors for North Side are considered "discretionary" items upon which brokerage firms may vote in their discretion on behalf of their clients if such clients have not furnished voting instructions within ten days of the Annual Meeting, and for which there thus are not expected to be "broker non-votes." However, if there are any "broker non-votes," such shares will not be counted as present or as votes cast. Properly executed unmarked proxies will be voted FOR the election of the Board's nominees as directors, FOR the ratification of the appointment of the independent auditors and, as to any other business that may come before the Annual Meeting, at the discretion of the proxy holder. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the only stockholders known by the Bank to own beneficially or of record more than 5% of the Common Stock and the nature of their stockholdings. This information has been obtained from reports filed pursuant to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and regulations promulgated by the Federal Deposit Insurance Corporation (the "FDIC"), and reflects an adjustment for the Bank's 5% stock dividend paid March 1, 1995 (the "Stock Dividend"). Unless otherwise indicated, each stockholder listed in the table has sole voting and dispositive powers as of December 8, 1995 with respect to the shares owned beneficially or of record by such person. AMOUNT AND NATURE PERCENT TITLE OF NAME AND ADDRESS OF BENEFICIAL OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS Common First Manhattan Co. 279,574(1) 5.82% 437 Madison Avenue New York, New York 10022 Common FMR Corp. 466,440(2) 9.71 82 Devonshire Street Boston, Massachusetts 02109 (1) Information obtained from Amendment No. 8 to Schedule 13G, dated February 10, 1995, as adjusted to reflect the Stock Dividend. All shares are held on behalf of others. First Manhattan Co. claims sole dispositive and voting power over 197,604 shares, shared voting power with the direct owners of 14,304 shares and shared dispositive power with the direct owners of 81,970 shares. (2) Information obtained from Amendment No. 2 to Form F-11A dated February 13, 1995, as adjusted to reflect the Stock Dividend. FMR Corp. ("FMR") is the parent holding company of Fidelity Management & Research Company ("Fidelity"), an investment adviser. Fidelity is the beneficial owner of 434,832 of such shares as a result of acting as an investment adviser to several investment companies. One investment company, Fidelity Select Home Finance Portfolio, owns 428,812 of such shares. Edward C. Johnson 3rd, FMR and certain mutual funds (the "Funds") each have sole dispositive power over these 434,832 shares, but no voting power. Voting power resides in the Funds' Boards of Trustees. Fidelity Management Trust Company ("FMT"), a bank which serves as investment manager of certain institutional accounts and is a subsidiary of FMR, is the beneficial owner of 31,608 shares as a result of such service as investment manager. FMR and Edward C. Johnson 3rd, through control of FMT, have sole voting and dispositive power over 31,608 shares held in such accounts. Edward C. Johnson 3rd and Abigail P. Johnson, together with various trusts for the benefit of Johnson family members, form a controlling group with respect to FMr. The Bank understands that, subsequent to Amendment No. 2 to Form F-11A, there may have been changes in the ownership structure of FMR and Fidelity. The following table sets forth certain information with respect to the beneficial ownership of Common Stock of the directors of the Bank, the executive officers listed in the Summary Compensation Table and the directors and current executive officers of the Bank as a group. Unless indicated otherwise, ownership figures are as of December 8, 1995, and each indicated person has sole voting and dispositive power over the shares owned beneficially by such person. AMOUNT AND NATURE PERCENT TITLE OF NAME OF OF BENEFICIAL OF CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS Common Thomas M. O'Brien 165,319.657(2) 3.38% Common Irvin L. Cherashore 13,497 --(3) Common Greg L. Collins 44,261(4) --(3) Common Donald C. Fleming 55,006(5) 1.14 Common Richard D. Gidron 51,064(6) 1.06 Common Margaret M. Healy 39,145(6) --(3) Common Ralph J. Marino 1,000 --(3) Common John J. Murphy 39,603(6) --(3) Common Stephen J. Schildwachter 2,634.735 --(3) Common Alissa E. Ballot 14,604(7) --(3) Common Marie Alleva 11,700(8) --(3) Common All directors and execu- tive officers (17 403,230.392(9) 8.11 persons) as a group (1) Based on information provided by the respective directors and executive officers and filings with the FDIC. (2) Includes 7,875 restricted shares awarded to Mr. O'Brien under the Bank's Management Development and Recognition Plan (the "MDR") which are held by the MDR Trustees and as to which Mr. O'Brien has sole voting power, 57,931 shares which are held jointly with Mr. O'Brien's wife, with whom Mr. O'Brien has shared voting and dispositive power, 254 shares in the name of Mr. O'Brien's wife and 410.553 shares which are held by Mr. O'Brien as custodian for his three sons, with whom Mr. O'Brien has shared voting and dispositive power. Also includes a 4.15% beneficial interest in 47,143 shares (as of September 30, 1995) held in trust under the Bank's 401(k) Savings Plan as to which Mr. O'Brien shares voting power and options exercisable within 60 days after the Voting Record Date to purchase 82,690 shares of Common Stock. Does not include 108,384 shares of Common Stock held by Marine Midland Bank as Trustee for the North Side Savings Bank Retirement Trust II as to which Mr. O'Brien, through his membership on the Bank's Employee Benefits Committee, generally shares voting power. Such Committee does not intend to provide voting instructions to the Trustee in connection with the proposals to be presented at the Annual Meeting. In accordance with the provisions of the Trust Agreement governing the Retirement Plan Trust II, the Bank expects the Trustee to independently exercise the voting power appurtenant to such shares. Mr. O'Brien disclaims beneficial ownership of such shares. See "Executive Compensation--Long Term Incentive and Capital Accumulation Plan," "--401(k) Savings Plan," "-- Retirement Plan," and "--Management Development and Recognition Plan." (3) Holdings amount to less than 1% of the issued and outstanding shares of Common Stock of the Bank. (4) Includes 33,236 shares held individually and 11,025 shares held by Incline Capital group in a SEP-IRA account for the benefit of Mr. Collins and for which Mr. Collins has voting authority. (5) Includes 4,200 restricted shares awarded to Mr. Fleming under the MDR which are held by the MDR Trustees and as to which Mr. Fleming has sole voting power. Also includes a 7.41% beneficial interest in 47,143 shares (as of September 30, 1995) held in trust under the Bank's 401(k) Savings Plan as to which Mr. Fleming shares voting power and options exercisable within 60 days after the Voting Record Date to purchase 32,843 shares of Common Stock. Does not include 108,384 shares of Common Stock held by Marine Midland Bank as Trustee for the North Side Savings Bank Retirement Plan Trust II as to which Mr. Fleming, through his membership on the Bank's Employee Benefits Committee, generally shares voting power. Such Committee does not intend to provide voting instructions to the Trustee in connection with the proposals to be presented at the Annual Meeting. In accordance with the provisions of the Trust Agreement governing the Retirement Plan Trust II, the Bank expects the Trustee to independently exercise the voting power appurtenant to such shares. Mr. Fleming disclaims beneficial ownership of such shares. See "Executive Compensation--Long Term Incentive and Capital Accumulation Plan," "--401(k) Savings Plan," "--Retirement Plan" and "-- Management Development and Recognition Plan." (6) Includes 38,331 shares held by the MDR of which Mr. Gidron, Ms. Healy and Mr. Murphy are Trustees. Mr. Gidron, Ms. Healy and Mr. Murphy have sole dispositive power but no voting power over such shares. Mr. Gidron, Ms. Healy and Mr. Murphy disclaim beneficial ownership of such shares. See "Executive Compensation--Management Development and Recognition Plan." (7) Includes 3,150 restricted shares awarded to Ms. Ballot under the MDR which are held by the MDR Trustees and as to which Ms. Ballot has sole voting power. Also includes a 3.16% beneficial interest in 47,143 shares (as of September 30, 1995) held in trust under the Bank's 401(k) Savings Plan as to which Ms. Ballot shares voting power and options exercisable within 60 days after the Voting Record Date to purchase 8,407 shares of Common Stock. See "Executive Compensation--Long Term Incentive and Capital Accumulation Plan," "--401(k) Savings Plan," and "-- Management Development and Recognition Plan." (8) Includes 3,150 restricted shares awarded to Ms. Alleva under the MDR which are held by the MDR Trustees and as to which Ms. Alleva has sole voting power. Also includes a 0.3% beneficial interest in 47,143 shares (as of September 30, 1995) held in trust under the Bank's 401(k) Savings Plan as to which Ms. Alleva shares voting power and options exercisable within 60 days after the Voting Record Date to purchase 8,407 shares of Common Stock. See "Executive Compensation--Long Term Incentive and Capital Accumulation Plan," "--401(k) Savings Plan," and "-- Management Development and Recognition Plan." (9) Includes 38,331 shares of North Side Common Stock held by the MDR Trust which have been granted to certain of the Bank's officers and as to which such officers have sole voting power. All of such shares of North Side Common Stock currently held by the MDR Trustees have been awarded, and will vest at the rate of 20% per year for five years beginning on January 1, 1996. Employees who are awarded North Side Common Stock are entitled to all voting and other stockholder rights, except that the shares, while restricted, may not be sold, pledged or otherwise disposed of and are required to be held by the MDR Trustees. Shares of North Side Common Stock which have been awarded are voted by the MDR Trustees as directed by the employee to whom such shares have been granted. See "Executive Compensation-- Management Development and Recognition Plan." Also includes options to purchase 171,501 shares of North Side Common Stock which are exercisable within 60 days after the Voting Record Date. The percentage is computed by including executive officers' holdings of options exercisable within sixty (60) days after December 8, 1995 as outstanding Common Stock. See "Executive Compensation--Long Term Incentive and Capital Accumulation Plan." Such figures also include an aggregate 29.2% undivided beneficial interest of executive officers who are members of the group in an aggregate of 47,143 shares of Common Stock held by the trust established in connection with the 401(k) Savings Plan of North Side Savings Bank (the "Savings Plan Trust") as of September 30, 1995, as to which shares the respective account holders have shared voting power and no investment power except for such aggregate 29.2% of such shares which may be liquidated and reinvested in alternate investments. Does not include 108,384 shares of Common Stock held by Marine Midland Bank as Trustee for the North Side Savings Bank Retirement Plan Trust II as to which certain executive officers, through their membership on the Bank's Employee Benefits Committee, generally share voting power. Such Committee does not intend to provide voting instructions to the Trustee in connection with the proposals to be presented at the Annual Meeting. In accordance with the provisions of the Trust Agreement governing the Retirement Plan Trust II, the Bank expects the Trustee to independently exercise the voting power appurtenant to such shares. PROPOSAL I ELECTION OF DIRECTORS One purpose of the Annual Meeting is the election of directors. Pursuant to North Side's Bylaws and by resolution of North Side's Board of Directors, the Board of Directors currently consists of nine members. The Bank's Board of Directors is divided into three classes, as nearly equal in number as possible, and the members of each class generally are elected for a term of three years and until their successors are elected and qualified. One class of directors is to be elected annually. Each nominee previously has served as a director of the Bank. STOCKHOLDER NOMINATIONS Article II, Section 15 of the Bank's Bylaws provides that the Board of Directors shall act as a nominating committee for selecting the nominees for election as directors. Stockholders may name nominees for election to the Board of Directors by submitting written nominations to the Secretary of the Bank not less than 15 days prior to the anniversary date of the mailing of proxy materials by the Bank for its immediately preceding annual meeting of stockholders. Such stockholder's notice shall set forth certain specified information, including (a) the name of the stockholder and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Bank entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made; (d) such other information regarding each nominee proposed by such stockholder as would be required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Exchange Act; and (e) the consent of each nominee to serve as a director of the Bank if so elected. If any stockholder nomination is properly and timely made, ballots will be provided for use by stockholders at the Annual Meeting bearing the name of such nominee or nominees. THE NOMINEES Unless otherwise directed, each proxy executed and returned by a stockholder will be voted FOR the election of the three nominees listed below. There are no arrangements or understandings between the persons named and any other person pursuant to which such nominee was selected. If any person named as a nominee should be unable or unwilling to stand for election at the time of the Annual Meeting, the proxy will nominate and vote for a replacement nominee or nominees recommended by the Board of Directors. At this time, the Board of Directors knows of no reason why any of the nominees listed below may not be able to serve as director if elected. NOMINEES FOR DIRECTOR FOR A THREE-YEAR TERM EXPIRING IN 1999 POSITION WITH THE BANK AND PRINCIPAL OCCUPATION DIRECTOR NAME AND AGE DURING PAST FIVE YEARS SINCE Irvin L. Cherashore Director; Director of Winchester Group, 1976(1) Age 60 Inc., a money management and institutional brokerage firm, previously an analyst/broker and chairman of the executive committee of Sterling, Grace & Company, Inc.; Director of North Side Capital Corp.; former chairman of the Board of Fused Silica Technology. Greg L. Collins Director; President of Incline Capital 1990 Age 42 Group, a management consulting firm, from June 1988 to present; Director, Gateway Technologies, Inc.; Director, Iriscan; previously President and Chief Executive Officer of Raster Image Processing Systems from April 1991 to September 1992; and Chief Executive Officer of Carlisle Systems Group, a computer technologies firm, from February 1986 to June 1988; Director of Transistor Devices, Inc. from 1988 to 1992. Thomas M. O'Brien Chairman of the Board, President 1985(1) Age 45 and Chief Executive Officer of the Bank since October 1, 1987; President and Chief Operating Officer of the Bank from December 1985 to September 30, 1987; Director, President and Chief Executive Officer of North Side Capital Corp.; Trustee, American Skandia Trust, an investment company; Member of the Thrift Advisory Board of the Federal Reserve Bank of New York; Director, Retirement System Group, Inc. (1) Includes term as Trustee prior to the Bank's conversion from the mutual to stock form of organization on April 15, 1986. THE BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES BE ELECTED AS DIRECTORS DIRECTORS WITH A TERM ENDING IN 1997 POSITION WITH THE BANK AND PRINCIPAL OCCUPATION DIRECTOR NAME AND AGE DURING PAST FIVE YEARS SINCE Margaret M. Healy Director; Principal, PH Network, a 1978(1) Age 57 marketing public relations firm serving the retailing industry, since March, 1992; Public Relations Program Manager at J.C. Penney Company from July 1988 to February 1992; owner of Peggy Healy Associates, a retail consulting firm, from 1981 to 1988. Member of the Board of Directors of Dallas Children's Theater. John J. Murphy Director; Certified Public Accoun- 1988 Age 59 tant; Senior Vice President and Director of Skandia Investment Management, Inc., an investment company, since September 1992; previously Vice President of Skandia America Reinsurance Corporation from June 1981 to September 1992. Member Switzer Foundation. Stephen J. Director; Field Underwriter with New 1974(1) Schildwachter York Life Insurance Company Age 59 since 1980; financial counselor; Director of Life Underwriters Association of Westchester County; President of Rye Rotary Club; Captain, USNR (Ret.). DIRECTORS WITH A TERM ENDING IN 1998 POSITION WITH THE BANK AND PRINCIPAL OCCUPATION DIRECTOR NAME AND AGE DURING PAST FIVE YEARS SINCE Richard D. Gidron Director; Chairman and Chief Exe- 1978(1) Age 57 cutive Officer of Dick Gidron Cadillac, Inc. since 1972 and Dick Gidron Ford, Inc. since 1983; President of the Bronx Chamber of Commerce. Donald C. Fleming Director; Executive Vice President 1991 Age 46 and Chief Financial Officer of the Bank since October 1989; Senior Vice President and Chief Financial Officer from April 1988 to October 1989; previously Senior Vice President/ Financial Management at the East New York Savings Bank from 1983 to March 1988; Director, North Side Capital Corp.; Certified Public Accountant; Member: American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants. Ralph J. Marino Director; Attorney, Partner in 1995 Age 67 Marino, Bernstein & LaMarca P.C. since March 1995; Senator, New York State Senate from 1969 to February 1995. (1) Includes term as Trustee prior to the Bank's conversion from mutual to stock form of organization on April 15, 1986. THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors holds regular monthly meetings in all months except February and August and special meetings when called from time to time. The Board of Directors held a total of 10 meetings during the fiscal year ended September 30, 1995. During fiscal 1995, no incumbent director attended less than 75% of the aggregate of the number of meetings held by the Board of Directors and by all committees of the Board of Directors on which such director served. The committees of the Board of Directors are the Executive Committee, the Audit Committee, the CRA and Compliance Committee, and the Stock and Executive Compensation Committee. Matters relating to the election of directors are considered by the full Board of Directors and not by a standing nominating committee. Members of committees are elected each year by the Board of Directors at its first meeting following the Annual Meeting. * The Executive Committee consists of the Bank's Chief Executive Officer and two or more other directors. The Executive Committee, which currently consists of five members, holds regular monthly meetings and is authorized to exercise the powers of the Board of Directors between regular meetings of the Board. The Executive Committee, which met eleven times during fiscal 1995, is comprised of Messrs. O'Brien, Cherashore, Collins, Murphy and Fleming. * The Audit Committee, which met four times during fiscal 1995, consists of four members of the Board of Directors who are not officers of the Bank-- Messrs. Schildwachter, Gidron and Marino (effective May 1995) and Ms. Healy. The Audit Committee reviews the affairs and records of the Bank to determine its financial condition, reviews the Bank's system of internal control, reviews the audit scope and reports of the Bank's independent auditors and internal auditor and reviews accounting and financial reporting, to ensure compliance with applicable accounting principles. * The CRA and Compliance Committee, which met twice during fiscal 1995, consists of three members of the Board of Directors, Messrs. Marino (effective May 1995) and Gidron and Ms. Healy. The Committee reviews the Bank's compliance and CRA-related policies and activities and makes recommendations to the Board of Directors. * The Stock and Executive Compensation Committee consists of three members of the Board of Directors, Messrs. Collins, Murphy and Gidron. The Committee, which met once and took action by Unanimous Consent once during fiscal 1995, reviews executive compensation, administers the Bank's Long Term Incentive and Capital Accumulation Plan and MDR and makes recommendations to the Board of Directors. EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS The following information is supplied with respect to persons who currently serve as executive officers of North Side but do not serve on the Board of Directors. There are no arrangements or understandings between North Side and any such person pursuant to which such person has been elected as an officer. NAME AGE TITLE Marie J. Alleva 53 Senior Vice President Martin J. Brady 42 Senior Vice President Felix G. Gonzalez 60 Senior Vice President Alissa E. Ballot 40 General Counsel Joseph R. Kwasnik 44 Vice President and Comptroller Samy F. Sapek 47 Auditor Kathleen Mallon 51 Treasurer Judith A. MacGregor 43 Corporate Secretary DIRECTORS' COMPENSATION Retainer and Fees--Directors who are not executive officers of the Bank and who attend a minimum of 75% of Board meetings throughout calendar year 1995 will receive an annual fee of $20,000, in addition to a payment of $1,000 per Board meeting attended. Directors who were not executive officers of the Bank and who attended a minimum of 75% of Board meetings through calendar year 1994 received an annual fee of $16,000, in addition to a payment of $1,000 per Board meeting attended. In addition, non-officer members of committees of the Board receive a fee of $400 per committee meeting attended. Directors who are also officers of the Bank receive no compensation for attendance at Board or committee meetings. The Chairperson of the Audit Committee receives an additional fee of $1,000 annually. Deferred Compensation Plan--Effective October 1, 1993, North Side adopted a Directors Deferred Compensation Plan under which a director may elect to defer receipt of compensation otherwise payable currently for payment at a later date. Amounts deferred for later payment are invested for the account of the director electing deferred payment. Amounts payable to the director reflect the earnings and losses on the investments made with the amount deferred. STOCK AND EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Report of the Stock and Executive Compensation Committee and the Stock Performance Chart shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Bank specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. REPORT OF THE STOCK AND EXECUTIVE COMPENSATION COMMITTEE Under rules established by the Securities and Exchange Commission ("SEC") and adopted by the FDIC, the Bank is required to provide certain data and information regarding the compensation and benefits provided to its Chief Executive Officer and certain other executives. The disclosure requirements for the Chief Executive Officer and such other executives include the use of tables and a report explaining the rationale and considerations that led to fundamental compensation decisions affecting those individuals. In fulfillment of this requirement, the following report of the Stock and Executive Compensation Committee ("Compensation Committee") is provided. After the end of each fiscal year, the Compensation Committee meets to consider and make recommendations to the Board of Directors with respect to short-term incentive compensation (bonuses) for the fiscal year ending on the preceding September 30 and officers' salaries for the year beginning on the February 1 next following such meeting. The Board of Directors considers and acts upon such recommendations in December of each year. Thus, base compensation for the period beginning on February 1, 1995, as well as short-term incentive compensation for fiscal 1994, were reviewed in December 1994. Awards under the Bank's long-term incentive compensation plans (the Management Development and Recognition Plan, or "MDR," and the Amended and Restated Long-Term Incentive and Capital Accumulation Plan, or "Option Plan") are considered by the Compensation Committee as it deems appropriate. The primary objective of the Bank's executive compensation program is to attract and retain highly skilled and motivated executive officers who will manage the Bank in a manner to promote its growth and profitability and advance the interests of its stockholders. As such, the compensation program is designed to provide levels of compensation which are reflective of both the individual's and the organization's performance in achieving the organization's goals and objectives, both financial and non-financial, as determined in its business plan, and in helping to build value for the Bank's stockholders. The long-term component of the program aligns the interests of the executives with those of the Bank's stockholders by providing a proprietary interest in North Side, the value of which can be significantly enhanced by appreciation of the Common Stock. The program also seeks to adequately provide for the needs of the executives upon retirement based upon the length of service provided to the Bank. In structuring its executive compensation program, among the factors considered by North Side is the financial impact the program will have or likely have on the Bank, including but not limited to its impact on federal income taxes incurred. Effective January 1, 1994, Section 162(m) of the Code places a limitation of $1 million per executive named in the "Summary Compensation Table" below (the "Named Executive Officer" or "Named Executive Officers") on the deductibility of certain elements of compensation, as defined in the Code, paid to such executive by the Bank. For fiscal 1995, based upon the current level and composition of the compensation of its executive officers, the Bank does not believe that the limitations contained in Section 162(m) of the Code will have any impact on it. North Side's executive compensation program consists of four elements: base salary, short-term incentive compensation, long-term incentive compensation and retirement benefits. Base salaries for officers other than the Chief Executive Officer are recommended by the Compensation Committee to the Board based in part upon recommendations provided by the Chief Executive Officer. Salary levels reflect each executive officer's performance, responsibilities and experience and the Chief Executive Officer's and Compensation Committee's subjective perception of labor market conditions. The Compensation Committee's current philosophy is to fix the base salaries of the Bank's senior executive officers (including the Named Executive Officers) at a level generally designed, in the subjective judgment of the Compensation Committee, to provide a reasonable level of compensation even if no short-term incentive compensation is paid. Short-term incentive compensation consists of awards which may be paid annually in the discretion and pursuant to the subjective judgment of the Compensation Committee and the Board of Directors. The Chief Executive Officer makes recommendations to the Compensation Committee with respect to short-term incentive compensation after the end of each fiscal year for all executive officers other than himself. The Compensation Committee, subjectively evaluating both the officer's individual performance and the overall performance of the Bank, makes recommendations to the Board with respect to short-term incentive compensation for all executive officers, including the Chief Executive Officer. For fiscal 1994, the Board accepted all such recommendations, and the Named Executive Officers, other than the Chief Executive Officer, received an aggregate of $65,000 in short-term incentive compensation. The long-term incentive compensation portion of the Bank's compensation program consists of the MDR and the Option Plan. The Bank established the MDR as a method of providing key Bank officers and employees with a proprietary interest in the Bank in a manner designed to encourage such persons to remain with North Side, as shares of Common Stock granted under the MDR generally vest at a rate of 20% per year beginning one year after grant. The Named Executive Officers (other than the Chief Executive Officer) were awarded an aggregate of 10,500 shares of Common Stock (after adjustment for the stock dividend paid March 1, 1995) under the MDR, effective January 3, 1995. See "Executive Compensation--Management Development and Recognition Plan." The Option Plan is designed to provide key officers with incentives for long term performance and to further align such officers' financial interest with those of the Bank's stockholders by providing them with the opportunity to participate in the appreciation, if any, of the Common Stock which may occur after the date the options are granted. See "Executive Compensation-- Long-Term Incentive and Capital Accumulation Plan." Retirement benefits are designed to provide for an adequate level of income to the executive officer following his or her retirement from the Bank based upon length of service with the organization and to support the goals and objectives of the rest of the compensation program as described above. The retirement benefits are provided through the 401(k) Savings Plan, the Retirement Plan, and the Benefit Preservation Plan (the "BPP"). See "Executive Compensation--401(k) Plan," "--Retirement Plan" and "--Benefit Preservation Plan". In evaluating the compensation of Thomas M. O'Brien, Chairman, President and Chief Executive Officer of the Bank, in order to determine short-term compensation for fiscal 1994 and base salary for the year beginning February 1, 1995, the Compensation Committee subjectively evaluated both quantitative and qualitative factors. The Committee reviewed the Bank's financial results for fiscal 1994, a year in which the Bank had record earnings and continued improvement in the credit quality of its loan portfolio. In addition to these quantitative accomplishments, the Compensation Committee considered Mr. O'Brien's leadership in positioning the Bank strategically for future developments and changes in its market, the economy and the regulatory environment, as well as his efforts in addressing various state and federal legislative initiatives affecting the Bank through his Chairmanship of the Government Relations Committees of both the Community Bankers Association of New York and America's Community Bankers. Based on the foregoing, the Committee determined to award Mr. O'Brien short-term incentive compensation of $115,000 with respect to fiscal 1994 and to continue Mr. O'Brien's base salary at its existing level of $385,000, in accordance with its philosophy concerning base salaries as set forth above. In addition, Mr. O'Brien was awarded 7,875 shares of Common Stock (after adjustment for the stock dividend paid March 1, 1995) under the MDR, effective January 3, 1995. The Compensation Committee's decisions relating to Mr. O'Brien were approved by the full Board of Directors (without the participation of the directors who are also officers of the Bank). Although the Compensation Committee had not formally held its post-fiscal 1995 meeting prior to the printing of this proxy statement, it is considering recommending to the Board a grant of an aggregate of approximately $205,000 in short-term incentive compensation in respect of fiscal 1995 to the Named Executive Officers (including the Chief Executive Officer), as well as increases in the base salaries of such persons of 2%-4% effective February 1, 1996 to reflect increases in the cost of living. Stock and Executive Compensation Committee Greg L. Collins (Chairman) Richard D. Gidron John J. Murphy STOCK AND EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION One of the responsibilities of the Compensation Committee of the Board of Directors of the Company is to determine the level of compensation for executive officers of the Bank. The Compensation Committee for 1995 consisted of Messrs. Collins, Murphy and Gidron. There are no interlocks, as defined under the rules and regulations of the SEC, between the Compensation Committee and corporate affiliates of members of the Compensation Committee or otherwise. PERFORMANCE GRAPH Pursuant to the regulations of the FDIC promulgated under the Securities Exchange Act of 1934, as amended, the graph below compares the performance of North Side Savings Bank with that of the Nasdaq Composite Index (U.S. Companies) and the SNL Thrift Index (savings institutions). The graph assumes the reinvestment of dividends in additional shares of the same class of equity securities as those below. NORTH SIDE SAVINGS BANK STOCK PRICE PERFORMANCE There can be no assurance that stock performance will continue into the future with the same or similar trends depicted in the graph above. EXECUTIVE COMPENSATION The following Summary Compensation Table includes individual compensation information on the Chief Executive Officer and the other most highly compensated executive officers whose base salary and bonus aggregated or is expected to aggregate $100,000 or more for the fiscal year ended September 30, 1995 (the "Named Executive Officers") for services rendered in all capacities to the Bank during the fiscal years ended September 30, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE LONG TERM COMPENSATION ---------------------- ANNUAL COMPENSATION AWARDS ------------------- ------ OTHER ANNUAL RESTRICTED SECURITIES PAYOUTS COMPEN- STOCK UNDERLYING LTIP ALL OTHER NAME AND FISCAL SALARY($) BONUS($) SATION($) AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR (1) (2) (3) ($)(4) (#)(5) ($) ($)(6) ------------------ ---- --- --- --- ------ ------ --- ------ Thomas M. O'Brien 1995 $385,000 (2) 0 $136,828 110,250 0 $23,100 Chairman of the Board, 1994 365,962 $115,000 0 0 110,250 0 8,994 President and CEO 1993 260,000 100,000 0 0 64,502 0 8,728 Donald C. Fleming 1995 $156,000 (2) 0 $ 72,975 44,100 0 $ 9,240 Executive Vice 1994 152,400 $ 35,000 0 0 44,100 0 8,700 President and CFO 1993 142,900 30,000 0 0 26,026 0 5,272 Alissa E. Ballot 1995 $101,000 (2) 0 $ 54,731 14,884 0 $ 3,016 General Counsel 1994 98,889 $ 15,000 0 0 14,884 0 2,190 1993 91,473 10,000 0 0 3,859 0 0 Marie Alleva 1995 $ 87,000 (2) 0 $ 54,731 14,884 0 $ 5,196 Senior Vice President 1994 85,235 $ 15,000 0 0 14,884 0 2,448 1993 80,550 10,000 0 0 3,859 0 1,170
(1) Salary includes payroll deduction contributions to benefit plans made pursuant to Sections 401(k) and 125 of the Internal Revenue Code. (2) Bonus consists of amount earned as a bonus for the year in which earned, without regard to the year in which paid. Bonuses to be paid for the fiscal year ended September 30, 1995 were not determined as of the date of printing of this proxy statement. (3) For fiscal 1993, 1994 and 1995, the Bank believes that there were no (a) perquisites with a value aggregating more than the lesser of $50,000 or 10% of the individual's total salary and bonus for the year; (b) payments of above-market preferential earnings on deferred compensation; (c) payments of earnings with respect to long-term incentive plans prior to settlement or maturation; (d) tax payment reimbursements; or (e) preferential discounts on stock. (4) Effective January 3, 1995, awards of 7,875, 4,200, 3,150 and 3,150 shares were made under the MDR Plan to Mr. O'Brien, Mr. Fleming, Ms. Ballot and Ms. Alleva, respectively. The awards vest at a rate of 20% per year commencing on January 1, 1996. The dollar amounts in the table for fiscal 1995 are based upon $17.375 per share, the closing price (as adjusted) of the Common Stock as reported on the Nasdaq National Market System on the date of grant, January 3, 1995. As of September 29, 1995, the number of unvested shares of Common Stock allocated to Mr. O'Brien, Mr. Fleming, Ms. Ballot and Ms. Alleva and the dollar value thereof based on a per-share value of $30.25 were 7,875 shares, $238,218.75; 4,200 shares, $127,050; 3,150 shares, $95,287.50; and 3,150 shares, $95,287.50, respectively. Dividends are paid on unvested shares awarded pursuant to the MDR Plan to the same extent as paid on other shares of the Company's outstanding Common Stock and are held in the MDR Plan Trust for distribution on the vesting date of the related shares. All figures have been adjusted in accordance with the MDR Plan to give effect to the stock dividend paid on March 1, 1995. (5) Consists of number of shares available for purchase as of the last day of the fiscal year in question upon exercise of options granted under the Long Term Incentive and Capital Accumulation Plan, regardless of whether such options were exercisable on such date. All share numbers have been adjusted to reflect stock dividends declared by the Bank pursuant to automatic anti-dilution provisions of the Long Term Incentive and Capital Accumulation Plan. For additional information, see "Long-Term Incentive and Capital Accumulation Plan." (6) Includes the Bank's matching contributions to the 401(k) Plan, a cash or deferred plan designed to be qualified under Sections 401(a) and 401(k) of the Internal Revenue Code, which in fiscal 1995 totalled $9,240 for Mr. O'Brien; $9,240 for Mr. Fleming; $3,016 for Ms. Ballot; and $5,196 for Ms. Alleva. Also includes the Bank's accruals with respect to the Benefit Preservation Plan ("BPP") (excluding amounts contributed with respect to supplemental retirement benefits thereunder), which in fiscal 1995 totalled $13,860 for Mr. O'Brien and $0 for the other Named Executive Officers. See "401(k) Plan" and "Benefit Preservation Plan." EMPLOYMENT AGREEMENT On February 1, 1989, North Side entered into an employment agreement with Thomas M. O'Brien ("Employment Agreement") pursuant to which Mr. O'Brien is retained as the Chairman, President and Chief Executive Officer of the Bank. The Employment Agreement is for an initial term of five years, with an automatic one-year extension every February 1st, unless 60 days' prior written notice is given by either party to the other. The Agreement was last extended on February 1, 1995 and currently is for a term expiring on February 1, 2000. Pursuant to the Employment Agreement, Mr. O'Brien receives a salary at a minimum annual rate of $385,000, subject to upward adjustment by the Bank's Board of Directors each year. The Employment Agreement provides for Mr. O'Brien's participation in any pension, stock option, profit-sharing, medical or other benefit plans covering North Side's employees and in any program of executive compensation, benefits or perquisites available generally to Senior Vice Presidents or more senior officers of North Side. It also provides for the continued payment of all or a portion of base salary, on prescribed terms, in the event of disability. In the event of Mr. O'Brien's death during the term of the Employment Agreement, North Side is obligated to pay a death benefit (which may, but need not, be provided through insurance) equal to three times Mr. O'Brien's highest annual salary rate achieved during the term, either in a lump sum or in 36 monthly installments; to provide for a cash settlement of all stock options outstanding to Mr. O'Brien at the time of death; and to provide continued health and disability insurance coverage for certain surviving members of Mr. O'Brien's family for a period of up to 36 months. The Employment Agreement reserves to North Side the power to terminate Mr. O'Brien's employment at any time. Any termination by North Side for just cause (as defined in the Employment Agreement) and any resignation by Mr. O'Brien other than for good reason (as defined in the Employment Agreement) would not result in North Side's liability for severance payments. In the event of termination without just cause or resignation for good reason, in either case in the absence of a change of control (as defined in the Employment Agreement), North Side would be liable to pay Mr. O'Brien severance as follows: (a) a payment, in lieu of continued salary, equal to Mr. O'Brien's annual base salary rate at termination or resignation multiplied by 2.99 or, if greater, the number of years remaining in the unexpired term of the Employment Agreement, payable in semi-monthly installments; and (b) full and immediate vesting of all stock options then outstanding to Mr. O'Brien. In the event of termination without just cause or resignation with good reason, in either case after a change of control (as defined in the Employment Agreement), North Side would be liable to Mr. O'Brien for severance payments as follows: (a) a payment, in lieu of continued salary, equal to Mr. O'Brien's average annual base salary for the 5 years immediately preceding termination or resignation multiplied by 2.99 or, if greater, payments remaining in the unexpired term of the Employment Agreement, payable in a lump sum or bi-weekly installments at Mr. O'Brien's discretion; and (b) at North Side's expense, continued coverage under North Side's group health, hospitalization, dental, life and other similar insurance and benefit plans, or substantially similar coverage from another source, for a period of three years or until Mr. O'Brien obtains substantially the same coverage through another employer; (c) full and immediate vesting of all stock options then outstanding to Mr. O'Brien; and (d) to the extent that any payments by North Side to Mr. O'Brien constitute "excess parachute payments" subject to the excise tax imposed under section 4999 of the Code, an additional monetary payment equal to the amount of such excise tax. The approximate lump sum present value of the contract damages that would be payable to Mr. O'Brien under the Employment Agreement if his employment terminated without just cause or if he had resigned for good reason as of September 30, 1995 is $3,000,000 if such termination or resignation followed a change of control (as defined in the Employment Agreement) and $1,400,000 if such termination or resignation did not follow such a change of control. LONG TERM INCENTIVE AND CAPITAL ACCUMULATION PLAN The Board of Directors of the Bank has adopted the Amended and Restated Long-Term Incentive and Capital Accumulation Plan ("Option Plan"), which was approved by stockholders at the annual meeting of stockholders on January 24, 1994 by the requisite vote. The Option Plan authorizes the grant to certain officers and employees of stock options ("Options") which qualify as "Incentive Stock Options" under section 422 of the Code, of stock options that do not qualify as incentive stock options ("Non-Qualified Stock Options"), and of stock appreciation rights associated with stock options, which entitle the holder to surrender his or her right to purchase shares of the Bank's authorized but unissued Common Stock, par value $1.00 per share ("Shares"), by exercising the Option and to receive in return a payment equal to the excess of the fair market value of the Shares subject to the Option surrendered over the exercise price ("SARs"). Only employees of the Bank and subsidiaries thereof are eligible to receive a grant of an Option or SAR pursuant to the Option Plan. The Stock and Executive Compensation Committee administers the Option Plan and determines, in its sole discretion and in accordance with the provisions of the Option Plan, the officers and other employees to whom Options are granted, the type of Option granted, the number of Shares to be covered by the Option, the exercise price and the Option period. Under the terms of the Option Plan, after providing for option exercises and anti-dilution adjustments to reflect stock dividends, there remain 414,142 Shares reserved for future issuance. There were no options or SARs granted to the Named Executive Officers during the fiscal year ended September 30, 1995. The following table provides information on unexercised options or SARs held by the Named Executive Officers as of September 30, 1995. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES (1) NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED SHARES UNEXERCISED IN-THE-MONEY ACQUIRED OPTIONS/SARS OPTIONS/SARS ON VALUE AT FY-END(#) AT FY-END($)(2) EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE UNEXERCISABLE Thomas M. O'Brien 0 0 66,568/43,682 $1,269,332/ $ 567,763 Donald C. Fleming 0 0 26,105/17,995 $ 492,145/ $ 235,073 Alissa E. Ballot 0 0 4,686/10,198 $ 62,791/ $ 132,024 Marie Alleva 0 0 4,686/10,198 $ 62,791/ $ 132,024 (1) Under the provisions of the Option Plan, all outstanding Options and SARs become vested and fully exercisable upon the occurrence of an actual or threatened change of control of the Bank, as defined in the Option Plan. (2) Based upon the difference between $30.25, the closing price of the Common Stock as reported on the Nasdaq National Market System on September 29, 1995, and the respective exercise prices of the options (adjusted to give effect to stock dividends paid on Common Stock.) MANAGEMENT DEVELOPMENT AND RECOGNITION PLAN The Board of Directors of the Bank has adopted the Management Development and Recognition Plan ("MDR Plan"), under which the Bank grants non-transferable and non-assignable awards to officers of the Bank and its affiliates. The awards are in the form of shares of Common Stock held in trust by the MDR Plan (the "Awards"). The Stock and Executive Compensation Committee, with the approval of the Board of Directors, selects the individuals who participate in the MDR Plan and sets the terms and conditions of such participation. As a general rule, upon receipt of an Award, the recipient enjoys the immediate right to all incidents of ownership of the shares of Common Stock subject to such Award (including all voting, tender and dissenters' rights, as well as the right to receive dividends), except for the right to sell or otherwise dispose of such shares. Shares subject to an Award are held in the MDR Trust for the benefit of the Award recipient pending the vesting of such shares in accordance with a vesting schedule established by the Stock and Executive Compensation Committee upon making the Award. Shares subject to an Award are distributed to the Award recipient as and when they become vested. Termination of employment due to death, disability, retirement, or change in control (as defined in the MDR Plan) results in the immediate vesting and distribution of all then unvested shares. Pursuant to the terms of the MDR Plan, the Bank has established an irrevocable trust ("MDR Trust"), the trustees of which are Messrs. Gidron and Murphy and Ms. Healy. The trustees of the MDR Trust are authorized to invest the assets of the MDR Trust in shares of North Side Common Stock in an amount not to exceed 10% of the outstanding shares of North Side Common Stock. The MDR Trust currently holds 38,331 shares of North Side Common Stock. 401(K) SAVINGS PLAN The Bank maintains the 401(k) Savings Plan of North Side Savings Bank, a defined contribution profit-sharing plan designed to remain qualified under Section 401(a) and Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan generally covers all salaried and hourly employees of the Bank who have completed at least one year of eligibility service with the Bank. Under the 401(k) Plan, a participant may elect to defer from 1% to 6% of his or her base pay. At the end of each calendar year, the Bank matches the deferrals of each participant then employed by North Side and each former participant who died, retired or became disabled during the year at prescribed rates. The Bank's 401(k) Plan contributions may be made in the form of cash, Common Stock or any combination thereof, in the Bank's discretion. The 401(k) Plan also permits the Bank to contribute additional amounts as determined by the Board of Directors in its discretion. The 401(k) Plan includes a fund that purchases shares of the Bank's Common Stock (the "Bank Stock Fund"). Each participant who directs the trustee to invest all or part of his account in the Bank Stock Fund will have assets in his account applied to the purchase of shares of the Common Stock. Purchases of the Common Stock by participants under the 401(k) Plan will be subject to the applicable legal purchase limitations, and participants will direct the trustee how to vote their allocable shares of the Common Stock. As of September 30, 1995, the 401(k) Plan had $5,453,036 in assets, of which $1,494,253 was invested in the Bank Stock Fund. Effective October 1, 1993, the Bank adopted a Benefit Preservation Plan to provide for the accrual of matching contributions and related investment returns that may not be accrued under the 401(k) Plan due to certain limits imposed under the Code. See "Benefit Preservation Plan." RETIREMENT PLAN The Bank maintains a tax-qualified, defined benefit pension plan ("Retirement Plan") for salaried employees of the Bank who have attained age 21 and completed one year of eligibility service. The Retirement Plan is maintained through the RSI Retirement Trust, a group trust administered by the Retirement System Group, Inc. ("RSG"). The Retirement Plan's assets are primarily invested through Retirement System Investors Inc. ("RSII"), a wholly-owned subsidiary of RSG, or by investment managers selected by RSII or the Bank. A portion of the Retirement Plan's assets have been placed in a separate trust with Marine Midland Bank, as trustee, for investment in Common Stock. Voting rights associated with such Common Stock are exercised as directed by the members of the Bank's Employee Benefits Committee, or, if no direction is given by the Employee Benefits Committee, by the trustee in its discretion. Certain actuarial and administrative services are provided through Retirement System Consultants Inc., which also is a wholly owned subsidiary of RSG. The Retirement Plan is designed to comply with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The following table sets forth, in straight life annuity amounts, the estimated annual benefits payable to a participant upon retirement at normal retirement age during the fiscal year ended September 30, 1995 for the average highest earnings and years of credited service classifications specified. These amounts are subject to an offset for Social Security benefits.
PENSION PLAN TABLE AVERAGE ANNUAL YEARS OF SERVICE EARNINGS 15 20 25(1) 30(1) 35(1) - -------- -- -- ----- ----- ----- $125,000 $ 46,875 $ 62,500 $ 75,000 $ 75,000 $ 75,000 150,000 56,250 75,000 90,000 90,000 90,500 175,000(3) 65,625 87,500 105,000 105,000 105,000 200,000(3) 75,000 100,000 120,000 120,000 120,000 225,000(3) 84,375 112,500 135,000(2) 135,000(2) 135,000(2) 250,000(3) 93,750 125,000(2) 150,000(2) 150,000(2) 150,000(2) 300,000(3) 112,500 150,000(2) 180,000(2) 180,000(2) 180,000(2) 400,000(3) 150,000(2) 200,000(2) 240,000(2) 240,000(2) 240,000(2) 450,000(3) 168,750(2) 225,000(2) 270,000(2) 270,000(2) 270,000(2) 500,000(3) 187,500(2) 250,000(2) 300,000(2) 300,000(2) 300,000(2) 550,000(3) 206,250(2) 275,000(2) 330,000(2) 330,000(2) 330,000(2) 600,000(3) 225,000(2) 300,000(2) 360,000(2) 360,000(2) 360,000(2)
(1) Normal retirement benefits are limited to 60% of average annual earnings. (2) These are hypothetical benefits based upon the Retirement Plan's normal retirement benefit formula. The maximum annual benefit permitted under Section 415 of the Code in 1995 is $120,000, or if higher, participant's current accrued benefit as of December 31, 1982 (but not more than $136,425). The $120,000 ceiling will be adjusted to reflect cost of living increases in 1996 and succeeding years in accordance with Section 415 of the Code. The BPP will provide the difference between the amounts appearing in this table and the maximum amount allowed by the Code. (3) The benefits shown corresponding to these compensation ranges are hypothetical benefits based upon the Retirement Plan's normal retirement benefit formula. Under Section 401(a)(17) of the Code, a participant's compensation in excess of $150,000 (as adjusted to reflect cost-of-living increases) is disregarded for purposes of determining average annual earnings in plan years beginning in or after 1989 but before 1994. Benefits accrued as of the last day of the plan year beginning in 1988 on the basis of compensation in excess of $200,000 are preserved. The $200,000 limit was increased to $209,200 in 1990, $222,220 in 1991, $228,860 in 1992, and $235,840 in 1993. The Omnibus Budget Reconciliation Act of 1993 reduced this limitation to $150,000 for plan years beginning in 1994, indexed for cost-of-living adjustments in 1995 and thereafter in accordance with Section 401(a)(17) of the Code. The table reflects amounts payable in conjunction with the BPP. The benefits assume the participant would receive his benefits under the Retirement Plan in the form of a straight life annuity. The annual benefits shown in the table do not reflect any reduction due to the Social Security benefit offset provided by the Retirement Plan. The following table sets forth the years of credited service (i.e., benefit service) as of September 30, 1995 for each of the Named Executive Officers as well as the average annual earnings of each such individual as of September 30, 1995: AVERAGE ANNUAL YEARS OF EARNINGS CREDITED SERVICE AS OF 9/30/95 AS OF 9/30/95 Thomas M. O'Brien $450,072 17.5 Donald C. Fleming $209,669 7.5 Alissa E. Ballot $100,521 3.5 Marie Alleva $ 89,282 3.25 BENEFIT PRESERVATION PLAN The Bank adopted, effective October 1, 1993, an unfunded, non-qualified Benefit Preservation Plan ("BPP") for certain senior officers of the Bank to compensate such individuals who participate in the Retirement Plan and the 401(k) Plan for benefits lost under such plans by reason of benefit limits imposed by sections 415, 401(a)(17) and 402(g) of the Code. Benefits accrued under the BPP are payable on the later of the first day of the month following the month in which the individual attains 65 and the month following the month in which the individual terminates employment with the Bank. Payment of benefits with respect to the Retirement Plan under the BPP is made in the same form as payments under the Bank's Retirement Plan, unless the participant elects an alternative option. Payments with respect to benefits under the 401(k) Plan are payable in 15 annual installments unless the participant elects another form of payment. Benefits accruing under the BPP with respect to the Retirement Plan are reflected in the pension table. Benefits accrued under the BPP with respect to the 401(k) Plan for the fiscal year ended September 30, 1995 are included in the Summary Compensation Table. CERTAIN TRANSACTIONS The Bank has made, and may in the future make, loans in the ordinary course of business to directors, executive and non-executive officers and their respective associates. Except with respect to loans to non-executive officers made pursuant to the employee loan program described below, such loans are made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with persons unaffiliated with the Bank and do not involve more than the normal risk of collectibility or present other unfavorable features. North Side offers home mortgage loans to its employees, including officers other than executive officers, on terms which are substantially the same as those offered for comparable transactions with persons unaffiliated with the Bank at the time the loan is made, except that the Bank waives the application fee and 50% of the points, if any. Pursuant to Regulation O of the Board of Governors of the Federal Reserve System, made applicable to the Bank by FDIC regulations, as well as comparable regulations under the New York Banking Law, extensions of credit to directors and "executive officers" must be on terms substantially the same as those prevailing at the time for comparable transactions with persons unaffiliated with the Bank. In the judgment of management of the Bank, loans made to employees as described above do not involve more than the normal risk of collectibility. PROPOSAL II RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors of the Bank has appointed KPMG Peat Marwick LLP as independent auditors of the Bank for the year ending September 30, 1996, and has further directed that the selection of such auditors be submitted for ratification by the stockholders at the Annual Meeting. The Bank has been advised by KPMG Peat Marwick LLP that neither that firm nor any of its associates has any relationship with the Bank or its subsidiaries other than the usual relationship that exists between independent certified public accountants and clients. KPMG Peat Marwick LLP will have a representative at the Annual Meeting who will have an opportunity to make a statement, if he or she so desires, and who will be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR THE YEAR ENDING SEPTEMBER 30, 1996. THE PROPOSAL WILL BE ADOPTED IF APPROVED BY THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK VOTING ON THE PROPOSAL. OTHER MATTERS WHICH MAY BE PRESENTED FOR ACTION AT THE MEETING Management is not aware of any matter other than those set forth in the Notice of Annual Meeting of Stockholders that is to be presented for action at this Annual Meeting. If any other matter is presented properly for action at the meeting, it is the intention of the persons named in the attached form of proxy to vote thereon in accordance with their judgment pursuant to the discretionary authority conferred by the proxy. STOCKHOLDER PROPOSALS Any stockholder may make any other proposal at the next Annual Meeting and the same may be considered if such proposal is stated in writing and contains the information set forth in Article II, Section 16 of the Bank's Bylaws, and is submitted to the Secretary of the Bank not later than the date which is fifteen days before the anniversary date of this Proxy Statement. In accordance with the rules of the FDIC, any stockholder who wishes to present a proposal for action at the Annual Meeting of Stockholders in January 1997 and have such proposal included in the Proxy Statement with respect to such meeting must submit such proposal so that it is received at the Bank's principal executive offices no later than September 27, 1996. If such proposal is in compliance with all applicable requirements, it will be included in the Proxy Statement and set forth on the form of proxy issued for such Annual Meeting. Please send any such proposal by certified mail, return receipt requested. ANNUAL REPORTS AND FINANCIAL STATEMENTS A copy of the Bank's Annual Report to Stockholders for the year ended September 30, 1995 accompanies this Proxy Statement. Additional copies of the Bank's Annual Report to Stockholders may be obtained by written request to the Secretary of the Bank at the address indicated below. Such annual report is not part of the proxy solicitation materials. UPON RECEIPT OF A WRITTEN REQUEST, THE BANK WILL FURNISH TO ANY STOCKHOLDER WITHOUT CHARGE A COPY OF THE BANK'S ANNUAL REPORT ON FORM F-2 FOR THE YEAR ENDED SEPTEMBER 30, 1995 (EXCLUDING EXHIBITS THERETO) REQUIRED TO BE FILED WITH THE FDIC UNDER THE EXCHANGE ACT. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO JUDITH A. MACGREGOR, NORTH SIDE SAVINGS BANK, 170 TULIP AVENUE, FLORAL PARK, NEW YORK 11001. THE FORM F-2 IS NOT PART OF THE PROXY SOLICITATION. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Under the securities laws of the United States, the Bank's directors, its executive officers, and any person holding more than ten percent of the Bank's Common Stock are required to file initial reports of ownership of the Bank's Common Stock and reports of changes in that ownership with the FDIC and the National Association of Securities Dealers, Inc. Specific due dates for these reports have been established and the Bank is required to disclose in this Proxy Statement any failure to file by these dates during fiscal 1995. During 1995, all these filing requirements were satisfied, except that Martin J. Brady, Senior Vice President, failed to timely file one Form F-8 with respect to one transaction, which failure was subsequently corrected. In making these disclosures, the Bank has relied solely on written representations of its directors and executive officers and copies of the reports that they have filed with the FDIC. MISCELLANEOUS The cost of solicitation of proxies will be borne by the Bank. The Bank will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of the Bank's Common Stock. In addition to solicitations by mail, directors, officers and employees of the Bank may solicit proxies personally or by telephone without additional compensation. IMPORTANT--PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD By Order of the Board of Directors, [SIGNATURE] Judith A. MacGregor Corporate Secretary December 22, 1995 EX-99 11 EXHIBIT 99.10 DESCRIPTION OF CAPITAL STOCK GENERAL The Restated Organization Certificate of North Side, effective upon the Conversion, authorized the issuance of up to 10,000,000 shares of Common Stock, $1.00 par value per share, and 5,000,000 shares of preferred stock, $1.00 par value per share. Each share of Common Stock will have the same relative rights as, and will be identical in all respects with, each other share of Common Stock. COMMON STOCK DIVIDENDS. Subject to the limitations which are imposed by the Conversion Regulations, the holders of Common Stock will be entitled to receive and to share equally in such dividends as may be declared by the Board of Directors of North Side out of funds legally available therefor. VOTING RIGHTS. Upon consummation of the Conversion, the holders of Common Stock will possess exclusive voting rights in North Side. Each holder of shares of Common Stock will be entitled to one vote for each share held on all matters submitted to a vote of stockholders. North Side's Restated Organization Certificate provides that stockholders will not be permitted to cumulate their votes for the election of directors. SPECIAL STOCKHOLDERS' MEETINGS. Special meetings of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the President or the holders of a majority of the outstanding capital stock of North Side entitled to vote at the meeting. LIQUIDATION. In the event of any liquidation, dissolution, or winding up of North Side, the holders of Common Stock will be entitled to receive all assets of North Side available for distribution in cash or in kind after payment of all debts and liabilities of North Side (including all deposit accounts with accrued interest thereon) and after distribution of the balance in the special liquidation account to Eligible Account Holders and distributions with respect to any preferred stock outstanding. REDEMPTION. Holders of Common Stock will not be entitled to preemptive rights with respect to any shares of North Side which may be issued subsequent to the Conversion. The Common Stock will not be subject to call for redemption and under New York law cannot be redeemed. Upon receipt by North Side of the full specified purchase price therefor (less any Underwriters' discount applicable thereto), the Common Stock will be fully paid and nonassessable. PREFERRED STOCK. The preferred stock may be issued at such time after the Conversion and upon such terms as the Board of Directors of North Side may determine in its discretion. Although there is no present intention to issue any shares of preferred stock after the Conversion, any shares of preferred stock issued would generally entitle the holders thereof to priority over common stockholders with regard to the payment of dividends and any liquidation distributions. In addition, the preferred stockholders could be given certain voting rights which could adversely affect the voting power of common stockholders. TRANSFER AGENT The transfer agent for the Bank's Common Stock is American Stock Transfer Company, New York, New York. ANTI-TAKEOVER PROVISIONS PROVISIONS IN RESTATED ORGANIZATION CERTIFICATE AND BYLAWS The following discussion is a general summary of certain provisions of the Bank's proposed Restated Organization Certificate and bylaws which may be deemed to have an "anti- takeover" effect. The following description of certain of these provisions is necessarily general and reference should be made in each case to the Restated Organization Certificate and bylaws, which are part of the Bank's application to the Superintendent. Although the Board of Trustees of North Side is not aware of any effort that might be made to obtain control of North Side after the Conversion, the Board of Trustees believes that it is appropriate to adopt certain provisions to the extent permitted by applicable regulations to protect the interests of North Side and its stockholders from any hostile takeover. In addition to the provisions described below, the Board of Trustees may adopt additional provisions of an anti-takeover nature in the future, although there is no specific intent to do so at this time. Such provisions, to the extent they involve amendments to the Restated Organization Certificate, would be subject to stockholder approval. DIRECTORS. Certain provisions of the Bank's Restated Organization Certificate and bylaws will impede changes in majority control of the Board of Directors. The Bank's Restated Organization Certificate provides that the Board of Directors of the Bank will be divided into three classes, with Directors in each class elected for three-year staggered terms. The Restated Organization Certificate provides that removal of a Director for cause, as defined, required the approval of not less than a majority of stockholders entitled to vote, and without cause, as defined, requires approval of not less than 75% of the stockholders entitled to vote. The bylaws also provided that vacancies not exceeding one-third of the Board, including vacancies created by an increase in the number of Directors, may be filled for the unexpired term by a majority vote of the Directors then in office. Finally, the bylaws impose certain restrictions on the nomination by stockholders of candidates for election to the Board of Directors. CALL OF SPECIAL MEETINGS. The Restated Organization Certificate contains a provision which provides that a special meeting of stockholders may be called at any time by the President of the Bank, the Chairman of the Board of Directors, a majority of the Board of Directors, or upon the request of a majority of the outstanding capital stock. CUMULATIVE VOTING. The Bank's Restated Organization Certificate denies cumulative voting rights in the election of Directors. AUTHORIZATION OF PREFERRED STOCK. The Restated Organization Certificate of the Bank authorized 5,000,000 shares of serial preferred stock, $1.00 par value. The Bank is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the Board of Directors is authorized, without stockholder approval, to fix the designations, powers, preferences, and relative participating, optional and other special rights of such shares, including voting rights (which could be multiple or as a separate class) and conversion rights. In the event of a proposed merger, tender offer or other attempt to gain control of the Bank of which management does not approve, it might be possible for the Board of Directors to authorize the issuance of a series of preferred stock with rights and preferences that could impede the completion of such a transaction. An effect of the possible issuance of preferred stock, therefore, may be to deter a future takeover attempt. Such an issuance could also adversely affect the voting power of common stockholders. The Board of Directors has no present plans or understandings for the issuance of any preferred stock and does not intend to issue any preferred stock except on terms which the Board deems to be in the best interests of the Bank and its stockholders. LIMITATIONS ON ACQUISITIONS OF CONTROL. The Bank's Restated Organization Certificate prohibits any person (including an individual, company or group acting in concert), directly or indirectly, from offering to acquire or acquiring beneficial ownership of more than 10% of any class of equity security of the Bank for a period of three years from the consummation of the Conversion. These provisions would not apply to a transaction in which the Bank forms a holding company without change in respective beneficial ownership interest of its stockholders or to the purchase of shares by underwriters in connection with a public offering. Shares acquired in excess of these limitations would not be entitled to vote or to take other stockholder action or be counted in determining the total number of outstanding shares of voting stock in connection with any matter involving stockholder action. PROVISIONS RELATING TO AUTHORIZATION OF CERTAIN BUSINESS COMBINATIONS. Article XI of the Bank's Restated Organization Certificate requires, unless all stockholders are treated fairly and other conditions are met or unless otherwise approved by the Board of Directors, a supermajority stockholder vote requirement for certain "Business Combinations" (as defined) with or proposed by a "Related Person" (as defined). Under this provision, a Business Combination would have to comply with a number of specified conditions, including conditions designed to ensure that the Bank's stockholders receive a minimum price for their stock upon consummation of the Business Combination. Article XI will require the approval of the holders of 75% of the Bank's outstanding Voting Shares and an Independent Majority of Stockholders as a condition to specified Business Combinations with or proposed by a Related Person, except in cases in which the transaction (1) has been approved by a majority of the whole Board of Directors before the person involved became a Related Person, (2) has otherwise been approved by 75% of the Whole Board of Directors and by a majority of the directors who are not affiliated with the Related Person (defined as "Continuing Directors"), (3) is between the Bank and a subsidiary of the Bank and certain conditions are met, or (4) meets certain minimum price criteria and procedural conditions described below. If the Business Combination satisfies any one of these four exceptions, the normal requirements of applicable law, regulations and other provisions of the Restated Organization Certificate would apply. The term "Related Person" includes persons (other than the Bank and subsidiaries or employee benefit plans (including the trustees of such plans) of the Bank) directly or indirectly owning or having the right to acquire or vote more than 10% of the outstanding voting stock of the Bank. A "Business Combination" is defined to include the following transactions with, or proposed by, a Related Person: (a) a merger or consolidation of the Bank or any of its subsidiaries; (b) the sale or other disposition by the Bank or any of its subsidiaries of assets having an aggregate fair market value of more than 10% of the total consolidated assets of the Bank and its subsidiaries as of the end of the most recent fiscal year; (c) the issuance or transfer of stock or other securities of the Bank or any of its subsidiaries in exchange for cash or property (including stock or other securities) having an aggregate fair market value of more than 10% of the total consolidated assets of the Bank and its subsidiaries as of the end of the most recent fiscal year; (d) the adoption of any plan or proposal to liquidate or dissolve the Bank; (e) any reclassification of securities, recapitalization, consolidation or other transaction which has the direct or indirect effect of increasing the actual or potential voting power of a Related Person in any class or series of stock of the Bank or any of its subsidiaries; or (f) any agreement, contract or other arrangement providing directly or indirectly for any of the foregoing. Article XI requires the consideration being paid to the Bank's stockholders in a Business Combination not approved by the specified votes described above to be either cash or the same type of consideration used by the Related Person in acquiring the largest portion of the Bank's Voting Stock (defined as shares entitled to vote generally in the election of directors) that it previously acquired. The fair market value of any consideration other than cash would be conclusively determined by a majority of the Continuing Directors. In the case of cash payments to holders of Common Stock, the fair market value per share of such payments would have to be at least equal in value to the higher of (i) the highest per share price paid by the Related Person in acquiring any shares of the Bank's Common Stock, or (ii) the fair market value per share of Common Stock on the date the Business Combination is first proposed. Provision also is made for the amount to be paid to holders of Preferred Stock in the event the Bank has issued Preferred Stock. If consideration other than cash is used to satisfy the minimum price criteria, the fair market value of the property to be used is to be determined as of the date of consummation of the Business Combination. Article XI gives a majority of the Continuing Directors the power to determine the fair market value of any assets, securities or other property. As a result of these provisions, the Related Person may not be able to calculate the value of the non-cash consideration offered at the time the Business Combination is proposed and may not be able to determine with certainty if the minimum price criteria have been met. This potential uncertainly is likely to encourage the Related Person to negotiate in advance the terms of the proposed Business Combination with the Continuing Directors. It should be noted that under Article XI, the Related Person would be required to meet the minimum price criteria with respect to each class or series of the Bank's capital stock, whether or not the Related Person owned shares of that class or series prior to proposing the Business Combination. If the transaction did not involve the receipt of any cash or other property by the stockholders generally, such as a sale of assets or an issuance of the Bank's securities to a Related Person, then the minimum price criteria would not apply and either of the following would be required: (1) approval by 75% of the Voting Shares and by an Independent Majority of Stockholders, or (2) approval by 75% of the Whole Board of Directors and by a majority of the Continuing Directors. Additionally, the document sent to stockholders in connection with any Business Combination must contain a recommendation of the Continuing Directors as to the advisability of the proposed transaction and an opinion of an investment banking firm as to the fairness of the transaction to the stockholders. In the event the Related Person complies with the price and procedural requirements but seeks to take advantage of his or here position with the Bank in effecting a Business Combination, such as by receiving a loan from the Bank, approval by 75% of the Voting Shares and by an Independent Majority of Stockholder or approval by 75% of the Whole Board of Directors and by a Majority of the Continuing Directors would be required. For three years following the consummation of the Conversion, no amendment to Article XI may be made without (1) the affirmative vote of a majority of the Whole Board of Directors, including a majority of the Continuing Directors, and (2) the affirmative vote of 75% or more of the outstanding Voting Shares, voting separately as a class and an Independent Majority of Stockholders. However, if 75% of the Whole Board of Directors, including a majority of the Continuing Directors approves of such amendment, the vote required shall be that which is otherwise required by applicable law. Article XI shall expire after three years from the effective date of the Conversion unless it is readopted prior to such date by a majority vote of the outstanding Voting Shares. AMENDMENT TO RESTATED ORGANIZATION CERTIFICATE AND BYLAWS. Except with respect to Article XI described above, for three years following the consummation of the Conversion, amendments to the Restated Organization Certificate must be approved by the Bank's Board of Directors and also by 75% of the total votes eligible to be cast at a legal meeting, provided, however, that where 75% of the Board approves of the provision only a majority stockholder vote is required for adoption. Thereafter, amendments require two-thirds shareholder approval, unless approved or ratified by 75% of the Board, in which case only a majority stockholder vote is required. The Proposed bylaws may be amended by a majority vote of the Board of Directors or of the stockholders. PURPOSE AND ANTI-TAKEOVER EFFECTS OF THE BANK'S RESTATED ORGANIZATION CERTIFICATE AND BYLAWS. The Board of Trustees of the Bank believes that the provisions described above are prudent and will reduce the Bank's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by the Bank's Board of Directors. These provisions will also assist North Side in the orderly deployment of the Conversion proceeds during the initial period after the Conversion. The Board of Trustees believes these provisions are in the best interest of the Bank and its stockholders. In the Board's judgment, it is in the best position to determine the true value of the Bank and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, the Board believes that it is in the best interests of the Bank and its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the Board's view that these provisions should not discourage persons from proposing a merger or other transaction at prices reflective of the true value of the Bank and where the transaction is in the best interests of all stockholders. A number of companies have recently been the subject of tender offers for or other acquisitions of less than all of their outstanding stock. In many cases, such purchases have been followed by business combinations in which the tender offeror or other purchaser has paid a lower price for the remaining outstanding shares than the price it paid in acquiring its original interest in the company and/or has made its payments in less desirable form. The Board believes that the stockholders who are "squeezed out" in such a second-step transaction often are not treated as fairly as stockholders who sold their shares earlier, yet have no opportunity to prevent or affect the terms of the business combination. Fear that such a second-step transaction may be on unfavorable terms also may cause stockholders to tender shares pursuant to an offer at a price which would otherwise not be acceptable to such stockholders. This "coercive" effect of tender offers providing for a less attractive second-step transaction can result in an acquisition of a company on terms which are not in the best interests of stockholders. Furthermore, the Board of Trustees of the Bank believes that substantial inequities can be imposed upon the remaining stockholders after a publicly-held company has come under the control of another person or company who then proceeds to combine the acquired company with another company the acquiror also controls. Because the acquiror controls both sides of the negotiations, the terms of such a business combination will not reflect arm's length bargaining, and thus may not assure fair treatment of the remaining stockholders. In connection with such a business combination, significant changes in the policies or management of the acquired company also may be effected. Federal securities laws and regulations applicable to certain business combinations generally govern the disclosure required to be made to stockholders in order to consummate business transactions, but do not assure stockholders that the terms of the business combination (i.e., what stockholders will receive for their shares) will be fair to them, or that they can prevent the business combination. In the case of some but not all business combinations, minority stockholders have the right to dissent from the transaction and to receive the fair or appraised value of their stock in cash. Exercise of this right, however, may involve significant expense, delay and uncertainty to the dissenting stockholders. Article XI is designed to help bridge these gaps in the protection afforded to minority stockholders by applicable law by requiring approval by 75% of the Voting Stock and an Independent Majority of Stockholders, approval by 75% of the Whole Board of Directors and by a Majority of the Continuing Directors, or compliance with conditions designed to achieve substantive fairness for minority stockholders to effect a Business Combination. Article XI would help prevent a purchaser who acquired control of the Bank from subsequently forcing minority stockholders to sell or exchange their shares for consideration in a less desirable form or at a lower price than that which the purchaser paid to acquire its controlling interest. Article XI also is structured to prevent a Related Person from self-dealing or otherwise taking advantage of its equity position in the Bank by using the Bank's resources to finance the proposed Business Combination or otherwise benefiting itself in a manner not available to all stockholders. By requiring a purchaser to pay stockholders a higher price for their shares and/or structure the transaction differently than otherwise would be the case, Article XI should increase the likelihood that a purchaser will negotiate directly with the Bank. Such negotiations will allow persons, including the Directors of the Bank not affiliated with the purchaser, the opportunity to evaluate the terms of the Business Combination, as well as other alternatives available to the Bank. The Directors' determination can be made without the threat that the purchaser will unilaterally impose a transaction on stockholders and, as discussed above, the threat of imminent removal from their positions as Directors. Accordingly, Directors will be able to consider acquisition proposals on their merits and to negotiate effectively on behalf of all stockholders. Although designed to encourage potential acquirors to negotiate with the Bank and to avoid tactics which may not treat all stockholders equally, Article XI may discourage tender offers and other acquisitions of the Bank's stock. The requirement that a subsequent Business Combination satisfy certain minimum price and procedural requirements also may make the acquisition of all of the Bank's stock too costly, and consequently may discourage acquisitions of large blocks of stock and delay or prevent a change in the management of the Bank. Adoption of these amendments could tend to reduce the temporary fluctuations in the market price of the Bank's stock which are caused by such accumulations. Accordingly, stockholders could be deprived of certain opportunities to sell their stock at a temporarily higher market price. The Board of Trustees, however, has concluded that the potential benefits of Article XI outweigh its possible disadvantages. EX-99 12 EXHIBIT 99.11 - REGISTRATION STATEMENT FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 ________________ FORM F-10 REGISTRATION FOR ADDITIONAL CLASS OF SECURITIES OF A BANK UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________ North Side Savings Bank (Exact name of bank as specified in its charter) 170 Tulip Avenue Floral Park, New York (Address of principal executive offices) 11001 (zip code) ________________ Securities to be registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Preferred Stock Purchase Rights ITEM 1. STOCK TO BE REGISTERED. Not Applicable. ITEM 2. DEBT SECURITIES TO BE REGISTERED. Not Applicable. ITEM 3. OTHER SECURITIES TO BE REGISTERED. On April 15, 1996, the Board of Directors (the "Board") of North Side Savings Bank (the "Bank") declared a dividend distribution of one Right for each outstanding share of common stock, par value $1.00 per share, of the Bank (the "Common Stock") to stockholders of record at the close of business on April 30, 1996 (the "Record Date"). Each right entitles the registered holder to purchase from the Bank a unit (a "Unit") consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share (the "Preferred Stock"), at a purchase price of $100 per Unit, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement (the "Rights Agreement"), dated as of April 18, 1996, between the Bank and American Stock Transfer and Trust Company, a New York corporation, as Rights Agent (the "Rights Agent"). Initially, the Rights will be attached to all Common Stock certificates representing shares then out- standing, and no separate Rights certificate will be distributed. The Rights will separate from the Common Stock upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 10% or more of such outstanding shares of Common Stock (the earlier of (i) and (ii), the "Distribution Date"). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued subsequent to the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for trans- fer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distri- bution Date and will expire at the close of business on April 30, 2006 unless earlier redeemed by the Bank as described below. At no time will the Rights have any voting power. As soon as practicable after the Distribution Date, Rights certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights certificates alone will represent the Rights. Except as otherwise determined by the Board and except in connection with shares of Common Stock issued upon the exercise of employee stock options or upon the exercise, conversion or exchange of securities of the Bank, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event that any person or group becomes an Acquiring Person (unless the event causing such person or group to become an Acquiring Person is a tender or ex- change offer for all outstanding shares of the Bank, at a price determined by a majority of the independent direc- tors of the Bank who are not representatives, nominees, Affiliates or Associates of an Acquiring Person to be fair and otherwise in the best interest of the Bank and its stockholders after receiving advice from one or more investment banking firms), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Bank), having a value equal to two times the exercise price of the Right. Notwithstand- ing any of the foregoing, following the occurrence of the event set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the Rights are no longer redeemable by the Bank as set forth below. In the event that following the Stock Acquisi- tion Date, (i) the Bank engages in a merger or business combination transaction in which the Bank is not the surviving corporation, (ii) the Bank engages in a merger or business combination transaction in which the Bank is the surviving corporation and the Common Stock of the Bank is changed or exchanged (other than, in the case of claus- es (i) and (ii), a merger or business combination that follows an offer described in the previous paragraph and that meets certain other requirements), or (iii) 50% or more of the Bank's assets or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise of the Right, Common Stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combi- nation or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribu- tion to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjust- ments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. At any time until ten days following the Stock Acquisition Date, the Bank may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (payable in cash, stock or other consideration deemed appropriate by the Board). Immediately upon the action of the Board ordering redemption of the Rights, the Rights will termi- nate and the only right of the holders of Rights will be to receive the $0.01 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Bank, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Bank, stock- holders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exer- cisable for Common Stock (or other consideration) of the Bank as set forth above. Any of the provisions of the Rights Agreement may be amended by the Board prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interest of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Bank in certain circum- stances. Accordingly, the existence of the Rights may deter certain acquirors from making takeover proposals or tender offers. However, the Rights are not intended to prevent a takeover, but rather are designed to enhance the ability of the Board to negotiate with a potential acquiror on behalf of all of the stockholders. The Rights Agreement between the Bank and the Rights Agent specifying the terms of the Rights, which includes as Exhibit B the Form of Rights Certificate, is attached hereto as Exhibit 1 and is incorporated herein by reference. The foregoing description of the Rights does not purport to be complete and is qualified in its entire- ty by reference to the Rights Agreement. ITEM 4. EXHIBITS. 1. Rights Agreement, dated as of April 18, 1996, between North Side Savings Bank and American Stock Trans- fer and Trust Company, as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the bank has duly caused this regis- tration statement to be signed on its behalf by the under- signed, thereto duly authorized. NORTH SIDE SAVINGS BANK By: /s/ Thomas O'Brien Name: Thomas O'Brien Title: Chairman, Chief Executive Officer and President Date: April 23, 1996 RIGHTS PLAN NORTH SIDE SAVINGS BANK and AMERICAN STOCK TRANSFER AND TRUST COMPANY as Rights Agent Rights Agreement Dated as of April 18, 1996 Table of Contents Section Page 1. Certain Definitions . . . . . . . . . . . 2 2. Appointment of Rights Agent . . . . . . . . 9 3. Issue of Rights Certificates . . . . . . . . 9 4. Form of Rights Certificates . . . . . . . 12 5. Countersignature and Registration . . . . 14 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates . . . . . . . . . . 15 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . 17 8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . 21 9. Reservation and Availability of Capital Stock . . . . . . . . . . . . . . . . . 22 10. Preferred Stock Record Date . . . . . . . 25 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . . 26 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . 44 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . 45 14. Fractional Rights and Fractional Shares . 50 15. Rights of Action . . . . . . . . . . . . . 53 16. Agreement of Rights Holders . . . . . . . 54 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . 55 18. Concerning the Rights Agent . . . . . . . 56 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . 57 20. Duties of Rights Agent . . . . . . . . . . 58 21. Change of Rights Agent . . . . . . . . . . 62 22. Issuance of New Rights Certificates . . . 64 23. Redemption and Termination . . . . . . . . 65 24. Notice of Certain Events . . . . . . . . . 66 25. Notices . . . . . . . . . . . . . . . . . 68 26. Supplements and Amendments . . . . . . . . 69 27. Successors . . . . . . . . . . . . . . . . 70 28. Determinations and Actions by the Board of Directors, etc. . . . . . . . . . . . . 70 29. Benefits of this Agreement . . . . . . . . 71 30. Severability . . . . . . . . . . . . . . . 72 31. Governing Law . . . . . . . . . . . . . . 72 32. Counterparts . . . . . . . . . . . . . . . 73 33. Descriptive Headings . . . . . . . . . . . 73 Exhibit A -- Form of Certificate of Amendment Exhibit B -- Form of Rights Certificate Exhibit C -- Form of Summary of Rights RIGHTS AGREEMENT RIGHTS AGREEMENT, dated as of April 18, 1996 (the "Agreement"), between North Side Savings Bank, a New York-chartered savings bank (the "Bank"), and American Stock Transfer and Trust Company, a New York corporation (the "Rights Agent"). W I T N E S S E T H WHEREAS, on April 15, 1996 (the "Rights Dividend Declaration Date"), the Board of Directors of the Bank (the "Board) authorized and declared a dividend distribution of one right for each share of Common Stock (as hereinafter defined) of the Bank outstanding at the close of business on April 30, 1996 (the "Record Date"), and authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock of the Bank issued between the Record Date (whether originally issued or delivered from the Bank's treasury) and the Distribution Date (as hereinafter defined), each Right initially representing the right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Bank having the rights, powers and preferences set forth in the form of Certificate of Amendment attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the "Rights"); NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 10% or more of the shares of Common Stock then outstanding, but shall not include (i) the Bank, (ii) any Subsidiary of the Bank, (iii) any employee benefit plan of the Bank or of any Subsidiary of the Bank, (iv) any Person or entity organized, appointed or established by the Bank for or pursuant to the terms of any such plan, (v) any Person who has reported or is required to report such ownership (but less than 15%) on Form F-11A under the Rules and Regulations of the FDIC (or any comparable or successor report) or on Form F-11 under the Rules and Regulations of the FDIC (or any comparable or successor report) which Form F-11 does not state any intention to, or reserve the right to, control or influence the management or policies of the Bank or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the Common Stock) and who, within 10 Business Days of being requested by the Bank to advise it regarding the same, certifies to the Bank that such Person acquired shares of Common Stock in excess of 9.9% inadvertently or without knowledge of the terms of the Rights and who, together with all Affiliates and Associates, thereafter does not acquire additional shares of Common Stock while the Beneficial Owner of 10% or more of the shares of Common Stock then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 Business Days, then such Person shall become an Acquiring Person immediately after such 10 Business Day period or (vi) any Person who becomes the Beneficial Owner of 10% or more of the shares of Common Stock then outstanding as a result of a reduction in the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by the Bank unless and until such Person, after becoming aware that such Person has become the Beneficial Owner of 10% or more of the then outstanding shares of Common Stock, acquires beneficial ownership of additional shares of Common Stock representing 1% or more of the shares of Common Stock then outstanding. (b) "Act" shall mean the Securities Act of 1933, as amended. (c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Section 335.102 of the Rules and Regulations of the FDIC in effect on the date of this Agreement. (d) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Section 335.403 of the Rules and Regulations of the FDIC in effect on the date of this Agreement), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Rules and Regulations of the FDIC, and (B) is not also then reportable by such Person on Form F-11 under the Rules and Regulations of the FDIC (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Bank; provided, however, that nothing in this paragraph (d) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. (e) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (f) "Close of business" on any given date shall mean 5:00 P.M., New York time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day. (g) "Common Stock" shall mean the common stock, $1.00 par value, of the Bank, except that "Common Stock" when used with reference to any Person other than the Bank shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (h) "Common Stock Equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof. (i) "Current Market Price" shall have the meaning set forth in Section 11(d)(i) hereof. (j) "Current Value" shall have the meaning set in Section 11(a)(iii) hereof. (k) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (m) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (n) "FDIC" shall mean the Federal Deposit Insurance Corporation. (o) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (p) "Person" shall mean any individual, firm, corporation, partnership or other entity. (q) "Preferred Stock" shall mean shares of Series A Junior Participating Preferred Stock, $1.00 par value, of the Bank, and, to the extent that there is not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of Preferred Stock, $1.00 par value, of the Bank designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock. (r) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (s) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. (t) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (u) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of the Agreement. (v) "Rights" shall have the meaning set forth in the WHEREAS clause at the beginning of the Agreement. (w) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (x) "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii) hereof. (y) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (z) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. (aa) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. (aa) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to the Rules and Regulations of the FDIC) by the Bank or an Acquiring Person that an Acquiring Person has become such. (bb) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (cc) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (dd) "Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof. (ee) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. Section 2. Appointment of Rights Agent. The Bank hereby appoints the Rights Agent to act as agent for the Bank and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Bank may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights Certificates. (a) Until the earlier of (i) the close of business on the tenth day after the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth Business Day (or such later date as the Board shall determine) after the date that a tender or exchange offer by any Person (other than the Bank, any Subsidiary of the Bank, any employee benefit plan of the Bank or of any Subsidiary of the Bank, or any Person or entity organized, appointed or established by the Bank for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Section 335.502 of the Rules and Regulations of the FDIC, if upon consummation thereof, such Person would be the Beneficial Owner of 10% or more of the shares of Common Stock then outstanding (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Bank). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Bank, one or more rights certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Rights Certificates, the Bank shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) The Bank will make available a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C, to any holder of Rights who may so request from time to time. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock. (c) Rights shall be issued in respect of all shares of Common Stock which are issued (whether originally issued or from the Bank's treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between North Side Savings Bank (the "Bank") and American Stock Transfer and Trust Company (the "Rights Agent"), dated as of April 18, 1996 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Bank. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Bank will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associates thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Bank may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-hundredth of a share, the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. Countersignature and Registration. (a) The Rights Certificates shall be executed on behalf of the Bank by its Chairman of the Board, its Vice Chairman, its President or any Executive Vice President, either manually or by facsimile signature, and shall have affixed thereto the Bank's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Bank, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned. In case any officer of the Bank who shall have signed any of the Rights Certificates shall cease to be such officer of the Bank before countersignature by the Rights Agent and issuance and delivery by the Bank, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Bank with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Bank; and any Rights Certificates may be signed on behalf of the Bank by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Bank to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates, the Certificate number and the date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Bank shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Bank shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Bank may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Bank and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Bank and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Bank will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) April 30, 2006 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration Date"). (b) The Purchase Price for each one one- hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $100, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-hundredth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a share of Preferred Stock to be purchased and the Bank hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Bank shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Bank will direct the depositary agent to comply with such request, (ii) requisition from the Bank the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified bank check, bank draft or money order payable to the order of the Bank. In the event that the Bank is obligated to issue other securities (including Common Stock) of the Bank, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Bank will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Bank reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Bank shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Bank shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Bank shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Bank or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Bank shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Bank otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Bank, or shall, at the written request of the Bank, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Bank. Section 9. Reservation and Availability of Capital Stock. (a) The Bank covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Bank shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) If required by law, the Bank shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Bank upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Bank will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Bank may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Bank shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. In addition, if the Bank shall determine that a registration statement is required following the Distribution Date, the Bank may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law, all approvals required for the issuance of Preferred Stock (or, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable upon exercise of the Rights shall not have been obtained or a registration statement, if required by law, shall not have been declared effective. (d) The Bank covenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable to the fullest extent permitted under applicable law. (e) The Bank further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Bank shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Bank's satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each person in whose name any certificate for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Bank are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Bank are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Bank with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Bank, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Bank shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Bank is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Bank were open, the holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event that any Person (other than the Bank, any Subsidiary of the Bank, any employee benefit plan of the Bank or of any Subsidiary of the Bank, or any Person or entity organized, appointed or established by the Bank for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person unless the event causing such Person to become an Acquiring Person is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board who are not officers of the Bank and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price which is fair to stockholders (taking into account all factors which such members of the Board deem relevant including, without limitation, prices which could reasonably be achieved if the Bank or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Bank and its stockholders then, promptly following the occurrence of any such event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a share of Preferred Stock, such number of shares of Common Stock of the Bank as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number of shares, the "Adjustment Shares"). (iii) In the event that the number of shares of Common Stock which are authorized by the Bank's Restated Organization Certificate but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Bank shall: (A) determine the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Bank (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock which the Board has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares of preferred stock, being referred to as "Common Stock Equivalents")), (4) debt securities of the Bank, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board, based upon the advice of a nationally recognized investment banking firm selected by the Board; provided, however, that if the Bank shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Bank's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Bank shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term "Spread" shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Bank may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the "Substitution Period"). To the extent that action is to be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the Bank (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such stockholder approval for such authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Bank shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of each Adjustment Share shall be the Current Market Price per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be deemed to equal to Current Market Price per share of the Common Stock on such date. Notwithstanding the foregoing provisions of this subparagraph (iii), in the event that, pursuant to this subparagraph (iii), upon the exercise of the Rights of Bank shall be required to deliver value in any form other than shares of Common Stock, such value shall be delivered only to the extent and at the time that, if required, the approval by appropriate financial regulatory authorities with supervisory jurisdiction over the Bank of such delivery of such value shall have been obtained. (b) In case the Bank shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("equivalent preferred stock")) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Bank shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Bank shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Bank is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Bank), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, however, that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification shall not have occurred prior to the commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange ("NYSE") or, if the shares of Common Stock are not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the Current Market Price per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the Current Market Price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the Current Market Price per share of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the Current Market Price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, Current Market Price per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the Current Market Price of one one- hundredth of a share of Preferred Stock shall be equal to the Current Market Price of one share of Preferred Stock divided by 100. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-hundredth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Bank subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Bank shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Bank may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-hundredth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Bank shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Bank shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Bank, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Bank, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Bank, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one- hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredths of a share which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of one one-hundredths of a share of Preferred Stock issuable upon exercise of the Rights, the Bank shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Bank may validly and legally issue fully paid and nonassessable such number of one one-hundredths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Bank may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Bank, if any, issuable upon such exercise over and above the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Bank, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Bank shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Bank shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Bank to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Bank covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Bank in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Bank in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Bank and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Bank and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Bank covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Bank shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Bank shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) if a Distribution Date has occurred, mail a brief summary thereof to each holder of a Rights Certificate in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Bank shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Bank in a transaction which complies with Section 11(o) hereof), and the Bank shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Bank in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Bank, and the Bank shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Bank shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Bank and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Bank or any Subsidiary of the Bank in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such one one-hundredths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by (2) 50% of the current market price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Bank pursuant to this Agreement; (iii) the term "Bank" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Bank are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Bank shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Bank and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section 11(a)(ii) hereof (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer, and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. Fractional Rights and Fractional Shares. (a) The Bank shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Rights are not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board shall be used. (b) The Bank shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-hundredth of a share of Preferred Stock, the Bank may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Bank shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Bank may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in the holder's own behalf and for the holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Bank to enforce, or otherwise act in respect of, the holder's right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Bank and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Bank and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Bank or the Rights Agent) for all purposes whatsoever, and neither the Bank nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Bank nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Bank must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-hundredths of a share of Preferred Stock or any other securities of the Bank which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Bank or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Bank agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Bank also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Bank, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Bank and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Bank), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Market Price) be proved or established by the Bank prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the Vice Chairman, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Bank and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Bank only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Bank of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Bank agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the Vice Chairman, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Bank, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Bank or become pecuniarily interested in any transaction in which the Bank may be interested, or contract with or lend money to the Bank or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Bank or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Bank resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Bank. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon ten (10) days' notice in writing mailed to the Bank, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Bank may remove the Rights Agent or any successor Rights Agent upon ten (10) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Bank shall appoint a successor to the Rights Agent. If the Bank shall fail to make such appointment within a period of ten (10) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Bank), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Bank or by such a court, shall be (a) a legal business entity organized and doing business under the laws of the United States or of any state of the United States, in good standing, having a principal office in the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an affiliate of a legal business entity described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Bank shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Bank may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Bank (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Bank, and (b) may, in any other case, if deemed necessary or appropriate by the Board, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Bank shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Bank or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. (a) The Board may, at its option, at any time prior to the earlier of (i) the close of business on the tenth day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth day following the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Bank's right of redemption hereunder has expired. The Bank may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Current Market Price, as defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board. (b) Immediately upon the action of the Board ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board ordering the redemption of the Rights, the Bank shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. Notice of Certain Events. (a) In case the Bank shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Bank), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Bank in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of 50% or more of the assets or earning power of the Bank and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Bank and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Bank, then, in each such case, the Bank shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier. (b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Bank shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Bank shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: North Side Savings Bank 170 Tulip Avenue Floral Park, New York 11001 Attention: Corporate Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Bank or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Bank) as follows: American Stock Transfer and Trust Company 99 Wall Street New York, New York 10005 Notices or demands authorized by this Agreement to be given or made by the Bank or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Bank. Section 26. Supplements and Amendments. Prior to the Distribution Date, the Bank and the Rights Agent shall, if the Bank so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date, the Bank and the Rights Agent shall, if the Bank so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner which the Bank may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Bank which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 27. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Bank or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Section 334.403(d)(1)(i) of the Rules and Regulations of the FDIC as in effect as of the date of this Agreement. The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Bank, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Bank, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Bank, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Bank, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Without limiting the foregoing, if any provision requiring a determination to be made by (or with the concurrence of) less than the entire Board is held by any court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall then be made by the Board in accordance with applicable law and the Bank's Restated Organization Certificate and By-Laws. Section 31. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: NORTH SIDE SAVINGS BANK By /s/ Judith A. MacGregor By /s/ Thomas M. O'Brien Name: Judith A. MacGregor Name: Thomas M. O'Brien Title: Corporate Secretary Title: Chairman, Chief Executive Officer and President AMERICAN STOCK TRANSFER AND Attest: TRUST COMPANY By /s/ Susan Silber By /s/ Herbert J. Lemmer Name: Susan Silber Name: Herbert J. Lemmer Title: Assistant Secretary Title: Vice President Exhibit A FORM OF CERTIFICATE OF AMENDMENT OF THE RESTATED ORGANIZATION CERTIFICATE OF NORTH SIDE SAVINGS BANK Pursuant to Section 8005 of the New York Banking Law We, Thomas M. O'Brien, President, and Judith A. MacGregor, Secretary, of North Side Savings Bank, a New York-chartered savings bank, in accordance with the provisions of Sections 5002 and 8005 of the Banking Law of the State of New York, DO HEREBY CERTIFY: FIRST, the name of the Corporation is NORTH SIDE SAVINGS BANK. SECOND, The Corporation was initially created as a mutual savings bank by Special Act of the Legislature of the State of New York known as Section 104 of Chapter 689 of the Laws of 1892. Under Banking Law Section 9001(3), such Act is the organization certificate of the Corporation. On April 8, 1986, in connection with the bank's conversion to stock form the Restated Organization Certificate of the Corporation was filed with the Superintendent of Banks of the State of New York. THIRD, the Restated Organization Certificate is hereby amended by the addition of the following provisions stating the number, designation, relative rights, preferences and limitations of a series of preferred stock of the Corporation, designated as Series A Junior Participating Preferred Stock, as fixed by resolution of the Board of Directors of the Corporation pursuant to the authority vested in it by the Restated Organization Certificate of the Corporation. Article IV, Part B of the Restated Organization Certificate of the Corporation is hereby amended by the addition of the following at the end thereof: Series A Junior Participating Preferred Stock Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be 100,000. Section 2. Dividends and Distributions. (A) The dividend rate on the shares of Series A Junior Participating Preferred Stock for each quarterly dividend period (hereinafter referred to as a "quarterly dividend period"), which quarterly dividend periods shall commence on January 1, April 1, July 1 and October 1 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") (or in the case of original issuance, from the date of original issuance) and shall end on and include the day next preceding the first date of the next quarterly dividend period, shall be equal (rounded to the nearest cent) to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in cash, based upon the fair market value at the time the non-cash dividend or other distribution is declared as determined in good faith by the Board of Directors) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared (but not withdrawn) on the Common Stock, during the immediately preceding quarterly dividend period, or, with respect to the first quarterly dividend period, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Savings Bank shall at any time after April 15, 1996 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Savings Bank shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 50 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Savings Bank. In the event the Savings Bank shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, by the Restated Organization Certificate or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Savings Bank. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of the Series A Junior Participating Preferred Stock with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of preferred stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Series A Junior Participating Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Series A Junior Participating Preferred Stock of such voting right. At any meeting at which the holders of Series A Junior Participating Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Series A Junior Participating Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Series A Junior Participating Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Series A Junior Participating Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Series A Junior Participating Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Series A Junior Participating Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Series A Junior Participating Preferred Stock, which meeting shall thereupon be called by the Chairman, the President or the Secretary of the Savings Bank. Notice of such meeting and of any annual meeting at which holders of Series A Junior Participating Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of Series A Junior Participating Preferred Stock by mailing a copy of such notice to the holder at the holder's last address as the same appears on the books of the Savings Bank. Such meeting shall be called for a time not earlier than 10 days and not later than 50 days after such order or request, or in default of the calling of such meeting within 50 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Series A Junior Participating Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within 50 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Savings Bank if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Series A Junior Participating Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Series A Junior Participating Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Series A Junior Participating Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Series A Junior Participating Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Restated Organization Certificate or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the Restated Organization Certificate or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining directors. (D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Savings Bank shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Savings Bank may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Savings Bank ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Savings Bank shall not permit any subsidiary of the Savings Bank to purchase or otherwise acquire for consideration any shares of stock of the Savings Bank unless the Savings Bank could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Savings Bank in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Savings Bank, no distribution shall be made to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $100 per share, plus accrued and unpaid dividends to the date of distribution, whether or not earned or declared to the date of such payment (the "Liquidation Preference"). Following the payment of the full amount of the Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Savings Bank shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of Series A Junior Participating Preferred Stock were entitled immediately prior to such event pursuant to clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Savings Bank shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Savings Bank shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Savings Bank's Preferred Stock as to the payment of dividends and as regards liquidation, dissolution and winding up, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Restated Organization Certificate of the Savings Bank shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, we have made, signed and acknowledged this Certificate this ____ day of , 1996. ___________________________ Thomas M. O'Brien President ________________________ Judith A. MacGregor Secretary Exhibit B [Form of Rights Certificate] Certificate No. R- ________ Rights NOT EXERCISABLE AFTER APRIL 30, 2006 OR EARLIER IF REDEEMED BY THE BANK. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE BANK, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]* * The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. Rights Certificate NORTH SIDE SAVINGS BANK This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of April 18, 1996 (the "Rights Agreement"), between North Side Savings Bank, a New York-chartered savings bank (the "Bank"), and American Stock Transfer and Trust Company, a New York corporation (the "Rights Agent"), to purchase from the Bank at any time prior to 5:00 P.M. (New York time) on April 30, 2006 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non- assessable share of Series A Junior Participating Preferred Stock (the "Preferred Stock") of the Bank, at a purchase price of $100 in cash per one one-hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of April 30, 1996, based on the Preferred Stock as constituted at such date. Pursuant to the Rights Agreement, the Bank reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued. Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Bank and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Bank at its option at a redemption price of $0.01 per Right at any time prior to the earlier of (i) the close of business on the tenth day following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement) and (ii) the Final Expiration Date. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock, which may, at the election of the Bank, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Bank which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Bank or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Bank and its corporate seal. Dated as of , 19__ ATTEST: NORTH SIDE SAVINGS BANK ____________________ By_______________________ Secretary Title: Countersigned: [ ] By______________________ Authorized Signature [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED ____________________________________ hereby sells, assigns and transfer unto________________ _______________________________________________________ (Please print name and address of transferee) _______________________________________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Bank, with full power of substitution. Dated: ________ ________, 19__ ___________________________ Signature Signature Guaranteed: Certificate The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: __________________, 19__ ______________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: NORTH SIDE SAVINGS BANK: The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Bank or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number _________________________________________________________ (Please print name and address) _________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________ (Please print name and address) ________________________________________________________ Dated: _______________, 19__ ______________________ Signature Signature Guaranteed: Certificate The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________, 19__ ___________________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. Exhibit C SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On April 15, 1996, the Board of Directors (the "Board") of North Side Savings Bank (the "Bank") declared a dividend distribution of one Right for each outstanding share of North Side Common Stock to stockholders of record at the close of business on April 30, 1996 (the "Record Date"). Each Right entitles the registered holder to purchase from the Bank a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, $1.00 par value (the "Preferred Stock"), at a Purchase Price of $100 in cash per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Bank and American Stock Transfer and Trust Company, as Rights Agent. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificate will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 10% or more of such outstanding shares of Common Stock. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on April 30, 2006, unless earlier redeemed by the Bank as described below. Pursuant to the Rights Agreement, the Bank reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors and except in connection with shares of Common Stock issued upon the exercise of employee stock options or the conversion of convertible securities, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event that, at any time following the Distribution Date, any Person (subject to certain exceptions) becomes an Acquiring Person except pursuant to an offer for all outstanding shares of Common Stock which the independent directors determine to be fair to, and otherwise in the best interests of, stockholders, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Bank) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of any event set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. For example, at an exercise price of $100 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $200 worth of Common Stock (or other consideration, as noted above) for $100. Assuming that the Common Stock had a per share value of $40 at such time, the holder of each valid Right would be entitled to purchase 5 shares of Common Stock for $100. In the event that, at any time following the Stock Acquisition Date, (i) the Bank is acquired in a merger or other business combination transaction in which the Bank is not the surviving corporation or its Common Stock is changed or exchanged (other than a merger which follows an offer described in the second preceding paragraph), or (ii) 50% or more of the Bank's assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The events set forth in this paragraph and in the second preceding paragraph are referred to as the "Triggering Events." The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. At any time until the tenth day following the Stock Acquisition Date, the Bank may redeem the Rights in whole, but not in part, at a price of $.01 per Right (payable in cash, stock or other consideration deemed appropriate by the Board). Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Bank, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Bank, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Bank or for common stock of the acquiring company as set forth above. Any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Bank prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. A copy of the Rights Agreement is being filed with the Federal Deposit Insurance Corporation as an Exhibit to a Registration Statement on Form F-10. A copy of the Rights Agreement is available free of charge from the Bank. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. EX-99 13 EXHIBIT 99.12 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 AMENDMENT NO. 1 TO FORM F-10 REGISTRATION FOR ADDITIONAL CLASS OF SECURITIES OF A BANK UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 NORTH SIDE SAVINGS BANK (EXACT NAME OF BANK AS SPECIFIED IN ITS CHARTER) 170 TULIP AVENUE FLORAL PARK, NEW YORK (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 11001 (ZIP CODE) SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: PREFERRED STOCK PURCHASE RIGHTS ITEM 1. STOCK TO BE REGISTERED. Not Applicable. ITEM 2. DEBT SECURITIES TO BE REGISTERED. Not Applicable. ITEM 3. OTHER SECURITIES TO BE REGISTERED. On April 15, 1996, the Board of Directors (the "Board") of North Side Savings Bank (the "Bank") declared a dividend distribution of one Right for each outstanding share of common stock, par value $1.00 per share, of the Bank (the "Common Stock") to stockholders of record at the close of business on April 30, 1996 (the "Record Date"). Each right entitles the registered holder to purchase from the Bank a unit (a "Unit") consisting of one one- hundredth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share (the "Preferred Stock"), at a purchase price of $100 per Unit, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement (the "Rights Agreement"), dated as of April 18, 1996, between the Bank and American Stock Transfer and Trust Company, a New York corporation, as Rights Agent (the "Rights Agent"). Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights certificate will be distributed. The Rights will separate from the Common Stock upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 10% or more of such outstanding shares of Common Stock (the earlier of (i) and (ii), the "Distribution Date"). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued subsequent to the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on April 30, 2006 unless earlier redeemed by the Bank as described below. At no time will the Rights have any voting power. As soon as practicable after the Distribution Date, Rights certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights certificates alone will represent the Rights. Except as otherwise determined by the Board and except in connection with shares of Common Stock issued upon the exercise of employee stock options or upon the exercise, conversion or exchange of securities of the Bank, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event that any person or group becomes an Acquiring Person (unless the event causing such person or group to become an Acquiring Person is a tender or exchange offer for all outstanding shares of the Bank, at a price determined by a majority of the independent directors of the Bank who are not representatives, nominees, Affiliates or Associates of an Acquiring Person to be fair and otherwise in the best interest of the Bank and its stockholders after receiving advice from one or more investment banking firms), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Bank), having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of the event set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the rights are no longer redeemable by the Bank as set forth below. In the event that following the Stock Acquisition Date, (i) the Bank engages in a merger or business combination transaction in which the Bank is not the surviving corporation, (ii) the Bank engages in a merger or business combination transaction in which the Bank is the surviving corporation and the Common Stock of the Bank is changed or exchanged (other than, in the case of clauses (i) and (ii), a merger or business combination that follows an offer described in the previous paragraph and that meets certain other requirements), or (iii) 50% or more the Bank's assets or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise of the Right, Common Stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend, on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. At any time until ten days following the Stock Acquisition Date, the Bank may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (payable in cash, stock or other consideration deemed appropriate by the Board). Immediately upon the action of the Board ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Bank, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Bank, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Bank as set forth above. Any of the provisions of the Rights Agreement may be amended by the Board prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interest of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Bank in certain circumstances. Accordingly, the existence of the rights may deter certain acquirors from making takeover proposals or tender offers. However, the Rights are not intended to prevent a takeover, but rather are designed to enhance the ability of the Board to negotiate with a potential acquiror on behalf of all of the stockholders. The Rights should not interfere with any merger or other business combination approved by the Board since the Board may redeem the Rights as provided above. In this regard, on July 15, 1996, the Bank and North Fork Bancorporation, Inc. ("North Fork") executed an Agreement and Plan of Merger (the "Merger Agreement"), providing for, among other things, the merger of the Bank with and into a subsidiary of North Fork. In connection with the execution of the Merger Agreement, the Company executed an amendment (the "Amendment") to the Rights Agreement in order to amend the definition of "Acquiring Person" set forth in the Rights Agreement to provide that neither North Fork nor any of its subsidiaries will be deemed to be an Acquiring Person by virtue of the fact that North Fork is the Beneficial Owner (as defined in the Rights Agreement) solely of Common Stock (i) of which North Fork or such subsidiary was the Beneficial Owner on July 15, 1996, (ii) acquired or acquirable pursuant to the grant or exercise of the option granted pursuant to the Stock Option Agreement, dated as of July 15, 1996, between the Bank and North Fork, (iii) held directly or indirectly in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity for third parties and (iv) held in respect of a debt previously contracted. The Rights Agreement between the Bank and the Rights Agent specifying the terms of the Rights, which includes as Exhibit B the Form of Rights Certificate, was attached as an Exhibit to the Company's Form F-10 filed with the Federal Deposit Insurance Corporation on April 24, 1996 and is incorporated herein by reference. The Amendment is attached hereto as Exhibit 2 and is incorporated herein by reference. The foregoing description of the Rights, the Rights Agreement and the Amendment does not purport to be complete and is qualified in its entirety by reference to such Exhibits. ITEM 4. EXHIBITS. 1. Rights Agreement, dated as of April 18, 1996, between North Side Savings Bank and American Stock Transfer and Trust Company, as Rights Agent, incorporated herein by reference to Exhibit 1 to the Banks Registration Statement on Form F-10, dated April 24, 1996. 2. Amendment, dated as of July 15, 1996, to the Rights Agreement, dated as of April 15, 1996, between North Side Savings Bank and American Stock Transfer and Trust Company, as Rights Agent. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the bank has duly caused this registration statement to be signed on its behalf by the undersigned, thereto duly authorized. NORTH SIDE SAVINGS BANK By: /s/ Thomas O'Brien Name: Thomas O'Brien Title: Chairman, Chief Executive Officer and President Dated: August 21, 1996 EXHIBIT 1 AMENDMENT TO RIGHTS AGREEMENT Amendment, dated as of July 15, 1996, to the Rights Agreement (the "Amendment"), dated as of April 18, 1996 (the "Rights Agreement"), between North Side Savings Bank, a New York-chartered savings bank (the "Company"), and American Stock Transfer and Trust Company, a New York corporation (the "Rights Agent"). W I T N E S S E T H: WHEREAS, no Distribution Date (as defined in Section 3(a) of the Rights Agreement) has occurred as of the date of this Amendment; and WHEREAS, the Board of Directors of the Company has approved and adopted this Amendment and directed that the proper officers take all appropriate steps to execute and put into effect this Amendment. NOW, THEREFORE, the parties hereby agree as follows: 1. Section 1(a) of the Rights Agreement is hereby amended by inserting the following phrase after the last word and before the period at the end of the definition of "Acquiring Person": "; provided; however, that neither North Fork Bancorporation, Inc., a Delaware corporation ("Parent"), nor any Subsidiary of Parent shall be deemed to be an Acquiring Person by virtue of the fact that Parent is the Beneficial Owner solely of Common Stock (i) of which Parent or such subsidiary was the Beneficial Owner on July 15, 1996, (ii) acquired or acquirable pursuant to the grant or exercise of the option granted pursuant to the Stock Option Agreement, dated as of July 15, 1996, between Parent and the Company, (iii) held directly or indirectly in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity for third parties and (iv) held in respect of a debt previously contracted." 2. This Amendment shall be effective immediately upon its execution and the Rights Agreement shall continue in full force and effect as amended hereby. 3. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned thereto in the Rights Agreement. 4. This Amendment may be executed in counterparts. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. NORTH SIDE SAVINGS BANK ATTEST: By: /s/ Judith A. MacGregor By: /s/ Thomas M. O'Brien Name: Thomas M. O'Brien Title: Chairman, President and Chief Executive Officer AMERICAN STOCK TRANSFER AND TRUST COMPANY By: /s/ Herbert L. Lemmer Name: Herbert L. Lemmer Title: Vice President ATTEST: By: /s/ Susan Silber SUSAN SILBER Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----