-----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, F2dRVoujC+b9dASpkiAL5dkvmDaJrQfmk8/2Vu8nFIgDsvS5n7M9d5ML/apzgIta ZnRss8Chw/AgMOeBOZxvhA== 0000900741-98-000009.txt : 19981118 0000900741-98-000009.hdr.sgml : 19981118 ACCESSION NUMBER: 0000900741-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAVEN BANCORP INC CENTRAL INDEX KEY: 0000900741 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113153802 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21628 FILM NUMBER: 98750520 BUSINESS ADDRESS: STREET 1: 615 MERRICK AVE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5166834100 MAIL ADDRESS: STREET 1: 93 22 JAMAICA AVE CITY: WOODHAVEN STATE: NY ZIP: 11421 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number: 000-21628 HAVEN BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 11-3153802 (I.R.S. Employer Identification No.) 615 MERRICK AVENUE, WESTBURY, NEW YORK 11590 (Address of principal executive offices) (Zip Code) (516) 683-4100 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 8,852,254 shares of the Registrant's common stock outstanding as of November 13, 1998. HAVEN BANCORP, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of September 30, 1998 and December 31, 1997 3 Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 1998 and 1997 4 Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 1998 5 Consolidated Statements of Cash Flows for the Nine months ended September 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-33 Item 3. Quantitative and Qualitative Disclosure About Market Risk 33 PART II - OTHER INFORMATION Item 1. Legal Proceedings 33-34 Item 2. Changes in Securities and Use of Proceeds 34 Item 3. Defaults Upon Senior Securities 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 5. Other Information 34 Item 6. Exhibits and Reports on Form 8-K 34 Signature Page 2 HAVEN BANCORP, INC. Consolidated Statements of Financial Condition (Dollars in thousands, except for share data) (Unaudited)
September 30, December 31, 1998 1997 ------------- ------------ ASSETS Cash and due from banks $ 35,049 $ 35,745 Money market investments 1,803 4,561 Securities available for sale 839,570 499,380 Loans held for sale 58,236 - Debt securities held to maturity (estimated fair value of $66,372 in 1997) - 66,404 Federal Home Loan Bank of NY stock, at cost 19,670 12,885 Mortgage-backed securities held to maturity (estimated fair value of $163,326 in 1997) - 163,057 Loans: First mortgage loans 1,273,789 1,098,894 Cooperative apartment loans 4,957 19,596 Other loans 33,840 32,291 --------- --------- Total loans 1,312,586 1,150,781 Less allowance for loan losses (13,791) (12,528) --------- --------- Loans, net 1,298,795 1,138,253 Premises and equipment, net 37,010 27,062 Accrued interest receivable 13,099 12,429 Other assets 19,234 15,114 --------- --------- Total assets $2,322,466 $1,974,890 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $1,627,832 $1,365,012 Borrowed funds 487,211 466,794 Due to broker 40,000 10,000 Other liabilities 44,887 20,219 --------- --------- Total liabilities 2,199,930 1,862,025 --------- --------- Stockholders' Equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued - - Common stock, $.01 par value, 30,000,000 shares authorized, 9,918,750 shares issued; 8,850,768 and 8,784,700 shares outstanding at September 30, 1998 and December 31, 1997 100 100 Additional paid-in capital 51,038 50,065 Retained earnings, substantially restricted 77,402 73,567 Accumulated other comprehensive income: Unrealized gain on securities available for sale, net of tax effect 5,892 1,671 Treasury stock, at cost (1,067,982 and 1,134,050 shares at September 30, 1998 and December 31, 1997) (9,853) (10,246) Unallocated common stock held by Bank's ESOP (1,297) (1,529) Unearned common stock held by Bank's Recognition Plans and Trusts (284) (364) Unearned compensation (462) (399) --------- --------- Total stockholders' equity 122,536 112,865 --------- --------- Total liabilities and stockholders' equity $2,322,466 $1,974,890 ========= =========
See accompanying notes to consolidated financial statements. Note - Share amounts have been restated to fully reflect the 2-for- 1 stock split effective November 1997. 3 HAVEN BANCORP, INC. Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Interest income: Mortgage loans $25,299 $19,811 $70,629 $54,878 Other loans 821 808 2,431 2,424 Mortgage-backed securities 11,610 8,541 30,114 23,773 Money market investments 23 83 169 273 Debt and equity securities 2,226 3,332 8,331 11,640 ------ ------ ------- ------ Total interest income 39,979 32,575 111,674 92,988 ------ ------ ------- ------ Interest expense: Deposits: Savings accounts 3,366 2,387 8,482 6,938 NOW accounts 344 277 946 772 Money market accounts 525 470 1,462 1,329 Certificate accounts 12,791 10,394 37,269 28,085 Borrowed funds 8,015 5,817 20,933 16,827 ------ ------ ------ ------ Total interest expense 25,041 19,345 69,092 53,951 ------ ------ ------ ------ Net interest income 14,938 13,230 42,582 39,037 Provision for loan losses 670 700 1,990 2,150 ------ ------ ------ ------ Net interest income after provision for loan losses 14,268 12,530 40,592 36,887 ------ ------ ------ ------ Non-interest income: Loan fees and servicing income 428 271 1,272 775 Mortgage banking income 4,646 - 5,553 - Savings/checking fees 2,650 1,452 6,780 3,775 Net gain (loss) on sales of interest-earning assets 1,185 (7) 1,591 (23) Insurance annuity and mutual fund fees 1,472 1,024 3,973 2,827 Other 634 471 1,888 1,011 ------ ------ ------ ------ Total non-interest income 11,015 3,211 21,057 8,365 ------ ------ ------ ------ Non-interest expense: Compensation and benefits 12,084 6,488 30,048 17,380 Occupancy and equipment 2,947 1,760 7,547 4,398 Real estate owned operations, net 67 99 28 283 Federal deposit insurance premiums 231 165 660 529 Other 7,312 3,502 15,806 10,031 ------ ------ ------ ------ Total non-interest expense 22,641 12,014 54,089 32,621 ------ ------ ------ ------ Income before income tax expense 2,642 3,727 7,560 12,631 Income tax expense 402 1,276 1,940 4,575 ------ ------ ------ ------ Net income $2,240 $2,451 $5,620 $8,056 ====== ====== ====== ====== Net income per common share: Basic $ 0.26 $ 0.29 $ 0.66 $ 0.96 ====== ====== ====== ====== Diluted $ 0.24 $ 0.27 $ 0.61 $ 0.90 ====== ====== ====== ======
See accompanying notes to consolidated financial statements. Note - Per share amounts have been restated to fully reflect the 2-for-1 stock split effective November 1997. 4 HAVEN BANCORP, INC. Consolidated Statement of Changes in Stockholders' Equity Nine Months Ended September 30, 1998 (Unaudited)
Accumulated Other Unallocated Unearned Additional Comprehen- Common Common Common Paid-In Retained sive Treasury Stock Held Stock Held Unearned Total Stock Capital Earnings Income Stock by ESOP by RRP Compensation (Dollars in thousands) ----- ------ ---------- -------- ---------- -------- ----------- ---------- ------------ Balance at December 31, 1997 $112,865 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399) Comprehensive Income: Net income 5,620 - - 5,620 - - - - - Other comprehensive income, net of tax Net unrealized appreciation on certain securities, net of reclassification adjustment 3,340 - - - 3,340 - - - - Net unrealized appreciation on Debt and MBS securities transferred from held to maturity to the AFS portfolio(note 2) 881 - - - 881 - - - - ------- Comprehensive income 9,841 - - - - - - - - Dividends declared (note 5) (1,785) - - (1,785) - - - - - Treasury stock issued for deferred compensation plan (14,384 shares) - - 280 - - 86 - - (366) Stock options exercised, net of tax effect (51,684 shares) (note 4) 441 - 134 - - 307 - - - Allocation of ESOP stock and amortization of award of RRP stock and related tax benefits 871 - 559 - - - 232 80 - Amortization of deferred compensation plan 303 - - - - - - - 303 ------- --- ------ ------ ------ ------ ------ ----- ----- Balance at September 30, 1998 $122,536 100 51,038 77,402 5,892 (9,853) (1,297) (284) (462) ======= === ====== ====== ====== ====== ====== ===== =====
FAS 130 Disclosure of Reclassification Adjustment September 30, 1998 Gross Tax Effect Net of Tax ----- ---------- ---------- Comprehensive income items Net unrealized gain arising during period 5,708 1,157 4,551 Less: reclassification adjustment for net gains included in income 465 134 330 ----- ----- ----- Net unrealized gain on certain securities 5,243 1,022 4,221 ===== ===== ===== Balance sheet items Accumulated unrealized gain on securities AFS as of September 30, 1998 7,856 1,964 5,892 Accumulated unrealized gain on securities AFS as of December 31, 1997 2,613 942 1,671 ----- ----- ----- Change during the period 5,243 1,022 4,221 ===== ===== =====
See accompanying notes to consolidated financial statements. Note - Share amounts have been restated to fully reflect the 2- for-1 stock split effective November 1997. 5 HAVEN BANCORP, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Nine months ended September 30, ------------------ 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 5,620 $ 8,056 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of cost of stock benefit plans 1,174 1,205 Amortization of net deferred loan origination fees (779) (401) Amortization of premiums and discounts on loans, mortgage-backed and debt securities (1,401) 273 Provision for loan losses 1,990 2,150 Provision for losses on real estate owned 35 100 Deferred income taxes 1,702 (1,252) Net (gain) loss on sales of interest-earning assets (1,591) 23 Loans originated and purchased for sale, net of proceeds from sale (58,236) - Depreciation and amortization 2,186 1,010 (Increase) decrease in accrued interest receivable (670) 411 Increase (decrease) in due to broker 30,000 (1,000) Increase in other liabilities 24,663 3,263 Increase in other assets (7,002) (2,437) ------- ------ Net cash (used in) provided by operating activities (2,309) 11,401 ------- ------ Cash flows from investing activities: Net increase in loans (266,903) (217,407) Proceeds from disposition of assets (including REO) 565 1,643 Purchases of securities available for sale (486,666) (352,407) Principal repayments and maturities on securities available for sale 120,025 26,766 Proceeds from sales of securities available for sale 323,002 275,513 Principal repayments, maturities and calls on debt securities held to maturity 21,020 8,954 Principal repayments on mortgage-backed securities held to maturity 24,834 24,996 Purchases of FHLB stock, net (6,785) (1,350) Net increase in premises and equipment (12,134) (9,324) ------- ------- Net cash used in investing activities (283,042) (242,616) ------- ------- Cash flows from financing activities: Net increase in deposits 262,820 172,683 Net increase in borrowed funds 20,417 64,232 Payment of common stock dividends (1,781) (1,956) Stock options exercised 441 747 ------- ------- Net cash provided by financing activities 281,897 235,706 ------- ------- Net (decrease) increase in cash and cash equivalents (3,454) 4,491 Cash and cash equivalents at beginning of period 40,306 35,717 ------ ------- Cash and cash equivalents at end of period $ 36,852 $ 40,208 ======= ======= Supplemental information: Cash paid during the period for: Interest $67,749 $ 52,814 Income taxes 1,664 3,946 Additions to real estate owned 558 1,539 Securities purchased, not yet received 40,000 - Loans securitized 105,691 - MBS and debt securities held to maturity transferred to securities available for sale 183,639 - ======= ======
See accompanying notes to consolidated financial statements. 6 HAVEN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 and 1997 (Unaudited) NOTE 1 - BASIS OF PRESENTATION. The accompanying unaudited consolidated financial statements include the accounts of Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") and its wholly- owned subsidiary, CFS Bank, formerly known as Columbia Federal Savings Bank, ("CFS" or the "Bank") and subsidiaries, as of September 30, 1998 and December 31, 1997 and for the three-month and nine-month periods ended September 30, 1998 and 1997, respectively. Material intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring accruals necessary for a fair presentation, have been included. The results of operations for the three-month and nine-month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997. NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs"). Under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", debt and equity securities and MBSs which the Company has the ability and the intent to hold until maturity are carried at cost adjusted for amortization of premiums and accretion of discounts. Debt and equity securities and MBSs to be held for indefinite periods of time and not intended to be held to maturity or on a long-term basis are classified as available for sale securities which are recorded at fair value, with unrealized gains (losses) reported as a separate component of stockholders' equity, net of taxes. At June 30, 1998, the Company transferred its remaining debt and MBSs held to maturity portfolios totaling $183.6 million to securities available for sale. 7 SECURITIES AVAILABLE FOR SALE The amortized cost and estimated fair values of securities available for sale at September 30, 1998 are summarized as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (In thousands) Debt and equity securities available for sale: U.S. Government and Agency obligations $ 62,872 131 (339) 62,664 Corporate Bonds 19,848 - (176) 19,672 Preferred Stock 11,700 39 (190) 11,549 ------- ----- ------ ------- 94,420 170 (705) 93,885 ------- ----- ------ ------- MBSs available for sale: GNMA Certificates 529 5 - 534 FNMA Certificates 189,887 2,728 (41) 192,574 FHLMC Certificates 65,729 1,162 (6) 66,885 CMOs and REMICS 481,148 5,529 (985) 485,692 ------- ----- ------ ------- 737,293 9,424 (1,032) 745,685 ------- ----- ------ ------- Total $831,713 9,594 (1,737) 839,570 ======= ===== ====== =======
The net unrealized gain on securities available for sale at September 30, 1998, was reported as a separate component of stockholders' equity in the amount of $5.9 million, which is net of a tax effect of $2.0 million. NOTE 3 - ACQUISITION OF CENTURY INSURANCE AGENCY. On September 29, 1998, Haven Bancorp announced that it had agreed to acquire Century Insurance Agency ("CIA") for approximately $1.2 million. CIA, which is headquartered in Centereach, New York, specializes in providing automobile, homeowners and casualty insurance to individuals and various lines of commercial insurance to businesses. CIA, which will operate as a subsidiary of Haven Bancorp represents more than twelve insurance companies as an independent agency. This transaction required no regulatory or shareholder approval and was completed on November 2, 1998. 8 NOTE 4 - STOCK PLANS. Changes in outstanding options (restated for the 2-for-1 stock split effective November 1997) for the benefit of directors, officers and other key employees of the Bank for the nine months ended September 30, 1998 are as follows:
Weighted Average Options Exercise Price ------- ---------------- Balance at December 31, 1997 1,231,676 $ 7.90 Granted 98,200 25.81 Forfeited - - Exercised (51,684) 8.53 --------- ----- Balance at September 30, 1998 1,278,192 $ 9.25 ========= ===== Shares exercisable at September 30, 1998 1,024,037 $ 6.99 ========= =====
NOTE 5 - DIVIDENDS PAYABLE. On September 23, 1998, the Company's Board of Directors approved a quarterly cash dividend of $0.075 per share, payable on October 23, 1998, to shareholders of record as of October 2, 1998. NOTE 6 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The statement establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company adopted the provisions of SFAS No. 130 during the first quarter of 1998 and as such was required to: (a) classify items of other comprehensive income by their nature in a financial statement; (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section in its statement of financial condition; and (c) reclassify prior periods presented (see Note 8). In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires that enterprises report certain financial and descriptive information about operating segments in complete sets 9 of financial statements of the Company and in condensed financial statements of interim periods issued to stockholders. SFAS No. 131 also requires that enterprises report certain information about their products and services, geographic areas in which they operate, and their major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 but does not have to be applied to interim financial statements in the initial year of application. As the requirements of SFAS No. 131 are disclosure-related, its implementation will have no impact on the Company's financial condition or results of operations. In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures about Pensions and Other Post-Retirement Benefits". SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS No. 132 also standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997 and requires restatement of prior periods presented. As the requirements of SFAS No. 132 are disclosure related, its implementation will have no impact on the Company's financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and does not require restatement of prior periods. Management of the Company currently believes the implementation of SFAS No. 133 will not have a material impact on the Company's financial condition or results of operations as the Company does not currently use derivative instruments as defined in SFAS No. 133. In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise". SFAS No. 134 changes the way mortgage banking firms account for certain securities and other interests they retain after securitizing mortgage loans that were held for sale. Under current practice, a bank that securitizes credit card receivables 10 has a choice in how it classifies any retained securities based on its intent and ability to hold or sell those investments. SFAS No. 134 gives the mortgage banking firms the opportunity to apply the same intent-based accounting that is applied by other companies. SFAS No. 134 is effective for the fiscal quarter beginning after December 15, 1998. Management of the Company anticipates that the implementation of SFAS No. 134 will not have a material impact on the Company's financial condition or results of operations. NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. There were 8,590,777 basic shares outstanding and 9,207,719 diluted shares outstanding for the three months ended September 30, 1998. There were 8,577,095 basic shares outstanding and 9,209,293 diluted shares outstanding for the nine months ended September 30, 1998. The weighted average number of shares outstanding does not include 259,339 shares which are unallocated by the Employee Stock Ownership Plan ("ESOP") as of September 30, 1998 in accordance with American Institute of CPAs ("AICPA") Statement of Position ("SOP") 93-6, "Employers' Accounting for ESOPs". Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the relevant period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. NOTE 8 - COMPREHENSIVE INCOME - Comprehensive income, as discussed in Note 6, was $4.9 million and $9.8 million for the three month and nine month periods ended September 30, 1998, respectively, and $4.1 million and $10.6 million for the three month and nine month periods ended September 30, 1997, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") is the holding company for CFS Bank, formerly known as Columbia Federal Savings Bank ("CFS" or the "Bank"), a federally chartered stock savings bank. CFS converted from a mutual to a stock savings bank on September 23, 1993 in conjunction with the issuance of the Bank's capital stock to Haven Bancorp. Haven Bancorp's business currently consists of the business of the Bank. The Bank's principal business has been and continues to be attracting retail deposits from the general public and investing those deposits, together with funds generated from 11 operations primarily in one-to four-family, owner occupied residential mortgage loans. In addition, in times of low loan demand, the Bank will invest in debt, equity and mortgage-backed securities ("MBSs") to supplement its lending portfolio. The Bank also invests, to a lesser extent, in multi-family residential mortgage loans,commercial real estate loans, equity lines of credit and other marketable securities. The Bank's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its loan and securities portfolios and its cost of funds, which primarily consist of the interest paid on its deposits and borrowed funds. The Bank's net income also is affected by its provision for loan losses as well as non-interest income and operating expenses consisting primarily of compensation and benefits, occupancy and equipment, real estate owned operations, net, federal deposit insurance premiums and other general and administrative expenses. The earnings of the Bank are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, and to a lesser extent, by government policies and actions of regulatory authorities. ANALYSIS OF CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1997 TO SEPTEMBER 30, 1998 ASSETS Total assets increased by $347.6 million, or 17.6% to $2.3 billion at September 30, 1998. Securities available for sale ("AFS") increased by $340.2 million, or 68.1% to $839.6 million at September 30, 1998 from $499.4 million at December 31, 1997: $183.6 million of the increase was due to the transfer of the Company's entire debt and MBS held-to-maturity portfolios to securities AFS on June 30, 1998. The transfer was done to enhance liquidity and take advantage of market opportunities. During August, the Bank completed the securitization of $105.7 million of residential mortgages. The securitization provides the Bank with additional collateral for borrowings in the future and enables the Bank to sell the securitized loans. During the nine months ended September 30, 1998, the Bank purchased $460.6 million of MBSs, $15.0 million of government agency securities and $11.1 million of Preferred Stock ($10.0 million of FHLMC and $1.1 million of private issue) for its AFS portfolio. These purchases were partially offset by sales from and principal repayments, maturities and calls to the AFS portfolio of $323.0 million and $120.0 million, respectively. Debt securities held to maturity declined by $66.4 million, or 100% to a zero balance at September 30, 1998 due to principal repayments, maturities and calls totaling $21.0 million and the transfer of $45.4 million of such debt securities to AFS on June 30, 1998. MBSs held to maturity declined by $163.1 million, or 100% to a zero balance at September 30, 1998 due to principal repayments, maturities and 12 calls totaling $24.8 million and the transfer of $138.2 million of such MBSs to AFS on June 30, 1998. There were no purchases of debt securities or MBSs for the held to maturity portfolio during the nine months ended September 30, 1998. Net loans increased by $160.5 million, or 14.1% to $1.3 billion at September 30, 1998 from $1.1 billion at December 31, 1997. Loan originations and purchases during the nine month period ended September 30, 1998 totaled $850.0 million (comprised of $729.7 million of residential one-to four-family mortgage loans, $106.5 million of commercial real estate and multi-family loans, $12.0 million of equity loans and $1.8 million of construction advances). During the first nine months of 1998, principal payments totaled $201.7 million, $0.6 million was transferred to real estate owned ("REO") and $313.4 million of loans were sold in the secondary market. Included in the totals above are CFS Intercounty's residential mortgage loan origination volume and wholesale purchases since its acquisition on May 1, 1998 which were $423.3 million, of which $58.2 million was transferred to CFS Bank's portfolio and $306.9 million was sold on a servicing released basis to third party investors. During August, the Bank completed the securitization of $105.7 million of residential mortgages which will provide the Bank additional collateral for borrowings in the future and the opportunity to sell securitized loans. Finally, the Bank sold $14.0 million of co-op loans during the third quarter as part of its on-going efforts to dispose of this portion of its portfolio. LIABILITIES Deposits increased by $262.8 million, or 19.3% to $1.6 billion at September 30, 1998 from $1.4 billion at December 31, 1997 primarily due to deposit inflows in the Bank's in-store bank branches which had deposits totaling $424.9 million at September 30, 1998 compared to $157.2 million at December 31, 1997. The Bank had fifty-two in-store bank branches as of September 30, 1998 compared to thirty-two in-store branches at December 31, 1997. The Bank expects to open seven additional in-store bank branches during the remainder of 1998. Core deposits (comprised of checking, savings and money market accounts) were equal to 44.4% of total in-store branch deposits at September 30, 1998 compared to 43.1% in the Bank's eight traditional branches. Overall, core deposits represented 46.5% of total deposits at September 30, 1998 compared to 42.7% at December 31, 1997. Borrowed funds increased by $20.4 million, or 4.4% to $487.2 million at September 30, 1998 from $466.8 million at December 31, 1997 primarily due to funding requirements for loan origination volume and wholesale purchases of CFS Intercounty. 13 STOCKHOLDERS' EQUITY Haven Bancorp's stockholders' equity increased to $122.5 million at September 30, 1998 from $112.9 million at December 31, 1997. The increase in stockholders' equity was due to net income of $5.6 million for the nine months ended September 30, 1998, an increase of $4.2 million in the unrealized gain on securities AFS (including $881,000 due to the aforementioned transfer of securities held-to-maturity to securities AFS) and $441,000 related to the exercise of stock options. In addition, the allocation of ESOP stock due to the reduction of the Bank's ESOP debt and the amortization of awards of shares of stock by the Bank's RRPs and amortization of deferred compensation plan increased stockholders' equity by $1.2 million. These increases were partially offset by dividends declared of $1.8 million. 14 NON-PERFORMING ASSETS The following table sets forth information regarding all non- accrual loans (which consist of loans 90 days or more past due and restructured loans that have not yet performed in accordance with their modified terms for the required six-month seasoning period), restructured loans and REO.
September 30, December 31, 1998 1997 (Dollars in Thousands) -------- ------------ Non-accrual loans One-to four-family $ 3,064 3,534 Cooperative 462 698 Multi-family 899 2,531 Non-residential and other 2,677 3,633 ------ ------ Total non-accrual loans 7,102 10,396 ------ ------ Restructured loans One-to four-family 546 679 Cooperative 286 290 Multi-family 1,148 1,167 ------ ------ Total restructured loans 1,980 2,136 ------ ------ Total non-performing loans 9,082 12,532 ------ ------ REO, net One-to four-family 155 126 Cooperative 61 295 Non-residential and other 121 121 ------ ------ Total REO 337 542 Less allowance for REO (39) (87) ------ ------ REO, net 298 455 ------ ------ Total non-performing assets $ 9,380 12,987 ====== ====== Non-performing loans to total loans 0.69% 1.09% Non-performing assets to total assets 0.40 0.66 Non-performing loans to total assets 0.39 0.63
The decrease in non-performing assets was primarily due to a reduction of $1.6 million in non-accrual multi-family loans. In addition, non-accrual residential loans and co-op loans decreased $470,000 and $236,000, respectively, from December 31, 1997. The ratio of non-performing loans to total loans decreased primarily 15 due to the increase of $161.8 million in total loans, as well as the significant decline in non-performing loans during the nine month period. The decrease in the ratio of non-performing assets to total assets was primarily due to the increase of $347.6 million in total assets and a $3.6 million decrease in non- performing assets during the nine month period. The ratio of non-performing loans to total assets decreased primarily due to the increase of $347.6 million in total assets and a reduction of $3.4 million in non-performing loans between year-end 1997 and September 30, 1998. The Bank maintains an allowance for loan losses and an allowance for REO, which it believes are adequate for potential losses at each period end. Management's judgment as to potential losses is based on its review of the loan and REO portfolios and its judgment regarding prevailing and anticipated economic conditions and a variety of other factors which have an impact on those portfolios. Although management believes that the allowances are adequate as of the period end, additional provisions may be required in the future. 16 ALLOWANCE FOR LOAN LOSSES The following table sets forth the changes in the allowance for loan losses for the nine months ended September 30, 1998 and 1997:
1998 1997 (Dollars in Thousands) ------- ------- Balance at beginning of period $12,528 10,704 Charge-offs: Residential (471) (369) Cooperative (279) (840) Multi-family (708) - Non-residential and other (309) (257) ------ ------ Total charge-offs (1,767) (1,466) Recoveries 1,040 566 ------ ------ Net charge-offs (727) (900) Provision for loan losses 1,990 2,150 ------ ------ Balance at end of period $13,791 11,954 ====== ====== Ratio of net charge-offs during the period to average loans outstanding during the period 0.08% 0.13% Ratio of allowance for loan losses to total loans at the end of the period 1.05 1.12 Ratio of allowance for loan losses to non- performing loans at the end of the period 151.85 95.03
The ratio of net charge-offs during the first nine months of 1998 to average loans outstanding decreased primarily due to average loans outstanding which increased $320.4 million, or 33.5% due to originations during the period. The ratio of allowance for loan losses to total loans decreased primarily due to the increase in loans outstanding during 1998. The ratio of allowance for loan losses to non-performing loans increased between the periods due to the decrease in non-performing loans and an increase in the allowance for loan losses. The Bank's allowance for loan losses was $13.8 million and $12.0 million at September 30, 1998 and 1997, respectively, while non-performing loans totaled $9.1 million and $12.6 million, respectively, at those dates. 17 ASSET/LIABILITY MANAGEMENT The Company has attempted to reduce its exposure to interest rate risk through the origination and purchase of ARM loans and the purchase of adjustable-rate securities which are expected to help protect net interest margins during periods of rising interest rates. The narrowing in spread and margin reflects in part the Company's exposure to interest rate risk resulting from certain changes in the shape of the yield curve (particularly a flattening or inversion of the yield curve) and to differing indices upon which the yield on the Company's interest-earning assets and the cost of its interest-bearing liabilities are based. For example, over the past two years the market has experienced a more significant reduction in interest rates on long-term instruments as compared to the reduction in interest rates on short-term instruments resulting in rates on long-term instruments approximating (and in some cases, going below) the rates on short-terms instruments. More importantly, the spreads earned on the rate differential between assets and the liabilities funding such assets have narrowed more with respect to long-term assets as compared to short-term assets. Since a larger percentage of the Company's assets are longer term, the Company has experienced a continuous narrowing of spreads as well as a negative impact on net interest income that has been more than offset by the Company's growth in interest-earning assets. The narrowing of the spread and margin also reflects the increase in borrowings under the capital leverage program. During the first nine months of 1998, the Bank originated or purchased for its portfolio $157.8 million of residential adjustable-rate mortgages and $100.5 million of adjustable-rate multi-family, commercial real estate and construction loans. During the same period, the Bank purchased $375.3 million of fixed rate debt securities and MBSs to take advantage of higher yields compared to rates offered on adjustable-rate securities. At September 30, 1998, $308.7 million, or 36.8% of the Company's AFS portfolio were adjustable-rate securities and $530.9 million, or 63.2% of the portfolio were fixed rate securities. Historically, the Company has been able to maintain a substantial level of core deposits (comprised of savings, money market, NOW and demand accounts) which the Company believes helps to limit interest rate risk by providing a relatively stable, low cost, long-term funding base. At September 30, 1998 core deposits represented 46.5% of deposits compared to 42.7% of deposits at December 31, 1997. Core deposits for the Bank's eight traditional branches was 43.1% compared to 44.4% for the Bank's fifty-two in-store bank branches. During the first nine months of 1998, savings accounts increased by $93.7 million, net of interest and certificates of deposit increased by $107.7 million, net of interest. The number of checking accounts increased by 41,071, or 42.0% to 138,933 at September 30, 1998 from 97,862 at 18 December 31, 1997. Most of the increase, or 36,815 accounts is attributable to the Bank's in-store bank branches. The balance of certificate accounts outstanding at September 30, 1998 was $924.6 million compared to $781.6 million at December 31, 1997. A major portion of the increase, $130.3 million, is attributable to the Bank's in-store branches. The Company expects to attract a higher percentage of core deposits from its in-store bank branch locations as these locations continue to grow and mature. In the second quarter of 1998, the Bank introduced the Liquid Asset Savings Account, which pays depositors 4.50% in the first year (latest rate available), as a way to attract core deposits and decrease certificate accounts. LIQUIDITY AND CAPITAL The Bank is required to maintain minimum levels of liquid assets as defined by regulations of the Office of Thrift Supervision ("OTS"). This requirement, which may be varied by the OTS depending upon economic conditions and deposit flows, is based upon a percentage of withdrawable deposits and short-term borrow- ings. The required ratio is currently 4%. The Bank's ratio was 4.31% at September 30, 1998 compared to 8.94% at December 31, 1997. The decrease in the liquidity ratio during the nine-month period is primarily due to a decline of $65.4 million in debt and equity securities and an increase of $158,000 in the liquidity base. The Company has emphasized MBS securities over debt and equity securities for management of its AFS portfolio due to the availability of competitive rates and shorter durations. The Company's primary sources of funds are deposits, principal and interest payments on loans and MBSs, retained earnings and advances from the Federal Home Loan Bank of NY ("FHLB-NY"). Proceeds from the sale of AFS securities and loans held for sale are also a source of funding, as are, to a lesser extent, the sales of annuities and securities brokerage activities conducted by the Bank's subsidiary, CFS Investment Services, Inc. ("CFSI"), formerly known as Columbia Investment Services, Inc. While maturities and scheduled amortization of loans and MBSs are somewhat predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition and regulatory changes. The Company's most liquid assets are cash and short term investments. The levels of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At September 30, 1998 and December 31, 1997, cash and short and intermediate-term investments totaled $36.9 million and $40.3 million, respectively. The Company and the Bank have other sources of liquidity which include debt securities maturing within one year, mortgage loans 19 and MBSs AFS. Other sources of funds include FHLB advances, which at September 30, 1998, totaled $342.2 million. If needed, the Bank may borrow an additional $43.4 million from the FHLB. An additional source of funds are repurchase agreements which totaled $118.5 million at September 30, 1998. As of September 30, 1998, the Bank exceeded all regulatory capital requirements as detailed in the following table:
Tangible Capital Core Capital Risk-Based Capital -------------------- -------------------- ----------------------- Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)(2) ------ ---------- ------ ---------- ------ ---------- (Dollars in thousands) Capital for regulatory purposes $129,334 5.68% $129,334 5.68% $145,445 12.66% Minimum regulatory requirement 45,534 2.00 91,068 4.00(3) 91,939 8.00 ------- ---- ------- ---- ------- ---- Excess $ 83,800 3.68% $ 38,266 1.68% $ 53,506 4.66% ======= ==== ====== ==== ======= ====
(1) Tangible and core capital are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. (2) The OTS has incorporated an interest rate risk component into its regulatory capital rule. Under the rule, saving associations with "above normal" interest rate risk exposure would be subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. The OTS has indefinitely deferred the implementation of the interest rate risk component in the computation of an institution's risk-based capital requirement. The OTS continues to monitor the interest rate risk of individual institutions and retains the right to impose additional capital on individual institutions. The Bank does not anticipate that the new rule, when implemented, will have a material effect on the Bank's risk-based capital. (3) Consistent with the minimum ratio to be deemed "adequately capitalized", the required amount is based on 4.0%. Failure to meet the capital requirements or to be deemed undercapitalized exposes an institution to regulatory sanctions, including limitations on asset growth. ANALYSIS OF CORE EARNINGS The Company's profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans, MBSs and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Net income is 20 further affected by non-interest income, non-interest expense and income taxes. The following table sets forth certain information relating to the Company's average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields.
Three months ended September 30, 1998 1997 ------------------------ ------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans $1,340,030 $25,299 7.55% $1,005,225 $19,811 7.88% Other loans 33,654 821 9.76 32,027 808 10.09 Mortgage-backed securities 691,703 11,610 6.71 503,448 8,541 6.79 Money market investments 1,337 23 6.88 5,137 83 6.46 Debt and equity securities 134,477 2,226 6.62 183,095 3,332 7.28 --------- ------ --------- ------ Total interest-earning assets 2,201,201 39,979 7.26 1,728,932 32,575 7.54 Non-interest earning assets 119,468 ------ 88,256 ------ --------- --------- Total assets 2,320,669 1,817,188 ========= ========= Interest-bearing liabilities: Savings accounts 456,977 3,366 2.95 376,276 2,387 2.54 Certificate accounts 896,836 12,791 5.70 705,785 10,394 5.89 NOW accounts 182,409 344 0.75 137,362 277 0.81 Money market accounts 58,371 525 3.60 55,136 470 3.41 Borrowed funds 535,299 8,015 5.99 406,126 5,817 5.73 --------- ------ --------- ------ Total interest-bearing liabilities 2,129,892 25,041 4.70 1,680,685 19,345 4.60 Other liabilities 70,695 ------ 27,636 ------ --------- --------- Total liabilities 2,200,587 1,708,321 Stockholders' equity 120,082 108,867 --------- --------- Total liabilities and stockholders' equity $2,320,669 $1,817,188 ========= ========= Net interest income $14,938 $13,230 ====== ====== Net interest spread 2.56% 2.94% ==== ==== New interest margin 2.71% 3.06% ==== ====
21
Nine months ended September 30, 1998 1997 ------------------------ ------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans $1,242,373 $70,629 7.58% $ 922,207 $54,878 7.93% Other loans 33,109 2,431 9.79 32,900 2,424 9.82 Mortgage-backed securities 597,988 30,114 6.71 467,804 23,773 6.78 Money market investments 4,065 169 5.54 6,140 273 5.93 Debt and equity securities 165,566 8,331 6.71 216,971 11,640 7.15 --------- ------ --------- ------ Total interest-earning assets 2,043,101 111,674 7.29 1,646,022 92,988 7.53 Non-interest earning assets 120,258 ------- 94,300 ------ --------- --------- Total assets 2,163,359 1,740,322 ========= ========= Interest-bearing liabilities: Savings accounts 417,576 8,482 2.71 370,311 6,938 2.50 Certificate accounts 867,306 37,269 5.73 651,189 28,085 5.75 NOW accounts 175,199 946 0.72 129,358 772 0.80 Money market accounts 57,028 1,462 3.42 54,617 1,329 3.24 Borrowed funds 466,093 20,933 5.99 385,190 16,827 5.82 --------- ------ --------- ------ Total interest-bearing liabilities 1,983,202 69,092 4.65 1,590,665 53,951 4.52 Other liabilities 63,022 ------ 45,013 ------ --------- --------- Total liabilities 2,046,224 1,635,678 Stockholders' equity 117,135 104,644 --------- --------- Total liabilities and stockholders' equity $2,163,359 $1,740,322 ========= ========= Net interest income $42,582 $39,037 ====== ====== Net interest spread 2.64% 3.01% ==== ==== New interest margin 2.78% 3.16% ==== ====
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 GENERAL. The Company reported net income of $2.2 million for the three months ended September 30, 1998 compared to net income of $2.5 million for the three months ended September 30, 1997. Net interest income increased $1.7 million to $14.9 million for the three months ended September 30, 1998 primarily due to an increase in interest income on mortgage loans of $5.5 million due to the growth in the mortgage loan portfolio. Non-interest income increased $7.8 million when compared to the same period last year mainly due to the acquisition of CFS Intercounty on May 1, 1998 which contributed $4.6 million of mortgage banking income during the quarter. Non-interest expenses increased $10.6 million compared to the same period last year primarily due to costs associated with the Bank's in-store program, which included fifty-two locations as of September 30, 1998, and the acquisition of CFS Intercounty. Finally, the provision for tax expense 22 decreased $874,000 for the third quarter of 1998 due to a reduction in pre-tax income and certain adjustments made to the tax provision as a result of filing the 1997 Federal, State and City tax returns in September 1998. INTEREST INCOME. Interest income increased by $7.4 million, or 22.7% to $40.0 million for the three months ended September 30, 1998 from $32.6 million for the three months ended September 30, 1997. The increase was primarily the result of a $5.5 million increase in interest income on mortgage loans, and an increase of $3.1 million in interest income on MBSs. These increases were partially offset by decreases in interest income on debt and equity securities and money market investments of $1.1 million and $60,000, respectively. Interest income on mortgage loans increased by $5.5 million, or 27.7% to $25.3 million for the three months ended September 30, 1998, from $19.8 million for the comparable three-month period in 1997, primarily as a result of an increase in average balances of mortgage loans of $334.8 million partially offset by a decrease in the average yield on mortgage loans of 33 basis points due to the general decline in market interest rates (see page 28). The increase in average balance of mortgage loans between the periods was primarily due to strong mortgage origination volume, including purchases for the entire year of 1997 and the first nine months of 1998, which totaled $459.8 million and $838.0 million, respectively. These originations included one-to four- family mortgage loans purchased in the secondary market totaling $200.9 million for 1997 and $224.5 million for the first nine months of 1998, respectively. Mortgage loan origination volume and wholesale loan purchases for CFS Intercounty was $267.9 million in the third quarter of 1998, of which $55.1 million was transferred to CFS Bank's portfolio. During the third quarter of 1998, $216.3 million of mortgages was sold on a servicing released basis to third party investors. The Bank accrues interest income on loans held for sale from the date of closing until funds are released from the third party investor. The originations for 1997 and the first nine months of 1998 were partially offset by principal repayments of $151.2 million and $201.7 million, respectively. The origination totals for both periods included CFS Bank loans refinanced of $10.5 million for 1997 and $36.4 million for the first nine months of 1998. The significant increase in refinanced loans was attributable to the decline in market interest rates. Interest income on MBSs increased by $3.1 million, or 35.9% to $11.6 million for the three months ended September 30, 1998 from $8.5 million for the comparable three-month period in 1997, primarily due to an increase in average balances of MBSs of $188.3 million which was partially offset by a decrease in average yield of 8 basis points. During the quarter ended 23 September 30, 1998, the Bank purchased $138.2 million of MBSs for its AFS portfolio and such purchases were partially offset by sales totaling $93.3 million. During August, the Bank completed the securitization of $105.7 million of residential mortgages (see page 12). The emphasis on MBS securities over debt and equity securities was due to the availability of competitive rates along with shorter durations. The average yield on debt and equity securities decreased 66 basis points for the quarter ended September 30, 1998, also contributing to the decrease in interest income on debt and equity securities. Interest income on debt and equity securities decreased by $1.1 million, or 33.2% to $2.2 million for the three months ended September 30, 1998 from $3.3 million for the comparable three- month period in 1997, primarily as a result of a decrease in the average balance of $48.6 million. The Company emphasized MBS securities over debt and equity securities during the period due to the availability of competitive rates for MBSs along with shorter durations. INTEREST EXPENSE. Interest expense increased by $5.7 million, or 29.4% to $25.0 million for the three months ended September 30, 1998 from $19.3 million for the three months ended September 30, 1997. The increase was the result of a $3.5 million increase in interest expense on deposits and an increase of $2.2 million in interest expense on borrowings. Interest on deposits increased by $3.5 million, or 25.9% to $17.0 million for the three months ended September 30, 1998 from $13.5 million for the comparable three-month period in 1997. The increase in interest on deposits was primarily due to the average balance which increased by $320.0 million, or 25.1% to $1.59 billion for the three months ended September 30, 1998 from $1.27 billion for the comparable three-month period in 1997. The increase in deposits is primarily attributable to the Bank's continuing in-store banking expansion. At September 30, 1998, the Bank had fifty-two in-store bank branches operating with combined deposits totaling $424.9 million compared to twenty-four in-store bank branches at September 30, 1997 with deposits totaling $115.9 million. The increase in the average balance was primarily due to certificate account balances which increased by $191.1 million, or 27.1% to $896.8 million for the three months ended September 30, 1998 from $705.8 million for the comparable three-month period in 1997. Interest expense on certificate accounts increased by $2.4 million, or 23.1% to $12.8 million for the three months ended September 30, 1998 from $10.4 million in the same period in 1997. The average cost of certificate accounts was 5.70% for the third quarter of 1998 compared to 5.89% for the third quarter of 1997. Interest expense on savings accounts increased by $1.0 million, or 41.0% to $3.4 million for the three months ended September 30, 1998 from $2.4 million in 24 the same period in 1997 primarily due to an increase in average balance due to the Bank's in-store branches, which had $144.3 million in savings balances as of September 30, 1998 compared to $21.2 million as of September 30, 1997. The average balance of savings accounts increased by $80.7 million, or 21.4% to $457.0 million for the three months ended September 30, 1998 from $376.3 million for the third quarter of 1997. The average cost of savings accounts increased by 41 basis points to 2.95% for the period ended September 30, 1998 from 2.54% for the period ended September 30, 1997. This was primarily due to the addition of the Liquid Asset Savings Account which pays depositors 4.50% (latest rate available) during the first year. The average cost of all deposits was 4.27% for the three months ended September 30, 1998 compared to 4.24% for the prior-year period. Interest on borrowed funds increased by $2.2 million, or 37.8% to $8.0 million for the three months ended September 30, 1998 from $5.8 million for the comparable three-month period in 1997. Borrowed funds on an average basis increased by $129.2 million between the periods primarily due to the addition of short-term FHLB advances and securities sold under agreements to repurchase during 1998 in order to fund loans originated and held for sale by CFS Intercounty and to supplement deposit growth as a funding mechanism for mortgage loan originations. The average rate paid on borrowings increased to 5.99% for the three months ended September 30, 1998 from 5.73% for the prior-year period. NET INTEREST INCOME. Net interest income increased by $1.7 million to $14.9 million for the three months ended September 30, 1998 from $13.2 million for the three months ended September 30, 1997. The increase is primarily attributable to total interest- earning assets which increased by $472.3 million, or 27.3% to $2.2 billion for the three months ended September 30, 1998 from $1.7 billion in the same period last year. This was partially offset by the average yield on interest-earning assets which decreased to 7.26% for the three months ended September 30, 1998 from 7.54% for the three month period in 1997 due to the general decline in market interest rates. In addition, the average cost of interest-bearing liabilities increased to 4.70% from 4.60% for the three months ended September 30, 1998 and 1997, respectively. Therefore, the net interest spread was 2.56% for the three months ended September 30, 1998 compared to 2.94% for the comparable period in 1997 due to the general decline in market interest rates. PROVISION FOR LOAN LOSSES. The Bank provided $670,000 for loan losses for the three months ended September 30, 1998 compared to $700,000 for the comparable three-month period in 1997. The decrease was due to the continuing decline in non-performing assets. 25 NON-INTEREST INCOME. Non-interest income increased by $7.8 million for the three months ended September 30, 1998 to $11.0 million from $3.2 million for the comparable three month period in 1997. The 1998 third quarter included $4.6 million in mortgage banking income generated by CFS Intercounty related to loans sold in the quarter. The Bank generally recognizes fee income, including servicing released premiums, from its mortgage banking activities as loan sales are settled. Loans held for sale at September 30, 1998, totaled $58.2 million. Savings and checking fees increased by $1.2 million, or 82.5% to $2.7 million for the third quarter of 1998 compared to $1.5 million for the same period last year. The significant increase in savings and checking fees is primarily due to the number of checking accounts which increased by 50,935, or 57.9% to 138,933 accounts at September 30, 1998 from 87,998 accounts at September 30, 1997. A significant portion of this growth is attributable to the Bank's in-store bank branch program. The in-store bank branches generated savings and checking fees of $1.8 million for the third quarter of 1998 compared to $507,000 for the third quarter of last year. Insurance, annuity and mutual fund fees increased by $448,000 due to an increase in sales volume, including $664,000 in revenue from in-store bank branches. The Bank realized a net gain of $1.2 million on the sale of interest earning assets in the 1998 period. The gain included approximately $967,000 in gain on sales of approximately $14.0 million of co-operative apartment loans as part of the Bank's efforts to dispose of this portion of its loan portfolio. Finally, miscellaneous income increased by $163,000, or 34.6% to $634,000 for the third quarter of 1998 from $471,000 for the third quarter of 1997. The increase is primarily due to service charge fees on ATM transactions. NON-INTEREST EXPENSE. Non-interest expense increased by $10.6 million, or 88.5% for the three months ended September 30, 1998 to $22.6 million from $12.0 million for the comparable three- month period in 1997. The increase is primarily due to the Bank's in-store branch program which increased non-interest expense by approximately $2.4 million and the acquisition of CFS Intercounty which increased non-interest expense by approximately $6.1 million. Compensation and benefit costs increased by $5.6 million, or 86.3% to $12.1 million for the three months ended September 30, 1998 from $6.5 million for the same period last year. The in-store branch expansion accounted for $1.2 million of the increase in compensation costs and the acquisition of CFS Intercounty increased salary costs by an additional $3.2 million. In addition, federal social security taxes increased $131,000 from the prior period due to a higher salary base. The remainder of the increase in compensation and benefit costs was due to an increase in salary costs for CFSI due to sales volume, normal merit increases and general staff increases due to the Company's growth. These increases were partially offset by ESOP 26 compensation charges which decreased $348,000 due to the decrease in the average price of Haven Bancorp common stock during the quarter. Occupancy and equipment costs increased by $1.2 million, or 67.4% to $2.9 million for the third quarter of 1998 from $1.8 million for the same period last year primarily due to the addition of eight supermarket branches during the fourth quarter of 1997 and twenty such branches during the first nine months of 1998. In July 1998, the Company moved its operations to a new headquarters. The occupancy and equipment costs for the Company's headquarters is expected to be approximately $350,000 per quarter. REO operations, net decreased by $32,000 from the same period last year due to the decline in the REO portfolio. Other operating costs increased by $3.8 million to $7.3 million for the three months ended September 30, 1998 from $3.5 million for the same period last year. The acquisition of CFS Intercounty during the second quarter of 1998 increased other operating costs by $2.3 million for the third quarter of 1998. Miscellaneous expenses, including stationery, telephone, postage and insurance, increased by $391,000 and staff placement costs increased by $84,000 primarily due to the in-store branch program. Advertising costs increased $277,000 due to the growth in the deposit base over the last twelve months. Finally, costs incurred by the Bank's subsidiary, CFSI, increased $54,000 due to higher sales volume. INCOME TAX EXPENSE. Income tax expense was $402,000 for an effective tax rate of 15.2% for the three months ended September 30, 1998 compared to income tax expense of $1.3 million for an effective tax rate of 34.2% for the comparable period in 1997. The decline in the effective tax rate was due primarily due to an adjustment of the Bank's tax accrual upon the filing of the Company's Federal, State and City tax returns for 1997 during September 1998. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED September 30, 1998 AND 1997 GENERAL. The Company reported net income of $5.6 million for the nine months ended September 30, 1998 compared to net income of $8.1 million for the nine months ended September 30, 1997. The $2.4 million decrease was primarily attributable to an increase of $21.5 million in non-interest expenses due to the ongoing supermarket banking expansions and the addition of CFS Intercounty. These factors were partially offset by an increase of $12.7 million in non-interest income and an increase of $3.5 million in net interest income. In addition, the provision for loan losses decreased $160,000 from $2.2 million for the nine months ended September 30, 1997 to $2.0 million for the nine months ended September 30, 1998. The provision for income tax expense decreased by $2.6 million primarily due to lower pre-tax income for the period. 27 INTEREST INCOME. Interest income increased by $18.7 million, or 20.1% to $111.7 million for the nine months ended September 30, 1998 from $93.0 million for the nine months ended September 30, 1997. The increase was primarily the result of a $15.8 million increase in interest income on mortgage loans and an increase of $6.3 million in interest income on MBS securities. These increases were partially offset by a decrease in interest income on debt and equity securities and money market investments of $3.3 million and $104,000, respectively. Interest income on mortgage loans increased by $15.8 million, or 28.7% to $70.6 million for the nine months ended September 30, 1998 from $54.9 million for the comparable nine-month period in 1997, primarily as a result of an increase in average balances of mortgage loans of $320.2 million, partially offset by a decrease in the average yield on mortgage loans of 35 basis points. The average yield on mortgage loans decreased to 7.58% for the nine months ended September 30, 1998 from 7.93% for the comparable nine-month period in 1997. During the first nine months of 1998, the Bank refinanced $36.5 million of mortgage loans compared to $6.2 million for the same period last year. The decrease in the average yield from the prior period was mainly due to the increasing percentage of relatively lower yielding residential mortgages and the overall decline in market interest rates. Interest income on MBSs increased by $6.3 million, or 26.7% to $30.1 million for the nine months ended September 30, 1998 from $23.8 million for the comparable nine-month period in 1997 primarily due to an increase in average balances of MBSs of $130.2 million which was partially offset by a decrease in the average yield of 7 basis points. During the first nine months of 1998, the Bank purchased $460.6 million of MBSs for its AFS portfolio and such purchases were partially offset by sales totaling $229.7 million. During August, the Bank completed the securitization of $105.7 million of residential mortgages (see page 12). The emphasis on MBS securities over debt and equity securities was primarily due to shorter durations. Interest income on debt and equity securities decreased by $3.3 million, or 28.4% to $8.3 million for the nine months ended September 30, 1998 from $11.6 million for the comparable nine- month period in 1997 primarily as a result of a decrease in average outstanding balances of $51.4 million and a decrease in average yield of 44 basis points due to the general decline in market interest rates. The decrease in the average outstanding balances was primarily due to an emphasis on MBS securities for purchases for the Bank's AFS portfolio due to a better rate structure and shorter duration. INTEREST EXPENSE. Interest expense increased by $15.1 million, or 28.1% to $69.1 million for the nine months ended September 30, 28 1998 from $54.0 million for the nine months ended September 30, 1997. The increase was the result of a $11.0 million increase in interest expense on deposits and an increase of $4.1 million in interest expense on borrowings. Interest on deposits increased by $11.0 million, or 29.7% to $48.2 million for the nine months ended September 30, 1998 from $37.1 million for the comparable nine-month period in 1997. The increase in interest on deposits was primarily due to the average balance which increased by $311.6 million, or 25.9% to $1.5 billion for the nine months ended September 30, 1998 from $1.2 billion for the comparable nine-month period in 1997. The deposit growth is primarily attributable to the Bank's in-store banking program. The increase in average balance was primarily due to certificate account balances which increased by $216.1 million, or 33.2% to $867.3 million for the nine months ended September 30, 1998 from $651.2 million for the comparable nine- month period in 1997. Interest expense on certificate accounts increased by $9.2 million or 32.7% to $37.3 million for the nine months ended September 30, 1998 from $28.1 million in the same period in 1997 primarily due to the growth in average balances. The average cost of certificate accounts was 5.73% for the first nine months of 1998 compared to 5.75% for the comparable period in 1997. Interest expense on savings accounts increased by $1.5 million, or 22.3% to $8.5 million for the nine months ended September 30, 1998 from $6.9 million in the same period in 1997 primarily due to an increase in average balances of $47.3 million. The average cost of all deposits was 4.23% for the nine months ended September 30, 1998 compared to 4.11% for the period ended September 30, 1997. Interest on borrowed funds increased by $4.1 million, or 24.4% to $20.9 million for the nine months ended September 30, 1998 from $16.8 million for the comparable nine-month period in 1997. Borrowed funds on an average basis increased by $80.9 million between the periods due to the addition of short-term FHLB advances and securities sold under agreements to repurchase during 1998 primarily to fund mortgage loan originations for the CFS Bank portfolio and the mortgage loan pipeline of CFS Intercounty which originates mortgage loans primarily for subsequent sale to third party investors. The average rate paid on borrowings increased to 5.99% for the nine months ended September 30, 1998 from 5.82% for the comparable prior year period primarily due to the effect of a full nine months of $25.0 million of 10.46% capital securities issued by Haven Capital Trust in February 1997. NET INTEREST INCOME. Net interest income increased by $3.5 million to $42.6 million for the nine months ended September 30, 1998 from $39.0 million for the nine months ended September 30, 1997. The increase is primarily due to total interest-earning 29 assets which increased $397.1 million, or 24.1% to $2.0 billion for the nine months ended September 30, 1998 from the same period last year. This was partially offset by the average yield on interest-earning assets which decreased to 7.29% from 7.53% for the nine months ended September 30, 1998 and 1997, respectively. The reduction in the overall yield on interest earning assets is primarily due to a decline in market interest rates and a flat yield curve environment (see page 18). The average cost on interest-bearing liabilities increased to 4.65% from 4.52% for the nine months ended September 30, 1998 and 1997, respectively. The increase in cost of funds was primarily due to the increase in the cost of deposits to 4.23% for the nine months ended September 30, 1998 from 4.11% for the nine months ended September 30, 1997. The net interest spread was 2.64% for the nine months ended September 30, 1998 compared to 3.01% for the comparable period in 1997. PROVISION FOR LOAN LOSSES. The Bank provided $2.0 million for loan losses for the nine months ended September 30, 1998 compared to $2.2 million for the comparable nine-month period in 1997 due to a decrease in non-performing loans. NON-INTEREST INCOME. Non-interest income increased by $12.7 million for the nine months ended September 30, 1998 to $21.1 million from $8.4 million for the comparable nine-month period in 1997. Loan fees and servicing income increased by $497,000 to $1.3 million for the first nine months of 1998 compared to $775,000 for the same period in 1997. Loan fees and servicing income for the nine months ended September 30, 1998 included a prepayment fee of $280,000 on a commercial real estate loan. The nine months ended September 30, 1998 included $5.6 million in mortgage banking income generated by CFS Intercounty related to loans sold since May 1, 1998. Savings and checking fees increased by $3.0 million, or 79.6% to $6.8 million for the first nine months of 1998 compared to $3.8 million for the same period last year. The number of checking accounts increased by 50,935 accounts to 138,933 accounts at September 30, 1998 from 87,998 accounts at September 30, 1997. A major portion of this growth, 46,442 accounts, is attributable to the in-store bank branches. The in-store bank branches generated savings and checking fees of $4.4 million for the nine months ended September 30, 1998 compared to $843,000 for the same period last year. Insurance, annuity and mutual fund fees increased by $1.1 million due to an increase in sales volume which included $1.4 million in revenue from sales originating from in-store bank branches. The Bank realized a net gain of $1.6 million on the sale of interest earning assets during the 1998 period. The net gain for the period included approximately $967,000 in gain on the sale of approximately $14 million of co-operative apartment loans as part of the Bank's efforts to reduce this component of the loan portfolio. Finally, miscellaneous income increased by $877,000, 30 or 86.7% to $1.9 million for the nine months ended September 30, 1998 from $1.0 million for the same period last year. The increase is primarily due to service charge fees on ATM transactions. NON-INTEREST EXPENSE. Non-interest expense increased by $21.5 million for the nine months ended September 30, 1998 to $54.1 million from $32.6 million for the comparable nine-month period in 1997. The significant increase in non-interest expense is primarily due to the Bank's in-store branch expansion program which accounted for $8.6 million of the increase in operating expenses in the first nine months of 1998 and $8.2 million related to CFS Intercounty since its acquisition on May 1, 1998. Most of the increase in operating expenses is due to an increase of $12.7 million in compensation and benefit costs. The in-store branch expansion accounted for $4.8 million of the increase in compensation costs for the nine month period. Also, the acquisition of CFS Intercounty on May 1, 1998 increased salary costs by $4.8 million since that date. Salary costs for the Bank's subsidiary, CFSI, Inc., increased $423,000 due to higher sales volume. In addition, federal social security taxes increased by $444,000 due to a higher salary base. These factors were partially offset by ESOP compensation charges which decreased by $115,000 from the same period last year due to the decrease in the average price of Haven Bancorp common stock for the period. Occupancy and equipment costs increased by $3.1 million from the comparable period in 1997 primarily due to the Bank's in-store banking program which increased costs by $2.1 million. Also, the acquisition of CFS Intercounty during the second quarter increased occupancy costs by $565,000. REO operations, net decreased by $255,000 from 1997 due to the decline in the REO portfolio. Other operating expenses increased by $5.8 million, or 57.6% to $15.8 million for the nine months ended September 30, 1998 from $10.0 million for the same period last year. The acquisition of CFS Intercounty on May 1, 1998 increased other operating expenses by $2.5 million since that date. Miscellaneous operating expenses such as stationery, telephone and postage increased by $1.1 million from the same period in 1997 primarily due to the in-store branch program. Staff placement costs increased by $161,000 for the nine months ended September 30, 1998 also due to the in-store branch program. Advertising costs and costs incurred for computer processing increased by $739,000 and $167,000, respectively due to the growth in the deposit base over the last twelve months. Finally, NYCE fees and check clearing costs increased by $410,000 and $284,000, respectively, from the same period last year due to higher volume as a result of the growth in deposit accounts. INCOME TAX EXPENSE. Income tax expense was $1.9 million for an effective tax rate of 25.7% for the nine months ended September 30, 1998 compared to income tax expense of $4.6 million for an 31 effective tax rate of 36.2% for the comparable period in 1997. The decrease in the effective tax rate was primarily due to the establishment of Columbia Preferred Capital Corp. ("CPCC") during the second quarter of 1997. The tax provision for the first nine months of 1998 includes the effect of CPCC's operations for the nine full months of 1998 compared to one quarter in 1997. The lower tax rate was also due to an adjustment of the Bank's tax accrual upon the filing of the Company's Federal, State and City tax returns for 1997 during September 1998. COMPUTER ISSUES FOR THE YEAR 2000. Many of the Company's existing computer systems use two digits to identify the year in the date field. As a result, these systems may not be able to distinguish the year 2000 from the year 1900. Software, hardware and equipment both within and outside the Company's direct control and with which the Company electronically or operationally interfaces (e.g. third party vendors providing data processing, information system management, maintenance of computer systems, and credit bureau information) are likely to be affected. Further, if computer systems are not adequately changed to identify the year 2000, many computer applications could fail or create erroneous results. As a result, many calculations which rely on the date field information, such as interest, payment or due dates and other operating functions, will generate result which could be significantly misstated, and the Company could experience a temporary inability to process transactions, send invoices or engage in similar normal business activities. If not corrected, these computer systems could fail by or at the year 2000. The Company primarily uses a third party vendor to process its electronic data. This vendor is currently modifying or replacing its computer applications and systems necessary to correct the year 2000 date issue. The Company also utilizes a combination of purchased and contract-based software as well as other third party vendors for a variety of data processing needs. The Company's assessment of potential computer issues for the year 2000 have been substantially completed. Where potential computer issues have been identified, the vendors have committed to definitive dates (in most cases no later than December 31, 1998) to resolve such issues. Under regulatory guidelines issued by the federal banking regulators, the Bank and the Company must substantially complete testing of core mission critical internal systems by December 31, 1998 with testing of both internally and externally supplied systems complete and all renovations substantially complete, by June 30, 1999. In accordance with those guidelines, the Company will complete testing of its mission critical systems prior to October 31, 1998 and its customer systems prior to August 31, 1998. In the event that the Company's significant vendors do not achieve year 2000 compliance, the Company's operations could be adversely affected. 32 The Company has established contingency plans for these systems for which year 2000 issues will not be corrected. The OTS, the Company's primary federal bank regulatory agency, along with the other federal bank regulatory agencies has published substantive guidance on the Year 2000 compliance as a substantive area of examination for both regularly scheduled and special bank examinations. These publications, in addition to providing guidance as to examination criteria, have outlined requirements for creation and implementation of a compliance plan and target dates for testing and implementation of corrective action, as discussed below. As a result of the oversight by and authority vested in the federal bank regulatory agencies, a financial institution that does not become Year 2000 compliant could become subject to administrative remedies similar to those imposed on financial institutions otherwise found not to be operating in a safe and sound manner, including remedies available under prompt correction active regulations. There has been limited litigation filed against corporations regarding the Year 2000 problem and such corporations' compliance efforts. To date, no such litigation has resulted in a decided case imposing liability on the corporate entity. Nonetheless, the law in this area will likely continue to develop well into the new millennium. Should the Company experience a Year 2000 failure, exposure of the Company could be significant and material, unless there is legislative action to limit such liability. Legislation has been introduced in several jurisdictions regarding the Year 2000 problem. However, no assurance can be given that legislation will be enacted in jurisdictions where the Company does business that will have the effect of limiting any potential liability. The Company has incurred approximately $65,000 in costs associated with achieving year 2000 compliance. The Company expects to incur approximately $200,000 in additional costs to achieve year 2000 compliance during the remainder of 1998 and in 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In management's opinion, there has not been a material change in market risk from December 31, 1997 as reported in item 7A of the Company's Form 10-K. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In February, 1983, a burglary of the contents of safe deposit boxes occurred at a branch office of the Bank. At September 30, 1998, the Bank has a class action lawsuit related thereto pending, whereby the plaintiffs are seeking recovery of approximately $12.9 million in actual damages and an additional 33 $12.9 million of unspecified damages. The Bank's ultimate liability, if any, which might arise from the disposition of these claims cannot presently be determined. Management believes it has meritorious defenses against these actions and has and will continue to defend its position. Accordingly, no provision for any liability that may result upon adjudication has been recognized in the accompanying consolidated financial statements. The Company is involved in various other legal actions arising in the ordinary course of business, which in the aggregate, are believed by management to be immaterial to the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 3 Certificate of Incorporation of Haven Bancorp, Inc., as amended. 27.1 Financial Data Schedule. (b) The Company filed Form 8-K on July 2, 1998, regarding its second quarter earnings. The Company filed Form 8- K on September 28, 1998 regarding the proposed acquisition of Century Insurance Agency. 34 SIGNATURES 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 thereunto duly authorized. HAVEN BANCORP INC. (Registrant) Date: November 13, 1998 By: /s/ Philip S. Messina --------------------------- Philip S. Messina President and Chief Executive Officer Date: November 13, 1998 By: /s/ Catherine Califano --------------------------- Catherine Califano Senior Vice President and Chief Financial Officer
35 EX-3 2 EXHIBIT 3 AS OF SEPTEMBER 30, 1998: CERTIFICATE OF INCORPORATION OF HAVEN BANCORP, INC. FIRST: The name of the Corporation is Haven Bancorp, Inc. (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at that address if The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. FOURTH: A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is thirty-two million (32,000,000) consisting of: 1. Two million (2,000,000), shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred Stock"); and 2. Thirty million (30,000,000) shares of Common Stock, par value one cent ($.01) per share (the "Common Stock"). B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. C. 1. Notwithstanding any other provision of this Certificate of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person beneficially owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, subject to the provisions of this Article FOURTH, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit. 2. The following definitions shall apply to this Section C of this Article FOURTH: (a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Act of 1934, as in effect on the date of filing of this Certificate of Incorporation. (b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of this Certificate of Incorporation; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock: (1) which such person or any of its affiliates beneficially owns, directly or indirectly; or (2) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of clauses 1 through 5 of Section A of Article EIGHTH), or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner); or (3) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no Director or Officer of this Corporation (or any Affiliate of any such Director or Officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such Director or Officer (or any Affiliate thereof), and (2) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any Affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (c) A "person" shall mean any individual, firm, corporation, or other entity. 3. The Board of Directors shall have the power to construe and apply the provisions of this section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of the section to the given facts, or (v) any other matter relating to the applicability or effect of this section. 4. The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such person. 5. Except as otherwise provided by law or expressly provided in this Section C, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required., to the provisions of this Section C) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. 6. Any constructions, applications, or determinations made by the Board of Directors pursuant to this section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders. 7. In the event any provision (or portion thereof) of this Section C shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section C remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The Directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. D. Special meeting of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board or as otherwise provided in the Bylaws. The term "Whole Board" shall mean the total number of authorized directorships (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). SIXTH: A. The number of Directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. The Directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election with each Director to hold office until his or her successor shall have been duly elected and qualified. B. Newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. C. Advance notice of stockholder nominations for the election of Directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. D. Subject to the rights of holders of any series of Preferred Stock then outstanding, any Directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting together as a single class. SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH), voting together as a single class, shall be required to adopt, amend or repeal any provisions of the Bylaws of the Corporation. EIGHTH: A. In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in this Section A: 1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or 2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or 3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% of the combined Fair Market Value of the outstanding common stock of the Corporation and its Subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or 4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an interested Stockholder or any Affiliate of any Interested Stockholder; or 5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of Directors (the "Voting Stock") (after giving effect to the provisions of Article FOURTH), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of this Certificate of Incorporation or any Preferred Stock Designation in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article EIGHTH shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article EIGHTH. B. The provisions of Section A of this Article EIGHTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote after giving effect to the provisions of Article FOURTH, or such vote (if any), as is required by law or by this Certificate of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 or 2 are met: 1. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined). 2. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following (1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date"), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher. (2) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article EIGHTH as the "Determination Date"), whichever is higher. (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (2) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (3) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with subparagraph B.2 of this Article EIGHTH shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Disinterested Directors (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (2) there shall have been (i) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (ii) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors, and (3) neither such Interested Stockholder or any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided, directly or indirectly, by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, and the rules or regulations thereunder) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. For the purposes of this Article EIGHTH: 1. A "Person" shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity. 2. "Interested Stockholder" shall mean any person (other than the Corporation or any Holding Company or Subsidiary thereof) who or which: (a) is the beneficial owner, directly or indirectly, of more than 10% of the outstanding Voting Stock; or (1) (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3. For purposes of this Article EIGHTH, "beneficial ownership" shall be determined in the manner provided in Section C of Article FOURTH hereof. 4. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of this Certificate of Incorporation. 5. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 2 of this Section C, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. 6. "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any Director who is thereafter chosen to fill any vacancy of the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors. 7. "Fair Market Value" means: (a) in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the National Association of Securities Dealers Automated Quotation System/National Market System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith. 8. Reference to "Highest Per Share Price" shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. 9. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article EIGHTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. D. A majority of the Directors of the Corporation shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information known to them after reasonable inquiry: (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of the common stock of the Corporation and its Subsidiaries. A majority of the Directors shall have the further power to interpret all of the terms and provisions of this Article EIGHTH. E. Nothing contained in the Article EIGHTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article EIGHTH. NINTH: The Board of Directors of the Corporation, when evaluating any offer of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, may, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to all relevant factors, including, without limitation, those factors that Directors of any subsidiary of the Corporation may consider in evaluating any action that may result in a change or potential change in the control of the subsidiary, and the social and economic effect of acceptance of such offer: on the Corporation's present and future customers and employees and those of its Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which the Corporation and its Subsidiaries operate or are located; on the ability of the Corporation to fulfill its corporate objective as a savings and loan holding company under applicable laws and regulations; and on the ability of its subsidiary savings bank to fulfill the objectives of a stock form savings bank under applicable statutes and regulations. TENTH: A. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or an Officer of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a Director, Officer, employee or agent or in any other capacity while serving as a Director, Officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. The right to indemnification conferred in Section A of this Article TENTH shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a Director or Officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, services to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article TENTH shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a Director, Officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. If a claim under Section A or B of this Article TENTH is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expenses of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article TENTH or otherwise shall be on the Corporation. D. The rights to indemnification and to the advancement of expenses conferred in this Article TENTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. E. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article TENTH with respect to the indemnification and advancement of expenses of Directors and Officers of the Corporation. ELEVENTH: A Director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a Director of the Corporation existing at the time of such repeal or modification. TWELFTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however,. that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH), voting together as a single class, shall be required to amend or repeal this Article TWELFTH, Section C of Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH. THIRTEENTH: The name and mailing address of the sole incorporator are as follows: Name Mailing Address Siobain Perkins Morris, Nichols, Arsht & Tunnel 1201 North Market Street P.O. Box 1347 Wilmington, Delaware 19899-1347 I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and accordingly, have hereto set my hand this 24th day of March, 1993. /s/ Siobain M . Perkins ---------------------------- Siobain M. Perkins EX-27 3
9 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at September 30, 1998 and the Consolidated Statement of Operations for the nine months Ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1998 SEP-30-1998 35,049 1,464,609 0 0 839,570 0 0 1,312,586 13,791 2,322,466 1,627,832 179,678 84,887 307,533 0 0 100 122,436 2,322,466 73,060 38,614 0 111,674 48,159 69,092 42,582 1,990 1,591 54,089 7,560 7,560 0 0 5,620 0.66 0.61 7.29 7,102 0 1,980 18,276 12,528 1,767 1,040 13,791 13,791 0 0 EPS 1997 1996 Basic: 0.96 0.71 Diluted 0.90 0.68 Per share amendments reflect the 2 - for - 1 stock split effective November 1997.
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