RELIANCE BANCORP, INC. AND SUBSIDIARY
FINANCIAL SECTION
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CONTENTS
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Selected Consolidated Financial and Other Data
of the Company..................................................5
Management's Discussion and Analysis of
Financial Condition and Results of Operations..................7
Consolidated Statements of Condition as of
June 30, 1998 and 1997........................................22
Consolidated Statements of Income for
the years ended June 30, 1998, 1997 and 1996..................23
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
June 30, 1998, 1997 and 1996..................................24
Consolidated Statements of Cash Flows for
the years ended June 30, 1998, 1997 and 1996..................25
Notes to Consolidated Financial Statements.......................27
Independent Auditors' Report.....................................52
Selected Consolidated Quarterly Financial Data...................53
4
Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Financial and Other Data of the Company
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(Dollars in thousands, except per share data)
Set forth below are the selected consolidated financial and other data of the
Company. This financial data is derived in part from, and it should be read in
conjunction with the Company's consolidated financial statements and related
notes.
At June 30,
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Selected Financial Data: 1998 1997 1996 1995 1994
----------------------- ------- -------- -------- -------- ------
Total Assets..................................................... $2,485,729 $1,976,764 $1,782,550 $931,436 $830,501
Loans Receivable, Net............................................ 969,797 909,321 817,746 332,080 330,720
Debt and Equity Securities Available-for-Sale.................... 134,907 26,909 13,271 23,880 37,588
Debt and Equity Securities Held-to-Maturity...................... 40,189 46,026 48,330 23,890 39,492
Mortgage-Backed Securities Available-for-Sale.................... 940,347 721,819 591,740 104,453 --
Mortgage-Backed Securities Held-to-Maturity...................... 249,259 159,356 184,492 413,762 394,199
Excess of Cost Over Fair Value of Net Assets Acquired............ 58,936 45,463 49,429 -- --
Real Estate Owned, Net........................................... 755 450 1,564 1,558 2,911
Deposits......................................................... 1,628,298 1,436,037 1,345,626 670,317 587,221
Borrowed Funds................................................... 630,206 351,913 266,160 97,035 78,000
Total Stockholders' Equity....................................... 194,864 162,670 153,619 153,733 157,851
Year Ended June 30,
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Selected Operating Data: 1998 1997 1996 1995 1994
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Interest Income.................................................. $153,819 $133,289 $100,372 $ 61,260 $ 47,224
Interest Expense ................................................ 86,828 71,653 52,985 28,361 20,024
------ ------ ------ ------- -------
Net Interest Income......................................... 66,991 61,636 47,387 32,899 27,200
Less Provision for Loan Losses................................... 1,650 950 725 400 393
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Net Interest Income After Provision for Loan Losses......... 65,341 60,686 46,662 32,499 26,807
Non-Interest Income:
Loan Fees and Service Charges.................................... 1,047 683 826 269 260
Other Operating Income........................................... 3,452 2,557 1,606 841 859
Income from Money Centers........................................ 1,882 -- -- -- --
Condemnation Award on Joint Venture.............................. 1,483 -- -- -- --
Net (Loss) Gain on Securities.................................... (5) 172 678 147 --
------- ------- ------ ------ ------
Total Non-Interest Income................................... 7,859 3,412 3,110 1,257 1,119
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Non-Interest Expense:
Compensation and Benefits........................................ 20,297 16,509 13,395 9,562 7,068
Occupancy and Equipment.......................................... 6,531 5,719 4,481 2,462 2,336
Federal Deposit Insurance Premiums............................... 921 1,813 2,399 1,376 1,374
Advertising...................................................... 1,202 1,168 1,152 1,158 670
Other Operating Expenses......................................... 6,274 5,778 4,169 3,039 2,366
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Total General and Administrative Expenses................... 35,225 30,987 25,596 17,597 13,814
Real Estate Operations, Net...................................... 218 383 579 (385) 1,080
Amortization of Excess of Cost Over Fair
Value of Net Assets Acquired................................... 4,218 3,404 1,928 -- --
SAIF Recapitalization Charge..................................... -- 8,250 -- -- --
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Total Non-Interest Expense.................................. 39,661 43,024 28,103 17,212 14,894
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Income Before Income Taxes and Cumulative
Effect of Change in Accounting Principle................ 33,539 21,074 21,669 16,544 13,032
Income Tax Expense............................................... 14,810 10,138 9,946 6,842 5,538
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Income Before Cumulative Effect of
Change in Accounting Principle.......................... 18,729 10,936 11,723 9,702 7,494
Cumulative Effect of Change in Accounting Principle (1).......... -- -- -- -- 1,200
------- ------- ------- ------- ------
Net Income.................................................. $ 18,729 $ 10,936 $ 11,723 $ 9,702 $ 8,694
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Earnings Per Share: (2) Basic........................... $ 2.11 $ 1.32 $ 1.36 $ 1.04 $ 0.22
Diluted......................... $ 1.99 $ 1.25 $ 1.32 $ 1.03 $ 0.22
(See footnotes on following page)
5
Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Financial and Other Data of the Company
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At or for the Year Ended June 30,
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1998 1997 1996 1995 1994
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Performance Ratios:
Return on Average Assets (1)...................................... 0.86% 0.58% 0.83% 1.08% 1.15%
Return on Average Stockholders' Equity (1)(3)..................... 10.42 7.02 7.58 6.17 9.82
Return on Average Tangible Stockholders' Equity (1)(3)............ 15.14 10.10 9.18 6.17 9.82
Average Stockholders' Equity to Average Assets.................... 8.45 8.24 10.92 17.60 11.68
Stockholders' Equity to Total Assets.............................. 7.84 8.23 8.62 16.51 19.01
Tangible Stockholders' Equity to Tangible Assets.................. 5.60 6.07 6.01 16.51 19.01
Core Deposits to Total Deposits................................... 36.91 37.40 41.68 36.12 49.08
Net Interest Spread............................................... 2.98 3.22 3.17 3.11 3.36
Net Interest Margin (4)........................................... 3.28 3.47 3.52 3.77 3.69
General and Administrative Expenses to Average Assets............. 1.62 1.66 1.81 1.97 1.82
Operating Income to Average Assets (5)............................ 0.29 0.17 0.16 0.14 0.15
Average Interest-Earning Assets to
Average Interest-Bearing Liabilities............................ 1.07X 1.06X 1.09X 1.20X 1.12X
Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment
Return on Average Assets (1)...................................... 0.86% 0.84% 0.83% 1.08% 1.15%
Return on Average Stockholders' Equity (1)(3)..................... 10.42 10.12 7.58 6.17 9.82
Return on Average Tangible Stockholders' Equity (1)(3)............ 15.14 14.56 9.18 6.17 9.82
Asset Quality Ratios:
Non-Performing Loans to Total Loans (6)........................... 0.95% 1.61% 1.58% 1.10% 1.08%
Non-Performing Loans to Total Assets.............................. 0.37 0.75 0.73 0.39 0.43
Non-Performing Assets to Total Assets (7)........................ 0.40 0.77 0.82 0.56 0.78
Allowance for Loan Losses to Total Loans.......................... 0.91 0.57 0.55 0.52 0.43
Allowance for Loan Losses to Non-Performing Loans................. 96.12 35.18 34.63 47.10 39.38
Other Data:
Number of Deposit Accounts........................................ 169,071 164,121 164,368 68,617 63,416
Full-Service Banking Offices...................................... 30 28 28 11 11
(1) Reflects the cumulative effect of the Company's adoption of Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes," in the
fiscal year ended June 30, 1994.
(2) Earnings per share for fiscal year ended 1994 is based on net income from
March 31, 1994 to June 30, 1994.
(3) For purposes of these calculations, average stockholders' equity and average
stockholders' tangible equity exclude the effect of changes in the unrealized
appreciation (depreciation) on securities available-for-sale, net of taxes.
(4) Calculation is based upon net interest income before provision for loan
losses divided by average interest-earning assets.
(5) Operating income represents total non-interest income less (plus) net gain
(loss) on sale of securities and condemnation award on joint venture.
(6) Non-performing loans consist of all loans 90 days or more past due and any
other loans, or any portion thereof, that have been determined to be doubtful of
collection.
(7) Non-performing assets consist of non-performing loans and real estate owned.
6
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Reliance Bancorp, Inc. (the "Company") is a Delaware corporation organized on
November 16, 1993 and is the holding company for Reliance Federal Savings Bank
(the "Bank"). On March 31, 1994, the Company issued 10,750,820 shares of common
stock at $10.00 per share raising total net proceeds of $103.6 million of which
$51.8 million was retained by the Company with the remaining net proceeds being
used by the Company to purchase all of the outstanding stock of the Bank.
The Company is headquartered in Garden City, New York and its primary business
currently consists of the operation of its wholly-owned subsidiary, the Bank. In
addition to directing, planning and coordinating the business activities of the
Bank, the Company currently invests primarily in U.S. Government securities,
corporate debt securities and repurchase agreements. In addition, the Company
completed the acquisitions of the Bank of Westbury, a Federal Savings Bank, in
August 1995, Sunrise Bancorp, Inc., in January 1996 and Continental Bank, a
commercial bank, in October 1997, which were all merged into the Bank.
The Bank's principal business is attracting retail deposits from the general
public and investing those deposits, together with funds generated from
operations, principal repayments and borrowings, primarily in mortgage,
consumer, multi-family, commercial, commercial real estate, construction and
guaranteed student loans. In connection with the acquisition of Continental
Bank, the Bank now offers both secured and unsecured commercial loans. In
addition, during periods in which the demand for loans which meet the Bank's
underwriting and interest rate risk standards and policies is lower than the
amount of funds available for investment, the Bank invests in mortgage-backed
securities, securities issued by the U.S. Government and agencies thereof and
other investments permitted by federal laws and regulations. The Bank also
operates, as a result of the Continental Bank acquisition, five check cashing
("Money Centers") operations which result in additional fee income to the Bank.
The Company's results of operations are dependent primarily on interest income
from its securities investments and earnings of the Bank. The Bank's results of
operations are primarily dependent on its net interest income, which is the
difference between the interest earned on its assets, primarily its loan and
securities portfolios, and its cost of funds, which consists of the interest
paid on its deposits and borrowings. The Bank's net income also is affected by
its provision for loan losses as well as non-interest income, general and
administrative expense, other non-interest expense, and income tax expense.
General and administrative expense consists primarily of compensation and
benefits, occupancy expenses, federal deposit insurance premiums, advertising
expense and other general and administrative expenses. Other non-interest
expense consists of real estate operations, net, amortization of excess of cost
over the fair value of net assets acquired, and in fiscal 1997, a one-time
pre-tax SAIF recapitalization charge. The earnings of the Company and Bank are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Completion of Acquisition of Continental Bank
On October 17, 1997, the Company completed the acquisition of Continental Bank
("Continental"), a commercial bank with two full service banking offices located
in Nassau and Suffolk counties in Long Island, New York, a commercial lending
facility and five check cashing facilities in Manhattan. Under the terms of the
merger, Reliance issued 1.10 shares of its common stock for each outstanding
common share of Continental. The cost of the acquisition was approximately $24.4
million. The Company accounted for the transaction using the purchase method of
accounting which resulted in excess of cost over the fair value of net assets
acquired ("goodwill") of $17.7 million which is being amortized on a straight
line basis over 15 years. As of the completion of the acquisition which was
effected by merging the net assets acquired into the Bank, the Bank continued to
exceed each of its regulatory capital requirements.
Financial Condition
As of June 30, 1998, total assets were $2.5 billion, an increase of $509.0
million, or 25.7%, from $2.0 billion at June 30, 1997. Mortgage-backed
securities increased $308.4 million, or 35.0%, from $881.2 million at June 30,
1997 to $1.2 billion at June 30, 1998, with the increase primarily due to
securities acquired from Continental Bank and increased purchases of private
label collateralized mortgage obligations offset by amortization and
prepayments. Investment securities increased
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$102.2 million, or 140.1%, from $72.9 million at June 30, 1997 to $175.1 million
at June 30, 1998, as the Company deployed some of the proceeds from the capital
securities issued in April 1998 into investment securities. Loans receivable,
net increased $60.5 million, or 6.7%, from $909.3 million at June 30, 1997 to
$969.8 million at June 30, 1998 as a result of increased multi-family lending
and from commercial loans acquired from Continental Bank.
Funding for the purchases of mortgage-backed securities, investments securities
and loans was obtained through a combination of new deposit growth, borrowings,
proceeds from the trust preferred securities and cash flows. Deposits increased
$192.3 million, or 13.4% during the fiscal year ended June 30, 1998 as a result
of growth in new certificate of deposit products and deposits acquired from
Continental Bank. Borrowings increased from $351.9 million at June 30, 1997 to
$630.2 million at June 30, 1998, an increase of $278.3 million, or 79.1%. The
increase in borrowings is attributable to additional leveraging of the statement
of condition and the proceeds from the trust preferred securities. The Bank has
been using borrowings to leverage its capital and fund asset growth.
Treasury stock decreased from $27.5 million at June 30, 1997 to $24.0 million at
June 30, 1998 as a result of the issuance of approximately 1 million shares to
purchase Continental Bank partially offset by additional purchases.
Non-performing assets
Non-performing loans totalled $9.3 million, or 0.95% of total loans at June 30,
1998, as compared to $14.7 million, or 1.61% of total loans at June 30, 1997.
Non-performing loans at June 30, 1998 were comprised of $6.4 million of loans
secured by one- to four-family residences, $2.1 million of commercial real
estate loans, $567,000 of commercial loans and $208,000 of guaranteed student
and other loans. As a result of a decrease in non-performing loans and an
increased asset base, the non-performing assets to total assets ratio improved
to 0.40% at June 30, 1998 from 0.77% at June 30, 1997.
For the fiscal year ended June 30, 1998, the Company's loan loss provision was
$1.7 million as compared to $950,000 in the prior year period. The Company
increased its provision for loan losses to continue to increase its loan loss
coverage ratios, particularly in light of increased multi-family lending and
commercial loans acquired from Continental Bank. The Company's allowance for
loan losses totalled $8.9 million at June 30, 1998 as compared to $5.2 million
at June 30, 1997 which represents a ratio of allowance for loan losses to
non-performing loans and to total loans of 96.12% and 0.91% and 35.18% and
0.57%, respectively. The significant increase in the loan loss coverage ratios
is the result of $2.7 million of allowances acquired from Continental Bank and
the lower level of non-performing loans. For the fiscal year ended June 30,
1998, the Company experienced net charge-offs of $636,000, as compared to
$263,000 in the prior year period. Management believes the allowance for loan
losses at June 30, 1998 is adequate, and sufficient reserves are presently
maintained to cover losses on non-performing loans.
Asset/Liability Management
One of the Bank's primary long-term financial objectives has been and will
continue to be to monitor the sensitivity of its earnings to interest rate
fluctuations by maintaining an appropriate matching of the maturities and
interest rate repricing characteristics of its assets and liabilities in
relation to the current and anticipated interest rate environment. In an effort
to realize this objective and minimize the Bank's exposure to interest rate
risk, the Bank emphasizes the origination of adjustable-rate mortgage ("ARM"),
commercial and consumer loans, shorter-term fixed rate multi-family, mortgage,
commercial and consumer loans and the purchase of shorter-term fixed rate and
adjustable-rate mortgage-backed securities. However, there can be no assurances
that the Bank will be able to originate adjustable-rate loans or acquire
mortgage-backed securities with terms and characteristics which conform with the
Bank's underwriting standards, investment criteria or interest rate risk
policies.
The Company has attempted to limit its exposure to interest rate risk through
the origination and purchase of adjustable-rate mortgage loans ("ARMs") and
through purchases of adjustable-rate mortgage-backed and mortgage-related
securities and fixed rate mortgage-backed and mortgage-related securities with
short- and medium-term average lives. In the most recent fiscal year, the Bank
has not been able to originate a significant amount of ARM's due to customer
preference for fixed rate loans. The actual duration of mortgage loans and
mortgage-backed securities can be significantly impacted by changes in mortgage
prepayment and market interest rates. Mortgage prepayment rates will vary due to
a number of factors, including the regional economy in the area where the
underlying mortgages were originated, seasonal factors, demographic variables
and the assumability of the underlying mortgages. However, the largest
determinants of prepayment rates are prevailing interest rates
8
and related mortgage refinancing opportunities. Management monitors interest
rate sensitivity so that adjustments in the asset and liability mix, when deemed
appropriate, can be made on a timely basis.
At June 30, 1998, $841.3 million, or 41.2%, of the Bank's interest-earning
assets consisted of adjustable-rate loans and mortgage-backed securities. The
Bank's mortgage loan portfolio totalled $791.0 million, of which, $425.3
million, or 53.8%, were adjustable-rate loans and $365.7 million, or 46.2%, were
fixed-rate loans. In addition, at June 30, 1998, the Bank's consumer loan
portfolio totalled $137.9 million, of which, $110.4 million, or 80.1%, were
adjustable-rate home equity lines of credit and guaranteed student loans and
$27.5 million, or 19.9%, were fixed-rate home equity and other consumer loans.
At June 30, 1998, the Bank's commercial loan portfolio totalled $49.9 million of
which $42.8 million, or 85.8% were adjustable rate loans and $7.1 million, or
14.2% were fixed rate loans. At June 30, 1998, the mortgage-backed securities
portfolio totalled $1.2 billion of which $940.3 million was classified as
available-for-sale and $249.3 million was classified as held-to-maturity. Of the
$940.3 million classified as available-for-sale, $187.0 million, or 15.7% of the
total mortgage-backed portfolio, were adjustable-rate securities and $753.3
million, or 63.3%, were fixed-rate securities. Of the $249.3 million classified
as held-to-maturity, $75.8 million, or 6.4% of the total mortgage-backed
portfolio, were adjustable-rate securities and $173.5 million, or 14.6%, were
fixed-rate securities. The Bank expects to continue to invest in shorter term
fixed-rate and adjustable-rate mortgage-backed securities to reduce credit risk
as well as minimize exposure to volatile interest rates. Recently, the Bank has
purchased longer term fixed-rate higher yielding mortgage-backed securities to
offset the prepayment risk of adjustable-rate securities during a falling
interest rate environment. It should be noted that adjustable-rate loans and
mortgage-backed securities backed by ARM loans initially bear rates of interest
below that of comparable fixed rate loans or mortgage-backed securities backed
by fixed rate loans. Accordingly, increased emphasis on adjustable-rate loans
and mortgage-backed securities may, under certain interest rate conditions,
result in the Bank's yield on interest-earning assets being lower than it could
be if fixed rate loans were emphasized.
Market Risk and Interest Rate Sensitivity Analysis
The Company's primary component of market risk is interest rate volatility. The
Company's net interest income, the primary component of its net income, is
subject to substantial risk due to changes in interest rates or changes in
market yield curves, particularly if there is a substantial variation in the
timing between the repricing of the Company's assets and the liabilities which
fund them. The Company seeks to manage this risk by monitoring and controlling
the variation in repricing intervals between its assets and liabilities. To a
lesser extent, the Company also monitors its interest rate sensitivity by
analyzing the estimated changes in market value of its assets and liabilities
assuming various interest rate scenarios. As previously discussed, there are a
variety of factors which influence the repricing characteristics and market
values of any given asset or liability. The matching of the repricing
characteristics of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice, either by its contractual terms, or based upon
certain assumptions made by management, within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated to mature or reprice within a specific time
period and the amount of interest-bearing liabilities anticipated to mature or
reprice within that same time period. A gap is considered positive when the
amount of interest rate sensitive assets maturing or repricing within a specific
time frame exceeds the amount of interest rate sensitive liabilities maturing or
repricing within that same time frame. Conversely, a gap is considered negative
when the amount of interest rate sensitive liabilities maturing or repricing
within a specific time frame exceeds the amount of interest rate sensitive
assets maturing or repricing within that same time frame. In a rising interest
rate environment, an institution with a negative gap would generally be
expected, absent the effects of other factors, to experience a greater increase
in the costs of its liabilities relative to the yields of its assets and thus a
decrease in the institution's net interest income, whereas an institution with a
positive gap would generally be expected to experience the opposite results.
Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income while a positive gap would tend
to adversely affect net interest income. Management monitors interest rate
sensitivity so that adjustments in the asset and liability mix, when deemed
appropriate, can be made on a timely basis. At June 30, 1998, the Company's
interest-bearing liabilities maturing or repricing within one year exceeded net
interest-earning assets maturing or repricing within the same time period by
$213.7 million, representing a negative cumulative one-year gap of 8.60% of
total assets. This compares to interest-bearing liabilities maturing or
repricing within one year exceeding net interest-earning assets maturing or
repricing within the same time period by $55.6 million, representing a negative
cumulative one-year gap of 2.82% of total assets at June 30, 1997.
9
The following table ("the Gap table") sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at June 30, 1998, that are
anticipated by the Company using certain assumptions based on its historical
experience and other data available to management to reprice or mature in each
of the future time periods shown. Except as stated below, the amount of assets
and liabilities shown which reprice or mature during a particular period was
determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions have been
applied in estimating the repricing of the Company's mortgage loans and
mortgage-backed securities. The estimated rates of prepayment assumed for loans
and mortgage-backed securities are based upon coupon rates. The Company utilized
deposit withdrawal assumptions for its deposit decay rate. For passbook
accounts, NOW accounts and money market accounts, such assumed rates were 15%,
18% and 20%, respectively. The assumptions used may not be indicative of future
withdrawals of deposits or prepayments of loans and mortgage-backed securities.
The Gap table does not necessarily indicate the impact of general interest rate
movements on the Company's net interest income because the actual repricing
dates of various assets and liabilities are subject to customer discretion and
competitive and other pressures. Callable features of certain assets and
liabilities, in addition to the foregoing, may cause actual experience to vary
from that indicated. Included in this table are $135.4 million of callable
investment securities, classified according to their call dates. Of such
securities, $38.2 million, $10.0 million, $0, $5.0 million, $0, and $82.2
million are callable in the "Up to One Year", "One to Two Years", "Two to Three
Years", "Three to Four Years", "Four to Five Years", and "Over Five Years"
categories, respectively. Also included in this table are $324.0 million of
callable borrowings, classified according to their call dates. Of such
borrowings, $135.0 million, $89.0 million, $20.0 million, $0, $ 30.0 million and
$50.0 million are callable in the "Up to One Year", "One to Two Years", "Two to
Three Years", "Three to Four Years", "Four to Five Years", and "Over Five Years"
categories, respectively.
10
June 30, 1998
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Up to One to Two to Three to Four to Over
One Two Three Four Five Five Fair
Year Years Years Years Years Years Total Value
---- ----- ----- ----- ----- ----- ----- -----
Interest-Earning Assets: (Dollars in thousands)
Mortgage Loans(1)(2)..................... $ 342,781 $ 113,941 $ 114,359 $ 81,134 $ 56,989 $ 82,689 $ 791,893 $795,362
Commercial Loans(1)(2)................... 43,040 1,455 1,028 739 504 3,121 49,887 51,056
Other Loans(1)(2)........................ 123,963 5,341 2,810 1,617 974 2,281 136,986 137,806
Mortgage-Backed Securities(2)(3)......... 509,670 172,096 122,526 90,500 67,749 214,764 1,177,305 1,192,679
Money Market Investments................. 9,500 -- -- -- -- -- 9,500 9,500
Debt and Equity Securities(2)(3)......... 133,645 390 -- -- 8,000 32,925 174,960 175,416
-------- ------- -------- -------- -------- -------- -------- --------
Total Interest-Earning Assets........ 1,162,599 293,223 240,723 173,990 134,216 335,780 2,340,531 2,361,819
Interest-Bearing Liabilities:
Passbook Accounts........................ 65,447 53,000 45,576 111,349 85,639 82,734 443,745 443,745
NOW Accounts............................. 17,408 14,520 12,114 25,347 18,614 16,952 104,955 104,955
Money Market Accounts.................... 54,884 37,931 -- -- -- -- 92,815 92,815
Certificate of Deposit Accounts(2)....... 797,335 82,389 29,502 17,446 7,120 -- 933,792 936,347
Borrowed Funds........................... 441,206 89,000 20,000 -- 30,000 50,000 630,206 631,407
-------- ------- ------- -------- ------- ------- -------- -------
Total Interest-Bearing Liabilities... 1,376,280 276,840 107,192 154,142 141,373 149,686 2,205,513 2,209,269
--------- ------- ------- ------- ------- ------- --------- ---------
Interest Rate Sensitivity Gap............ $ (213,681) $ 16,383 $ 133,531 $ 19,848 $ (7,157) $ 186,094 $ 135,018
========= ====== ======= ====== ======= ======= =======
Cumulative Interest Rate Sensitivity Gap. $ (213,681)$ (197,298) $ (63,767) $ (43,919) $ (51,076) $ 135,018
========= ========= ======== ======== ======== =======
Cumulative Interest Rate Sensitivity Gap as
a Percentage of Total Assets...... (8.60)% (7.94)% (2.57)% (1.77)% (2.06)% 5.43%
Cumulative Net Interest-Earning Assets as
a Percentage of Cumulative Interest-
Bearing Liabilities............... 84.47% 88.07% 96.38% 97.71% 97.52% 106.12%
(1) For purposes of the GAP analysis, mortgage and other loans are not reduced
for the allowance for loan losses and non-performing loans. (2) For purposes of
the GAP analysis, premiums, unearned discounts, deferred loan fees and purchase
accounting adjustments are excluded. (3) Mortgage-backed and debt and equity
securities were shown excluding the market value appreciation of $7.4 million on
securities classified as available-for-sale.
Certain shortcomings are inherent in the method of analysis presented in the Gap
table. For example, although certain assets and liabilities may have similar
contractual maturities or periods to repricing, they may react in different ways
to changes in market interest rates. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Additionally, certain
assets, such as ARMs, have contractual features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Finally,
the ability of borrowers to service their ARMs or other loan obligations may
decrease in the event of an interest rate increase. The Gap table reflects the
estimates of management as to periods to repricing at a particular point in
time. Among the factors considered are current trends and historical repricing
experience with respect to similar products. For example, the Company has a
number of deposit accounts, including savings, NOW accounts, and money market
which, subject to certain regulatory exceptions not relevant here, may be
withdrawn at any time. The Company, based upon its historical experience,
assumes that while all customers in these account categories could withdraw
their funds on any given day, they will not do so even if market interest rates
change. As a result, different assumptions may be used at different points in
time.
The Company's interest rate sensitivity is also monitored by management through
analysis of the change in the net portfolio value ("NPV"). NPV is defined as the
net present value of the expected future cash flows of an entity's assets and
liabilities and, therefore, hypothetically represents the market value of an
institution's net worth. Increases in the market value of assets will increase
the NPV whereas decreases in market value of assets will decrease the NPV.
Conversely, increases in the market value of liabilities will decrease NPV
whereas decreases in the market value of liabilities will increase the NPV. The
changes in market value of assets and liabilities due to changes in interest
rates reflect the interest sensitivity of those assets and liabilities as their
values are derived from the characteristics of the asset or liability (i.e.
fixed rate, adjustable rate, caps, floors) relative to the interest rate
environment. For example, in a rising interest rate environment the fair market
value of a fixed rate asset will decline, whereas the fair market value of an
adjustable rate asset, depending on its repricing characteristics, may not
decline. The NPV ratio, under any interest rate scenario, is defined as the NPV
in that scenario divided by the market value
11
of assets in the same scenario. This analysis, referred to in the NPV table,
initially measures percentage changes from the value of projected NPV in a given
rate scenario, and then measures interest rate sensitivity by the change in the
NPV ratio, over a range of interest rate change scenarios. The OTS also produces
a similar analysis using its own model based upon data submitted on the Bank's
quarterly Thrift Financial Reports, the results of which may vary from the
Company's internal model primarily because of differences in assumptions
utilized between the Company's internal model and the OTS model, including
estimated loan prepayment rates, reinvestment rates and deposit decay rates. For
purposes of the NPV table, prepayment speeds and deposit decay rates similar to
those used in the Gap table were used. The NPV table is based on simulations
which utilize institution specific assumptions with regard to future cash flows,
including customer options such as loan prepayments, period and lifetime caps,
puts and calls, and deposit withdrawal estimates. The NPV table uses discount
rates derived from various sources including, but not limited to, treasury yield
curves, thrift retail certificate of deposit curves, national and local
secondary mortgage markets, brokerage security pricing services and various
alternative funding sources.
Specifically, for mortgage loans receivable, the discount rates used were based
on market rates for new loans of similar type and purpose, adjusted, when
necessary, for factors such as servicing cost, credit risk and term. The
discount rates used for certificates of deposit and borrowings were based on
rates which approximate the rates offered by the Company for deposits and
borrowings of similar remaining maturities. The table calculates the NPV at a
flat rate scenario by computing the present value of cash flows of interest
earning assets less the present value of interest bearing liabilities. Certain
assets, including fixed assets and real estate held for development, are assumed
to remain at book value (net of valuation allowance) regardless of interest rate
scenario. Other non-interest earning assets and non-interest bearing liabilities
such as deferred fees, unamortized premiums, goodwill and accrued expenses and
other liabilities are excluded from the NPV calculation. The following table
sets forth the Bank's NPV as of June 30, 1998, as calculated by the Bank, for
instantaneous and sustained changes in interest rates relative to the NPV in an
unchanging interest rate environment.
Changes in Interest Portfolio
Rates in Basis Net Portfolio Value Value of Assets
Points ---------------------------- ------------------
(Rate Shock) $ $ % NPV %
Amount Change Change Ratio Change
Dollar in Thousands)
200................. 111,367 (58,160) (34.3) 4.68 32.0
100................. 144,566 (24,961) (14.7) 5.96 13.4
0................... 169,527 -- -- 6.88 --
(100)............... 181,460 11,933 7.0 7.29 (5.9)
(200)............... 182,282 12,755 7.5 7.28 (5.7)
As with the Gap table, certain shortcomings are inherent in the methodology used
in the above interest rate risk measurements. Modeling of changes in NPV
requires the making of certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV model assumes that the composition of the
Company's interest sensitive assets and liabilities existing at the beginning of
a period remains constant over the period being measured and also assumes that a
particular change in interest rates is immediate and is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. In addition, prepayment estimates and other
assumptions within the model are subjective in nature, involve uncertainties
and, therefore, cannot be determined with precision. Accordingly, although the
NPV measurements in theory, may provide an indication of the Company's interest
rate risk exposure at a particular point in time, such measurements are not
intended to and do not provide for a precise forecast of the effect of changes
in market interest rates on the Company's net portfolio value and will differ
from actual results.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
12
The following table sets forth certain information relating to the Company's
consolidated statements of condition and the consolidated statements of income
for the years ended June 30, 1998, 1997, and 1996 and reflects the average
yields on assets and average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the fiscal years shown.
Average balances are derived from daily balances. The average balance of loans
receivable includes loans on which the Bank has discontinued accruing interest.
The yields and costs include fees, premiums and discounts which are considered
adjustments to yields.
Year Ended June 30,
-----------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- --------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
Assets: (Dollars in thousands)
Interest-Earning Assets:
Mortgage Loans, Net............... $785,119 $63,573 8.10% $709,471 $ 56,948 8.03% $473,427 $ 39,073 8.25%
Commercial Loans, Net............. 33,087 3,916 11.84 -- -- -- -- -- --
Consumer and Other Loans, Net..... 140,479 12,130 8.63 133,965 11,525 8.60 121,565 10,942 9.00
Mortgage-Backed Securities (1).... 986,567 67,185 6.81 850,094 59,392 6.99 685,348 46,084 6.72
Money Market Investments.......... 11,126 615 5.53 11,590 618 5.33 17,349 991 5.71
Debt and Equity Securities (1).... 87,791 6,400 7.29 68,824 4,806 6.98 49,203 3,282 6.67
------- ------- --------- -------- ------- --------
Total Interest-Earning Assets.... 2,044,169 153,819 7.52 1,773,944 133,289 7.51 1,346,892 100,372 7.45
------- --------- ---------
Non-Interest Earning Assets.......... 134,093 96,082 63,883
--------- --------- ---------
Total Assets................. $2,178,262 $1,870,026 $1,410,775
========= ========= =========
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Passbook Accounts................ $435,844 10,439 2.40 $441,922 10,937 2.47 $353,617 8,942 2.53
NOW Accounts..................... 95,663 1,257 1.31 80,121 1,041 1.30 58,576 1,161 1.98
Money Market Accounts............ 93,715 2,249 2.40 99,536 2,493 2.50 97,975 2,515 2.57
Certificate of Deposit Accounts.. 882,775 49,487 5.60 737,018 39,668 5.38 547,562 29,807 5.44
Borrowed Funds................... 403,414 23,396 5.80 311,363 17,514 5.62 180,055 10,560 5.87
-------- ------- -------- ------- ------- -------
Total Interest-Bearing
Liabilities............... 1,911,411 86,828 4.54 1,669,960 71,653 4.29 1,237,785 52,985 4.28
--------- --------- ---------
Non-Interest Bearing Liabilities.... 82,853 46,036 18,919
--------- --------- ---------
Total Liabilities........... 1,994,264 1,715,996 1,256,704
Stockholders' Equity................ 183,998 154,030 154,071
--------- --------- -------
Total Liabilities and
Stockholders' Equity...... $2,178,262 $1,870,026 $1,410,775
========= ========= =========
Net Interest Income/Interest
Rate Spread (2)................... $ 66,991 2.98% $ 61,636 3.22% $ 47,387 3.17%
====== ==== ====== ==== ====== ====
Net Interest-Earning Assets/
Net Interest Margin (3)........... $132,758 3.28% $103,984 3.47% $ 109,107 3.52%
======= ---- ======= ==== ======= ====
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities....... 1.07X 1.06X 1.09X
(1) Includes securities available-for-sale.
(2) Net interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
13
Year Ended June 30, 1998 Year Ended June 30, 1997
Compared to Compared to
Year Ended June 30, 1997 Year Ended June 30, 1996
--------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
in Net Interest Income in Net Interest Income
Due to Due to
-------------------- ---------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
Interest-Earning Assets:
Mortgage Loans, Net.................. $6,124 $501 $6,625 $18,945 $(1,070) $17,875
Commercial Loans, Net................ 3,916 -- 3,916 -- -- --
Consumer and Other Loans, Net........ 565 40 605 1,083 (500) 583
Mortgage-Backed Securities........... 9,353 (1,560) 7,793 11,402 1,906 13,308
Money Market Investments............. (25) 22 (3) (309) (64) (373)
Debt and Equity Securities........... 1,373 221 1,594 1,365 159 1,524
------ ------ ------ ------ ---- ------
Total........................... 21,306 (776) 20,530 32,486 431 32,917
------ ------- ------ ------ ---- ------
Interest-Bearing Liabilities:
Passbook Accounts.................... (163) (335) (498) 2,210 (215) 1,995
NOW Accounts......................... 208 8 216 350 (470) (120)
Money Market Accounts................ (145) (99) (244) 43 (65) (22)
Certificate of Deposits Accounts..... 8,137 1,682 9,819 10,193 (332) 9,861
Borrowed Funds....................... 5,307 575 5,882 7,421 (467) 6,954
------ ----- ------ ------- ------- ------
Total........................... 13,344 1,831 15,175 20,217 (1,549) 18,668
------ ----- ------ ------ ------ ------
Net Change in Net Interest Income......... $7,962 $(2,607) $5,355 $12,269 $1,980 $14,249
===== ====== ===== ====== ===== ======
Comparison of Operating Results for the Years Ended June 30, 1998 and 1997
General. Net income for fiscal 1998 was $18.7 million as compared to $10.9
million for fiscal 1997. Net income for fiscal 1997 reflects a one time pre-tax
charge to income of $8.25 million for the Company's share of recapitalizing the
Savings Association Insurance Fund ("SAIF"). The following discussion reflects
the results of operations exclusive of the SAIF recapitalization charge.
General Comparison Exclusive of the SAIF Recapitalization Charge. Net income
increased $3.0 million, or 18.8% from $15.7 million for fiscal 1997 to $18.7
million for fiscal 1998. Return on average equity increased to 10.42% for fiscal
1998 from 10.12% for fiscal 1997 and return on average tangible equity increased
to 15.14% for fiscal 1998 from 14.56% for fiscal 1997. Diluted earnings per
share rose to $1.99 for fiscal 1998 as compared to diluted earnings per share of
$1.81 for fiscal 1997.
Interest Income. Interest income increased $20.5 million, or 15.4%, from $133.3
million for fiscal 1997 to $153.8 million for fiscal 1998. The increase resulted
primarily from a $270.2 million increase in average interest-earning assets from
$1.8 billion for fiscal 1997 to $2.0 billion for fiscal 1998 and from a slight
increase in the average yield of interest-earning assets from 7.51% in fiscal
1997 to 7.52% in fiscal 1998. The increase in the average interest-earning
assets was primarily due to assets acquired in the Continental Bank acquisition,
increased purchases of mortgage-backed securities and increased originations of
multi-family loans. Interest income on mortgage-backed securities increased $7.8
million, or 13.1%, from $59.4 million for fiscal 1997 to $67.2 million for
fiscal 1998, primarily due to an increase of $136.5 million, or 16.1%, in the
average balance of these securities, offset by an 18 basis point decrease in the
average yield on these securities from 6.99% for fiscal 1997 to 6.81% for fiscal
1998. Interest income on mortgage loans increased $6.6 million, or 11.6% from
$56.9 million in fiscal 1997 to $63.5 million in fiscal 1998, primarily due to
an increase of $75.6 million in the average balance of mortgage loans, and a
slight 7 basis point increase in the average yield on mortgage loans from 8.03%
for fiscal 1997 to 8.10% for fiscal 1998. The increase in the average balance of
mortgage loans was primarily due to loans acquired in the Continental Bank
acquisition and increased originations of multi-family loans.
14
Interest Expense. Interest expense for fiscal 1998 was $86.8 million, an
increase of $15.2 million, or 21.2%, from $71.6 million in fiscal 1997. The
increase is primarily the result of a $241.5 million, or 14.5%, increase in the
average balance of interest-bearing liabilities from $1.7 billion for fiscal
1997 to $1.9 billion for fiscal 1998 and from a 25 basis point increase in the
cost of interest-bearing liabilities from 4.29% for fiscal 1997 to 4.54% for
fiscal 1998. The increase in the average balance of interest-bearing liabilities
was primarily due to deposits acquired in the Continental Bank acquisition, new
certificate deposits and additional borrowings. Interest expense on total
deposits increased $9.3 million, or 17.2%, from $54.1 million for fiscal 1997 to
$63.4 million for fiscal 1998, primarily as a result of a $149.4 million, or
11.0% increase in the average balance of deposits from $1.4 billion in fiscal
1997 to $1.5 billion in fiscal 1998 and a 23 basis point increase in the average
cost of such deposits from 3.98% in fiscal 1997 to 4.21% in fiscal 1998. The
average balance of certificate accounts increased $145.8 million, or 19.8%, from
$737.0 million for fiscal 1997 to $882.8 million for fiscal 1998. In addition to
the increase in the average balance of certificate accounts, the average balance
of interest-bearing core deposits also increased $9.5 million, or 1.8%, from
$522.0 million for fiscal 1997 to $531.5 million for fiscal 1998. The increase
in average core deposits relates to deposits acquired from Continental Bank.
Interest expense on borrowed funds increased $5.9 million, or 33.6%, from $17.5
million for fiscal 1997 to $23.4 million for fiscal 1998. The average balance of
borrowed funds increased $92.0 million, or 29.6% to $403.4 million for fiscal
1998 as compared to $311.4 million for fiscal 1997. The increase in borrowings
is attributable to additional leveraging of the balance sheet and the proceeds
from the trust preferred securities. The Bank had been using borrowings to
leverage its capital and fund asset growth.
Net Interest Income. Net interest income for fiscal 1998 increased $5.4 million,
or 8.7%, from $61.6 million for fiscal 1997 to $67.0 million for fiscal 1998.
The increase in net interest income primarily relates to the significant growth
in the average balances of interest-earning assets offset by a decrease in the
net interest spread. Average interest-earning assets increased $270.2 million,
or 15.2%, from $1.8 billion in fiscal 1997 to $2.0 billion in fiscal 1998 while
average interest-bearing liabilities increased $241.5 million, or 14.5%, from
$1.7 billion in fiscal 1997 to $1.9 billion in fiscal 1998. The net interest
rate spread declined by 24 basis points from 3.22% for fiscal 1997 to 2.98% for
fiscal 1998 as a result of increased costs of interest bearing liabilities. As a
result of further leveraging of the Bank's capital, the net interest margin
decreased from 3.47% in fiscal 1997 to 3.28% in fiscal 1998. As a result of the
Continental acquisition, the ratio of average interest-earning assets to
interest-bearing liabilities increased slightly from 1.06X in fiscal 1997 to
1.07X in fiscal 1998.
Provision for Loan Losses. The provision for loan losses for fiscal 1998 was
$1.65 million, an increase of $700,000, or 73.7%, from $950,000 for fiscal 1997.
When determining the provision for loan losses, management assesses the risk
inherent in its loan portfolio based on information available to management at
such time relating to trends in the national and local economies, trends in the
real estate market and trends in the Company's level of non-performing loans,
assets and net charge-offs. Non-performing loans decreased from $14.7 million at
the end of fiscal 1997 to $9.3 million at the end of fiscal 1998 and net
charge-offs increased from $263,000 for fiscal 1997 to $636,000 for fiscal 1998.
Management increased the provision for loan losses during fiscal 1998 due to its
assessment of the loan portfolio and to increase loan loss coverage on
non-performing loans. Additionally, during fiscal 1998, the Company increased
its origination of multi-family loans and as a result of the Continental
acquisition, the Company began to originate commercial loans. Multi-family loans
and commercial loans may possess a greater credit risk than one- to four-family
loans and require greater general reserve levels. Management believes that based
upon information currently available, its allowance for loan losses is adequate
to cover future loan losses. However, if general economic conditions and real
estate values within the Bank's primary lending area decline, the level of
non-performing loans may increase resulting in larger provisions for loan losses
which, in turn, would adversely affect net income.
Non-Interest Income. Non-interest income for fiscal 1998 increased $4.4 million,
or 130.3%, from $3.4 million for fiscal 1997 to $7.8 million for fiscal 1998,
due to a gain from a condemnation award received from an inactive joint venture,
fee income generated from the check cashing operations acquired from Continental
Bank and increased deposit fee income.
Non-Interest Expense. Non-interest expense totalled $39.7 million for fiscal
1998 as compared to $43.0 million for fiscal 1997, a decrease of $3.3 million,
or 7.8%. Included in non-interest expense for fiscal 1997 is the special SAIF
pre-tax charge of $8.25 million. Excluding the SAIF charge, non-interest expense
increased $4.9 million, or 14.1%.The increase is mainly the result of banking
office personnel, goodwill amortization and other expenses associated with the
Continental Bank acquisition offset by a decrease in deposit insurance premiums.
Due to the
15
increased asset base and the operational efficiencies realized from the
acquisition, the general and administrative expenses to average assets ratio
improved from 1.66% for the fiscal year ended June 30, 1997 to 1.62% for fiscal
1998. For fiscal 1998, compensation and benefits expense increased to $20.3
million, an increase of $3.8 million, or 23.0%, from $16.5 million for fiscal
1997. The increase in compensation and benefits expense is due to the addition
of banking office personnel from the Continental Bank acquisition, higher
benefit expenses and normal salary adjustments. For fiscal 1998, ESOP and RRP
expense was $3.7 million as compared to $2.5 million in the prior year, an
increase of $1.2 million, or 46.9%. Occupancy and equipment expense increased
$812,000, or 14.2%, from $5.7 million for fiscal 1997 to $6.5 million for fiscal
1998 due to costs associated with the operation of two new banking offices and
five check cashing facilities. Federal deposit premium expense decreased
$892,000, or 49.2%, from $1.8 million for fiscal 1997 to $921,000 for fiscal
1998 due to the reduction in SAIF. Other operating expenses increased $496,000,
or 8.6%, from $5.8 million during fiscal 1997 to $6.3 million for fiscal 1998
primarily as a result of general expenses related to the addition of two new
banking offices and five check cashing facilities.
For fiscal 1998, expenses related to real estate operations, net was $218,000, a
decrease of $165,000, or 43.1%, from $383,000 in the prior year period. The
decrease is the result of a lower provision for REO losses during the fiscal
year ended June 30, 1998. During fiscal 1998, the Bank established a provision
for REO losses of $93,000 as compared to $200,000 in the prior year period.
During fiscal 1998, the Bank recognized amortization of excess of cost over fair
value of net assets acquired of $4.2 million as compared to $3.4 million in
fiscal 1997. The amortization of cost over fair value of net assets acquired
relates to the Company accounting for the acquisitions of Bank of Westbury,
Sunrise Bancorp, Inc. and Continental Bank using the purchase method of
accounting.
Income Tax Expense. Income tax expense increased $4.7 million, or 46.1%, from
$10.1 million for fiscal 1997 to $14.8 million for fiscal 1998. The effective
income tax rate was 44.2% for fiscal 1998 as compared to 48.1% for fiscal 1997.
The decrease in the effective tax rate primarily relates to certain tax benefits
associated with the operations of a subsidiary of the Bank, offset by an
increase in amortization of excess of cost over fair value of net assets
acquired, which provides no tax benefit.
Comparison of Operating Results for the Years Ended June 30, 1997 and 1996.
General. Net income for fiscal 1997 was $10.9 million as compared to $11.7
million for fiscal 1996. The decrease in net income was the result of the SAIF
recapitalization assessment of $4.8 million, net of taxes, recorded in the first
quarter of fiscal 1997. Although net income decreased from the prior year, net
income, excluding the SAIF recapitalization assessment, would have been $15.7
million for the year ended June 30, 1997 which represents an increase of $4.1
million, or 34.5%, over net income for the year ended June 30, 1996. Excluding
the SAIF assessment, the return on average equity increased to 10.12% for year
ended June 30, 1997 from 7.58% for year ended June 30, 1996 and the return on
tangible equity increased to 14.56% for year ended June 30, 1997 from 9.18% for
year ended June 30, 1996.
Interest Income. Interest income increased $32.9 million, or 32.8%, from $100.4
million for fiscal 1996 to $133.3 million for fiscal 1997. The increase resulted
primarily from a $427.1 million increase in average interest-earning assets from
$1.3 billion for fiscal 1996 to $1.8 billion for fiscal 1997 and from a slight
increase in the average yield of interest-earning assets from 7.45% in fiscal
1996 to 7.51% in fiscal 1997. The increase in the average interest-earning
assets was primarily due to assets acquired in the Sunrise Bancorp, Inc.
acquisition, increased purchases of mortgage-backed securities and increased
originations of multi-family loans. Interest income on mortgage-backed
securities increased $13.3 million, or 28.9%, from $46.1 million for fiscal 1996
to $59.4 million for fiscal 1997, primarily due to an increase of $164.7
million, or 24.0%, in the average balance of these securities, and an increase
in the average yield on these securities of 27 basis points from 6.72% for
fiscal 1996 to 6.99% for fiscal 1997 due to increased purchases of higher
yielding fixed-rate mortgage-backed securities and agency and private label
REMICs. Interest income from mortgage loans increased by $17.9 million, or
45.7%, due to a $236.0 million, or 49.9%, increase in the average balance of
mortgage loans offset by a 22 basis point decrease in the average yield on
mortgage loans from 8.25% for fiscal 1996 to 8.03% for fiscal 1997. The increase
in average mortgage loans was primarily due to loans acquired in the Sunrise
Bancorp, Inc. acquisition and increased originations of multi-family loans. The
16
decrease in the average yield resulted primarily from the downward repricing of
the Company's adjustable-rate loans and originations of lower yielding loans due
to the lower interest rate environment.
Interest Expense. Interest expense for fiscal 1997 was $71.7 million, an
increase of $18.7 million, or 35.2%, from $53.0 million in fiscal 1996. The
increase is primarily the result of a $432.2 million, or 34.9%, increase in the
average balance of interest-bearing liabilities from $1.2 billion for fiscal
1996 to $1.7 billion for fiscal 1997 and from a slight increase in the cost of
interest-bearing liabilities from 4.28% for fiscal 1996 to 4.29% for fiscal
1997. The increase in the average balance of interest-bearing liabilities was
primarily due to deposits acquired in the Sunrise Bancorp, Inc. acquisition, new
certificate deposits and additional borrowings. Interest expense on total
deposits increased $11.7 million, or 27.6%, from $42.4 million for fiscal 1996
to $54.1 million for fiscal 1997, primarily as a result of a $300.9 million, or
28.4% increase in the average balance of deposits from $1.1 billion in fiscal
1996 to $1.4 billion in fiscal 1997 offset by a slight decrease in the average
cost of such deposits from 4.01% in fiscal 1996 to 3.98% in fiscal 1997. The
decrease in the average cost of deposits resulted primarily from the Bank
lowering rates on its core deposit accounts offset by the Bank competitively
raising interest rates on certificate of deposit accounts to attract new
deposits. The average balance of certificate accounts increased $189.5 million,
or 34.6%, from $547.6 million for fiscal 1996 to $737.0 million for fiscal 1997.
In addition to the increase in the average balance of certificates accounts, the
average balance of core deposits also increased $109.9 million, or 26.7%, from
$412.2 million for fiscal 1996 to $522.0 million for fiscal 1997. The increase
relates to core deposits acquired in the Sunrise Bancorp, Inc. acquisition,
however, the core deposit ratio decreased from 41.68% at June 30, 1996 to 37.40%
at June 30, 1997. Interest expense on borrowed funds increased $6.9 million, or
65.9%, from $10.6 million for fiscal 1996 to $17.5 million for fiscal 1997.
Borrowings averaged $311.4 million for fiscal 1997, an increase of $131.3
million, or 72.9%, from $180.1 million for fiscal 1996. The Company continues to
utilize borrowed funds to grow, leveraging the Bank's capital and improving the
return on equity and tangible equity. Borrowed funds, principally reverse
repurchase agreements and FHLB-NY advances, have been invested by the Company
primarily in mortgage-backed securities and multi-family loans.
Net Interest Income. Net interest income for fiscal 1997 increased $14.2
million, or 30.1%, from $47.4 million for fiscal 1996 to $61.6 million for
fiscal 1997. The increase in net interest income primarily relates to the
significant growth in the average balances of interest-earning assets and an
increase in the net interest spread. Average interest-earning assets increased
$427.1 million, or 31.7%, from $1.3 billion in fiscal 1996 to $1.8 billion in
fiscal 1997 while average interest-bearing liabilities increased $432.2 million,
or 34.9%, from $1.2 billion in fiscal 1996 to $1.7 billion in fiscal 1997. The
net interest rate spread increased from 3.17% for fiscal 1996 to 3.22% for
fiscal 1997 as a result of higher yielding loans acquired from the Sunrise
Bancorp, Inc. acquisition and increased yields on the mortgage-backed securities
portfolio. As a result of leveraging the Bank's capital with the Sunrise
Bancorp, Inc. acquisition, the net interest margin decreased from 3.52% in
fiscal 1996 to 3.47% in fiscal 1997 and the ratio of average interest-earning
assets to interest-bearing liabilities declined from 1.09X in fiscal 1996 to
1.06X in fiscal 1997.
Provision for Loan Losses. The provision for loan losses for fiscal 1997 was
$950,000, and increase of $225,000, or 31.0%, from $725,000 for fiscal 1996.
When determining the provision for loan losses, management assesses the risk
inherent in its loan portfolio based on information available to management at
such time relating to trends in the national and local economies, trends in the
real estate market and trends in the Company's level of non-performing loans and
assets and net charge-offs. Non-performing loans increased from $13.0 million at
the end of fiscal 1996 to $14.7 million at the end of fiscal 1997 and net
charge-offs increased from $176,000 for fiscal 1996 to $263,000 for fiscal 1997.
Management increased the provision for loan losses during fiscal 1997 due to its
assessment of the loan portfolio and to increase loan loss coverage on
non-performing loans. In addition, the Company has increased its origination of
multi-family loans which may possess a greater credit risk than one- to
four-family loans and requires greater general reserve levels. Management
believes that based upon information currently available its allowance for loan
losses is adequate to cover future loan losses. However, if general economic
conditions and real estate values within the Bank's primary lending area
decline, the level of non-performing loans may increase resulting in larger
provisions for loan losses which, in turn, would adversely affect net income.
Non-Interest Income. Non-interest income for fiscal 1997 increased $302,000, or
9.7%, from $3.1 million for fiscal 1996 to $3.4 million for fiscal 1997. The
increase in non-interest income is due to increased deposit fee income offset by
lower net gains on securities.
17
Non-Interest Expense. Non-interest expense totalled $43.0 million for the fiscal
year ended June 30, 1997 as compared to $28.1 million for the fiscal year ended
June 30, 1996, an increase of $14.9 million, or 53.1%. Included in non-interest
expense for the fiscal year ended June 30, 1997 is the special SAIF charge of
$8.25 million. Excluding the SAIF charge, non-interest expense increased $6.7
million, or 23.7%. The increase is mainly the result of banking office
personnel, goodwill amortization and other occupancy costs associated with the
Sunrise Bancorp, Inc. acquisition. Due to the increased asset base and the
operational efficiencies realized from the acquisition, the general and
administrative expenses to average assets ratio improved from 1.81% for the
fiscal year ended June 30, 1996 to 1.66% for the fiscal year ended June 30,
1997. For the fiscal year ended June 30, 1997, compensation and benefits expense
increased to $16.5 million, an increase of $3.1 million, or 23.2%, from $13.4
million for the fiscal year ended June 30, 1996. The increase in compensation
and benefits expense is due to the addition of banking office personnel from the
Sunrise Bancorp, Inc. acquisition, higher benefit expenses and normal salary
adjustments. For the fiscal year ended June 30, 1997, ESOP and RRP expense was
$2.5 million as compared to $2.0 million in the prior year, an increase of
$485,000, or 23.8%. Occupancy and equipment expense increased $1.2 million, or
27.6%, from $4.5 million for the fiscal year ended June 30, 1996 to $5.7 million
for the fiscal year ended June 30, 1997 due to costs associated with the
operation of the eleven new banking offices as well as miscellaneous data
processing costs. Federal deposit premium expense decreased $586,000, or 24.4%,
from $2.4 million for fiscal year ended June 30, 1996 to $1.8 million for the
fiscal year ended June 30, 1997 due to the reduction in SAIF premiums as a
result of the recapitalization of the insurance fund. Other operating expenses
increased $1.6 million, or 38.6%, from $4.2 million during the fiscal year ended
June 30, 1996 to $5.8 million for the fiscal year ended June 30, 1997 primarily
as a result of general expenses related to the addition of eleven new banking
offices.
For the fiscal year ended June 30, 1997, real estate owned expenses were
$383,000, a decrease of $196,000, or 33.9%, from $579,000 in the prior year
period. The decrease in real estate owned expenses primarily relates to a lower
provision established during the fiscal year ended June 30, 1997. During the
fiscal year ended June 30, 1997, the Bank established a provision for REO losses
of $200,000 as compared to $375,000 in the prior year period.
During fiscal year 1997, the Bank recognized amortization of excess of cost over
fair value of net assets acquired of $3.4 million as compared to $1.9 million in
fiscal 1996. The amortization of cost over fair value of net assets acquired
relates to the Company accounting for the acquisitions of Bank of Westbury and
Sunrise Bancorp, Inc. using the purchase method of accounting.
Income Tax Expense. Income tax expense increased $192,000, or 1.9%, from $9.9
million for fiscal 1996 to $10.1 million for fiscal 1997. The effective income
tax rate was 48.1% for fiscal 1997 as compared to 45.9% for fiscal 1996. The
increase in the effective tax rate primarily relates to no tax benefit received
for the amortization of excess of cost over fair value of net assets acquired.
Liquidity and Capital Resources
The Company's current primary sources of funds are principal and interest
payments, sales of securities available-for- sale, borrowings and dividends from
the Bank. Dividend payments to the Company from the Bank are subject to the
profitability of the Bank and to applicable laws and regulations. During fiscal
1998 and 1997, the Bank made dividend payments of $14.0 million and $6.7
million, respectively, to the Company. During fiscal year 1996, the Bank did not
make any dividend payments to the Company.
On April 29, 1998, the Company completed a $50 million private placement of
8.17% capital securities (the "Capital Securities") due May 1, 2028. The
securities were issued by the Company's recently formed unit, Reliance Capital
Trust I. The securities were sold in an offering under Rule 144A and Regulation
D of the Securities Act of 1933. Proceeds of the issue were invested by Reliance
Capital Trust I in junior subordinated debentures issued by the Company. The
Capital Securities are guaranteed by the Company. Net proceeds from the sale of
the debentures were used for general corporate purposes.
The Company's liquidity is also available to, among other things, support future
expansion of operations or diversification into other banking related business,
pay dividends or repurchase its common stock. In this regard, the Company
declared cash dividends of $6.0 million, $4.9 million, and $3.9 million during
fiscal years 1998, 1997 and 1996, respectively.
18
On February 9, 1998, the Company completed its fifth five percent stock
repurchase plan repurchasing 440,973 shares at an aggregate cost of $13.4
million. On January 12, 1998, the Company announced its sixth stock repurchase
plan to repurchase up to 500,000 of the Company's outstanding shares. As of June
30, 1998, 100,000 shares under this program were repurchased at an aggregate
cost of $3.7 million. During fiscal years 1998, 1997 and 1996, the Company
repurchased total shares of 460,973, 442,182 and 260,776, respectively, at an
aggregate cost of $15.3 million, $8.1 million and $3.8 million, respectively.
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, mortgage-backed securities and debt and equity securities,
advances from the FHLB-NY and borrowings under reverse repurchase agreements and
loan sales. While maturities and scheduled amortization of loans,
mortgage-backed securities and debt securities are predictable sources of funds,
deposit flows and mortgage prepayments are strongly influenced by changes in
general interest rates, economic conditions and competition.
The Bank is required to maintain an average daily balance of liquid assets as a
percentage of net withdrawable deposit accounts plus short-term borrowings as
defined by OTS regulations. The minimum required liquidity is currently 4.0%.
The Bank's liquidity ratio averaged 8.0% for the year ended June 30, 1998.
The Bank's most liquid assets are cash and short-term investments. The levels of
the Bank's liquid assets are dependent on the Bank's operating, financing,
lending and investing activities during any given period. At June 30, 1998,
assets qualifying for liquidity, including cash, US government obligations and
other eligible securities, totalled $171.7 million.
The primary investment activity of the Bank is the origination of mortgage,
commercial and consumer and loans, and the purchase of mortgage loans and
mortgage-backed securities. During the fiscal year ended June 30, 1998, the Bank
originated and purchased mortgage loans, commercial and consumer loans in the
amount of $106.4 million, $140.6 million and $46.7 million, respectively. During
the fiscal year ended June 30, 1998, the Bank purchased $770.9 million of
mortgage-backed securities of which $623.7 million and $147.2 million,
respectively, were classified as available-for-sale and held-to-maturity and
purchased as part of the Bank's growth strategy. These activities were funded
primarily by deposits, principal repayments on loans and mortgage-backed
securities and borrowings from the FHLB-NY, reverse repurchase agreements and
proceeds from Capital Securities. At June 30, 1998, borrowings from the FHLB-NY
and reverse repurchase agreements totalled $182.1 million and $398.1 million,
respectively.
At June 30, 1998, the Bank had outstanding loan commitments of $40.4 million and
commercial and consumer open lines of credit of $22.6 million and $53.4 million,
respectively. The Bank anticipates that it will have sufficient funds available
to meet its current loan origination commitments. Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1998 totalled $797.9
million. Management believes that a significant portion of such deposits will
remain with the Bank.
At June 30, 1998, the Bank exceeded each of the OTS capital requirements. The
Bank's tangible, core, and risked- based ratios were 6.1%, 6.1% and 15.3%,
respectively. The Bank qualifies as "well capitalized" under the prompt
corrective action provisions of the Federal Deposit Insurance Corporation
Improvements Act of 1991.
Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurements of financial position and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or, to the same
extent, as the price of goods and services.
19
Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board ( "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires that all items that are components
of "comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] 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". Companies
will be required to (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997 and requires
reclassification of prior periods presented. As the requirements of SFAS No. 130
are disclosure-related, its implementation will have no impact on the Company's
financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosure 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 of financial statements of the Company and in condensed financial
statements of interim periods issued to shareholders. It also requires that a
Company report certain information about their products and services, geographic
areas in which they operate and their major customers. 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. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and requires
interim periods to be presented in the second year of application.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" an amendment of FASB Statements No.
87, "Employer's Accounting for Pensions", No. 88, "Employer's Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions". SFAS No. 132 revises employer's disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. Rather, it 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 as
they were when FASB Statements Xx. 00, Xx. 00, and No. 106, were issued. The
statement suggests combined formats for presentation and restatement for earlier
periods of pension and other postretirement benefit disclosures. 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.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective prospectively for the
Company on July 1, 1999. SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the Statement, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows or foreign currencies. If the
hedge exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedge item attributable to the risk being hedged.
If the hedged exposure is a cash flow exposure, the effective portion of the
gain or loss on the derivative instrument is reported initially as a component
of other comprehensive income (outside earnings) and subsequently reclassified
into earnings when the forecasted transaction affects earnings. Any amounts
excluded from the assessment of hedge effectiveness as well as the ineffective
portion of the gain or loss is reported in earnings immediately. Accounting for
foreign currency xxxxxx is similar to the accounting for fair value and cash
flow xxxxxx. If the derivative instrument is not designated as a hedge, the gain
or loss is recognized in
20
earnings in the period of change. The Company has not determined the impact that
SFAS No. 133 will have on its financial statements.
Impact of the Year 2000 Issue
The Year 2000 Issue centers on the inability of computer systems to recognize
the year 2000. Many existing computer programs and systems were originally
programmed with six digit dates that provided only two digits to identify the
calendar year in the date field, without considering the upcoming change in the
century. With the impending millennium, these programs and computers will
recognize "00" as the year 1900 rather than the year 2000. Like most financial
service providers, the Company and its operations may be significantly affected
by the Year 2000 Issue due to the nature of financial information. Software,
hardware, and equipment both within and outside the Company's direct control and
with whom 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. Furthermore, 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 results 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. In addition, under
certain circumstances, failure to adequately address the Year 2000 Issue could
adversely affect the viability of the Company's suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately addressed, the Year
2000 Issue could result in a significant adverse impact on the Company's
products, services and competitive condition.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Issue will be mitigated without causing a
material adverse impact on the operations of the Company. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have an impact on the operations of the Company. At this
time, management does not believe that the impact and any resulting costs will
be material.
Monitoring and managing the Year 2000 project will result in additional direct
and indirect costs to the Company. Direct costs include potential charges by
third party software vendors for product enhancements, costs involved in testing
software products for year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced.Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans. The
Company does not believe that such costs will have a material effect on results
of operations. Both direct and indirect costs of addressing the Year 2000 Issue
will be charged to earnings as incurred. Such costs have not been material to
date, however the Company expects to incur approximately $200,000 in Year 2000
related expenses.
Presently, the Company does not have a formal contingency plan in the event that
its computer software and hardware vendors are not Year 2000 compliant. Based
upon our discussions with our computer software and hardware vendors, they have
indicated that they are performing testing and will be Year 2000 compliant.
However, the Company will monitor the progress of its vendors to determine if a
formal contingency plan is necessary and take all steps necessary to become Year
2000 compliant with all computer software programs and hardware.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this Annual Report includes certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices.
21
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Condition
------------------------------------
(Dollars in thousands, except share amounts)
June 30,
-----------------------
1998 1997
---- ----
Assets
Cash and Due from Banks............................................................. $37,596 $29,565
Money Market Investments............................................................ 9,500 1,100
Debt and Equity Securities Available-for-Sale....................................... 134,907 26,909
Debt and Equity Securities Held-to-Maturity (with estimated
market values of $40,509 and $46,152, respectively).............................. 40,189 46,026
Mortgage-Backed Securities Available-for-Sale....................................... 940,347 721,819
Mortgage-Backed Securities Held-to-Maturity (with estimated
market values of $252,332 and $163,108, respectively)............................ 249,259 159,356
Loans receivable:
Mortgage Loans................................................................. 790,951 775,612
Commercial Loans............................................................... 49,887 --
Consumer and Other Loans....................................................... 137,900 138,891
Less Allowance for Loan Losses............................................... (8,941) (5,182)
-------- --------
Loans Receivable, Net.................................................. 969,797 909,321
Accrued Interest Receivable, Net.................................................... 14,958 12,040
Office Properties and Equipment, Net................................................ 15,436 14,089
Prepaid Expenses and Other Assets................................................... 11,732 7,580
Mortgage Servicing Rights........................................................... 2,317 3,046
Excess of Cost Over Fair Value of Net Assets Acquired............................... 58,936 45,463
Real Estate Owned, Net.............................................................. 755 450
--------- ---------
Total Assets........................................................... $2,485,729 $1,976,764
========= =========
Liabilities and Stockholders' Equity
Deposits............................................................................ $1,628,298 $1,436,037
Borrowed Funds...................................................................... 630,206 351,913
Advance Payments by Borrowers for Taxes and Insurance............................... 9,806 9,017
Accrued Expenses and Other Liabilities.............................................. 22,555 17,127
--------- ---------
Total Liabilities...................................................... 2,290,865 1,814,094
--------- ---------
Commitments
Stockholders' Equity
Preferred Stock, $.01 Par Value, 4,000,000 Shares
Authorized; None Issued............................................................ -- --
Common Stock, $.01 Par Value, 20,000,000 Shares
Authorized; 10,750,820 Shares Issued; 9,564,988 and 8,776,337
Outstanding, Respectively........................................................ 108 108
Additional Paid-in Capital.......................................................... 117,909 105,871
Retained Earnings, Substantially Restricted......................................... 102,305 89,660
Net Unrealized Appreciation on Securities
Available-for-Sale, Net of Taxes................................................. 4,212 1,705
Less:
Unallocated Common Stock Held by ESOP............................................... (4,554) (5,382)
Unearned Common Stock Held by Recognition and Retention Plans (RRPs)................ (713) (1,567)
Common Stock Held by SERP, at Cost (15,454 and 11,021 shares, respectively)......... (373) (209)
Treasury Stock, at Cost (1,185,832 and 1,974,483 shares, respectively).............. (24,030) (27,516)
--------- ---------
Total Stockholders' Equity..................................................... 194,864 162,670
-------- --------
Total Liabilities and Stockholders' Equity.............................. $2,485,729 $1,976,764
========= =========
See accompanying notes to consolidated financial statements.
22
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
---------------------------------
(Dollars in thousands, except per share amounts)
Year Ended June 30,
-----------------------------------
1998 1997 1996
-------- -------- -------
Interest Income:
First Mortgage Loans........................................... $ 63,573 $ 56,948 $39,073
Commercial Loans............................................... 3,916 -- --
Consumer and Other Loans....................................... 12,130 11,525 10,942
Mortgage-Backed Securities..................................... 67,185 59,392 46,084
Money Market Investments....................................... 615 618 991
Debt and Equity Securities..................................... 6,400 4,806 3,282
------- ------- -------
Total Interest Income.................................... 153,819 133,289 100,372
------- ------- -------
Interest Expense:
Deposits....................................................... 63,432 54,139 42,425
Borrowed Funds................................................. 23,396 17,514 10,560
------ ------ ------
Total Interest Expense................................... 86,828 71,653 52,985
------ ------ ------
Net Interest Income Before Provision for Loan Losses........... 66,991 61,636 47,387
Provision for Loan Losses.......................................... 1,650 950 725
------ ------ ------
Net Interest Income After Provision for Loan Losses............ 65,341 60,686 46,662
------ ------ ------
Non-Interest Income:
Loan Fees and Service Charges.................................. 1,047 683 826
Other Operating Income......................................... 3,452 2,557 1,606
Income from Money Centers...................................... 1,882 -- --
Condemnation Award on Joint Venture............................ 1,483 -- --
Net (Loss) Gain on Securities.................................. (5) 172 678
------- ----- -----
Total Non-Interest Income................................ 7,859 3,412 3,110
------ ----- -----
Non-Interest Expense:
Compensation and Benefits...................................... 20,297 16,509 13,395
Occupancy and Equipment........................................ 6,531 5,719 4,481
Federal Deposit Insurance Premiums............................. 921 1,813 2,399
Advertising.................................................... 1,202 1,168 1,152
Other Operating Expenses....................................... 6,274 5,778 4,169
------ ------ ------
Total General and Administrative Expenses................ 35,225 30,987 25,596
Real Estate Operations, Net.................................... 218 383 579
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired....................................... 4,218 3,404 1,928
SAIF Recapitalization Charge................................... -- 8,250 --
------ ------- ------
Total Non-Interest Expense............................... 39,661 43,024 28,103
------ ------- ------
Income Before Income Taxes......................................... 33,539 21,074 21,669
Income Tax Expense ................................................ 14,810 10,138 9,946
------ ------- -------
Net Income ........................................................ $18,729 $10,936 $11,723
====== ====== ======
Net Income per Common Share:
Basic................................................. $ 2.11 $ 1.32 $ 1.36
Diluted............................................... $ 1.99 $ 1.25 $ 1.32
See accompanying notes to consolidated financial statements.
23
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
----------------------------------------------------------
(Dollars in thousands, except share amounts)
Year Ended June 30,
---------------------------------------
1998 1997 1996
---- ---- ----
Common Stock (Par Value: $.01):
Balance at Beginning and End of Year........................... $108 $108 $108
--- --- ---
Additional Paid in Capital:
Balance at Beginning of Year................................... 105,871 104,041 103,655
Net Gain from Reissuance of treasury stock principally for
Continental Bank acquisition............................... 7,903 -- --
Allocation of ESOP Stock and Earned Portion of RRPs............ 2,023 868 386
Common Stock Acquired by SERP.................................. 164 209 --
Tax Benefits on Stock Plans.................................... 1,948 753 --
------- ------- -------
Balance at End of Year......................................... 117,909 105,871 104,041
------- ------- -------
Retained Earnings, Substantially Restricted:
Balance at Beginning of Year................................... 89,660 83,966 76,167
Net Income..................................................... 18,729 10,936 11,723
Dividends Declared............................................. (6,044) (4,930) (3,924)
Loss on Reissuance of Treasury Stock........................... (40) (312) --
-------- ------- ------
Balance at End of Year......................................... 102,305 89,660 83,966
------- ------ ------
Net Unrealized Appreciation (Depreciation) on
Securities Available-for-Sale, Net of Tax:
Balance at Beginning of Year................................... 1,705 (5,281) 839
Unrealized Appreciation on Securities Transferred from
Held-to-Maturity to Available-for-Sale...................... -- -- 1,144
Change in Net Unrealized Appreciation
(Depreciation), Net of Tax................................... 2,507 6,986 (7,264)
----- ----- ------
Balance at End of Year......................................... 4,212 1,705 (5,281)
----- ----- -------
Unallocated Common Stock Held by ESOP:
Balance at Beginning of Year................................... (5,382) (6,210) (7,038)
Allocation of ESOP Stock....................................... 828 828 828
------- ------- -------
Balance at End of Year......................................... (4,554) (5,382) (6,210)
------- ------- -------
Unearned Common Stock Held by RRPs:
Balance at Beginning of Year................................... (1,567) (2,392) (3,214)
Earned Portion of RRPs......................................... 854 825 822
----- ------- -------
Balance at End of Year......................................... (713) (1,567) (2,392)
----- ------- -------
Common Stock Held by Supplemental Executive Retirement Plan:
Balance at Beginning of Year.................................. (209) -- --
Common Stock Acquired by SERP (4,433 and 11,021 shares)....... (164) (209) --
----- ----- -----
Balance at End of Year........................................ (373) (209) --
----- ----- -----
Treasury Stock:
Balance at Beginning of Year.................................. (27,516) (20,613) (16,784)
Reissuance of stock for Continental Bank acquisition
(1,013,909 shares)...................................... 14,711 -- --
Common Stock Purchased, at Cost (460,973, 442,182 and
260,776 shares).............................................. (15,269) (8,113) (3,829)
Exercise of Stock Options..................................... 4,044 1,210 --
-------- ------- -------
Balance at End of Year........................................ (24,030) (27,516) (20,613)
-------- -------- --------
Total Stockholders' Equity..................................... $194,864 $162,670 $153,619
======= ======= =======
See accompanying notes to consolidated financial statements.
24
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
-------------------------------------
(Dollars in thousands)
Year Ended June 30,
------------------------------------
1998 1997 1996
---- ---- ----
Cash Flows From Operating Activities:
Net Income.................................................................. $ 18,729 $ 10,936 $ 11,723
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses................................................. 1,650 950 725
Provision for Losses on Real Estate Owned ................................ 93 200 375
Amortization of Premiums (Accretion of Discounts), Net.................... 2,755 1,448 (567)
Net Loss (Gain) on Securities............................................. 5 (172) (678)
Expense Charge Relating to Allocation and Earned
Portions of Stock Plans............................................... 3,705 2,521 2,036
Amortization of Excess of Cost Over Fair Value of
Net Assets Acquired ................................................. 4,218 3,404 1,928
Amortization of Mortgage Servicing Rights................................. 729 859 240
Acquisition Related Tax Benefits not Previously Recognized................ -- 562 --
Depreciation and Amortization............................................. 1,635 1,417 1,027
Net Gain on Loans Sold.................................................... (44) (28) (30)
Proceeds from Loans Sold.................................................. 8,473 7,303 5,860
Net Gain on Sale of Real Estate Owned..................................... (146) (56) (19)
(Increase) Decrease in Accrued Interest Receivable, Net.................. (1,837) (728) 738
(Increase) Decrease in Prepaid Expenses and Other Assets.................. (1,345) 3,174 3,037
Increase (Decrease) in Accrued Expenses and
Other Liabilities....................................................... 2,670 7,164 (6,413)
------ ------ -------
Net Cash Provided by Operating Activities............................ 41,290 38,954 19,982
------ ------ ------
Cash Flows From Investing Activities:
Principal Payments Net of (Originations and Purchased Loans)................ 5,417 (101,583) (44,258)
Purchases of Mortgage-Backed Securities Held-to-Maturity.................... (147,163) -- (16,472)
Purchases of Mortgage-Backed Securities Available-for-Sale.................. (623,759) (277,483) (382,645)
Proceeds from Sales of Mortgage-Backed Securities Available-for-Sale........ 190,245 59,810 180,590
Principal Repayments from Mortgage-Backed Securities........................ 351,591 123,823 148,059
Proceeds from Call of Debt Securities....................................... 12,500 7,313 21,800
Proceeds from Sales of Debt and Equity Securities Available-for-Sale........ 4,870 5,028 29,245
Purchases of Debt Securities Available-for-Sale............................. (115,500) (19,715) --
Purchases of Debt and Equity Securities Held-to-Maturity.................... -- (5,007) (20,000)
Proceeds from Maturities of Debt Securities................................. 1,205 1,350 28,100
Purchases of Premises and Equipment......................................... (1,623) (1,734) (2,595)
Proceeds from Sale of Real Estate Owned .................................... 3,402 1,899 1,715
Cash and Cash Equivalents Acquired from Continental Bank Acquisition........ 9,106 -- --
Cash Paid for Bank of Westbury Net of Cash and Cash
Equivalents Acquired...................................................... -- -- (165)
Cash Paid for Sunrise Bancorp, Inc. Net of Cash and
Cash Equivalents Acquired................................................. -- -- (94,259)
------- ------- --------
Net Cash Used in Investing Activities................................. (309,709) (206,299) (150,885)
-------- -------- --------
25
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Continued
------------------------------------------------
(Dollars in thousands)
Year Ended June 30,
------------------------------------
1998 1997 1996
---- ---- ----
Cash Flows from Financing Activities:
Increase in Deposits........................................................ $55,717 $91,009 $44,558
Increase (Decrease) in Advance Payments by Borrowers
for Taxes and Insurance.................................................. 789 171 (9,210)
Proceeds from FHLB Advances................................................. 143,336 60,000 --
Repayment of FHLB Advances.................................................. (22,025) (23,000) (87,000)
Proceeds from Reverse Repurchase Agreements................................. 1,077,963 1,177,298 824,727
Repayment of Reverse Repurchase Agreements.................................. (1,002,606) (1,128,545) (618,602)
Proceeds from Capital Securities............................................ 50,000 -- --
Purchases of Treasury Stock................................................. (15,269) (8,113) (3,829)
Net Proceeds from Issuance of Common Stock Upon
Exercise of Stock Options................................................ 2,670 898 --
Dividends Paid.............................................................. (5,725) (4,578) (3,808)
------- ------- -------
Net Cash Provided by Financing Activities............................. 284,850 165,140 146,836
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........................ 16,431 (2,205) 15,933
Cash and Cash Equivalents at Beginning of Year............................... 30,665 32,870 16,937
------ ------ ------
Cash and Cash Equivalents at End of Year..................................... $ 47,096 $ 30,665 $ 32,870
======= ====== ======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest................................................................... $ 85,449 $ 71,005 $ 50,847
====== ====== ======
Income Taxes .............................................................. $ 11,077 $ 4,745 $ 8,384
====== ===== =====
Non-cash Investing Activities:
Transfers from Loans to Real Estate Owned................................... $ 3,654 $ 929 $ 1,311
===== === =====
Transfers of Mortgage-Backed Securities From Held-to-Maturity
to Available-for-Sale..................................................... $ -- $ -- $ 283,245
==== ==== =======
Supplemental Information to the Consolidated Statements of Cash Flows Relating
to Continental Bank, Bank of Westbury and Sunrise Bancorp, Inc. Acquisitions
-------------------------------------------------------------------------
Non-cash investing and financing transactions relating to the Continental Bank
acquisition for the year ended June 30, 1998 and the Bank of Westbury and
Sunrise Bancorp, Inc. acquisitions for the year ended June 30, 1996 not
reflected in the Consolidated Statement of Cash Flows are listed below:
1998 1996
---- ----
Fair Value of Assets Acquired, Excluding Cash and Cash
Equivalents Acquired...................................................... $ 168,240 $ 745,341
Liabilities Assumed.......................................................... (171,083) (702,273)
Excess of Cost Over Fair Value of Net Assets Acquired........................ 17,691 51,356
Stock Consideration.......................................................... (23,954) --
-------- -------
Cash Paid for Acquisitions, Net of (Cash and Cash
Equivalents Acquired).................................................... $ (9,106) $ 94,424
======= ======
See accompanying notes to consolidated financial statements.
26
Reliance Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Reliance Bancorp, Inc. (the "Company")
and subsidiary conform to generally accepted accounting principles and to
general practice within the financial institution industry. The following is a
description of the more significant policies which the Company follows in
preparing and presenting its consolidated financial statements.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Reliance Federal Savings Bank (the
"Bank"). All significant intercompany transactions and balances are eliminated
in consolidation.
As more fully discussed in Note 2, Reliance Bancorp Inc., a Delaware
corporation, was organized by the Bank for the purpose of acquiring all of the
capital stock of the Bank pursuant to the conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. The Company is subject to the financial reporting requirements of the
Securities and Exchange Act of 1934, as amended.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated statements of condition and
income and expense for the years presented. Estimates that are susceptible to
change include primarily the determination of the allowances for losses on loans
and the valuation of real estate acquired in connection with foreclosures.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, federal funds sold and repurchase agreements with an original
term to maturity of less than three months.
(c) Securities Available-for-Sale
The Company follows Statement of Financial Accounting Standards ("SFAS") No.115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires securities, including debt, equity and mortgage-backed securities,
classified as available-for-sale to be recorded at estimated fair value with
changes in unrealized gains or losses reported net of tax as a separate
component in stockholders' equity.
In accordance with an implementation guide for SFAS No. 115, released by the
Financial Accounting Standards Board ("FASB") on November 15, 1995, the Bank
realigned its mortgage-backed securities portfolio in December 1995 by
transferring approximately $283.2 million from the held-to-maturity to the
available-for-sale category. The Bank realigned its mortgage-backed securities
portfolio in order to be more flexible and better positioned for managing the
portfolio under changing interest rates and other market conditions.
Debt securities are classified as available-for-sale when management intends to
hold the securities for indefinite periods of time or when the securities may be
utilized for tactical asset/liability management strategy and may be sold from
time to time to effectively manage interest rate exposure and resultant
prepayment risk and liquidity needs. Premiums and discounts are amortized or
accreted, respectively, using the level-yield method. Readily marketable equity
securities are also classified as available-for-sale. Gains or losses on the
sales of the securities are recognized when sold using the specific
identification method.
(d) Debt and Equity Securities Held-to-Maturity
Debt and equity securities classified as held-to-maturity are carried at cost
unless there is a permanent impairment of value, at which time they are valued
at the lower of cost or market value resulting in a new cost basis for the
security. The debt securities are adjusted for amortization of premiums and
accretion of discounts over the term of the security
27
using the level-yield method. The Company currently has the ability and intent
to hold the debt securities until maturity. Equity securities classified
held-to-maturity are not readily marketable.
(e) Mortgage-Backed Securities Held-to-Maturity
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of the
securities. Mortgage-backed securities held-to-maturity are carried at current
unpaid principal balances, adjusted for unamortized premiums and unaccreted
discounts. Premiums are amortized and discounts are accreted to income over the
estimated life of the respective securities using the level-yield method. The
Company currently has the ability and intent to hold the securities until
maturity.
(f) Loans
Loans are stated at the principal amount outstanding, less unearned discounts
and net deferred loan origination fees, if applicable. Interest on loans is
credited to income based on the principal amount outstanding during the period.
Gains and losses on the sale of loans are determined using the specific
identification method.
Interest on loans is recognized on the accrual basis. Loans are placed on
nonaccrual status when principal or interest becomes 90 days or more past due
for mortgage loans and commercial loans and 120 days past due for other loans,
unless the obligation is both well secured and in the process of collection.
Accrued interest receivable previously recognized is reserved when a loan is
placed on nonaccrual status. Loans remain on nonaccrual status until principal
and interest payments are current or the obligation is considered both well
secured and in the process of collection. A loan is considered a troubled debt
restructuring when changes, such as reduction in interest rates or deferral of
interest or principal payments, are made to contractual terms due to a
borrower's weakened financial condition.
The Company defers loan origination fees on multi-family loans, less certain
direct costs, and subsequently recognizes them as an adjustment of the loan's
yield over the contractual life of the loan using the level-yield method or, in
the case of loans with below-market introductory rates, generally over the
applicable introductory period, using the interest method.
The Company follows SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures". Under SFAS No. 114 and SFAS No. 118, a loan is
considered impaired when, based upon current information and events, it is
probable that a creditor will be unable to collect all amounts due including
principal and interest, according to the contractual terms of the loan
agreement. These statements require that impaired loans that are within their
scope be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or as a practical expedient, at
the loan's current observable market price, or the fair value of the collateral
if the loan is collateral dependent. The amount by which the recorded investment
of an impaired loan exceeds the measurement value is recognized by creating a
valuation allowance through a charge to the provision for loan losses. Interest
income received on impaired loans is recognized on a cash basis.
(g) Allowance for Loan Losses
A provision for loan losses charged to income is reflected as an addition to a
valuation allowance which is netted against loans receivable. Management's
periodic evaluation of the adequacy of the valuation allowance considers the
Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations which may affect the borrower's ability to repay, estimated
value of the underlying collateral and the current real estate markets and
economic condition in the Bank's lending areas. In addition, the Bank's
regulators, as an integral part of their examination process, periodically
review the Bank's allowance for losses on loans and real estate. Accordingly,
the Bank may be required to take certain charge-offs and recognize additions to
the allowance based on the regulators' judgments concerning information
available to them during their examination.
(h) Office Properties and Equipment
Land is carried at cost. Buildings, leasehold improvements, furniture and
fixtures and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
method over the estimated useful lives of the assets. The cost of leasehold
improvements is being amortized using the straight-line method over the shorter
of the term of the related leases or the estimated useful lives.
28
(i) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired in the
acquisitions of the Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank
is amortized using the straight line method over fifteen years. The excess of
cost over the fair value of net assets acquired is evaluated periodically by the
Company for impairment in response to changes in circumstances or events.
(j) Real Estate Owned
Real estate acquired through foreclosure is recorded at the lower of cost
(unpaid loan balance plus foreclosure costs) or fair market value at the time of
acquisition. The carrying value of individual properties is subsequently
adjusted to the extent it exceeds estimated fair market value less costs to
sell. Operating expenses of holding real estate, net of related income, are
charged against income as incurred. Gains on sales of real estate are recognized
when down payment and other requirements are met; otherwise such gains are
deferred and recognized on the installment method of accounting. Losses on the
disposition of real estate, including expenses incurred in connection with the
disposition, are charged to income. A valuation allowance is maintained through
provisions for real estate losses charged to income for any decrease in the fair
value of property less costs to sell, which is netted against real estate owned.
(k) Taxes on Income
The Company files a calendar-year Federal income tax return on a consolidated
basis with its subsidiary.
The Company follows SFAS No. 109, "Accounting for Income Taxes" which requires
the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities. Under SFAS
No. 109, the effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
(l) Employee Benefits
The Bank's pension plan is non-contributory and covers substantially all
eligible employees. The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Bank's policy is to
accrue for all pension costs and to fund the maximum amount allowable for tax
purposes. In the interest of maintaining a comprehensive benefit package for
employees, the Bank periodically evaluates the overall effectiveness and
economic value of the pension plan. Based on an evaluation of the pension plan
in fiscal 1998, the Bank concluded that future benefit accruals under the plan
would cease, or "freeze" on May 31, 1998. In its stead, Reliance Federal Savings
Bank 401(k) Retirement Savings Plan (the "401(k) Plan") was formed. Effective
June 1, 1998, all Reliance Federal Savings Bank employees who are at least 21
years of age and have completed one year of service are eligible to participate
in the 401(k) Plan.
Actuarial gains and losses that arise from changes in assumptions concerning
future events, used in estimating pension costs, have been amortized over a
period that reflects the long range nature of pension expense. However, as a
result of the freezing of the plan, the Bank recognized a curtailment gain in
fiscal 1998. (See Note 16).
The Company follows AICPA Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6") to account for the established
Employee Stock Ownership Plan ("ESOP"). SOP 93-6 requires that compensation
expense be recognized for shares committed to be released to directly compensate
employees equal to the fair value of the shares committed. In addition, SOP 93-6
requires that leveraged ESOP debt and related interest expense be reflected in
the employer's financial statements. The application of SOP 93-6 results in
fluctuations in compensation expense as a result of changes in the fair value of
the Company's common stock; however, such compensation expense fluctuations
result in an offsetting adjustment to paid in capital. Therefore, total
stockholders' equity is not affected.
The Bank follows SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS
No. 123 applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities where the
payment amounts are based on the entity's common stock price, except for
employee stock ownership plans. SFAS No. 123 established a fair value-based
method of accounting for stock-based compensation arrangements with employees,
rather than the intrinsic value-based method that is contained in Accounting
Principles Board Opinion No.
29
25, "Accounting for Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does
not require an entity to adopt the new fair value-based method for purposes of
preparing its basic financial statements; an entity is allowed to continue to
use the APB No. 25 method for preparing its basic financial statements. The
Company has chosen to continue to use the APB No. 25 method, however, SFAS No.
123 requires presentation of pro forma net income and earnings per share
information, in the notes to the financial statements, as if the fair
value-based method had been adopted.
(m) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost.
(n) Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". SFAS
No.128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. This statement simplifies the standard for computing EPS
previously found in Accounting Principles Board Opinion Xx. 00 ("XXX Xx. 00").
It replaces the presentation of primary EPS with a presentation of basic EPS and
the presentation of fully diluted EPS with a presentation of diluted EPS. Basic
EPS is computed by dividing net income by the weighted average number of common
shares outstanding for the period, adjusted for the unallocated portion of
shares held by the ESOP in accordance with SOP 93-6. 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.
Potential common stock due to the dilutive effect of stock options is computed
using the treasury stock method. SFAS No. 128 was effective for financial
statements issued for periods ending after December 15, 1997 and requires the
restatement of all prior-period EPS data presented. The Company adopted SFAS No.
128 effective December 31, 1997.
2. Stock Form of Ownership
On September 16, 1993, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of a
holding company. As part of the conversion, the Company was incorporated under
Delaware law on November 16, 1993. The Company completed its initial public
offering on March 31, 1994 and issued 10,750,820 shares of common stock
resulting in net proceeds of approximately $103.6 million. The Company retained
$51.8 million of the net proceeds and used the remaining net proceeds to
purchase all of the outstanding stock of the Bank. The financial position and
results of operations of the Company as of and for the year ended June 30, 1998,
1997 and 1996 are presented in Note 20.
On February 9, 1998, the Company completed its fifth five percent stock
repurchase plan repurchasing 440,973 shares at an aggregate cost of $13.4
million. On January 12, 1998, the Company announced its sixth stock repurchase
plan to repurchase up to 500,000 of the Company's outstanding shares. As of June
30, 1998, 100,000 shares under this program were repurchased at an aggregate
cost of $3.7 million. During fiscal years 1998, 1997 and 1996, the Company
repurchased total shares of 460,973, 442,182 and 260,776, respectively, at an
aggregate cost of $15.3 million, $8.1 million and $3.8 million, respectively.
At the time of the conversion, the Bank established a liquidation account with a
balance equal to its retained earnings reflected in its statement of condition.
The balance in the liquidation account at June 30, 1998 and 1997 was
approximately $21.4 million and $25.3 million, respectively. The liquidation
account will be maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
The Company may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause stockholders' equity to
be reduced below applicable regulatory capital maintenance requirements,
30
the amount required for the liquidation account, or if such declaration and
payment would otherwise violate regulatory requirements. During fiscal 1998, the
Company declared cash dividends totalling $6.0 million.
3. Acquisitions
Acquisition of Bank of Westbury
At the close of business on August 11, 1995, the Company completed its
acquisition of the Bank of Westbury, a Federal Savings Bank, with six banking
offices located in Nassau County, Long Island, New York in a transaction which
was accounted for as a purchase. Assets acquired in the transaction, principally
loans and mortgage-backed securities, aggregated $166.2 million, and liabilities
assumed, substantially all deposits, aggregated $156.6 million. The cost of the
acquisition was approximately $16.7 million in cash. The excess of cost over the
fair value of net assets acquired in the transaction was $7.8 million which is
being amortized on a straight line basis over 15 years.
Acquisition of Sunrise Bancorp, Inc.
On January 11, 1996, the Company completed the acquisition of Sunrise Bancorp,
Inc., with 11 banking offices located in the counties of Nassau and Suffolk,
Long Island, New York, in a transaction which was accounted for as a purchase.
The cost of acquisition was approximately $106.3 million in cash. Assets
acquired in the transaction, principally loans and mortgage-backed securities,
aggregated $609.3 million and liabilities assumed, substantially all deposits
and borrowings, aggregated $545.7 million. The excess of cost over fair value of
net assets acquired in the transaction was $43.6 million, which is being
amortized on a straight line basis over 15 years.
Acquisition of Continental Bank
On October 17, 1997, the Company completed the acquisition of Continental Bank
("Continental"), a commercial bank with two full service banking offices located
in Nassau and Suffolk counties in Long Island, New York, a commercial lending
facility and five check cashing facilities ("Money Centers") in Manhattan. The
transaction was accounted for as a purchase. Under the terms of the merger,
Reliance issued 1.10 shares (1,013,909 shares) of its common stock for each
outstanding common share of Continental. The cost of the acquisition was
approximately $24.4 million. Assets acquired in the transaction, principally
loans and mortgage-backed securities aggregated $177.8 million and liabilities
assumed, substantially all deposits and borrowings, aggregated $171.1 million.
The excess of cost over fair value of net assets acquired in the transaction was
$17.7 million, which is being amortized on a straight line basis over 15 years.
The following summarizes the actual and unaudited projected amortization of
discounts and premiums relating to the fair market value adjustments and the
excess of cost over fair value of net assets acquired:
Excess of Cost Total
Over Fair Value Net Discount Net Discount Net Net Net Decrease
of Net Assets (Premium) (Premium) Premium Premium In Income
Acquired Securities Loans Other Assets Liabilities Before Taxes
-------- ---------- ----- ------------ ----------- ------------
(In thousands)
Amortization:
1996 Actual.................. $ (1,928) $ 89 $ 45 $ (116) $ 454 $ (1,456)
1997 Actual.................. (3,404) (90) (277) (314) 598 (3,487)
1998 Actual.................. (4,218) (199) (146) (274) 467 (4,370)
1999 Projected............... (4,563) (282) (112) (297) 457 (4,797)
2000 Projected............... (4,563) (148) (92) (240) 300 (4,743)
2001 Projected............... (4,563) (49) (71) (190) 9 (4,864)
Thereafter Projected......... (45,247) 53 (77) (1,356) -- (46,627)
-------- ----- ----- ------- ------ --------
$ (68,486) $ (626) $ (730) $ (2,787) $ 2,285 $ (70,344)
======= ===== ===== ======= ===== ========
31
4. Money Market Investments
Money market investments generally have original maturities of three months or
less, and at June 30, 1998 and 1997 consist solely of securities purchased under
agreements to resell (repurchase agreements). These agreements represent
short-term loans and are reflected as an asset in the consolidated statements of
condition. The same securities are to be resold at maturity of the repurchase
agreements.
Securities purchased under repurchase agreements averaged $4.5 million for the
year ended June 30, 1998 and $3.0 million for the year ended June 30, 1997. The
maximum amount of such agreements outstanding at any month-end during the fiscal
year ended June 30, 1998 and 1997 was $23.0 million and $8.5 million,
respectively.
5. Debt and Equity Securities
A summary of the amortized cost and estimated market values of debt and equity
securities are as follows:
June 30, 1998
-------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
---- ---- ---- -----
Held-to-Maturity: (In thousands)
U.S. Government Agency Obligations.............................. $ 22,493 $ 293 $ -- $ 22,786
Obligation of New York State.................................... 390 27 -- 417
FHLB Stock...................................................... 17,306 -- -- 17,306
------ --- --- ------
$ 40,189 $ 320 $ -- $ 40,509
====== === === ======
Available-for-Sale:
U.S. Government Agency Obligations.............................. $ 29,031 $ 260 $ (1) $ 29,290
Corporate Obligations........................................... 103,070 343 (246) 103,167
Marketable Equity Securities.................................... 2,419 31 -- 2,450
----- ---- ---- ------
$ 134,520 $ 634 $ (247) $ 134,907
======= === ==== =======
June 30, 1997
-------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
---- ---- ---- -----
Held-to-Maturity: (In thousands)
U.S. Government Agency Obligations.............................. $ 29,952 $ 90 $ -- $ 30,042
Obligation of New York State.................................... 391 36 -- 427
FHLB Stock...................................................... 15,683 -- -- 15,683
------ --- --- ------
$ 46,026 $ 126 $ -- $ 46,152
======= === ==== =======
Available-for-Sale:
U.S. Government Agency Obligations.............................. $ 22,036 $ 59 $ (15) $ 22,080
United States Treasury Bills.................................... 4,785 27 -- 4,812
Marketable Equity Securities.................................... 8 9 -- 17
----- ---- ---- ------
$ 26,829 $ 95 $ (15) $ 26,909
======= === ==== =======
32
The amortized cost and estimated market value of debt and equity securities at
June 30, 1998 and 1997, by contractual maturity, are shown below:
June 30, 1998 June 30, 1997
---------------------------------------- ----------------------------------------
Held-to-maturity Available-for-sale Held-to-maturity Available-for-sale
---------------- ------------------ ---------------- ------------------
Estimated Estimated Estimated Estimated
Amortized market Amortized market Amortized market Amortized market
cost value cost value cost value cost value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
Due in One Year or Less.... $ 2,493 $ 2,499 $ 5,892 $ 5,902 $ -- $ -- $ 10,955 $ 10,981
Due After One Year
Through Five Years....... 390 417 18,466 18,493 10,343 10,369 5,866 5,845
Due After Five Years
Through Ten Years........ 20,000 20,287 13,144 13,378 20,000 20,100 10,000 10,066
Due After Ten Years........ -- -- 94,599 94,684 -- -- -- --
Equity Securities.......... 17,306 17,306 2,419 2,450 15,683 15,683 8 17
------ ------ ------ ----- ------ ------ ----- -----
$ 40,189 $ 40,509 $ 134,520 $ 134,907 $ 46,026 $ 46,152 $ 26,829 $ 26,909
====== ====== ======= ======= ====== ====== ====== ======
In fiscal 1998,1997 and 1996 gross proceeds from the sale of debt and equity
securities available-for-sale totalled $4.9 million, $5.0 million and $29.2
million, respectively. For fiscal 1998, 1997 and 1996 gross realized gains
totalled $11,000, $17,000 and $20,000, respectively, and gross realized losses
totalled $0, $16,000 and $15,000, respectively.
33
6. Mortgage-Backed Securities
The amortized cost and estimated market values of mortgage-backed securities are
summarized as follows:
June 30, 1998
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
---- ---- ---- -----
Held- to-Maturity: (In thousands)
Pass-through Certificates Guaranteed by:
GNMA.................................................... $ 78,106 $ 2,126 $ -- $ 80,232
FHLMC................................................... 10,304 267 -- 10,571
FNMA.................................................... 33,949 959 -- 34,908
REMICs:
Agency Issuance.................................. 53,021 85 (307) 52,799
Private Issuance................................. 73,879 353 (410) 73,822
------ --- ---- ------
$ 249,259 $ 3,790 $ (717) $ 252,332
======= ===== ===== =======
Available-for-Sale:
Pass-through Certificates Guaranteed by:
GNMA.................................................... $ 187,562 $ 2,732 $ (47) 190,247
FHLMC................................................... 118,982 1,702 (7) 120,677
FNMA.................................................... 140,597 1,618 (32) 142,183
REMICs:
Agency Issuance................................... 128,113 198 (39) 128,272
Private Issuance.................................. 358,033 1,404 (469) 358,968
------- ----- ---- -------
$ 933,287 $ 7,654 $ (594) $ 940,347
======= ===== ==== =======
June 30, 1997
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
---- ---- ---- -----
Held- to-Maturity: (In thousands)
Pass-through Certificates Guaranteed by:
GNMA.................................................... $ 106,900 $ 3,078 $ -- $ 109,978
FHLMC................................................... 12,963 176 -- 13,139
FNMA.................................................... 39,493 498 -- 39,991
------ --- --- ------
$ 159,356 $ 3,752 $ -- $ 163,108
======= ===== === =======
Available-for-Sale:
Pass-through Certificates Guaranteed by:
GNMA.................................................... $ 233,572 $ 4,182 $ -- $ 237,754
FHLMC................................................... 222,961 1,378 (2,583) 221,756
FNMA.................................................... 131,066 1,326 (1,307) 131,085
REMICs:
Agency Issuance................................... 20,806 -- (254) 20,552
Private Issuance.................................. 110,481 191 -- 110,672
------- --- --- -------
$ 718,886 $ 7,077 $ (4,144) $ 721,819
======= ===== ======= =======
In fiscal 1998, 1997 and 1996 gross proceeds from the sale of mortgage-backed
securities available-for-sale totalled $190.2 million, $59.8 million and $180.6
million, respectively. For fiscal 1998, 1997 and 1996 gross realized gains
totalled $540,000, $466,000 and $1,881,000, respectively, and gross realized
losses totalled $556,000, $295,000 and $1,208,000, respectively.
34
7. Loans Receivable
Loans receivable, net are summarized as follows:
June 30,
--------------------------
1998 1997
---- ----
Mortgage Loans: (In thousands)
One- to four-family........................ $ 492,804 $ 552,577
Multi-family............................... 243,070 190,293
Commercial Real Estate..................... 43,624 23,445
Co-op...................................... 7,516 8,647
Construction............................... 4,879 1,440
------ ------
791,893 776,402
Less:
Unearned Discount, Premiums and
Deferred Loan Origination Fees, Net........ (942) (790)
------- -------
Total Mortgage Loans.................. 790,951 775,612
------- -------
Commercial Loans:
Asset Based Loans.......................... 21,339 --
Other Commercial Loans..................... 28,548 --
------ -----
Total Commercial Loans................ 49,887 --
------ -----
Consumer and Other Loans:
Home Equity Lines of Credit................ 93,862 91,782
Guaranteed Student Loans................... 15,262 17,006
Home Equity Loans.......................... 19,050 19,505
Loans on Deposit Accounts.................. 5,416 5,514
Other Loans................................ 3,622 4,308
----- -----
137,212 138,115
Deferred Loan Origination Costs, Net........ 688 776
----- ------
Total Consumer and Other Loans........ 137,900 138,891
------- -------
Less:
Allowance for Loan Losses.................. (8,941) (5,182)
------- -------
$ 969,797 $ 909,321
======= =======
June 30,
--------------------------
1998 1997
---- ----
Commitments Outstanding: (In thousands)
Mortgage Loans............................. $ 33,386 $ 26,214
====== ======
Consumer and Other Commercial Loans........ $ 7,056 $ 509
====== =====
Unused Consumer Lines of Credit............ $ 53,361 $ 53,399
====== ======
Unused Commercial Lines of Credit.......... $ 22,622 $ --
====== =====
At June 30, 1998 and 1997, the Company had commitments to sell loans of $3.7
million and $525,000, respectively. At June 30, 1998, the Company had no
commitments to purchase loans. At June 30, 1997, the Company had commitments to
purchase loans of $1.5 million.
35
The principal balance of loans in arrears three months or more:
June 30,
-------------------------------------
1998 1997
--------------- -----------------
No. of No. of
loans Amount loans Amount
----- ------ ----- ------
(Dollars in thousands)
One- to four-family Mortgages...... 70 $ 6,256 120 $ 10,959
Consumer and Other Loans........... 62 517 71 465
Commercial Real Estate............. 7 1,962 9 3,303
Commercial......................... 9 567 -- --
---- ----- ---- ------
148 $ 9,302 200 $ 14,727
=== ===== === ======
Interest income that would have been recorded under the original terms of loans
classified as non-accrual and interest income actually recognized are as
follows:
Year Ended June 30,
-------------------
1998 1997 1996
---- ---- ----
(In thousands)
Interest Income that would have been Recorded..... $ 1,159 $ 838 $ 622
Interest Income Recognized........................ (360) (265) (68)
---- ---- ---
Interest Income Foregone.......................... $ 799 $ 573 $ 554
=== === ===
In accordance with SFAS No. 114, the Company deems certain loans impaired when,
based upon current information and events, it is probable that the Company will
be unable to collect all amounts due, both principal and interest, according to
the contractual terms of the loan agreement. SFAS No. 114 generally does not
apply to large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment, such as one- to four-family mortgage loans and
consumer loans. Loans individually reviewed for impairment by the Company are
limited to multi-family loans, commercial loans, construction and land loans,
loans modified in a troubled debt restructuring and selected large one- to
four-family loans. Examples of measurement techniques utilized by the Company
include present value of expected future cash flows, the loan's market price if
one exists, and the estimated fair value of the collateral.
At June 30, 1998 and 1997, the Company had four impaired commercial real estate
loans totalling $1.9 million and $2.9 million, respectively, with no related
allowance. The Company had ten impaired commercial loans totalling $567,000 at
June 30, 1998 and no impaired commercial loans at June 30, 1997 and 1996, with
no related allowances. The Company's average recorded investment in impaired
loans for the years ended June 30, 1998, 1997 and 1996 was $2.5 million, $1.9
million and $493,000, respectively. The Company did not recognize any interest
income on impaired loans for the years ended June 30, 1998, 1997 and 1996.
The Bank generally originates fixed rate loans with terms greater than 15 years
for sale to FHLMC, FNMA or other secondary market investors. At June 30, 1998
and 1997, there were no fixed rate loans classified as held for sale.
Included in mortgage loans at June 30, 1998 and 1997 are $425.2 million and
$416.2 million, respectively, of adjustable rate mortgage loans.
Proceeds from the sale of first mortgage loans were $8.5 million, $7.3 million
and $5.9 million during the fiscal years ended June 30, 1998, 1997 and 1996,
respectively. Gross realized gains and losses resulting from sale of first
mortgage loans were as follows:
Year Ended June 30,
----------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Gross Realized Gains............. $ 44 $ 31 $ 34
Gross Realized Losses............ -- (3) (4)
--- --- ---
$ 44 $ 28 $ 30
== == ==
36
The Bank services mortgage loans for investors which are not included in the
accompanying consolidated statements of condition. A summary of the principal
balances, custodial escrow, servicing income and number of loans serviced for
others by the Bank are as follows:
Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Principal Balances............................ $ 355,149 $ 410,229 $ 455,626
======= ======= =======
Custodial Escrow.............................. $ 4,290 $ 4,493 $ 6,980
===== ===== =====
Servicing Income (Excludes MSR Amortization).. $ 1,183 $ 1,399 $ 861
===== ===== ===
Number of Loans............................... 6,085 6,842 7,497
===== ===== =====
Fees earned for servicing loans are reported as income when the related mortgage
payments are collected. Mortgage Servicing Rights ("MSRs") are amortized as a
reduction to loan service fee income on a method that approximates the
level-yield basis over the estimated remaining life of the underlying mortgage
loans. MSRs are carried at fair value and impairment, if any, is recognized
through a valuation allowance. For the year ended June 30, 1998 and 1997, no
impairment existed in the MSRs and as a result, no valuation allowance was
required.
MSR activity is summarized as follows:
Year Ended June 30,
------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Balance at Beginning of the Year............... $ 3,046 $ 3,905 $ --
MSRs Acquired in Acquisitions of
Bank of Westbury and Sunrise Bancorp, Inc..... -- -- 4,145
Amortization................................... (729) (859) (240)
---- ---- ----
Balance at End of the Year..................... $ 2,317 $ 3,046 $ 3,905
===== ===== =====
8. Allowance for Loan Losses
Activity in the allowance for loan losses is summarized as follows:
Year Ended June 30,
------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Balance at Beginning of the Year............ $ 5,182 $ 4,495 $ 1,729
Provision for Loan Losses................... 1,650 950 725
Allowances of Acquired Institutions......... 2,745 -- 2,217
Charge-offs................................. (773) (306) (265)
Recoveries.................................. 137 43 89
----- ------ ------
Balance at End of the Year.................. $ 8,941 $5,182 $ 4,495
===== ===== =====
9. Real Estate Owned
Real estate owned, net is summarized as follows:
June 30,
-------------------
1998 1997
---- ----
(In thousands)
One- to four-family Residences................... $ 505 $ 365
Co-ops........................................... 73 419
Commercial....................................... 300 --
Allowance for Losses on Real Estate Owned........ (123) (334)
---- ----
$ 755 $ 450
===== =====
37
Results of operating real estate owned for the years ended June 30, 1998, 1997
and 1996 are summarized as follows:
Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Net Gain on Sale on Real Estate Owned.......... $ 146 $ 56 $ 19
Net Expenses of Holding Property............... (271) (239) (223)
Provision for Losses........................... (93) (200) (375)
---- ---- ----
$(218) $ (383) $(579)
===== ===== =====
Activity in the allowance for losses in real estate owned is summarized as
follows:
Year Ended June 30,
-------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Balance at Beginning of the Year............ $ 334 $ 768 $ 589
Provision for Losses........................ 93 200 375
Allowance of Acquired Institutions.......... -- -- 188
Charge-offs................................. (304) (634) (384)
--- ---- ----
Balance at End of the Year.................. $ 123 $ 334 $ 768
=== === ===
10. Accrued Interest Receivable
Accrued interest receivable, net is summarized as follows:
June 30,
------------------
1997 1998
------ ------
(In thousands)
Debt Securities......................................... $ 1,708 $ 842
Mortgage-Backed Securities.............................. 7,137 5,548
Loans Receivable, Net of Reserves for Uncollectible
Interest of $1,293 and $1,741, respectively........... 6,113 5,650
------ ------
$ 14,958 $ 12,040
====== ======
11. Office Properties and Equipment
A summary of office properties and equipment, net is as follows:
June 30,
------------------
1998 1997
---- ----
(In thousands)
Land.............................................. $ 4,489 $ 4,094
Buildings......................................... 10,477 8,970
Furniture, Fixtures and Equipment................. 13,853 12,161
Leasehold Improvements............................ 4,407 2,908
Capital Lease..................................... 1,470 1,470
------ ------
Office Properties and Equipment, at Cost.......... 34,696 29,603
Accumulated Depreciation and Amortization......... (19,260) (15,514)
------- -------
$ 15,436 $ 14,089
====== ======
In October 1989, the Bank sold a building used for a branch operation located in
Jamaica, New York for approximately $2.3 million, and subsequently leased back a
portion of the building to conduct the branch operation. The Bank received
approximately $2.0 million in cash from the transaction, after expenses of the
sale, which generated a gain of approximately $1.1 million. The gain has been
deferred and is being amortized over the twelve- year lease period. Deferred
gain on sale amounted to approximately $311,000 and $404,000 at June 30, 1998
and 1997, respectively, and is included in accrued expenses and other
liabilities. The leaseback is recorded as a capital
38
lease in the amount of $1.5 million at June 30, 1998 and 1997 (refer to the
above table) and the related obligation under capital leases of $535,000 and
$673,000 at June 30, 1998 and 1997 is reflected in accrued expenses and other
liabilities. The projected annual lease payments amount to $215,000 per year
(including interest) and total $717,000 through the duration of the lease.
Depreciation and amortization of office properties and equipment, included in
occupancy and equipment expense, was approximately, $1.6 million, $1.4 million
and $1.0 million for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
12. Deposits
Deposits are summarized as follows:
June 30,
--------------------------------------------------------------
1998 1997
------------------------------- --------------------------
Weighted Weighted
average average
rate Amount Percent rate Amount Percent
---- ------ ------- ---- ------ -------
(Dollars in thousands)
NOW..................................... 1.52% $ 104,955 7% 1.00% $ 78,017 6%
Passbook................................ 2.22 443,745 27 2.40 438,612 31
Money Market............................ 2.22 92,815 6 2.40 92,184 6
Certificates of Deposit................. 5.56 934,558 57 5.61 806,750 56
Non-Interest Bearing Demand Deposit..... -- 52,225 3 -- 20,474 1
------- --- -------- ---
$ 1,628,298 100% $ 1,436,037 100%
========= === ========= ===
June 30,
----------------------------------------
1998 1997
------------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Contractual Maturity of Certificates of Deposit Accounts:
Under 12 months............................................ $ 797,860 85% $ 524,707 65%
Over 12 months to 36 months................................ 112,097 12 245,382 30
Over 36 months............................................. 24,601 3 36,661 5
------- --- ------- ---
$ 934,558 100% $ 806,750 100%
======= === ======= ===
The aggregate amount of certificates of deposit accounts with a minimum
denomination of $100,000 was approximately $78,052,000 and $51,259,000 at June
30, 1998 and 1997, respectively.
Interest expense on deposits is summarized as follows:
Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(In thousands)
NOW................................. $ 1,257 $ 1,041 $ 1,161
Passbook............................ 10,439 10,937 8,942
Money Market........................ 2,249 2,493 2,515
Certificates of Deposit............. 49,487 39,668 29,807
------ ------- ------
$ 63,432 $ 54,139 $ 42,425
====== ====== ======
On September 30, 1996, Congress passed, and the President signed, legislation
that recapitalized the Savings Association Insurance Fund (the "SAIF"). Under
the major provisions of the legislation, savings institutions, such as the Bank,
were assessed a one-time assessment of 65.7 basis points per $100 of insured
SAIF deposits. The Company recorded a one-time pre-tax charge of $8.25 million
during the first quarter of fiscal year 1997.
39
13. Borrowed Funds
The Bank was obligated for borrowings as follows:
June 30, 1998 June 30, 1997
------------------- -----------------
Weighted Weighted
average average
rate Amount rate Amount
---- ------ ---- ------
(Dollars in thousands)
Advances from FHLB - NY................................... 5.49% $ 182,136 5.58% $ 40,000
Reverse Repurchase Agreements............................. 5.64 398,070 5.78 311,913
Company Obligated Mandatorily Redeemable Capital
Securities of Reliance Capital Trust I................ 8.17 50,000 -- --
------ -------
$ 630,206 $ 351,913
======= =======
Information concerning borrowings under reverse repurchase agreements is
summarized as follows:
At or for the Year Ended
-------------------------------------
June 30, 1998 June 30, 1997
------------- -------------
(Dollars in thousands)
Average Balance during the Year........................................... $ 309,618 $ 288,845
Average Interest Rate during the Year..................................... 5.79% 5.63%
Maximum Month-end Balance during the Year................................. $ 398,070 $ 326,391
Mortgage-Backed Securities Pledged as Collateral under Reverse
Repurchase Agreements at Year End:
Carrying Value....................................................... $ 418,883 $ 326,843
Estimated Market Value............................................... $ 421,931 $ 326,801
FHLB advances and reverse repurchase agreements at June 30, 1998 have
contractual maturities as follows:
Reverse
Year Ended FHLB Repurchase
June 30, Advances Agreements
-------- -------- ----------
(In thousands)
1999 $ 28,136 $ 278,070
2000 -- 25,000
2001 20,000 --
2002 34,000 20,000
2003 -- 75,000
Thereafter 100,000 --
------- -------
Total $ 182,136 $ 398,070
======= =======
As a member of the Federal Home Loan Bank System (FHLB), the Bank borrows from
the FHLB on a secured basis. Borrowings at June 30, 1998 and 1997 were secured
by a blanket lien over all assets equal to 110% of borrowings.
On April 29, 1998, Reliance Capital Trust I, a trust formed under the laws of
the State of Delaware (the "Capital Trust") issued $50 million of 8.17% capital
securities. The Holding Company is the owner of all the beneficial interests
represented by common securities of the Trust. The Trust exists for the sole
purpose of issuing the Trust securities (comprised of the capital securities and
the common securities) and investing the proceeds thereof in the 8.17% junior
subordinated deferrable interest debentures issued by the Holding Company on
April 23, 1998 which are scheduled to mature on May 1, 2028. Interest on the
capital securities is payable in semiannual installments, commencing on November
1, 1998. The Trust securities are subject to mandatory redemption (i) in whole,
but not in part upon repayment in full, at the stated maturity of the junior
subordinated debentures at a redemption price equal
40
to the principal amount of, plus accrued interest on, the junior subordinated
debentures,(ii) in whole, but not in part, at any time prior to May 1, 2008,
contemporaneously with the occurrence and continuation of a special event,
defined as a tax event or regulatory capital event, at a special event
redemption price equal to the greater of 100% of the principal amount of the
junior subordinated debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional redemption of the junior
subordinated debentures on the initial optional repayment date to and including
the initial optional prepayment date, discounted to the prepayment date plus
accrued and unpaid interest thereon, and (iii) in whole or in part, on or after
May 1, 2008, contemporaneously with the optional prepayment by the Corporation
of the junior subordinated debentures at a redemption price equal to the
optional prepayment price. Subject to prior required regulatory approval, the
junior subordinated debentures are redeemable during the 12-month periods
beginning on or after May 1, 2008 at 104.085% of the principal amounts
outstanding, declining ratably each year thereafter to 100%, plus accrued and
unpaid interest thereon to the date of redemption. Deferred issuance costs in
the amount of $1.0 million, are being amortized over ten years and are included
in Prepaid Expenses and Other Assets in the Company's Consolidated Statement of
Condition as of June 30, 1998.
14. Income Taxes
The Company files a consolidated Federal income tax return on a calendar-year
basis.
Under legislation enacted subsequent to June 30, 1996, the Bank is no longer
able to use the percentage of taxable income method previously allowed for
Federal tax purposes, but is permitted to deduct bad debts only as they occur
and is additionally required to recapture (that is, take into taxable income)
the excess balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987. However, such recapture
requirements would be suspended for each of two successive taxable years
beginning January 1, 1996 in which the Bank originates a minimum amount of
certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding January 1,
1996. As a result of this legislation, the Bank will incur additional Federal
tax liability, but with no impact on the Bank's results of operations. The New
York State and New York City tax laws have been amended to prevent a similar
recapture of the Bank's bad debt reserve, and to permit continued future use of
the bad debt reserve methods, for purposes of determining the Bank's New York
State and New York City tax liabilities.
The Company files state and local tax returns on a calendar-year basis. State
and local taxes imposed on the Company consist of New York State franchise tax,
New York City Financial Corporation tax and Delaware franchise tax. The
Company's annual liability for New York State and New York City purposes is the
greater of a tax on income or an alternative tax based on a specified formula.
The Company's liability for Delaware franchise tax is based on the lesser of a
tax based on an authorized shares method or an assumed par value capital method;
however under either method, the Company's total tax will not exceed $150,000.
The Company provided for New York State and New York City taxes based on
alternative taxable income for the year ended June 30, 1998 and based on taxable
income for the years ended June 30, 1997 and 1996.
In connection with the acquisitions of the Bank of Westbury, Sunrise Bancorp,
Inc and Continental Bank, a net deferred tax asset of $911,000, a net deferred
tax liability of $2,285,000 and a net deferred tax asset of $1,050,000,
respectively, were recognized for temporary differences between the book basis
and tax basis of assets and liabilities acquired.
41
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1998 and
June 30, 1997 are presented below:
June 30,
--------------------
1998 1997
---- ----
Deferred Tax Assets: (In thousands)
Provisions for Losses on Loans and Real Estate Owned........................ $ 1,833 $ 325
Book Deferred Gain on Sale of Building...................................... 368 468
Deposits.................................................................... 333 535
Deferred Fees............................................................... 71 128
Other ...................................................................... 6 --
---- ----
Total Deferred Tax Assets................................................... 2,611 1,456
----- -----
Deferred Tax Liabilities:
Unrealized Gain on Available-for-Sale Securities............................ 3,235 1,299
Mortgage Loans.............................................................. 483 680
Office Properties and Equipment............................................. 335 830
Mortgage Servicing Rights................................................... 298 492
Debt and Equity and Mortgage-Backed Securities.............................. 185 181
Other....................................................................... 747 772
----- -----
Total Deferred Tax Liabilities............................................... 5,283 4,254
----- -----
Net Deferred Tax Liability...................................................... $ (2,672) $ (2,798)
======= =======
The total income tax provision for the years ended June 30, 1998, 1997 and 1996
differs from the amount of tax provision that would result by applying the
statutory United States Federal income tax rate of 35.0% for fiscal 1998, 1997
and 1996 to income before income taxes:
Year Ended June 30,
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------ -----------------
Amount % Amount % Amount %
------ -- ------ -- ------ --
(Dollars in thousands)
Tax Provision Statutory Rate............... $ 11,739 35.0% $ 7,376 35.0% $ 7,584 35.0%
Amortization of Excess of Cost Over
Fair Value of Net Assets Acquired........ 1,444 4.3 1,191 5.7 675 3.1
State and Local Income Tax, Net of
Federal Income Tax Benefit............... 924 2.8 1,228 5.8 1,684 7.8
Non-Deductible Expense of ESOP............. 643 1.9 302 1.4 133 0.6
Tax Exempt Interest on Municipal
Investments.............................. (11) 0.0 (11) (0.1) (23) (0.1)
Other, Net................................. 71 0.2 52 0.3 (107) (0.5)
--- --- ---- --- ---- ---
Income Tax Expense ..................... $ 14,810 44.2% $ 10,138 48.1% $ 9,946 45.9%
====== ==== ====== ==== ===== ====
The components of the provision for income taxes for the years ended June 30,
1998, 1997 and 1996 are as follows:
Year Ended June 30,
--------------------------------
1998 1997 1996
---- ---- ----
Current: (In thousands)
Federal...................... $ 13,876 $ 8,193 $ 6,858
State and Local.............. 1,459 1,861 2,348
----- ----- -----
15,335 10,054 9,206
Deferred:
Federal...................... (488) 56 497
State and Local.............. (37) 28 243
----- ---- ----
(525) 84 740
---- ------ ---
$ 14,810 $ 10,138 $ 9,946
====== ====== =====
42
15. Commitments
At June 30, 1998, the Company was obligated under a number of non-cancelable
operating leases on property used for banking purposes. Rental expense under
these leases for the fiscal years ended June 30, 1998, 1997 and 1996 was
approximately $1.3 million, $1.0 million and $819,000, respectively. The
projected minimum annual rentals under the terms of these leases, exclusive of
taxes and other charges, are summarized as follows:
Amount
------
Year ended June 30: (In thousands)
1999...................... 1,116
2000...................... 947
2001...................... 848
2002...................... 821
2003...................... 444
Thereafter................ 1,130
-----
$ 5,306
=======
The Bank is a party to financial instruments with off-balance sheet risk in
order to meet the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. Standby letters of credit are
conditional commitments issued by the Bank to guarantee the performance of the
purchaser to a third party. The Bank, in connection with its service
corporations, at June 30, 1998 and 1997, has outstanding balances on letters of
credits of $500,000 and $500,000, respectively. In addition, at June 30, 1998,
the Bank had $828,000 in commercial standby letters of credit. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers (See note 7).
16. Retirement Plans
Pension Plan
The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated statements of condition:
June 30,
-------------------
1998 1997
---- ----
(In thousands)
Actuarial Present Value of Benefits Obligations:
Vested Benefit Obligation.................................................... $ 4,991 $ 7,494
Accumulated Benefit Obligation............................................... 4,991 7,596
===== =====
Plan Assets at Fair Value......................................................... 5,658 8,825
Projected Benefit Obligation for Service Rendered to Date......................... 4,991 9,365
----- -----
Plan Assets Greater (Less) Than Projected Benefit Obligation...................... 667 (540)
Unrecognized Net Asset Value Being Amortized over 15 Years........................ -- (21)
Unrecognized Prior Service Cost................................................... (40) (58)
Unrecognized Net Loss Due to Past Experience
Different from Assumptions Made and Changes in Assumptions..................... 169 1,116
---- -----
Prepaid Pension Cost.............................................................. $ 796 $ 497
=== ===
43
The components of net pension expense are as follows:
Year Ended June 30,
----------------------
1998 1997 1996
---- ---- ----
(In thousands)
Service Cost-benefits Earned during the Year....... $ 627 $ 327 $ 330
Interest Cost on Projected Benefit Obligation...... 710 627 553
Net Amortization and Deferral...................... 20 (290) 64
Actual Return on Plan Assets....................... (710) (482) (778)
Curtailment Gain Recognized........................ (739) -- --
Settlement Loss Recognized......................... 117 -- --
---- ---- ---
Net Pension Expense................................ $ 25 $ 182 $ 169
=== === ===
Year Ended June 30,
-----------------------
1998 1997 1996
---- ---- ----
Assumptions Used:
Weighted Average Discount Rate.................. 7.0% 7.0% 7.0%
Rate of Increase in Compensation Levels......... 5.0% 5.0% 5.0%
Expected Long-term Rate of Return on Assets..... 8.0% 9.0% 9.0%
Based on an evaluation of the pension plan in fiscal 1998, the Bank concluded
that future benefit accruals under the plan would cease, or "freeze" on May 31,
1998. In connection with the freezing of the Plan, the Bank recognized a
curtailment gain of approximately $739,000 and a settlement loss of
approximately $117,000 as of May 31, 1998.
In connection with the acquisitions of Bank of Westbury, Sunrise Bancorp, Inc.
and Continental Bank, their respective pension plans were terminated and are not
included in the above tables. All former employees of Bank of Westbury and
Sunrise Bancorp, Inc. remaining in the employment of the Company were eligible
to participate in the Company's pension plan effective June 1, 1997. However, as
a result of the pension plan's eligibility requirements and the freezing of the
pension plan on May 31, 1998, no Continental employees were eligible to
participate in the plan.
Reliance Federal Savings Bank 401(k) Retirement Plan
Effective June 1, 1998, employees of the Bank who are at least 21 years of age
and have completed one year of service are eligible to participate in the
Reliance Federal Savings Bank 401(k) Retirement Plan (the "401(k) Plan").
Eligible employees may make pre-tax contributions equal to the lesser of ten
percent of their annual compensation or the amount permitted by law. As a base
amount, the Bank will make contributions (on account for eligible employees)
equal to two percent of all eligible employees earnings regardless of whether
employees make contributions on their own behalf. Additionally, the Bank will
make matching contributions equal to 75% of employee contributions that do not
exceed four percent of their annual earnings. Employees are immediately vested
in their own contributions and after five years of service they will be vested
in the Bank's base and matching contributions. During fiscal 1998, the Bank
incurred $40,000 in 401(k) Plan costs.
17. Stock Benefit Plans
The following are the stock based benefit plans maintained by the Company:
Stock Option Plan
The Company maintains the Reliance Bancorp, Inc. 1994 Incentive Stock Option
Plan and the Reliance Bancorp, Inc. 1996 Incentive Stock Option Plan Amended and
Restated as of February 17, 1997 (the "Stock Option Plans"). Under the Stock
Option Plans, stock options (which expire ten years from the date of grant) have
been granted to the executive officers and officers of the Company and its
affiliate, the Bank. Each option entitles the holder to purchase one share of
the Company's common stock at an exercise price equal to the fair market value
of the stock at the date of grant. Options will be exercisable in whole or in
part over the vesting period. However, all options become 100% exercisable in
the event that the employee terminates his employment due to death, disability,
normal retirement, or in the event of a change in control of the Bank or the
Company. Simultaneous with the grant of these options, the Personnel Committee
of the Board of Directors granted "Limited Rights" with respect to the shares
covered by the options. Limited Rights granted are subject to terms and
conditions and can be exercised only in the event of a change in
44
control of the Company. Upon exercise of a limited right, the holder shall
receive from the Company a cash payment equal to the difference between the
exercise price of the option and the fair market value of the underlying shares
of common stock.
Stock Option Plan for Outside Directors
The Company maintains the Amended and Restated Reliance Bancorp, Inc. 1994 Stock
Option Plans for Outside Directors (the "Directors' Option Plans"). Each member
of the Board of Directors who is not an officer or employee of the Company or
the Bank is granted non-statutory options to purchase shares of the Company's
common stock. Members of the Board of Directors of the Company are granted
options to purchase shares of the common stock of the Company at an exercise
price equal to the fair market value of the stock at the date of grant. All of
the options granted under the Directors' Option Plan become exercisable over the
vesting period and expire upon the earlier of 10 years following the date of
grant or one year following the date the optionee ceases to be a director.
Number of Shares of
----------------------------------
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
------- ------- --------- -----
Balance Outstanding at June 30, 1995.......................... 608,505 216,390 196,650 $ 10.00
Granted....................................................... -- -- 6,727 15.25
Forfeited..................................................... -- -- -- --
Exercised..................................................... -- -- -- --
----- ----- ----- ----
Balance Outstanding at June 30, 1996.......................... 608,505 216,390 203,377 $ 10.03
Granted....................................................... 70,398 213,402 40,500 18.22
Forfeited..................................................... -- -- -- --
Exercised..................................................... (48,780) (35,000) (6,000) 10.00
-------- -------- ------- -----
Balance Outstanding at June 30, 1997.......................... 630,123 394,792 237,877 $ 11.96
Granted....................................................... 13,647 3,353 40,500 29.87
Forfeited..................................................... -- -- -- --
Exercised..................................................... (131,399) (102,816) (1,500) 11.33
--------- --------- ------- -----
Balance Outstanding at June 30, 1998.......................... 512,371 295,329 276,877 $ 13.17
======= ======= ======= =====
Shares Exercisable at June 30, 1998........................... 390,294 250,847 274,634 $ 13.45
Had compensation cost for the Company's three stock-based compensation plans
been determined consistent with SFAS No. 123 for awards made after July 1, 1995,
the Company's net income per common share would have been reduced to the pro
forma amounts indicated below for the years ended June 30:
1998 1997 1996
-------- -------- -------
(Dollars in thousands, except per share data)
Net Income As Reported $ 18,729 $ 10,936 $ 11,723
Pro forma 18,492 8,672 11,669
Net Income per Common Share:
Basic As Reported $ 2.11 $ 1.32 $ 1.36
Pro forma $ 2.08 1.04 1.36
Diluted As Reported $ 1.99 $ 1.25 $ 1.32
Pro forma $ 1.96 0.99 1.32
45
The fair values of the share grants were estimated on the date of grant using
the Black-Scholes option - pricing model using the following assumptions in
fiscal 1998, 1997 and 1996: dividend yield of 3.00% for all years; expected
volatility of 22.05% for fiscal 1998 and 16.64% for fiscal 1997 and 1996;
risk-free interest rates of 6.25% for all years; and expected option lives of 6
years for all years.
Employees Stock Ownership Plan ("ESOP")
The Bank has established an ESOP for eligible employees. Full-time employees
employed with the Bank as of January 1, 1993, and full-time employees of the
Company or the Bank employed after such date who have been credited with at
least 1,000 hours during a twelve-month period and who have attained age 21 are
eligible to participate.
The ESOP borrowed $8.3 million from the Company and used the funds to purchase
828,000 shares of the Company's common stock issued in the Conversion. The loan
is repaid principally from the Bank's discretionary contributions to the ESOP
over a 10 year period. At June 30, 1998 and 1997, the loan had an outstanding
balance of $4.8 million and $5.6 million, respectively, and an interest rate of
8.50% and 8.50%, respectively. Interest expense for the obligation was $441,000,
$502,000 and $588,000, respectively, for the year ended June 30, 1998, 1997 and
1996. Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is paid. Contributions to the ESOP and
shares released from the loan collateral in an amount proportional to the
repayment of the ESOP loan is allocated among participants on the basis of
compensation, as described in the plan, in the year of allocation. Benefits
generally become 100% vested after five years of credited service. However, in
the event of a change in control, as defined in the plan, any unvested portion
of benefits shall vest immediately. Forfeitures are reallocated among
participating employees, in the same proportion as contributions. Benefits are
payable upon death, retirement, disability, or separation from service based on
vesting status and share allocations made.
As of June 30, 1998, 288,394 shares remaining in the ESOP were allocated to
participants and 41,400 shares were committed to be released. As shares are
released from collateral, the shares become outstanding for earnings per share
computations. As of June 30, 1998 and 1997, the fair market value of the 455,400
and 538,200 unallocated shares, respectively, was $17.4 million and $15.8
million, respectively.
Recognition and Retention Plans and Trusts ("RRPs")
The Bank maintains the Reliance Federal Savings Bank Recognition and
Retention Plan for Officers and Employees and the Amended and Restated Reliance
Federal Savings Bank 1994 Recognition and Retention Plan for Outside Directors
(the "RRPs"). The purpose of the RRPs is to provide executive officers,
officers, and directors of the Bank with a proprietary interest in the Company
in a manner designed to encourage such persons to remain with the Bank. The RRPs
acquired an aggregate of 414,000 shares of the Company's common stock in the
Conversion of which 412,447 shares have been awarded to Officers and Directors
(327,715 at the time of the Conversion and 84,732 thereafter). Such amounts
represent deferred compensation and have been accounted for as a reduction of
stockholders' equity. Awards vest at a rate of 20% per year for directors and
officers, commencing one year from the date of award. Awards become 100% vested
upon termination of employment due to death, disability, or following a change
in control of the Bank or the Company.
The Company recorded compensation expenses for the ESOP and RRP of $3.7 million,
$2.5 million and $2.0 million, respectively, for the years ended June 30, 1998,
1997 and 1996.
18. Earnings Per Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share", which establishes new standards for computing and presenting earnings
per share ("EPS"). All earnings per share amounts have been restated to conform
to the new requirements.
Basis EPS is computed by dividing net income by the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding includes the average number of shares of common stock outstanding
adjusted for the weighted average number of unallocated shares held by the ESOP.
46
Diluted EPS is computed by dividing net income by the weighted average number of
common shares and common equivalent shares outstanding during the year. For the
diluted EPS calculation, the weighted average number of common shares and common
equivalent shares outstanding include the average number of shares of common
stock outstanding adjusted for the weighted average number of unallocated shares
held by the ESOP and the dilutive effect of unexercised stock options using the
treasury stock method. When applying the treasury stock method, the Company's
average stock price is utilized, and the Company adds to the proceeds the tax
benefit that would have been credited to additional paid-in capital assuming
exercise of non-qualified stock options.
The computation of basis and diluted EPS for the fiscal years ended June 30,
1998, 1997 and 1996 are presented in the following table:
Year Ended June 30,
-------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Net income......................................... $ 18,729 $ 10,936 $ 11,723
Weighted average common shares..................... 8,890 8,299 8,594
----- ------- -------
Basic earnings per share........................... $ 2.11 $ 1.32 $ 1.36
======== ======== ========
Net income......................................... $ 18,729 $ 10,936 $ 11,723
Weighted average common shares - basic............. 8,890 8,299 8,594
Effect of dilutive stock options................... 535 425 269
-------- ------- -------
Weighted average common shares and common
equivalent shares............................... 9,425 8,724 8,863
-------- ----- -------
Diluted earnings per share......................... $ 1.99 $ 1.25 $ 1.32
======= ====== ======
19. Regulatory Matters
Federal regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5% of total assets, a 3% core capital ratio and an 8%
risk-based capital ratio. The OTS prompt corrective action standards effectively
establish a minimum 2% tangible capital ratio, a minimum 4% leverage ratio
(core) capital ratio and a minimum 4% Tier 1 risked based capital ratio. As of
June 30, 1998 and 1997, the Bank was in compliance with the regulatory capital
requirements.
Additionally, under prompt corrective action regulations, the regulators have
adopted rules, which require them to take action against undercapitalized
institutions, based upon five categories of capitalization: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized",
and "critically undercapitalized". The rules adopted generally provide that an
insured institution whose risk-based capital ratio is 10% or greater, Tier 1
risk- based capital is 6% or greater, and leverage ratio is 5% or greater is
considered a "well capitalized" institution. As of June 30, 1998, 1997 and 1996,
the Bank was considered a "well capitalized" institution.
Dividend payments to the Company from the Bank are subject to the profitability
of the Bank and by applicable laws and regulations. During fiscal 1998 and 1997,
the Bank made dividend payments to the Company of $14.0 million and $6.7
million, respectively.
During fiscal 1998, the Company invested $18.8 million of the proceeds from the
issuance of its Junior Subordinated debt in the Bank which increased the Bank's
capital and capital ratios.
47
The following table sets forth the required ratios and amounts and the Bank's
actual capital amounts and ratios at June 30, 1998 and 1997:
June 30, 1998
------------------------------------------------------------------
Capital Actual Excess
Requirement % Capital % Capital %
----------- -- ------- -- ------- --
(Dollars in thousands)
Tangible.................. $ 35,825 1.5% $ 145,337 6.1% $ 109,512 4.6%
Leverage.................. 71,650 3.0 145,337 6.1 73,687 3.1
Risk-based................ 80,724 8.0 154,245 15.3 73,521 7.3
June 30, 1997
------------------------------------------------------------------
Capital Actual Excess
Requirement % Capital % Capital %
----------- -- ------- -- ------- --
(Dollars in thousands)
Tangible.................. $ 28,937 1.5% $ 107,967 5.6% $79,030 4.1%
Leverage.................. 57,874 3.0 107,967 5.6 50,093 2.6
Risk-based................ 59,670 8.0 113,094 15.2 53,424 7.2
20. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS No.
107"), requires disclosure of estimated fair value information for the Company's
financial instruments. Fair values are most commonly derived from quoted market
prices available in the formal trading marketplaces. In many cases, the
Company's financial instruments are not bought or sold in formal trading
marketplaces. Accordingly, in cases where quoted market prices are not
available, fair values are derived or estimated based on a variety of valuation
techniques. These techniques are sensitive to the various assumptions and
estimates used and the resulting fair value estimates may be materially affected
by minor variations in those assumption or estimates. In that regard, it is
likely that amounts different from the fair value estimates would be realized by
the Company in immediate settlement of the financial instruments.
SFAS No. 107 excludes certain financial instruments as well as all nonfinancial
instruments from fair value disclosure. Accordingly, the fair values presented
do not represent the Company's fair value as a going concern. In addition, the
differences between the carrying amounts and the fair values presented may not
be realized since the Company generally intends to hold these financial
instruments to maturity and realize their recorded value.
SFAS No. 107 provides minimal guidance and no limitations with regard to
assumptions and estimates to be used. Therefore, while disclosure of estimated
fair values is required, the fair value amounts presented in the financial
statements do not represent the underlying value of the Company, nor do they
provide any basis for comparison of the value of this Company with similar
companies.
48
June 30,
------------------------------------------------------
1998 1997
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In thousands)
On Balance Sheet:
Financial Assets:
Cash and Due from Banks.............................. $ 37,596 $ 37,596 $ 29,565 $ 29,565
Money Market Investments............................. 9,500 9,500 1,100 1,100
Debt and Equity Securities Available-for-Sale........ 134,907 134,907 26,909 26,909
Debt and Equity Securities Held-to-Maturity.......... 40,189 40,509 46,026 46,152
Mortgage-Backed Securities Available-for-Sale........ 940,347 940,347 721,819 721,819
Mortgage-Backed Securities Held-to-Maturity.......... 249,259 252,332 159,356 163,108
Loans Receivable, Net................................ 969,797 984,224 909,321 910,671
Mortgage Servicing Rights............................ 2,317 2,632 3,046 3,797
Financial Liabilities:
Deposits............................................. 1,628,298 1,630,087 1,436,037 1,432,234
Borrowed Funds....................................... 630,206 631,407 351,913 349,499
Off Balance Sheet:
Outstanding Commitments.............................. 116,425 116,425 80,122 80,122
Letters of Credit.................................... 1,382 1,382 500 500
Methods and assumptions used to produce fair value are stated below:
Cash and Due from Banks
The carrying amounts reported in the consolidated statements of condition
approximate the assets' fair values.
Money Market Investments
The carrying amounts of federal funds sold and repurchase agreements approximate
their fair values because these investments all mature in three months or less.
Debt, Equity and Mortgage-Backed Securities
Fair values for debt, equity and mortgage-backed securities are based on
published market or securities dealers' estimated prices.
Loans
Fair value estimates are calculated for pools of loans with similar
characteristics. The loans are first segregated by type, such as 1-4 family
residential, other residential, commercial, construction, and consumer, and then
further segregated into fixed and adjustable rate categories.
Fair value is estimated by discounting expected future cash flows. Expected
future cash flows are based on contractual cash flows, adjusted for prepayments.
Prepayment estimates are based on a variety of factors including the Bank's
experience with respect to each loan category, the effect of current economic
and lending conditions, and regional statistics for each loan category, if
available. The discount rates used are based on market rates for new loans of
similar type and purpose, adjusted, when necessary, for factors such as
servicing cost, credit risk, and term.
As mentioned previously, this technique of estimating fair value is extremely
sensitive to the assumptions and estimates used. While management has attempted
to use assumptions and estimates which are the most reflective of the loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than those determined in formal trading marketplaces. As such,
readers are again cautioned in using this information for purposes of evaluating
the financial condition and/or value of the Company in and of itself or in
comparison with any other company.
49
Mortgage Servicing Rights
The fair value is estimated based upon a valuation which stratifies the mortgage
servicing portfolio based upon the predominate risk characteristics of the
underlying cash flows utilizing current market assumptions regarding discount
rates, prepayment speeds, delinquency rates, etc.
Other Receivables and Payables
The carrying amounts of short-term receivables and payables, including accrued
interest approximate their fair values.
Deposits
SFAS No. 107 stipulates that the fair values of deposits with no stated
maturity, such as demand deposits, savings, NOW accounts and money market
accounts, are equal to the amount payable on demand. The relative insensitivity
of the majority of these deposits to interest rate changes creates a significant
inherent value which is not reflected in the fair value reported.
The fair value of certificates of deposit are based on discounted contractual
cash flows using rates which approximate the rates offered by the Company for
deposits of similar remaining maturities.
Other Borrowings
Fair value estimates are based on discounting contractual cash flows using rates
which approximate the rates offered for borrowings of similar remaining
maturities.
Outstanding Commitments
Fair value of commitments outstanding are estimated based on the fees that would
be charged for similar agreements, considering the remaining term of the
agreement, the rate offered and the creditworthiness of the parties.
21. Parent-Only Financial Information
The following condensed statements of condition at June 30, 1998 and 1997 and
condensed statements of income and cash flows for the years ended June 30, 1998,
1997 and 1996 for Reliance Bancorp, Inc. (parent company only) reflects the
Company's investment in its wholly-owned subsidiary, the Bank, using the equity
method of accounting.
CONDENSED STATEMENTS OF CONDITION
June 30,
--------------------------
1998 1997
---- ----
ASSETS (In thousands)
Cash..................................................................... $ 1,294 $ 470
Money Market Investments................................................. 9,500 1,100
Debt Securities Available-for-Sale....................................... 24,374 4,811
ESOP Loan Receivable..................................................... 4,799 5,622
Other Assets............................................................. 2,210 633
Investment in Reliance Federal Savings Bank.............................. 205,355 151,772
Investment in Reliance Capital Trust I................................... 1,547 --
------ -----
Total Assets..................................................... $ 249,079 $ 164,408
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses......................................................... $ 2,668 $ 1,738
Junior Subordinated Debt Issued to Reliance Capital Trust I.............. 51,547 --
Stockholders' Equity..................................................... 194,864 162,670
------- -------
Total Liabilities and Stockholders' Equity....................... $ 249,079 $ 164,408
======= =======
50
CONDENSED STATEMENTS OF INCOME
Year Ended June 30,
-------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Interest Income - Securities and Repurchase Agreements.......... $ 615 $ 230 $ 958
Interest Income - ESOP Loan Receivable.......................... 441 502 588
----- ---- -----
Total Interest Income................................... 1,056 732 1,546
Interest Expense................................................ (724) -- --
Cash Dividends from the Bank.................................... 14,000 6,700 --
Other Operating Income.......................................... 11 -- 3
Other Operating Expense......................................... (418) (521) (551)
----- ---- ----
Income Before Income Taxes and Equity in Undistributed
Earnings of the Bank......................................... 13,925 6,911 998
(Recovery) Provision for Income Taxes........................... (30) 90 445
----- ---- ----
Income before Equity in Undistributed
Earnings of the Bank........................................ 13,955 6,821 553
Equity in Undistributed Earnings of Reliance
Federal Savings Bank........................................ 4,774 4,115 11,170
----- ----- ------
Net Income...................................... $ 18,729 $ 10,936 $ 11,723
====== ====== ======
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended June 30,
-------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Cash from Operating Activities:
Net Income...................................................... $ 18,729 $ 10,936 $ 11,723
Equity in Undistributed Earnings of the Bank ................... (4,774) (4,115) (11,170)
Accretion of Discounts.......................................... (47) (70) --
Net Gain on Sale of Securities.................................. (11) -- (3)
(Increase) Decrease in Other Assets............................. (1,655) 544 (73)
Increase in Accrued Expenses.................................... 2,550 122 52
----- ---- ---
Net Cash Provided by Operating Activities.................. 14,792 7,417 529
------ ----- ---
Cash Flows from Investing Activities:
Purchase of Debt Securities Available-for-Sale.................. (24,187) (4,715) --
Proceeds from Sales of Debt Securities Available-for-Sale....... 4,870 -- 23,883
Principal Payments on ESOP Loan Receivable...................... 823 850 831
Payments for Investments in Reliance Capital Trust I............ (1,547) -- --
Payments for Investments in Bank................................ (18,750) -- (9,673)
------- ---- ------
Net Cash (Used in) Provided by Investing Activities......... (38,791) (3,865) 15,041
------- ------ ------
Cash Flows from Financing Activities:
Proceeds from Issuance of Junior Subordinated Debt.............. 51,547 -- --
Purchase of Treasury Stock...................................... (15,269) (8,113) (3,829)
Net Proceeds from Issuance of Common Stock
Upon Exercise of Stock Options............................... 2,670 898 --
Dividends Paid.................................................. (5,725) (4,578) (3,808)
------ ------- -------
Net Cash Provided by (Used in) Financing Activities........ 33,223 (11,793) (7,637)
------ -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents............ 9,224 (8,241) 7,933
Cash and Cash Equivalents at Beginning of Year.................. 1,570 9,811 1,878
------ ----- -----
Cash and Cash Equivalents at the End of Year.................... $ 10,794 $ 1,570 $ 9,811
====== ===== =====
51
INDEPENDENT AUDITORS' REPORT
----------------------------
[LOGO] KPMG Peat Marwick LLP
Certified Public Accountants
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000-0000
To the Board of Directors and Stockholders of
Reliance Bancorp, Inc.,
We have audited the accompanying consolidated statements of condition of
Reliance Bancorp, Inc. and subsidiary as of June 30, 1998 and 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended June 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reliance Bancorp,
Inc. and subsidiary as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick
Xxxxxxxx, XX 00000-0000
July 23, 1998
52
Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Quarterly Financial Data
----------------------------------------------
(Unaudited)
(Dollars in thousands, except per share data)
Fiscal 1998 Quarter Ended
-------------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
Interest Income............................................. $ 36,183 $ 39,266 $ 38,446 39,924
Interest Expense............................................ 20,169 22,078 21,424 23,157
------ ------ ------ ------
Net Interest Income......................................... 16,014 17,188 17,022 16,767
Provision for Loan Losses................................... 900 300 300 150
------ ------ ------ ------
Net Interest Income after Provision for Loan Losses......... 15,114 16,888 16,722 16,617
Non-Interest Income......................................... 2,263 1,692 1,922 1,982
General and Administrative Expense.......................... 8,047 8,816 9,087 9,275
Real Estate Operations, net................................. 225 (67) 12 48
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired.................................... 846 1,090 1,141 1,141
----- ----- ----- -----
Income Before Provision for Income Taxes.................... 8,259 8,741 8,404 8,135
Income Tax Expense.......................................... 3,518 3,854 3,746 3,692
----- ----- ----- -----
Net Income.................................................. $ 4,741 $ 4,887 $ 4,658 $ 4,443
===== ===== ===== =====
Basic Earnings Per Share.................................... $ 0.58 $ 0.54 $ 0.51 $ 0.48
==== ==== ==== ====
Diluted Earnings Per Share ................................. $ 0.54 $ 0.51 $ 0.48 $ 0.46
==== ==== ==== ====
Fiscal 1997 Quarter Ended
-------------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
Interest Income........................................... $ 31,960 $ 33,189 $ 33,596 $ 34,544
Interest Expense.......................................... 17,014 17,801 17,904 18,934
------ ------ ------ ------
Net Interest Income....................................... 14,946 15,388 15,692 15,610
Provision for Loan Losses................................. 100 250 300 300
------ ------ ------ ------
Net Interest Income after Provision for Loan Losses....... 14,846 15,138 15,392 15,310
Non-Interest Income....................................... 686 1,022 897 807
General and Administrative Expense........................ (7,997) (7,830) (7,539) (7,621)
Real Estate Operations, net............................... (104) (117) (114) (48)
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired.................................. (856) (856) (846) (846)
SAIF Recapitalization Charge.............................. (8,250) -- -- --
------- ----- ----- -----
Income (Loss) Before Provision for Income Taxes........... (1,675) 7,357 7,790 7,602
Income Tax Expense (Benefit).............................. (271) 3,478 3,667 3,264
------- ----- ----- -----
Net Income (Loss)......................................... $ (1,404) $ 3,879 $ 4,123 $ 4,338
======= ===== ===== =====
Basic Earnings (Loss) Per Share........................... $ (0.17) $ 0.47 $ 0.50 $ 0.53
====== ==== ==== ====
Diluted Earnings (Loss) Per Share ........................ $ (0.17) $ 0.45 $ 0.47 $ 0.50
====== ===== ==== ====
53
RELIANCE BANCORP, INC.
BOARD OF DIRECTORS
Xxxxxxx X. Xxxxxxx
Chairman of the Board and
former Chief Executive Officer
Xxxxxxx X. Xxxxxxx
Chief Executive Officer
and President
Xxxxxx X. Xxxxx, Xx.
Retired - President and Director
Institutional Mortgage Investors
Management Corp.
Xxxxxx XxXxxxx
Retired - Chairman of the Board
and Chief Executive Officer
Reliance Federal Savings Bank
Xxxxxxx X. XxXxxxx
Principal of Stonehill
Management Consultants
Xxxxxx X. Xxxxxxx, Xx.
Vice President
Allied Coverage Corp.
Xxxxx X. Xxxxxxx
Retired President
Xxxxxxx & Xxxxxx
Xxxxx-Xxxxxxx Agency, Inc.
J. Xxxxxxx Xxxxx
Owner/President
Beacon Mortgage Company
EXECUTIVE OFFICERS
Xxxxxxx X. Xxxxxxx
Chief Executive Officer
and President
Xxxx X. Xxxxx
Senior Vice President and
Chief Financial Officer
Xxxxxx X. Xxxxxxxx
Executive Vice President and
Treasurer
Xxxx X. Xxxxxxx
Vice President
Investment Officer
Xxxxxx X. Xxxxxxx
Senior Vice President
Retail Banking Division
and Corporate Secretary
RELIANCE FEDERAL SAVINGS BANK*
EXECUTIVE OFFICERS
* Executive officers of Reliance Bancorp, Inc. also serve as executive officers
of Reliance Federal Savings Bank.
VICE PRESIDENTS
Xxxxxxx X. Xxxxx
Human Resources
Xxxx X. Xxxxxxx
Home Mortgage
Xxxxxxx X. XxXxxx
Taxation
Xxxxx X. Xxxxxx, Xx.
Data Processing
Xxxx X. Xxxxx
Marketing
Xxxxx X. Xxxxxx
Controller
Xxxxxxx X. XxXxxxx
Loan Servicing
Xxxxx XxXxxxxx
Retail Banking
Xxxxxxx Xxxxx
Commercial Lending
Xxxxxxxxx Xxxxxxxxx
Consumer Credit
Xxxxxxx Xxxxxxx
Internal Audit
Xxxxx X. Xxxxx
Mortgage Originations
ASSISTANT VICE PRESIDENTS
Xxxx X. Xxxxxx
Xxxxxx X. Xxxxx
Xxxxxxxx Xxxxxxx
Xxxxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxxxxx Xxxxx
Xxxx X. Martingale
Xxxxxxx XxXxxxxx
Xxxxx X'Xxxxx
Xxxxxxx X. XxXxxx, Xx.
Xxxxxxxxx Xxxxxxxx
Xxxxxxx Xxxxxx
Xxxxxx Xxxx
Xxxxxx X. Session
54
RELIANCE BANCORP, INC.
BANKING OFFICES
QUEENS
------
Auburndale
00-00 Xxxxxxx Xxxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxx Xxxxxx
AVP - Branch Manager
Hillcrest
00-00 000xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxx Xxxxxx
AVP - Branch Manager
Xxxxxx
000-00 Xxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxx 00000
Xxxxxxxx Xxxx
AVP - Branch Manager
Jamaica
000-00 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Xxxx Xxxxxxx
AVP - Branch Manager
Queens Village
000-00 Xxxxxxx Xxxxxx
Xxxxxx Xxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxx
Branch Manager
Whitestone
00-00 Xxxxxx Xxxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxx
Branch Manager
Winchester
000-00 Xxxxxxxx Xxxxxx
Xxxxxx Xxxxxxx, Xxx Xxxx 00000
Xxxxxxxx Xxxxxxx
AVP - Branch Manager
NASSAU
------
Albertson
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Xxxx Xxxxxxx
AVP - Branch Manager
Bethpage
000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxxxx
AVP - Branch Manager
Xxxxx Place
000 Xxxx Xxxx Xxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
Farmingdale
000 Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxx Xxxx 00000
Xxxxx Xxxxxxx
AVP - Branch Manager
South Farmingdale
000 Xxxxxxx Xxxx
Xx. Xxxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxxx Xxxxx
AVP - Branch Manager
Franklin Square
000 Xxx Xxxx Xxxx Xxxx
Xxxxxxxx Xxxxxx, Xxx Xxxx 00000
Xxxxx Xxxx
Branch Manager
Garden City
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxx
AVP - Branch Manager
Hicksville
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxxxxx Xxxxxxxx
Branch Manager
North Bellmore
0000 Xxxxxxxxx Xxxxxx
Xxxxx Xxxxxxxx, Xxx Xxxx 00000
Xxx Xxxxx Xxxxxxxx
Branch Manager
Plainview
0000 Xxx Xxxxxxx Xxxx
Xxxxxxxxx, Xxx Xxxx 00000
Xxxxxxxxxx Xxxxx
Branch Manager
Roosevelt Field
000 Xxxxxx Xxxx Xxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxx
Branch Manager
55
RELIANCE BANCORP, INC.
BANKING OFFICES, Continued
NASSAU Continued
----------------
Salisbury
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxxx
AVP - Branch Manager
Westbury
000 Xxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxxx XxXxxxx
Branch Manager
Williston Park
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx Xxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxxx
AVP - Branch Manager
SUFFOLK
-------
Deer Park
0000 Xxxx Xxxx Xxxxxx
Xxxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxx
AVP - Branch Manager
Kings Park
000 Xxxxx 00 X
Xxxxx Xxxx, Xxx Xxxx 00000
Xxxxxxxxx XxXxxxx
Branch Manager
Lindenhurst
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxxxxxx
Branch Manager
Nesconset
000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Xxxxxxxxx Xxxxxxx
Branch Manager
North Babylon
0000 Xxxx Xxxx Xxxxxx
Xxxxx Xxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxxxxxx
Branch Manager
North Babylon North
0000 Xxxx Xxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Xxxxxxx Xxxxxx
Branch Manager
North Brentwood
000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxxxxxx, Xxx Xxxx 00000
Xxxxxxx Xxxxxxxx
Branch Manager
St. Xxxxx
000 Xxxx Xxxxxx
Xx. Xxxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxx
Branch Manager
West Islip
000 Xxxxx Xxxxxxxxx
Xxxx Xxxxx, Xxx Xxxx 00000
Xxxx Xxxxxxxxx
Branch Manager
56
STOCKHOLDER INFORMATION
ADMINISTRATIVE OFFICES
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
ANNUAL MEETING OF SHAREHOLDERS Annual Meeting of Shareholders is scheduled to be
held on November 10, 1998 at the Long Island Marriott Hotel and Conference
Center. A notice of the meeting, a proxy statement and a proxy form are included
with this mailing to stockholders of record as of October 9, 1998. All
shareholders are welcome to attend.
STOCK LISTING INFORMATION
Reliance Bancorp, Inc.'s common stock is traded on the National Association of
Securities Dealers Automated Quotation/National Market Securities (NASDAQ/NMS)
under the symbol "RELY". Daily quotations are included in the NASDAQ national
market stock tables published in leading dailies and other business
publications.
INVESTOR RELATIONS
Shareholders, investors and analysts interested in additional information about
Reliance Bancorp, Inc.
are invited to contact:
Xxxx X. Xxxxx
Senior Vice President
Chief Financial Officer
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
Copies of the Company's earnings releases and financial publications, including
the annual report on Form 10-K filed with the Securities and Exchange Commission
are available without charge by writing to Xxxxx X. Xxxxxxxxx at the
Administrative Offices, or visit our website at xxxx://xxx.xxxxxxxx-xxxxxxx.xxx.
STOCK TRANSFER AGENT AND REGISTRAR Shareholders wishing to change the name,
address, or ownership of stock, to report lost certificates or to consolidate
accounts are asked to contact the Company's stock registrar and transfer agent
directly:
Registrar and Transfer Company
00 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
0-000-000-0000
STOCK PRICE INFORMATION
Shares of the common stock were made available to qualified subscribers at
$10.00 per share during the initial offering. The tables show the reported high
and low sales prices of the common stock during fiscal 1998 and 1997.
1998
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
High.......... $33.00 $36.88 $38.75 $42.25
Low........... $27.69 $30.00 $29.69 $36.75
1997
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
High.......... $19.50 $19.50 $25.38 $29.44
Low........... $15.63 $17.50 $18.63 $22.00
As of July 31, 1998, the Company had approximately 1,100 shareholders of record,
not including the number of persons or entities holding stock in nominee or
street name through various brokers and banks.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
COUNSEL
Berkman, Henoch, Xxxxxxxx & Xxxxx
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
Xxxxxxx, Xxxxxx & Xxxxxxxx
0000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
57
