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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998 containing only
financial statements pursuant to Rule 15d-2
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-24187
HUDSON RIVER BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 14-1803212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hudson City Centre, Hudson New York 12534
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 828-4600
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of July 22, 1998, there were issued and outstanding 17,853,750
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant, computed by reference to
the average of the closing bid and asked prices of such stock on the Nasdaq
National Market System as of July 22, 1998, was approximately $199.5 million.
DOCUMENTS INCORPORATED BY REFERENCE
None.
This Report is being filed pursuant to Rule 15d-2 of the Securities
Exchange Act of 1934 as amended. Pursuant to such rule, the Registration
Statement of the Registrant filed under the Securities Act of 1933, SEC File
Number, 333-47605 did not contain certified financial statements for the
Registrant's last full fiscal year. Therefore, contained herein are the
certified financial statements of the Registrant. Since the initial public
offering was completed on July 1, 1998, net income per share for the fiscal year
ended March 31, 1998 is not applicable and therefore is not presented.
Independent Auditors' Report
The Board of Trustees
The Hudson City Savings Institution:
We have audited the accompanying consolidated balance sheets of The Hudson City
Savings Institution and subsidiaries (the Bank) as of March 31, 1998 and 1997,
and the related consolidated income statements, statements of changes in equity
and cash flows for each of the years in the three-year period ended March 31,
1998. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on the
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
consolidated 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 The Hudson City
Savings Institution and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Albany, New York
June 12, 1998
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and 1997
Assets 1998 1997
- ------ --------- ---------
(In thousands)
Cash and due from banks ............................................. $ 12,423 10,457
Federal funds sold .................................................. 21,850 --
--------- ---------
Cash and cash equivalents ...................................... 34,273 10,457
--------- ---------
Loans held for sale ................................................. 1,286 84
Securities available for sale ....................................... 42,471 45,623
Investment securities ............................................... 65,194 79,068
Federal Home Loan Bank of New York stock ............................ 3,035 2,812
Loans receivable .................................................... 506,978 493,019
Less: Allowance for loan losses ................................ (8,227) (5,872)
--------- ---------
Net loans receivable ....................................... 498,751 487,147
--------- ---------
Accrued interest receivable ......................................... 4,402 4,880
Premises and equipment, net ......................................... 15,331 14,965
Other real estate owned and repossessed property .................... 1,532 3,447
Other assets ........................................................ 4,939 2,551
--------- ---------
Total assets .......................................... $ 671,214 651,034
========= =========
Liabilities and Equity
- ----------------------
Liabilities:
Deposits ....................................................... 588,314 564,599
Short-term borrowings .......................................... 2,000 12,585
Urban Development Action Grant payable ......................... -- 835
Mortgagors' escrow deposits .................................... 3,723 3,746
Other liabilities .............................................. 8,873 4,140
--------- ---------
Total liabilities ..................................... 602,910 585,905
--------- ---------
Commitments and contingent liabilities (note 14)
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and 1997
1998 1997
--------- ---------
(In thousands)
Equity:
Surplus ........................................................ 13,839 13,839
Undivided profits .............................................. 54,469 51,638
Net unrealized loss on securities available for sale, net of tax (4) (348)
--------- ---------
Total equity .......................................... 68,304 65,129
--------- ---------
Total liabilities and equity .......................... $ 671,214 651,034
========= =========
See accompanying notes to consolidated financial statements.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Income Statements
Years Ended March 31, 1998, 1997 and 1996
1998 1997 1996
------- ------- -------
(In thousands)
Interest and dividend income:
Interest and fees on loans ................ $47,482 43,585 40,780
Securities available for sale ............. 2,568 3,658 1,782
Investment securities ..................... 4,727 5,385 6,062
Federal funds sold ........................ 402 89 271
Federal Home Loan Bank of New York stock .. 208 164 187
------- ------- -------
Total interest and dividend income 55,387 52,881 49,082
------- ------- -------
Interest expense:
Deposits .................................. 25,772 25,187 24,044
Short-term borrowings ..................... 205 239 42
------- ------- -------
Total interest expense ........... 25,977 25,426 24,086
------- ------- -------
Net interest income .............. 29,410 27,455 24,996
Provision for loan losses ...................... 8,491 3,826 1,090
------- ------- -------
Net interest income after
provision for loan losses .... 20,919 23,629 23,906
------- ------- -------
Other operating income:
Service charges on deposit accounts ....... 1,103 1,063 1,026
Loan servicing income ..................... 398 480 272
Net securities transactions ............... 15 28 28
Net gain on sale of loans ................. 96 17 92
Other income .............................. 1,233 237 217
------- ------- -------
Total other operating income ..... 2,845 1,825 1,635
------- ------- -------
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Income Statements
Years Ended March 31, 1998, 1997 and 1996
(continued)
1998 1997 1996
------- ------- -------
(In thousands)
Other operating expenses:
Compensation and benefits ................. 9,394 8,592 7,471
Occupancy ................................. 1,395 1,285 1,184
Equipment ................................. 1,614 1,230 1,057
FDIC assessment ........................... 74 27 299
Other real estate owned and repossessed
property expenses ..................... 572 292 348
Legal and other professional fees ......... 950 397 330
Postage and item transportation ........... 765 655 510
Other expenses ............................ 4,266 3,709 3,000
------- ------- -------
Total other operating expenses ... 19,030 16,187 14,199
------- ------- -------
Income before income tax expense ............... 4,734 9,267 11,342
Income tax expense ............................. 1,903 3,607 4,298
------- ------- -------
Net income ....................... $ 2,831 5,660 7,044
======= ======= =======
See accompanying notes to consolidated financial statements.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
Years Ended March 31, 1998, 1997 and 1996
Net Unrealized
Loss on
Securities
Available
Undivided for Sale, Net Total
Surplus Profits of Tax Equity
------- ------- ------ ------
(In thousands)
Balance as of April 1, 1995 .................. $13,019 39,193 (74) 52,138
Net income ................................... -- 7,044 -- 7,044
Transfers to surplus ......................... 670 (670) -- --
Net increase in equity from acquisition ...... -- 561 -- 561
Adjustment of securities available for sale to
fair value, net of tax .................. -- -- (137) (137)
------- ------- ------- -------
Balance as of March 31, 1996 ................. 13,689 46,128 (211) 59,606
Net income ................................... -- 5,660 -- 5,660
Transfers to surplus ......................... 150 (150) -- --
Adjustment of securities available for sale to
fair value, net of tax .................. -- -- (137) (137)
------- ------- ------- -------
Balance as of March 31, 1997 ................. 13,839 51,638 (348) 65,129
Net income ................................... -- 2,831 -- 2,831
Adjustment of securities available for sale to
fair value, net of tax .................. -- -- 344 344
------- ------- ------- -------
Balance as of March 31, 1998 ................. $13,839 54,469 (4) 68,304
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31, 1998, 1997 and 1996
1998 1997 1996
-------- -------- --------
(In thousands)
Cash flows from operating activities:
Net income .......................................................... $ 2,831 5,660 7,044
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ............................................... 1,359 1,183 1,000
Provision for loan losses .................................. 8,491 3,826 1,090
Deferred tax benefit ....................................... (1,170) (791) (394)
Net securities transactions ................................ (15) (28) (28)
Net gain on sales of loans held for sale ................... (96) (17) (92)
Net loans originated for sale .............................. (11,423) (2,539) (4,632)
Proceeds from sales of loans held for sale ................. 10,317 2,673 6,697
Gain on sale of branch building ............................ (452) -- --
Adjustments of other real estate owned and repossessed
property to fair value ................................. 401 169 336
Net gain on sales of other real estate owned and repossessed
property ............................................... (445) (556) (454)
Decrease (increase) in accrued interest receivable ......... 478 374 (863)
(Increase) decrease in other assets ........................ (1,445) 763 (559)
Increase in other liabilities .............................. 4,733 1,323 1,031
-------- -------- --------
Total adjustments .................................. 10,733 6,380 3,132
-------- -------- --------
Net cash provided by operating activities .......... 13,564 12,040 10,176
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale ................ -- 7,025 3,982
Proceeds from maturities, calls and paydowns of securities
available for sale ................................................ 37,996 21,564 5,024
Purchases of securities available for sale .......................... (34,258) (22,975) (38,998)
Proceeds from sales of investment securities ........................ -- 2,979 --
Proceeds from maturities, calls and paydowns of investment securities 21,890 8,860 10,057
Purchases of investment securities .................................. (8,016) (7,911) (13,165)
Purchase of FHLB of New York stock .................................. (223) (309) --
Redemption of FHLB of New York stock ................................ -- 93 --
Net loans made to customers ......................................... (24,555) (49,875) (13,952)
Proceeds from sales of and payments received on other real estate
owned and repossessed property .................................. 6,419 4,817 3,281
Capital expenditures ................................................ (2,473) (1,799) (1,713)
Proceeds from sale of branch building ............................... 1,200 -- --
Net cash provided by acquisition activity ........................... -- -- 195
-------- -------- --------
Net cash used in investing activities .............. (2,020) (37,531) (45,289)
-------- -------- --------
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31, 1998, 1997 and 1996
(continued)
1998 1997 1996
-------- -------- --------
(In thousands)
Cash flows from financing activities:
Net increase in deposits ............................................ 23,715 9,411 37,181
Net (decrease) increase in short-term borrowings .................... (10,585) 12,585 --
Repayment of UDAG payable ........................................... (835) -- --
Decrease in mortgagors' escrow deposits ............................. (23) (281) (1,767)
-------- -------- --------
Net cash provided by financing activities .......... 12,272 21,715 35,414
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ..................... 23,816 (3,776) 301
Cash and cash equivalents at beginning of year ........................... 10,457 14,233 13,932
-------- -------- --------
Cash and cash equivalents at end of year ................................. $ 34,273 10,457 14,233
======== ======== ========
Supplemental information:
Interest paid ....................................................... $ 25,980 25,305 24,086
======== ======== ========
Taxes paid .......................................................... $ 4,012 4,593 3,981
======== ======== ========
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed property $ 4,460 6,027 3,557
======== ======== ========
Loans transferred from loans held for sale to the loan portfolio .... $ -- -- 239
======== ======== ========
Investment securities transferred to securities available for sale .. $ -- -- 13,775
======== ======== ========
Securities available for sale transferred to investment securities .. $ -- -- 2,000
======== ======== ========
Adjustment of securities available for sale to fair value, net of tax $ 344 (137) (137)
======== ======== ========
Acquisition activity (see note 2):
Non-cash assets acquired ........................................ $ -- -- 4,004
======== ======== ========
Non-cash liabilities assumed .................................... $ -- -- 3,638
======== ======== ========
See accompanying notes to consolidated financial statements.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a)Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of The Hudson City Savings Institution and its
subsidiaries (the "Bank"). All material intercompany accounts
and transactions have been eliminated.
(b)Basis of Presentation
---------------------
The accompanying consolidated financial statements conform, in all
material respects, to generally accepted accounting principles
and to general practice within the banking industry. The Bank
utilizes the accrual method of accounting for financial
reporting purposes.
(c)Use of Estimates
----------------
Management of the Bank has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the
allowance for loan losses and the valuation of other real estate
owned and repossessed property acquired in connection with
foreclosures or in-substance foreclosures. In connection with
the determination of the allowance for loan losses and the
valuation of other real estate owned and repossessed property,
management obtains appraisals for significant properties.
Management believes that the allowance for loan losses is adequate
and that other real estate owned and repossessed property is
recorded at its fair value less an estimate of the costs to sell
the properties. While management uses available information to
recognize losses on loans, other real estate owned and
repossessed property, future additions to the allowance or write
downs of other real estate owned and repossessed property may be
necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance
for loan losses and other real estate owned and repossessed
property. Such agencies may require the Bank to recognize
additions to the allowance or write downs of other real estate
owned and repossessed property based on their judgments about
information available to them at the time of their examination
which may not be currently available to management.
A substantial portion of the Bank's loans are secured by real
estate located in the New York State counties of Columbia,
Albany, Rensselaer, Dutchess, and Schenectady. In addition, a
substantial portion of the other real estate owned and
repossessed property is located in those same markets, as well
as in the states contiguous to New York. Accordingly, the
ultimate collectibility of a substantial portion of the Bank's
loan portfolio and the recovery of a substantial portion of the
carrying amount of other real estate owned and repossessed
property is dependent upon market conditions in these market
areas.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(d)Cash and Cash Equivalents
-------------------------
For purposes of the consolidated statements of cash flows, cash and
cash equivalents consists of cash on hand, due from banks, and
federal funds sold.
(e)Securities Available for Sale, Investment Securities and Federal
----------------------------------------------------------------------
Home Loan Bank of New York Stock
--------------------------------
Management determines the appropriate classification of securities
at the time of purchase. If management has the positive intent
and ability to hold debt securities to maturity, they are stated
at amortized cost. If securities are purchased for the purpose
of selling them in the near term, they are classified as trading
securities and are reported at fair value with unrealized
holding gains and losses reflected in current earnings. All
other debt and marketable equity securities are classified as
securities available for sale and are reported at fair value,
with net unrealized gains or losses reported, net of income
taxes, as a separate component of equity. As a member of the
Federal Home Loan Bank of New York (FHLB), the Bank is required
to hold FHLB stock which is carried at cost since there is no
readily available market value. At March 31, 1998 and 1997, the
Bank did not hold any securities considered to be trading
securities.
Gains or losses on disposition of securities are based on the net
proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method. Unrealized
losses on securities which reflect a decline in value which is
other than temporary are charged to income and reported as a
component of "net securities transactions" in the consolidated
income statements. The carrying amount of securities is adjusted
for amortization of premium and accretion of discount, which is
calculated on an effective interest method.
In November 1995, the staff of the Financial Accounting Standards
Board released its Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities." The Special Report contained, among other
things, a unique provision that allowed entities to, concurrent
with the initial adoption of the Special Report (November 15,
1995) but not later than December 31, 1995, reassess the
appropriateness of the classifications of all securities held at
that time. In conjunction with the provisions of this Special
Report, as of December 31, 1995, the Bank transferred securities
with an amortized cost of $13,775,000 and an estimated fair
value of $14,017,000 from investment securities to securities
available for sale.
(f)Net Loans Receivable
--------------------
Loans are carried at the principal amount outstanding net of
unearned discount, net deferred loan origination fees and costs
and the allowance for loan losses.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Non-performing loans include non-accrual loans, loans which are
contractually past due 90 days or more and still accruing
interest and troubled debt restructurings. Generally, loans are
placed on non-accrual status, either due to the delinquency
status of principal and/or interest payments, or a judgment by
management that, although payments of principal and/or interest
are current, such action is prudent. Loans are generally placed
on non-accrual status when principal and/or interest payments
are contractually past due 90 days or more. When a loan is
placed on non-accrual status, all interest previously accrued
but not collected is reversed against current year interest
income. Interest income on non-accrual loans is recognized only
if received, if considered appropriate by management. Loans are
removed from non-accrual status when they become current as to
principal and interest or when, in the opinion of management,
the loans are expected to be fully collectible as to principal
and interest.
The Bank accounts for fees and costs associated with loan
originations in accordance with Statement of Financial
Accounting Standards (SFAS) No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating and
Acquiring Loans and Initial Direct Costs of Leases."
In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," a loan (generally commercial-type loans) is
considered impaired when it is probable that the borrower will
not make principal and interest payments according to the
original contractual terms of the loan agreement, or when a loan
(of any loan type) is restructured in a troubled debt
restructuring subsequent to the adoption of these Statements.
These Statements prescribe recognition criteria for loan
impairment, generally related to commercial type loans, and
measurement methods for impaired loans. Impaired loans are
included in non-performing loans, generally as non-accrual
commercial-type loans.
The allowance for loan losses related to impaired loans is based on
the discounted cash flows using the loan's initial effective
rate or the fair value of the collateral for certain loans where
repayment of the loan is expected to be provided solely by the
underlying collateral (collateral dependent loans). The Bank's
impaired loans are generally collateral dependent. The Bank
considers estimated costs to sell, on a discounted basis, when
determining the fair value of collateral in the measurement of
impairment if those costs are expected to reduce the cash flows
available to repay or otherwise satisfy the loans.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g)Allowance for Loan Losses
-------------------------
The allowance for loan losses is replenished through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Recoveries on loans
previously charged-off are credited to the allowance for loan
losses. The allowance is an amount that management believes will
be adequate to absorb losses on existing loans that may become
uncollectible. Management's evaluation of the adequacy of the
allowance for loan losses is performed on a periodic basis and
takes into consideration such factors as the historical loan
loss experience, changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect borrowers'
ability to pay.
(h)Loans Held for Sale
-------------------
Loans are classified as held for investment purposes or held for
sale when the Bank enters into interest rate lock agreements
with the potential borrowers. Loans held for sale are recorded
at the lower of aggregate cost or fair value. Gains and losses
on the disposition of loans held for sale are determined on the
specific identification method. Loans held for sale at March 31,
1998 and 1997 was comprised of residental mortgage loans.
(i)Premises and Equipment
----------------------
Premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets (up to fifty years
for buildings and generally five years for furniture and
equipment). Leasehold improvements are depreciated over the
shorter of the term of the related leases or the estimated
useful lives of the assets.
(j)Other Real Estate Owned and Repossessed Property
------------------------------------------------
Other real estate owned, comprised of real estate acquired through
foreclosure and in-substance foreclosures, and repossessed
property are recorded at the lower of "cost" (defined as the
fair value at initial foreclosure) or fair value of the asset
acquired, less estimated costs to dispose of the property. A
loan is categorized as an in-substance foreclosure when the Bank
has taken possession of the collateral, regardless of whether
formal foreclosure proceedings have taken place. At the time of
foreclosure, or when foreclosure occurs in-substance, the
excess, if any, of the loan value over the fair value of the
property received is charged to the allowance for loan losses.
Subsequent declines in the value of such property and net
operating expenses of such properties are charged directly to
other operating expenses. Properties are reappraised, as
considered necessary by management, and written down to the fair
value less the estimated cost to sell the property, if
necessary. Repossessed property consists primarily of
manufactured homes abandoned by their owners or repossessed by
the Bank.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(k)Income Taxes
------------
The Bank accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets are recognized subject to management's
judgment that those assets will more likely than not be
realized. A valuation allowance is recognized if, based on an
analysis of available evidence, management believes that all or
a portion of the deferred tax assets will not be realized.
Adjustments to increase or decrease the valuation allowance are
charged or credited, respectively, to income tax expense.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
(l)Statutory Transfer of Surplus
-----------------------------
A required quarterly transfer of 10% of net income is made to
surplus in accordance with New York State Banking Regulations.
No transfer is required if total equity as a percent of deposits
exceeds 10% at the end of each quarter. In accordance with State
of New York Banking Law, surplus is subject to certain
restrictions, including a prohibition of its use for payment of
dividends, except with the approval of the Superintendent of
Banks.
(m)Financial Instruments
---------------------
In the normal course of business, the Bank is a party to certain
financial instruments with off-balance-sheet risk such as
commitments to extend credit, unused lines of credit and standby
letters of credit. The Bank's policy is to record such
instruments when funded.
(n)Trust Department Assets and Service Fees
----------------------------------------
Assets held by the Bank in a fiduciary or agency capacity for its
customers are not included in the consolidated balance sheets
since these items are not assets of the Bank. Trust service fees
are reported on the accrual basis.
(o)Reclassifications
-----------------
Amounts in the prior years' consolidated financial statements are
reclassified whenever necessary to conform with the current
year's presentation.
(2) Acquisition Activity
--------------------
On December 20, 1995, The Hudson City Savings Institution acquired all of
the assets and assumed all of the liabilities of Valatie Savings and
Loan Association. This transaction was accounted for as a
pooling-of-interests and resulted in an increase in equity of
$561,000. Amounts related to this transaction are not material.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Securities Available for Sale
-----------------------------
The amortized cost and approximate fair value of securities available for
sale at March 31 are as follows:
1998
-----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
------- ------- ------- -------
(In thousands)
U.S. Government and Agency securities $33,261 41 (115) 33,187
Corporate debt securities ........... 8,200 65 (12) 8,253
Mortgage backed securities .......... 1,018 13 -- 1,031
------- ------- ------- -------
Total securities available
for sale ................... $42,479 119 (127) 42,471
======= ======= ======= =======
1997
-----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
------- ------- ------- -------
(In thousands)
U.S. Government and Agency securities $37,933 7 (611) 37,329
Corporate debt securities ........... 8,269 47 (22) 8,294
------- ------- ------- -------
Total securities available
for sale ................... $46,202 54 (633) 45,623
======= ======= ======= =======
At March 31, 1998, mortgage backed securities consisted entirely of
Government National Mortgage Association (GNMA) securities.
The amortized cost and approximate fair value of securities available
for sale at March 31, 1998, by contractual maturity (mortgage backed
securities are included by final contractual maturity), are as
follows (actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without prepayment penalties):
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
U.S. Government and Corporate Debt
Agency Securities Securities
------------------------ ------------------------
Approximate Approximate
Amortized fair Amortized fair
cost value cost value
------- ------- ------- -------
(In thousands)
Within one year ...... $ -- -- 1,000 1,003
One through five years 20,959 20,951 5,269 5,331
Five through ten years 12,302 12,236 -- --
After ten years ...... -- -- 1,931 1,919
------- ------- ------- -------
$33,261 33,187 8,200 8,253
======= ======= ======= =======
Mortgage Backed Total Securities
Securities Available for Sale
------------------------ -----------------------
Approximate Approximate
Amortized fair Amortized fair
cost value cost value
------- ------- ------- -------
(In thousands)
Within one year ...... $ -- -- 1,000 1,003
One through five years -- -- 26,228 26,282
Five through ten years -- -- 12,302 12,236
After ten years ...... 1,018 1,031 2,949 2,950
------ ------ ------ ------
$1,018 1,031 42,479 42,471
====== ====== ====== ======
During the years ended March 31, 1998, 1997 and 1996, the Bank received
$0, $7,025,000 and $3,982,000, respectively, in proceeds from the sale
of securities available for sale, realizing gross gains of $0, $36,000
and $28,000, respectively, and no gross losses. The Bank realized
gross gains of $15,000 and no gross losses during the year ended March
31, 1998, related to calls of securities available for sale.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investment Securities
---------------------
The amortized cost and approximate fair value of investment securities as
of March 31 are as follows:
1998
---------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
-------- ------ ------- ---------
(In thousands)
U.S. Government and Agency securities $18,977 71 (16) 19,032
Corporate debt securities ........... 41,779 285 (7) 42,057
Mortgage backed securities .......... 4,428 59 (104) 4,383
State, county and municipal ......... 10 -- -- 10
------- ------- ------- -------
Total investment securities .... $65,194 415 (127) 65,482
======= ======= ======= =======
1997
---------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
-------- ------ ------- ---------
(In thousands)
U.S. Government and Agency securities $17,960 14 (135) 17,839
Corporate debt securities .......... 57,648 110 (219) 57,539
Mortgage backed securities ......... 3,050 37 (123) 2,964
State, county and municipal ........ 410 1 -- 411
------- ------- ------- -------
Total investment securities ... $79,068 162 (477) 78,753
======= ======= ======= =======
At March 31, 1998 and 1997, mortgage backed securities consisted entirely
of GNMA, Fannie Mae and Freddie Mac securities.
The amortized cost and approximate fair value of investment securities at
March 31, 1998, by contractual maturity (mortgage backed securities
are included by final contractual maturity), are as follows (actual
maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without
prepayment penalties):
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
U.S. Government
and Agency Corporate Debt
Securities Securities
------------------------- -----------------------
Approximate Approximate
Amortized fair Amortized fair
cost value cost value
---- ----- ---- -----
(In thousands)
Within one year ........ $10,990 10,990 23,899 23,970
One through five years . 7,987 8,042 17,880 18,087
Five through ten years . -- -- -- --
After ten years ........ -- -- -- --
------- ------- ------- -------
$18,977 19,032 41,779 42,057
======= ======= ======= =======
Mortgage Backed State, County Total
Securities and Municipal Investment Securities
----------------------- ----------------------- -----------------------
Approximate Approximate Approximate
Amortized fair Amortized fair Amortized fair
cost value cost value cost value
(In thousands)
Within one year ...... $ -- -- -- -- 34,889 34,960
One through five years 269 267 -- -- 26,136 26,396
Five through ten years 2,547 2,543 10 10 2,557 2,553
After ten years ...... 1,612 1,573 -- -- 1,612 1,573
------ ------ ------ ------ ------ ------
$4,428 4,383 10 10 65,194 65,482
====== ====== ====== ====== ====== ======
Investment securities with a carrying value of $5.0 million at both March
31, 1998 and 1997, were pledged to secure public deposits and for
other purposes as required by law.
During the year ended March 31, 1997, the Bank received $2,979,000 in
proceeds from the sale of an investment security, realizing a gross
loss of $8,000. This security was sold due to significant
deterioration in the issuer's creditworthiness. No investment
securities were sold during the years ended March 31, 1998 and 1996.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Net Loans Receivable
--------------------
A summary of net loans receivable as of March 31 is as follows:
1998 1997
--------- ---------
(In thousands)
Loans secured by real estate:
Residential one-to-four-family ..................... $ 242,117 246,462
Home equity ........................................ 27,318 27,630
Commercial ......................................... 76,570 67,697
Construction ....................................... 4,621 2,725
--------- ---------
Total loans secured by real estate ............. 350,626 344,514
--------- ---------
Other loans:
Manufactured housing ............................... 97,426 92,651
Commercial ......................................... 18,484 19,713
Financed insurance premiums ........................ 27,976 23,535
Consumer ........................................... 11,857 11,577
--------- ---------
Total other loans .............................. 155,743 147,476
--------- ---------
Net deferred loan origination costs and unearned discount 609 1,029
Allowance for loan losses ............................... (8,227) (5,872)
--------- ---------
Net loans receivable ........................... $ 498,751 487,147
========= =========
Changes in the allowance for loan losses during the years ended March 31
were as follows:
1998 1997 1996
------- ------- -------
(In thousands)
Allowance for loan losses at beginning of year $ 5,872 3,546 3,187
Provision charged to operations .............. 8,491 3,826 1,090
Loans charged-off ............................ (6,730) (2,070) (1,197)
Recoveries on loans charged-off .............. 594 570 423
Allowance acquired through merger ............ -- -- 43
------- ------- -------
Allowance for loan losses at end of year ..... $ 8,227 5,872 3,546
======= ======= =======
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table sets forth information with regard to non-performing
loans at March 31:
1998 1997 1996
------- ------- -------
(In thousands)
Loans in non-accrual status ............................ $15,707 15,282 8,286
Loans contractually past due 90 days or more and still
accruing interest ................................. 16 4,711 2,600
------- ------- -------
$15,723 19,993 10,886
======= ======= =======
At March 31, 1998, 1997 and 1996, respectively, there were no troubled
debt restructurings. There are no material commitments to extend
further credit to borrowers with non-performing loans.
Accumulated interest on non-accrual loans, as shown above, of
approximately $599,000 and $586,000, was not recognized in interest
income during the years ended March 31, 1998 and 1997, respectively.
Approximately $920,000 and $937,000 of interest on non-accrual loans,
as shown above, was collected and recognized in interest income during
the years ended March 31, 1998 and 1997, respectively. Accumulated
interest on non-accrual loans, as shown above, not recognized in
interest income and collected and recognized in interest income for
the year ended March 31, 1996 was not significant.
At March 31, 1998 and 1997, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $5.3 million and
$5.4 million, respectively, for which the related allowance for loan
losses was $1.0 million and $2.0 million, respectively. As of March
31, 1998 and 1997, there were no impaired loans which did not have an
allowance for loan losses determined in accordance with SFAS No. 114.
The average recorded investment in impaired loans during the years
ended March 31, 1998, 1997 and 1996, was $5.8 million, $1.6 million
and $569,000, respectively. The interest income recognized on those
impaired loans and the interest income recognized on those impaired
loans using the cash basis of income recognition was not significant
for the years ended March 31, 1998, 1997 and 1996.
Certain executive officers of the Bank were customers of and had other
transactions with the Bank in the ordinary course of business. Loans
to these parties were made in the ordinary course of business at the
Bank's normal credit terms, including interest rate and
collateralization. The aggregate of such loans totaled less than 5% of
total equity at March 31, 1998 and 1997.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Accrued Interest Receivable
---------------------------
Accrued interest receivable consists of the following at March 31:
1998 1997
------ ------
(In thousands)
Loans and loans held for sale ................ $3,075 3,115
Securities available for sale ................ 430 664
Investment securities ........................ 897 1,101
------ ------
$4,402 4,880
====== =====
(7) Premises and Equipment
----------------------
A summary of premises and equipment at March 31 is as follows:
1998 1997
-------- --------
(In thousands)
Bank buildings and land .................... $ 15,370 15,224
Furniture and equipment .................... 5,208 4,505
Leasehold improvements ..................... 829 786
-------- --------
21,407 20,515
Less: Accumulated depreciation ............ (6,076) (5,550)
-------- --------
Premises and equipment, net ........... $ 15,331 14,965
======== ========
Depreciation was approximately $1.4 million, $1.2 million and $1.0
million, for the years ended March 31, 1998, 1997 and 1996,
respectively.
(8) Other Real Estate Owned and Repossessed Property
------------------------------------------------
Other real estate owned and repossessed property consisted of the
following at March 31:
1998 1997
------ ------
(In thousands)
Repossessed real estate:
Commercial ............................... $ 299 2,860
Residential .............................. 145 48
Repossessed property ....................... 1,088 539
------ ------
$1,532 3,447
====== ======
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Deposits
--------
Deposit account balances at March 31 are summarized as follows:
1998 1997
-------- --------
(In thousands)
Savings accounts (3.00% to 3.92%) ............... $142,569 136,109
N.O.W. and money market accounts (2.00% to 4.88%) 93,400 92,347
Time deposit accounts:
2.00 to 2.99% ................................. 473 --
3.00 to 3.99% ................................. 820 824
4.00 to 4.99% ................................. 3,356 15,319
5.00 to 5.99% ................................. 264,149 228,732
6.00 to 6.99% ................................. 14,838 27,070
7.00 to 7.99% ................................. 35,663 35,441
-------- --------
Total time deposit accounts ................ 319,299 307,386
-------- --------
Non-interest bearing accounts ................... 33,046 28,757
-------- --------
Total deposits ............................. $588,314 564,599
======== ========
The aggregate amount of time deposit accounts with a balance of $100,000
or greater was $42.1 million and $44.3 million at March 31, 1998 and
1997, respectively.
The approximate amounts of contractual maturities of time deposit
accounts at March 31, 1998 are as follows:
(In thousands)
Years ending March 31,
1999 $ 204,963
2000 85,420
2001 16,542
2002 10,152
2003 1,451
Thereafter 771
---------
$ 319,299
=========
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Interest expense on deposits for the years ended March 31 is summarized
as follows:
1998 1997 1996
-------- -------- ---------
(In thousands)
Time deposit accounts $ 18,085 17,727 16,713
Savings accounts 4,729 4,523 4,275
N.O.W. and money market accounts 2,850 2,831 2,932
Mortgagors' escrow deposits 108 106 124
-------- -------- ---------
$ 25,772 25,187 24,044
======== ======== =========
(10) Urban Development Action Grant Payable
--------------------------------------
Hudson City Center, Inc. (a subsidiary of the Bank) was awarded an
$835,000 "Urban Development Action Grant (UDAG) Equity Participation
in Cash Flow" by the Hudson Development Corporation for the purpose of
constructing an office building in the City of Hudson, New York. This
loan was to be repaid in December 2000. Since January 1991, the Bank
had expensed approximately $25,000 per year under the terms of the
agreement. During September 1997, the loan was satisfied.
(11) Income Taxes
------------
The components of income tax expense for the years ended March 31 are as
follows:
1998 1997 1996
------- ------- -------
(In thousands)
Current tax expense:
Federal ...................... $ 2,759 3,702 3,951
State ........................ 314 696 741
Deferred tax benefit ........... (1,170) (791) (394)
------- ------- -------
$ 1,903 3,607 4,298
======= ======= =======
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a reconciliation of the expected income tax expense and
the actual income tax expense for the years ended March 31. The
expected income tax expense has been computed by applying the
statutory federal tax rate to income before income tax expense:
1998 1997 1996
------- ------- -------
(In thousands)
Income tax at applicable federal statutory rate ......... $ 1,610 3,151 3,856
Increase (decrease) in income tax expense resulting from:
Tax exempt securities income ...................... (10) (14) (82)
State income taxes, net of federal tax benefit .... 207 459 489
Other ............................................. 96 11 35
------- ------- -------
Income tax expense ........................... $ 1,903 3,607 4,298
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31 are presented below:
1998 1997
------- -------
(In thousands)
Deferred tax assets:
Differences in reporting the provision for loan losses and tax bad
debt deduction ............................................... $ 3,045 1,880
Differences in reporting other real estate owned and repossessed
property ..................................................... 237 221
Accrued postretirement benefits .................................. 289 203
Deferred compensation ............................................ 195 136
Other ............................................................ 77 49
------- -------
Total gross deferred tax assets ............................ 3,843 2,489
Less valuation allowance ................................... (141) (141)
------- -------
Net deferred tax assets .................................... 3,702 2,348
------- -------
Deferred tax liabilities:
Differences in reporting depreciation ............................ (250) (60)
Differences in reporting bond discount accretion ................. (222) (184)
Differences in reporting pension costs ........................... (449) (493)
------- -------
Total deferred tax liabilities ............................. (921) (737)
------- -------
Net deferred tax asset at end of year ...................... 2,781 1,611
Net deferred tax asset at beginning of year ................ 1,611 820
------- -------
Deferred tax benefit for the year .......................... $(1,170) (791)
======= =======
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In addition to the deferred tax assets and liabilities described above,
the Bank had a deferred tax asset of $3,000 and $232,000 at March 31,
1998 and 1997, respectively, related to the net unrealized loss on
securities available for sale.
The valuation allowance, as established by the Bank at March 31, 1998
and 1997, takes into consideration the nature and timing of the
deferred tax asset items, as well as the amount of available open tax
carrybacks. The valuation allowance relates to the Bank's New York
State net deferred tax asset, which is a component of deferred tax
assets, due to the lack of carryback and carryforward provisions
available in New York State, as well as uncertainty about the
realization of certain Federal deferred tax items. Based on recent
historical and anticipated future taxable income, management believes
it is more likely than not that the Company will realize its net
deferred tax assets.
As a thrift institution, the Bank is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad
debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss
experience or a percentage of taxable income. Tax bad debt reserves
are maintained equal to the excess of allowable deductions over actual
bad debt losses and other reserve reductions. These reserves consist
of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109 requires
recognition of deferred tax liabilities with respect to such excess
reserves, as well as any portion of the base-year amount which is
expected to become taxable (or "recaptured") in the foreseeable
future.
Certain amendments to the Federal and New York State tax laws regarding
bad debt deductions were enacted in July and August 1996. The Federal
amendments include elimination of the percentage of taxable income
method for tax years beginning after December 31, 1995, and imposition
of a requirement to recapture into taxable income (over a period of
approximately six years) the tax bad debt reserves in excess of the
base-year amounts. The Bank previously established, and will continue
to maintain, a deferred tax liability with respect to such excess
Federal reserves. The New York State amendments redesignate the Bank's
state tax bad debt reserves at December 31, 1995 as the base-year
amount and also provide for future additions to the base-year reserve
using the percentage of taxable income method.
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal base-year reserve of $2.7
million and "supplemental" reserve (as defined) of $10.3 million at
both March 31 1998 and 1997, and the state base-year reserve of $18.3
million at both March 31, 1998 and 1997, since the Bank does not
expect that these amounts will become taxable in the foreseeable
future. Under New York State tax law, as amended, events that would
result in taxation of these reserves include the failure of the Bank
to maintain a specified qualifying assets ratio or meet other thrift
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
definition tests for tax purposes. The unrecognized deferred tax
liability at both March 31, 1998 and 1997 with respect to the Federal
base-year reserve and supplemental reserve was $933,000 and $3.5
million, respectively. The unrecognized deferred tax liability at both
March 31, 1998 and 1997 with respect to the state base-year reserve
was $1.1 million (net of Federal benefit).
(12) Employee Benefit Plans
----------------------
The Bank maintains a non-contributory pension plan with Retirement
Systems Incorporated (RSI) Retirement Trust, covering substantially
all of its employees meeting certain eligibility requirements. The
benefits are computed as a percentage of the highest three year
average annual earnings, as defined by the Plan, multiplied by years
of credited service. The Plan limits credited service for benefit
calculations to a maximum of thirty years. The amounts contributed to
the plan are determined annually on the basis of (a) the maximum
amount that can be deducted for federal income tax purposes or (b) the
amount certified by a consulting actuary as necessary to avoid an
accumulated funding deficiency as defined by the Employee Retirement
Income Security Act of 1974. Contributions are intended to provide not
only for benefits attributed to service to date but also those
expected to be earned in the future. Plan assets consist primarily of
investments in RSI Retirement Trust administered fixed-income and
equity funds.
The following table sets forth the Plan's funded status and amounts
recognized in the Bank's consolidated financial statements at March
31:
1998 1997
-------- --------
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$7,242,000 and $6,477,000 at March 31, 1998 and 1997, respectively $ (7,475) (6,659)
======== ========
Projected benefit obligation .......................................... $ (9,028) (8,183)
Estimated fair value of Plan assets ................................... 10,453 9,272
-------- --------
Plan assets in excess of projected benefit obligation ................. 1,425 1,089
Unrecognized net (gain) loss from past experience different from that
assumed and effects of changes in assumptions ....................... (330) 149
Unrecognized transition asset at January 1, 1988 being recognized over
approximately 12 years .............................................. (17) (71)
Unrecognized past service liability ................................... 55 64
-------- --------
Prepaid pension cost included in other assets .................... $ 1,133 1,231
======== ========
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Net periodic pension cost included in the Bank's consolidated income
statements for the years ended March 31 included the following
components:
1998 1997 1996
------- ------- -------
(In thousands)
Service cost ...................... $ 344 353 327
Interest cost ..................... 619 573 536
Actual return on plan assets ...... (1,376) (753) (1,160)
Net amortization and deferral ..... 600 40 543
------- ------- -------
Net periodic pension cost ..... $ 187 213 246
======= ======= =======
The actuarial assumptions used in determining the actuarial present value
of the projected benefit obligation as of March 31 were as follows:
1998 1997 1996
---- ---- ----
Weighted average discount rate 7.00% 7.75% 7.50%
Rate of increase in future compensation levels 5.00 5.50 5.50
Expected long term rate of return 8.00 8.00 8.00
In addition, the Bank provides a defined benefit postretirement plan
which provides medical and life insurance benefits to substantially
all employees, as well as dental benefits to a closed group of
retirees. The Bank accounts for postretirement benefits other than
pensions in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Under SFAS No. 106, the
cost of postretirement benefits other than pensions must be recognized
on an accrual basis as employees perform services to earn the
benefits.
Active employees are eligible for retiree medical and life insurance
coverage upon reaching age 55 with 10 years of service. The medical
portion of the plan is contributory, with retiree contributions based
on years of service and their retirement date. The Bank's
contributions for employees retiring on or after September 1, 1995 are
limited to 150% of the premium rates in effect at the time of
retirement. The life insurance portion of the plan is
non-contributory, with the preretirement benefit equal to two times
annual earnings. The postretirement life insurance benefit is reduced
based on the retiree's age and the length of time since retirement,
with a maximum retiree benefit of $50,000. Postretirement dental
coverage is in effect for a closed group of retirees. The dental
portion of the plan is non-contributory. The funding policy of the
plan is to pay claims and/or insurance premiums as they come due.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table presents the amounts recognized in the Bank's
consolidated financial statements at March 31:
1998 1997
------- -------
(In thousands)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries ..................... $(1,879) (1,856)
Active employees fully eligible for benefits ............ (207) (190)
Other active plan participants .......................... (677) (533)
------- -------
(2,763) (2,579)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions ...... 164 32
Unrecognized transition obligation at April 1, 1995 being
recognized over 20 years ................................ 2,008 2,126
------- -------
Accrued postretirement benefit cost included in other
liabilities ...................................... $ (591) (421)
======= =======
Net periodic postretirement benefit cost included in the Bank's
consolidated income statements for the years ended March 31 included
the following components:
1998 1997 1996
----- ----- -----
(In thousands)
Service cost ..................................... $ 53 60 47
Interest cost .................................... 200 188 189
Amortization of unrecognized transition obligation 118 118 118
Amortization of unrecognized gain ................ (10) -- --
----- ----- -----
Net periodic postretirement benefit cost ... $ 361 366 354
===== ===== =====
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.00% and 7.75% at March 31, 1998 and 1997,
respectively.
For measurement purposes, a 7.00% annual rate of increase in the per
capita cost of covered health benefits was assumed for medical
coverage starting in 1998; the rate was assumed to decrease uniformly
to 5.00% by 2002 and to remain at that level thereafter. A 3.00%
annual rate of increase in the per capita cost of covered dental
benefits was assumed for dental coverage. The medical and dental care
cost trend rate assumptions have a significant effect on the amounts
reported. To illustrate, increasing the assumed medical and dental
care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of March
31, 1998 by $246,000 and the aggregate of the service and interest
cost for the year ended March 31, 1998 would increase by $21,000.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Bank also sponsors a defined contribution 401(k) plan covering
substantially all employees meeting certain eligibility requirements.
The Bank matches 50% of employee pre-tax contributions up to a maximum
contribution by the Bank of 4% of the employee's annual salary. The
amount of 401(k) contribution expense was $126,000, $117,000 and
$100,000 for the years ended March 31, 1998, 1997 and 1996,
respectively.
(13) Regulatory Capital
------------------
Federal Deposit Insurance Corporation (FDIC) regulations require banks to
maintain a minimum leverage ratio of Tier 1 capital to total adjusted
quarterly average assets of 4.0%, and minimum ratios of Tier 1 capital
and total capital to risk-weighted assets of 4.0% and 8.0%,
respectively.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized bank. Such
actions could have a direct material effect on a bank's financial
statements. The regulations establish a framework for the
classification of banks into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, a bank
is considered well capitalized if it has a Tier 1 capital ratio of at
least 5.0% (based on total adjusted quarterly average assets); a Tier
1 risk-based capital ratio of at least 6.0%; and a total risk-based
capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by the
regulators about capital components, risk weightings, and other
factors.
Management believes that, as of March 31, 1998 and 1997, the Bank met all
capital adequacy requirements to which it was subject. Further, the
most recent FDIC notification categorized the Bank as a well
capitalized institution under the prompt corrective action
regulations. There have been no conditions or events since the
notification that management believes have changed the Bank's capital
classification.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a summary of actual capital amounts and ratios as of
March 31 for the Bank, compared to the requirements for minimum
capital adequacy and for classification as well capitalized:
1998
-------------------------------------------------------------------
Required Ratios
---------------------------------------
Actual Capital
---------------- Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ ----- -------- ----------------
(Dollars in thousands)
Tier 1 (leverage) capital $ 67,741 10.2% 4.0% 5.0%
Risk-based capital:
Tier 1 67,741 14.4 4.0 6.0
Total 73,638 15.7 8.0 10.0
1997
-------------------------------------------------------------------
Required Ratios
---------------------------------------
Actual Capital
---------------- Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ ----- -------- ----------------
(Dollars in thousands)
Tier 1 (leverage) capital $ 65,133 10.1% 4.0% 5.0%
Risk-based capital:
Tier 1 65,133 13.8 4.0 6.0
Total 71,005 15.1 8.0 10.0
(14) Commitments and Contingent Liabilities
--------------------------------------
(a)Off-Balance-Sheet Financing and Concentrations of Credit
--------------------------------------------------------
The Bank is a party to certain financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include the Bank's commitments to extend credit.
Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the
consolidated financial statements. The contract amounts of those
instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the commitments to extend credit is
represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Unless otherwise noted, the Bank does not require collateral or
other security to support financial instruments with credit
risk.
Contract amounts of financial instruments that represent credit risk
as of March 31 at fixed and variable interest rates, are as
follows:
1998
-------------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments outstanding:
Residential mortgages ................. $11,794 2,286 14,080
Residential construction loans ........ -- 402 402
Commercial mortgage loans ............. 2,856 6,450 9,306
Commercial loans ...................... 88 815 903
Home equity loans ..................... 1,011 102 1,113
Manufactured home loans ............... 2,748 -- 2,748
------- ------- -------
18,497 10,055 28,552
------- ------- -------
Unused lines of credit on advanced funds:
Construction loans .................... 220 654 874
Home equity loans ..................... 4,607 6,721 11,328
Commercial lines of credit ............ 976 14,031 15,007
Personal lines of credit .............. 2,374 -- 2,374
------- ------- -------
8,177 21,406 29,583
------- ------- -------
Standby letters of credit ............... -- 3,298 3,298
------- ------- -------
$26,674 34,759 61,433
======= ======= =======
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1997
-------------------------------
Fixed Variable Total
(In thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments outstanding:
Residential mortgages ................. $ 4,541 5,501 10,042
Residential construction loans ........ 285 427 712
Commercial mortgage loans ............. 1,400 1,099 2,499
Commercial loans ...................... 600 160 760
Home equity loans ..................... 808 130 938
Manufactured home loans ............... 3,182 866 4,048
------- ------- -------
10,816 8,183 18,999
------- ------- -------
Unused lines of credit on advanced funds:
Construction loans .................... 753 369 1,122
Home equity loans ..................... 3,844 6,036 9,880
Commercial lines of credit ............ 226 15,356 15,582
Personal lines of credit .............. 1,889 -- 1,889
------- ------- -------
6,712 21,761 28,473
------- ------- -------
Standby letters of credit ............... -- 2,523 2,523
------- ------- -------
$17,528 32,467 49,995
======= ======= =======
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since certain commitments are expected to expire without being
fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral, if any, required by the Bank
upon the extension of credit is based on management's credit
evaluation of the customer.
Commitments to extend credit may be written on a fixed rate basis
exposing the Bank to interest rate risk given the possibility
that market rates may change between commitment and actual
extension of credit.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Standby letters of credit are conditional commitments issued by the
Bank to guarantee payment on behalf of a customer and guarantee
the performance of a customer to a third party. The credit risk
involved in issuing these instruments is essentially the same as
that involved in extending loans to customers. Since a portion
of these instruments will expire unused, the total amounts do
not necessarily represent future cash requirements. Each
customer is evaluated individually for creditworthiness under
the same underwriting standards used for commitments to extend
credit and on-balance sheet instruments. Bank policies governing
loan collateral apply to standby letters of credit at the time
of credit extension.
Certain mortgage loans are written on an adjustable basis and
include interest rate caps which limit annual and lifetime
increases in the interest rates on such loans. Generally,
adjustable rate mortgages have an annual rate increase cap of 2%
and lifetime rate increase cap of 5% to 6%. These caps expose
the Bank to interest rate risk should market rates increase
above these limits. As of March 31, 1998 and 1997, approximately
$185.4 million and $202.2 million, respectively, of mortgage
loans had interest rate caps.
The Bank generally enters into rate lock agreements at the time that
residential mortgage loan applications are taken. These rate
lock agreements fix the interest rate at which the loan, if
ultimately made, will be originated. Such agreements may exist
with borrowers with whom commitments to extend loans have been
made, as well as with individuals who have not yet received a
commitment. The Bank makes its determination of whether or not
to identify a loan as held for sale at the time rate lock
agreements are entered into. Accordingly, the Bank is exposed to
interest rate risk to the extent that a rate lock agreement is
associated with a loan application or a loan commitment which is
intended to be held for sale, as well as with respect to loans
held for sale.
At March 31, 1998 and 1997, the Bank had rate lock agreements
(certain of which relate to loan applications for which no
formal commitment has been made) and conventional mortgage loans
held for sale amounting to approximately $1.4 million and
$300,000, respectively.
In order to reduce the interest rate risk associated with the
portfolio of conventional mortgage loans held for sale, as well
as outstanding loan commitments and uncommitted loan
applications with rate lock agreements which are intended to be
held for sale, the Bank enters into agreements to sell loans in
the secondary market to unrelated investors on a loan by loan
basis. At, March 31, 1998 and 1997, the Bank had commitments to
sell conventional fixed rate mortgage loans amounting to
approximately $1.2 million and $216,000, respectively. The
remaining conventional mortgage loans held for sale, as well as
the outstanding loan commitments and uncommitted loan
applications with rate lock agreements which are intended to be
held for sale, exposed the Bank to interest rate risk.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b)Concentrations of Credit
------------------------
The Bank originates residential loans (including home equity and
construction loans) and commercial-related loans primarily to
customers located in the New York State counties of Columbia,
Albany, Rensselaer, Dutchess and Schenectady. Manufactured home
loans are originated primarily in New York State and in states
contiguous to New York. Financed insurance premiums are
originated primarily in New York, New Jersey and Pennsylvania.
Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their
contracts is dependent upon economic conditions in these areas.
(c)Leases
------
The Bank leases certain of its branches and equipment under various
noncancelable operating leases. The future minimum payments by
year and in the aggregate under all significant noncancelable
operating leases with initial or remaining terms of one year or
more as of March 31, 1998 are as follows:
(In thousands)
Years ending March 31,
1999 $ 225
2000 182
2001 143
2002 115
2003 101
Thereafter 1,094
----------
$ 1,860
==========
(d)Serviced Loans
--------------
The total amount of loans serviced by the Bank for unrelated third
parties was approximately $61.7 million and $67.7 million at
March 31, 1998 and 1997, respectively.
(e)Reserve Requirement
-------------------
The Bank is required to maintain certain reserves of vault cash
and/or deposits with the Federal Reserve Bank. The amount of
this reserve requirement, included in cash and due from banks,
was approximately $388,000 and $3.8 million at March 31, 1998
and 1997, respectively.
(f)Contingent Liabilities
----------------------
In the ordinary course of business there are various legal
proceedings pending against the Bank. Based on consultation with
outside counsel, management considers that the aggregate
exposure, if any, arising from such litigation would not have a
material adverse effect on the Bank's consolidated financial
statements.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Borrowing Arrangements
----------------------
The Bank has two lines of credit, expiring in October 1998, which are
available with the FHLB of New York. The first is an overnight line of
credit for approximately $32.6 million with interest based on existing
market conditions. The second is a one-month overnight repricing line
of credit for approximately $32.6 million with interest based on
existing market conditions. There were no amounts outstanding on these
lines at March 31, 1998. There was approximately $12.6 million
outstanding under the overnight line of credit at March 31, 1997,
which carried an interest rate of 6.88%. There were no amounts
outstanding under the one-month overnight repricing line of credit at
March 31, 1997. At March 31, 1998, the Bank had $2.0 million in
short-term borrowings from the FHLB of New York in the form of an
advance which comes due in August 1998 and carries an interest rate of
5.88%. Borrowings from the FHLB of New York are secured by a blanket
lien on all assets of the Bank, including FHLB stock.
(16) Disclosures About the Fair Value of Financial Instruments
---------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Bank disclose estimated fair values for its
financial instruments. The definition of a financial instrument
includes many of the assets and liabilities recognized in the Bank's
consolidated balance sheets, as well as certain off-balance sheet
items.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Bank's entire
holdings of a particular financial instrument. Because no market
exists for a significant portion of the Bank's financial instruments,
fair value estimates are based on judgments regarding future expected
net cash flows, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in the estimates of fair value under SFAS No. 107.
In addition there are significant intangible assets that SFAS No. 107
does not recognize, such as the value of "core deposits," the Bank's
branch network and other items generally referred to as "goodwill."
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Short-Term Financial Instruments
--------------------------------
The fair value of certain financial instruments is estimated to
approximate their carrying value because the remaining term to
maturity or period to repricing of the financial instrument is less
than 90 days. Such financial instruments include cash and cash
equivalents, accrued interest receivable, short-term borrowings and
accrued interest payable.
Loans Held for Sale
-------------------
The estimated fair value of loans held for sale is based on quoted market
rates or, in the case where a firm commitment has been made to sell
the loan, the firm committed price.
Securities Available for Sale and Investment Securities
-------------------------------------------------------
Securities available for sale and investment securities are financial
instruments which are usually traded in broad markets. Fair values are
generally based upon market prices. If a quoted market price is not
available for a particular security, the fair value is determined by
reference to quoted market prices for securities with similar
characteristics.
Federal Home Loan Bank of New York Stock
----------------------------------------
The estimated fair value of stock in the Federal Home Loan Bank of New
York equals the carrying value since the stock is non-marketable but
redeemable at its par value.
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type including residential
real estate, commercial real estate, other commercial loans and
consumer loans. The estimated fair value of performing loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit
and interest rate risk inherent in the respective loan portfolio.
Estimated fair value for non-performing loans is based on estimated cash
flows discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash
flows and discount rates are judgmentally determined using available
market information and specific borrower information.
Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for
many of these financial instruments, management has no basis to
determine whether the estimated fair value would be indicative of the
value negotiated in an actual sale.
Deposit Liabilities
-------------------
The estimated fair value of deposits with no stated maturity, such as
savings, N.O.W., money market, non-interest bearing accounts and
mortgagors' escrow deposits, is regarded to be the amount payable on
demand. The estimated fair value of time deposit accounts is based on
the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
remaining maturities. The fair value estimates for deposits do not
include the benefit that results from the low-cost funding provided by
the deposit liabilities as compared to the cost of borrowing funds in
the market.
Urban Development Action Grant Payable
--------------------------------------
Based on the terms of the grant agreement and rates currently available
under similar programs, the estimated fair value of the Urban
Development Action Grant payable approximated its carrying value at
March 31, 1997.
The carrying values and estimated fair values of financial assets and
liabilities as of March 31 were as follows:
1998 1997
-------------------------- ------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
(In thousands)
Financial assets:
Cash and cash equivalents ....................... $ 34,273 34,273 10,457 10,457
Loans held for sale ............................. 1,286 1,316 84 84
Securities available for sale ................... 42,471 42,471 45,623 45,623
Investment securities ........................... 65,194 65,482 79,068 78,753
Federal Home Loan Bank of New York stock ........ 3,035 3,035 2,812 2,812
Loans receivable ................................ 506,978 506,615 493,019 492,236
Less: Allowance for loan losses ................. (8,227) -- (5,872) --
--------- --------- --------- ---------
Net loans receivable ....................... $ 498,751 506,615 487,147 492,236
========= ========= ========= =========
Accrued interest receivable ..................... 4,402 4,402 4,880 4,880
Financial liabilities:
Deposits:
Savings, N.O.W., money market, and non-interest
bearing accounts ........................... 269,015 269,015 257,213 257,213
Time deposit accounts ......................... 319,299 321,021 307,386 309,550
Short-term borrowings ........................... 2,000 2,000 12,585 12,585
Urban Development Action Grant payable .......... -- -- 835 835
Mortgagors' escrow deposits ..................... 3,723 3,723 3,746 3,746
Accrued interest payable ........................ 120 120 123 123
Note: Loans held for sale represent the only trading financial
instruments; all other financial instruments are considered to be
held for purposes other than trading.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The fair value of commitments to extend credit, unused lines of credit
and standby letters of credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of
the counterparties. For fixed rate commitments to extend credit and
unused lines of credit, fair value also considers the difference
between current levels of interest rates and the committed rates.
Based upon the estimated fair value of commitments to extend credit,
unused lines of credit and standby letters of credit, there are no
significant unrealized gains or losses associated with these financial
instruments.
(17) Adoption of Plan of Conversion
------------------------------
On November 20, 1997, as amended on February 19, 1998, the Board of
Trustees of the Bank, subject to regulatory approval and approval by
members of the Bank, unanimously adopted a Plan of Conversion (the
Plan) to convert from a New York State chartered mutual savings bank
to a New York State chartered stock savings bank with the concurrent
formation of a holding company. The conversion is expected to be
accomplished through amendment of the Bank charter and the sale of the
holding company's common stock in an amount equal to the pro forma
market value of the Bank after giving effect to the conversion. A
subscription offering of the sale of the holding company's common
stock will be offered initially to the Bank's depositors, then to
other members and trustees, officers and employees of the Bank. Any
shares of the holding company's common stock not sold in the
subscription offering will be offered for sale to the general public
in the Bank's market area.
At the time of conversion, the Bank will establish a liquidation account
in an amount equal to its total equity as of the date of the latest
consolidated balance sheet appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible
depositors who continue to maintain their accounts at the Bank after
the conversion. The liquidation account will be reduced annually to
the extent that eligible depositors have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor 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 Bank may not pay dividends that would reduce
stockholders' equity below the required liquidation account balance.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all
costs will be charged to expense. As of March 31, 1998, approximately
$614,000 of conversion costs had been deferred.
Pursuant to the Plan, the holding company intends to establish a
Charitable Foundation (the Foundation) in connection with the
conversion. The Plan provides that the Bank and the holding company
will create the Foundation immediately following the conversion by
contributing holding company common stock in an amount equal to 3.0%
of the total amount of common stock sold in the conversion. The
Foundation is being formed as a complement to the Bank's existing
community activities and will be dedicated to community activities and
the promotion of charitable causes.
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Foundation will submit a request to the Internal Revenue Service to
be recognized as a tax-exempt organization and will likely be
classified as a private foundation. A contribution of common stock to
the Foundation by the holding company would be tax deductible, subject
to an annual limitation based on 10% of the holding company's annual
taxable income. The holding company, however, would be able to carry
forward any unused portion of the deduction for five years following
the contribution. Upon funding the Foundation, the holding company
will recognize an expense in the full amount of the contribution,
offset in part by the corresponding tax benefit, during the quarter in
which the contribution is made.
In connection with the conversion, the Bank has approved the adoption of
an Employee Stock Ownership Plan (ESOP). It is anticipated that the
ESOP will be initially funded with a loan from the holding company.
The proceeds from this loan are expected to be used by the ESOP to
purchase 8% of the common stock issued in the conversion, including
shares issued to the Foundation.
The Board of Directors
Hudson River Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
333-58615) on Form S-8 of Hudson River Bancorp, Inc. of our report dated June
12, 1998, relating to the consolidated balance sheets of The Hudson City Savings
Institution and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated income statements, statements of changes in equity and cash flows
for each of the years in the three-year period ended March 31, 1998, which
report appears in the March 31, 1998 annual report on Form 10-K of Hudson River
Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Albany, New York
July 29, 1998
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUDSON RIVER BANCORP, INC.
By /s/ Carl A. Florio
------------------
Carl A. Florio, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Carl A. Florio /s/ Earl Schram, Jr.
- ------------------ --------------------
Carl A. Florio, Director, President and Earl Schram, Jr.,
Chief Executive Officer (Principal Chairman of the Board
Executive and Operating Officer)
Date: July 29, 1998 Date: July 29, 1998
/s/ Stanley Bardwell, M.D. /s/ Joseph W. Phelan
- -------------------------- --------------------
Stanley Bardwell, M.D. Joseph W. Phelan, Director
Date: July 29, 1998 Date: July 29, 1998
/s/ Willam E. Collins /s/ William H. Jones
- --------------------- --------------------
William E. Collins William H. Jones
Date: July 29, 1998 Date: July 29, 1998
/s/ John E. Kelly /s/ Marcia M. Race
- ----------------- ------------------
John E. Kelly, Director Marcia M. Race, Director
Date: July 29, 1998 Date: July 29, 1998
/s/ Marilyn A. Herrington /s/ Timothy E. Blow
- ------------------------- -------------------
Marilyn A. Herrington, Director Timothy E. Blow,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: July 29, 1998 Date: July 29, 1998