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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BROOKLINE BANCORP, INC.
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS 6712 (TO BE APPLIED FOR)
(State or other jurisdiction of (Primary standard (I.R.S. Employer
incorporation or organization) industrial classification) identification number)
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160 WASHINGTON STREET
BROOKLINE, MASSACHUSETTS 02147-7612
(617) 730-3500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RICHARD P. CHAPMAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
160 WASHINGTON STREET
BROOKLINE, MASSACHUSETTS 02147-7612
(617) 730-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
ERIC LUSE, ESQ.
ROBERT B. POMERENK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK
5335 WISCONSIN AVENUE, N.W.
SUITE 400
WASHINGTON, D.C. 20015
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [X]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE (1) REGISTRATION FEE
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Common Stock, $.10 par value per share 13,674,650 shares $10.00 $136,746,500 $41,439
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(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
BROOKLINE BANCORP, INC.
Cross Reference Sheet Showing Location in the
Subscription and Community Offering Prospectus
of Information Required by Items of Form S-1
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Registration Statement Item and Caption Prospectus Headings
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1. Forepart of the Registration Statement Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front and
pages of Prospectus Outside Back
Cover Pages
3. Summary Information, Risk Factors and Summary of Reorganization and Offering; Risk
Ratio of Earnings to Fixed Charges Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Reorganization and Offering--
Stock Pricing and the Number of Shares ro be Offered
in the Offering
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Front Cover Page; Summary of Reorganization and
Offering; The Reorganization and Offering--
Subscription Offering; --Community Offering; --Plan
Of Distribution and Selling Commissions
9. Description of Securities to be Description of Capital Stock of the Company;
Registered Restrictions on Acquisition of the Company and the
Bank;
10. Interests of Named Experts and Counsel Not applicable
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<PAGE>
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Registration Statement Item and Caption Prospectus Headings
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11. Information with Respect to the Front Cover Page; Brookline Bancorp, MHC;
Registrant Brookline Bancorp, Inc.; Brookline Savings Bank;
Dividend Policy; Consolidated
Statements of Income; Management's
and Analysis of Financial Condition and Discussion
Results of Operations; Business
of the Company; Business of the Bank; Regulation and
Supervision; Management of the Company;
Management of the Bank; The Reorganization and
Offering; Description of Capital Stock of the Company;
Consolidated Financial Statements
12. Disclosure of Commission Not applicable.
Position on Indemnification
for Securities Act Liabilities
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<PAGE>
PROSPECTUS
BROOKLINE BANCORP, INC.
11,891,000 (Anticipated Maximum) Shares of Common Stock
Brookline Bancorp, Inc. (the "Company" or "Brookline Bancorp"), a
Massachusetts corporation, is offering up to 11,891,000 shares of its common
stock, par value $.01 per share (the "Common Stock"), for a purchase price of
$10.00 per share (the "Purchase Price") in connection with the mutual holding
company reorganization (the "Reorganization") of Brookline Savings Bank (the
"Bank"). The Reorganization will include the formation of a Massachusetts-
chartered stock savings bank (the "Stock Bank") as the successor to the Bank in
its mutual form, and the concurrent formation of the Company as a majority-owned
subsidiary of Brookline Bancorp, MHC (the "Mutual Company"), as described more
specifically below. In certain circumstances, the maximum number of shares sold
hereby may be increased to up to 13,674,650 shares without a resolicitation of
subscribers in the event of an increase by up to 15% in the estimated pro forma
market value of the Company and the Bank. See "The Reorganization and Offering--
Stock Pricing and Number of Shares to be Offered in the Offering."
The shares are being offered pursuant to the Bank's Plan of
Reorganization From a Mutual Savings Bank to a Mutual Holding Company and Stock
Issuance Plan (the "Plan") on a priority basis in a subscription offering (the
"Subscription Offering") to: (i) the Bank's Eligible Account Holders (defined as
holders of deposit accounts totaling $50 or more as of September 30, 1996); (ii)
the Bank's Employee Stock Ownership Plan and Trust (the "ESOP") (for a total of
up to 4% of the shares issued in the Offering, as defined below); (iii) the
Bank's Supplemental Eligible Account Holders (defined as holders of deposit
accounts totaling $50 or more as of December 31, 1997); and (iv) the Bank's
employees, officers and trustees. Subscription rights are non-transferable.
Concurrently, and subject to the prior rights of holders of subscriptions in
categories (i) through (iv) above, the Company is offering the shares of Common
Stock not subscribed for in the Subscription Offering for sale in a direct
community offering to certain members of the general public (the "Community
Offering"). Shares not subscribed for in the Subscription and Community
Offerings may be offered for sale to certain members of the general public in a
syndicated community offering (the "Syndicated Community Offering"). The Company
reserves the right, in its absolute discretion to accept or reject, in whole or
in part, any or all orders in the Community Offering and Syndicated Community
Offering. The Subscription Offering, the Community Offering and the Syndicated
Community Offering are referred to collectively as the "Offering."
Pursuant to the Plan, the Bank will organize the Mutual Company as a
Massachusetts-chartered mutual holding company, which will own at least 51% of
the Common Stock of the Company for so long as the Mutual Company remains in
existence. The Bank will be a wholly-owned subsidiary of the Company. The Bank
is regulated by the Massachusetts Division of Banks (the "Division"). The Mutual
Company and the Company also will be regulated by the Board of Governors of the
Federal Reserve System (the "FRB"). References to the Bank shall include
Brookline Savings Bank in its current mutual form, or its post-Reorganization
stock form as indicated by the context. References to the "Stock Bank" shall
mean Brookline Savings Bank in its post-reorganization stock form.
The shares of Common Stock sold in the Offering will represent a
minority ownership interest equal to 47% of the Common Stock of the Company. The
remaining issued and outstanding shares of Common Stock will be owned by the
Mutual Company. Except for the ESOP, no Eligible Account Holder, Supplemental
Eligible Account Holder, or employee, officer or trustee, in their respective
capacities as such, may purchase in the Subscription Offering more than $300,000
of Common Stock; no person, together with associates and persons acting in
concert with such person, may purchase in the Community Offering and Syndicated
Community Offering more than $300,000 of Common Stock; and no person together
with associates and persons acting in concert with such person may purchase in
the aggregate more than $1.0 million of Common Stock in the Offering; provided
that the Bank may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, increase or
decrease such maximum purchase limitation. The ESOP intends to purchase up to 4%
of the total number of shares sold in the Offering. The minimum purchase is 25
shares of Common Stock. Orders are subject to adjustment as a result of these
and other limitations established pursuant to the Plan, which may be changed
after the date hereof, and in the event of an oversubscription. See "The
Reorganization and Offering."
The shares of Common Stock will be issued at an aggregate purchase
price equal to the estimated pro forma market value of such stock based on an
independent appraisal of the Company and the Bank prepared by Feldman Financial
Advisors, Inc. ("Feldman Financial"), an independent appraisal firm. Feldman
Financial determined that the estimated pro forma market value of the Common
Stock as of November 7, 1997 (the "Independent Valuation") ranged from a minimum
of $187.0 million to a maximum of $253.0 million, with a midpoint of $220.0 (the
"Valuation Range"). The shares of Common Stock being sold in the Offering
represent a minority ownership interest in the outstanding Common Stock of the
Company equal to 47.0% of the estimated pro forma market value of the Common
Stock based on the Independent Valuation. The aggregate Purchase Price of the
Common Stock to be sold in the Offering will range from $87.9 million to $118.9
million (the "Offering Range") at a purchase price of $10.00 per share. The
Independent Valuation will be updated immediately prior to consummation of the
Offering. The maximum of the Valuation Range may be increased at that time by up
to 15% to up to $291.0 million, which would result in a corresponding increase
in the maximum of the Offering Range to up to 13,674,650 shares to reflect
changes in market and financial conditions, without a resolicitation of
subscribers. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Common Stock are less than the minimum or more
than 15% above the maximum of the Offering Range. See "The Reorganization and
Offering--Stock Pricing and Number of Shares to be Offered in the Offering." Any
adjustment of shares will have a corresponding effect on the estimated net
proceeds of the Offering and the pro forma capitalization and per share data of
the Company. See "Use of Proceeds," "Capitalization" and "Pro Forma Data." In
addition to the shares of Common Stock to be sold in the Offering, 53% of the
shares of Common Stock outstanding upon the closing of the Reorganization and
the Offering will be held by the Mutual Company.
The Bank and the Company have engaged Ryan, Beck & Co., Inc., a
registered broker-dealer ("Ryan Beck"), to consult with and advise the Bank in
connection with the sale of Common Stock in the Offering. Ryan Beck has agreed
to use its best efforts to assist the Company and the Bank in the solicitation
of subscription and purchase orders for shares of Common Stock in the Offering.
Ryan Beck is not obligated to take or purchase any shares of Common Stock in the
Offering. See "The Reorganization and Offering--Plan of Distribution and Selling
Commissions."
The Subscription and Community Offerings will terminate at 11:00 a.m.,
Boston Time, on February ___, 1998 (the "Expiration Date"), unless extended by
the Bank and the Company with the approval of the Division and the Federal
Deposit Insurance Corporation ("FDIC"), if necessary. Orders submitted are
irrevocable until completion of the Offering; provided, that, if the Offering is
not completed within 45 days after the close of the Subscription and Community
Offerings, unless such period has been extended with the consent of the Division
and FDIC, if necessary, all subscribers will have their funds returned promptly
with interest, and all authorizations will be canceled. The Reorganization and
Offering must be approved by all applicable regulatory authorities. Moreover,
the Reorganization cannot be completed until 15 days following approval by the
FDIC and FRB of the Bank's merger application and holding company application,
respectively. See "Summary of Reorganization and Offering--Conditions to Closing
of Reorganization and Offering."
Persons interested in purchasing Common Stock must return the
accompanying Order Form, together with full payment for all Common Stock to be
purchased at $10.00 per share, or appropriate instructions authorizing
withdrawals of such an amount from existing deposit accounts at the Bank. An
executed Order Form, once received by the Bank, may not be modified, amended or
rescinded without the consent of the Bank. Purchase orders made by check or
money order will earn interest at the Bank's passbook rate from the date of
receipt until completion or termination of the Offering. Payments authorized by
withdrawal from deposit accounts at the Bank will continue to earn interest at
the contractual rate until the Offering is completed or terminated; these funds
will be otherwise unavailable to the depositor. No early withdrawal penalties
will apply for funds withdrawn from an account at the Bank for the purpose of
purchasing stock. If the Offering is not completed by the Expiration Date, all
funds held will be returned promptly with interest and all withdrawal
authorizations will be canceled. See "The Reorganization and Offering--Procedure
for Purchasing Shares--Payment for Shares."
The Company has received conditional approval to have its Common Stock
listed on the Nasdaq National Market System under the symbol "_______." The
Company has never issued stock to the public or any person and there can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that purchasers will be able to sell their shares at or above the
Purchase Price. Ryan Beck has advised the Company that
<PAGE>
it intends to act as a market maker for the Common Stock following consummation
of the Reorganization and Offering. See "Market for Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
THE BANK'S REORGANIZATION, INCLUDING THE OFFERING, IS CONTINGENT UPON APPROVAL
OF THE PLAN BY ITS CORPORATORS AND THE SALE OF THE MINIMUM NUMBER OF SHARES
OFFERED IN THE OFFERING.
----------------
[RYAN BECK LOGO]
The Date of this Prospectus is January __, 1998.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE MASSACHUSETTS DIVISION OF BANKS, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR BY ANY OTHER FEDERAL AGENCY, OR BY ANY STATE SECURITIES
COMMISSION OR OTHER STATE AGENCY, NOR HAS SUCH COMMISSION, DIVISION,
CORPORATION, OTHER AGENCY, OR ANY STATE SECURITIES COMMISSION OR OTHER STATE
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Estimated
Estimated Underwriting
Minority Commissions and
Subscription Ownership Other Fees and Estimated Net
Price(1) Interest(2) Expenses(3) Proceeds(4)
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Minimum Price Per Share.............. $10.00 N/A $0.25 $9.75
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Midpoint Price Per Share............. $10.00 N/A $0.21 $9.79
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Maximum Price Per Share.............. $10.00 N/A $0.19 $9.81
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Minimum Total........................ $87,890,000 47.0% $2,200,000 $ 85,690,000
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Midpoint Total....................... $103,400,000 47.0% $2,200,000 $101,200,000
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Maximum Total........................ $118,910,000 47.0% $2,200,000 $116,710,000
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Adjusted Maximum Total(5)............ $136,746,500 47.0% $2,200,000 $134,546,500
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(1) Determined in accordance with an independent appraisal prepared by Feldman
Financial Advisors, Inc. ("Feldman Financial") dated as of November 7,
1997, which states that the estimated pro forma market value of the Common
Stock ranged from $187,000,000 to $253,000,000 with a midpoint of
$220,000,000 (the "Valuation Range"). The independent appraisal of Feldman
Financial is based upon estimates and projections that are subject to
change, and the valuation must not be construed as a recommendation as to
the advisability of purchasing the Common Stock nor an assurance that a
purchaser of Common Stock will thereafter be able to sell the Common Stock
at prices within the Valuation Range. Based on the Valuation Range, the
Board of Directors of the Company and the Board of Trustees of the Bank
established an estimated price range for the 47% of the Common Stock of the
Company being offered for sale in the Offering within a range of $87.9
million to $118.9 million (the "Offering Range") or between 8,789,000 and
11,891,000 shares of Common Stock issued at the $10.00 per share price (the
"Purchase Price") to be paid for each share of Common Stock subscribed for
or purchased in the Offering. See "The Reorganization and Offering--Stock
Pricing and Number of Shares to be Offered in the Offering."
(2) The Company will issue to the Mutual Company 53% of the shares of Common
Stock that will be outstanding at the conclusion of the Reorganization and
Offering; 47% of the Company's to-be outstanding shares will be sold in the
Offering.
(3) Consists of the estimated costs to the Bank and the Company arising from
the Reorganization and Offering, including estimated expenses of
approximately $1.2 million, and marketing fees to be paid to Ryan Beck of
$1.0 million. See "The Reorganization and Offering--Plan of Distribution
and Selling Commissions." The actual fees and expenses may vary from the
estimates. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.
(4) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold and other factors. Includes the purchase of
shares of Common Stock by the Brookline Savings Bank Employee Stock
Ownership Plan and related trust (the "ESOP") which is intended to be
funded by a loan to the ESOP from the Company or from a third party, which
will be deducted from the Company's stockholders' equity. See "Use of
Proceeds" and "Pro Forma Data."
(5) As adjusted to reflect an increase in the Independent Valuation of up to
15% immediately prior to the completion of the Offering and the sale of up
to an additional 15% of the Common Stock which may be offered at the
Purchase Price, without resolicitation of subscribers or any right of
cancellation, due to regulatory considerations or changes in market and
financial conditions, or to fill in whole or in part, the subscription
order of the ESOP. See "Pro Forma Data" and "The Reorganization and
Offering--Stock Pricing and Number of Shares to be Offered in the
Offering." For a discussion of the distribution and allocation of the
additional shares, if any, see "The Reorganization and
Offering--Subscription Offering, " "--Community Offering" and
"--Limitations upon Purchases of Common Stock."
<PAGE>
[MAP]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND, THE MASSACHUSETTS DEPOSITORS INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT GUARANTEED BY THE COMPANY OR
THE BANK. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL INVESTED.
3
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SUMMARY OF REORGANIZATION AND OFFERING
The following summary does not purport to be complete, and is qualified
in its entirety by more detailed information and the Consolidated Financial
Statements of the Bank and Notes thereto appearing elsewhere in this Prospectus.
The Bank: Brookline Savings Bank (the "Bank") is a Massachusetts-
chartered, FDIC-insured mutual savings bank
headquartered in Brookline, Massachusetts. The Bank
emphasizes the origination of multi-family and
commercial real estate mortgage loans which constituted
71.6% of gross loans at August 31, 1997. The Bank also
offers traditional deposit and single-family mortgage
loan products and, to a lesser extent, construction and
development mortgage loans, home equity loans and other
consumer loans. The Bank also participates in short-term
commercial loans to national companies and organizations
that are originated and serviced primarily by money
center banks. As of August 31, 1997, the Bank operated
five full-service offices in the Town of Brookline, an
urban and suburban community adjacent to the City of
Boston. At August 31, 1997, the Bank had total assets of
$680.3 million, total deposits of $481.5 million and
retained earnings of $125.4 million. The Bank's
principal executive office is located at 160 Washington
Street, Brookline, Massachusetts 02147, and its
telephone number at that address is (617) 730-3500. See
"Brookline Savings Bank."
The Company: Brookline Bancorp, Inc. (the "Company") is a
Massachusetts corporation organized at the direction of
the Bank to become a bank holding company and own 100%
of the Bank's capital stock to be issued upon completion
of the Reorganization. To date, the Company has not
engaged in any business. Upon completion of the
Reorganization and Offering, the only significant assets
of the Company will be the capital stock of the Bank, a
loan which is expected to be made by the Company to the
Bank's ESOP to finance the purchase of up to 4% of the
Common Stock issued in the Offering, and up to 50% of
the net proceeds of the Offering which will be retained
by the Company. The remaining net proceeds will be
contributed to the Bank. The net proceeds will be used
by the Company for general business purposes, including
a loan to the ESOP. Initially, the net proceeds are
expected to be invested by the Company primarily in
short-and medium-term fixed-income securities. The
Company's offices are located at 160 Washington Street,
Brookline, Massachusetts 02147, and its telephone number
is (617) 730-3500. See "Brookline Bancorp, Inc.," "Use
of Proceeds" and "The Reorganization and
Offering--General."
The Mutual Company: Brookline Bancorp, MHC (the "Mutual Company") is the
proposed parent mutual holding company of the Company,
and will own 53% of the Common Stock of the Company upon
completion of the Offering. It is expected that the
Mutual Company will not engage in any business activity
other than to hold a majority of the Common Stock of the
Company and to invest any funds held by the Mutual
Company. See "Brookline Bancorp, MHC." The Mutual
Company's offices will be located at 160 Washington
Street, Brookline, Massachusetts 02147, and its
telephone number at that address will be (617) 730-3500.
The Plan: On October 8, 1997, the Board of Trustees of the Bank
unanimously adopted the Plan of Reorganization from a
Mutual Savings Bank to a Mutual Company and Stock
Issuance Plan. Pursuant to the Plan, the Bank will
organize: (i) the Stock Bank as a
Massachusetts-chartered stock savings bank and the
successor to the Bank in its current mutual form; (ii)
the Company as a Massachusetts corporation
4
<PAGE>
which will own 100% of the stock of the Stock Bank; and
(iii) the Mutual Company as a Massachusetts-chartered
mutual holding company which will own at least 51% of
the Common Stock of the Company so long as the Mutual
Company remains in existence. The Stock Bank will
succeed to the business and operations of the Bank in
its mutual form and the Company will issue up to 47% of
its Common Stock in the Offering. The Plan must be
approved by the affirmative vote of the majority of the
Bank's corporators as well as a majority of the Bank's
"independent corporators" who must constitute at least
60% of all corporators. The Plan authorizes the Company
to offer Common Stock in one or more stock offerings up
to a maximum of 49% of the issued and outstanding shares
of the Company's voting stock. The Bank has the right,
in its sole discretion, to interpret the Plan and
determine whether prospective purchasers qualify to
purchase stock under the Plan. See "The Reorganization
and Offering--The Reorganization."
The Minority Ownership The Company will issue to the Mutual Company at least
Interest: 51% of the shares of Common Stock that will be
outstanding at the conclusion of the Reorganization and
Offering. The shares of Common Stock that will be sold
in the Offering will constitute no more than 47% of the
shares that will be outstanding after the Offering (the
"Minority Ownership Interest").
Terms of the Offering: The shares of Common Stock are being offered for sale at
a fixed price of $10.00 per share in the Subscription
Offering pursuant to subscription rights in the
following order of priority to: (i) holders of deposit
accounts in the Bank with a balance of $50 or more on
September 30, 1996 ("Eligible Account Holders"); (ii)
the Bank's ESOP; (iii) holders of deposit accounts in
the Bank with a balance of $50 or more on December 31,
1997 ("Supplemental Eligible Account Holders"); and (iv)
employees, officers and trustees of the Bank.
Concurrently, and subject to the prior rights of holders
of subscription rights, any shares of Common Stock not
subscribed for in the Subscription Offering are being
offered in the Community Offering at $10.00 per share to
certain members of the general public with a preference
given to residents of the Bank's Community (as herein
defined). All shares of Common Stock not purchased in
the Subscription Offering and the Community Offering, if
any, may be offered for sale to the general public at
$10.00 per share in a Syndicated Community Offering
through a syndicate of registered broker-dealers (which
may include Ryan Beck) to be formed and managed by Ryan
Beck acting as agent of the Company to assist the
Company and the Bank in the sale of the Common Stock.
The Syndicated Community Offering, if any, would occur
as soon as practicable following the close of the
Subscription Offering and the Community Offering. The
Company and the Bank reserve the absolute right to
reject orders, in whole or part, in their sole
discretion, in the Community Offering and Syndicated
Community Offering. Subscription rights will expire if
not exercised by 11:00 a.m., Boston time, on February
___, 1998 unless extended by the Bank and the Company.
See "The Reorganization and Offering--Subscription
Offering" and "--Community Offering."
Purchase Price and Federal and state regulations require that the aggregate
Independent Valuation: purchase price of the Common Stock offered in the
Offering must be based on the appraised pro forma market
value of the Common Stock, as determined by an
independent valuation. The Bank has retained Feldman
Financial to make such valuation. The Independent
Valuation states that as of November 7, 1997, the
estimated pro forma market value of the Common Stock
ranged from $187,000,000 to $253,000,000, with a
midpoint of $220,000,000 (the "Valuation Range"). Based
5
<PAGE>
on the Valuation Range and the Purchase Price, the total
number of shares of Common Stock that the Company will
issue will range from 18,700,000 shares to 25,300,000,
with a midpoint of 22,000,000 shares. The Bank's Board
of Trustees has determined to offer 47% of such shares
in the Offering, or between 8,789,000 shares and
11,891,000 shares with a midpoint of 10,340,000 shares
(the "Offering Range"). The 53% of the outstanding
shares of Common Stock that are not sold in the Offering
will be issued to the Mutual Company.
Following commencement of the Subscription Offering, the
maximum of the Valuation Range may be increased by up to
15% to up to $290,950,000, which would result in a
corresponding increase in the maximum of the Offering
Range to up to 13,674,650 shares, due to regulatory
considerations or to reflect changes in market and
financial conditions, without a resolicitation of
subscribers. In the event the number of shares offered
in the Offering is increased above the maximum of the
Offering Range, the ESOP will have a priority right to
purchase any such shares exceeding the maximum of the
Offering Range to fill its subscription order. The
minimum of the Valuation Range and the minimum of the
Offering Range may not be decreased without a
resolicitation of subscribers. See "The Reorganization
and Offering--Limitations upon Purchases of Common
Stock" as to the method of distribution and allocation
of additional shares that may be issued in the event of
an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings. The
Independent Valuation, however, is not intended, and
must not be construed, as a recommendation of any kind
as to the advisability of purchasing such shares.
Because such valuation is necessarily based upon
estimates and projections of a number of matters, all of
which are subject to change from time to time, no
assurance can be given that persons purchasing such
shares in the Offering will thereafter be able to sell
such shares at prices at or above the Purchase Price.
Marketing Agent: The Bank and the Company have engaged Ryan Beck, a
registered broker-dealer, to consult with and advise the
Bank in connection with the sale of Common Stock in the
Offering. Ryan Beck has agreed to use its best efforts
to assist the Bank and the Company in soliciting
subscriptions and purchase orders in the Offering. The
Bank and the Company will pay to Ryan Beck a fee of $1.0
million for its services payable upon the closing of the
Offering. See "The Reorganization and Offering--Plan of
Distribution and Selling Commissions." Neither Ryan Beck
nor any registered broker-dealer shall have any
obligations to take or purchase any shares of the Common
Stock in the Offering.
Exercise of Order forms to subscribe for shares of Common Stock
Subscription Rights: offered in the Subscription Offering and the Community
Offering will be accompanied by a Prospectus. Any person
receiving a stock order and certification form who
desires to subscribe for shares must do so prior to the
Expiration Date by delivering to the Bank a properly
executed stock order and certification form together
with full payment. Once tendered, subscription orders
cannot be revoked or modified without the consent of the
Bank. See "The Reorganization and Offering--Procedure
for Purchasing Shares."
Prospectus Delivery To ensure that each purchaser receives a Prospectus at
and Procedure for least 48 hours prior to the Expiration Date in
Delivering Shares: accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no
Prospectus will be mailed any later than five days prior
to the Expiration Date or hand-delivered any later than
6
<PAGE>
two days prior to such date. Stock order forms will only
be distributed with a Prospectus. The Bank is not
obligated to accept for processing orders not submitted
on an original stock order form. Payment by check, money
order or debit authorization to an existing account at
the Bank must accompany the stock order form. No wire
transfers will be accepted. See "The Reorganization and
Offering--Procedure for Purchasing Shares."
Restrictions on No person may transfer or enter into any agreement or
Transfer of understanding to transfer the legal or beneficial
Subscription Rights: ownership of the subscription rights issued under the
Plan or the shares of Common Stock to be issued upon
their exercise. All depositors who submit Order Forms
will be required to certify that the purchase of Common
Stock by such depositor is solely for the purchaser's
own account and there is no agreement or understanding
regarding the sale or transfer of such shares. The Bank
will pursue any and all legal and equitable remedies in
the event it becomes aware of the transfer of
subscription rights and will not honor orders believed
by the Bank to involve the transfer of subscription
rights. Following the Offering, there generally will be
no restrictions on the transfer or sale of shares by
purchasers other than affiliates of the Company and the
Bank. See "The Reorganization and Offering--Restrictions
on Agreements or Understandings Regarding Transfer of
Common Stock to be Purchased in the Offering."
Purchase Limitations: No Eligible Account Holder, Supplemental Eligible
Account Holder or employee, officer or trustee, in their
respective capacities as such, may purchase in the
Subscription Offering more than $300,000 of Common
Stock; no person, together with associates or persons
acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community Offering
more than $300,000 of Common Stock; no person, together
with associates or persons acting in concert with such
person, may purchase in the aggregate more than $1.0
million of the Common Stock in the Offering; provided
that the Bank may, in its sole discretion and without
notice to or solicitation of subscribers or other
prospective purchasers, increase or decrease such
maximum purchase limitations. The ESOP, however, may
purchase up to 10% of the Common Stock issued in the
Offering and the ESOP intends to purchase 4% of the
Common Stock issued in the Offering. The minimum
purchase is 25 shares of Common Stock.
At any time during the Offering and without approval of
the Bank's corporators or a resolicitation of
subscribers, the Bank and the Company may, in their sole
discretion, decrease the maximum purchase limitation
below $300,000 of Common Stock, or increase the maximum
purchase limitation to a maximum of 5% of the shares to
be issued in the Offering. Similarly, the $1.0 million
overall maximum purchase limitation may be increased to
up to 5% of total shares of Common Stock offered in the
Offering. Prior to consummation of the Offering, if the
maximum purchase limitation is increased, subscribers
for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Bank and
Company may be, given the opportunity to increase their
subscriptions up to the then applicable limits.
Dividend Policy: The Company intends to pay an initial annual cash
dividend of [$____] per share on the Common Stock, to be
paid on a quarterly basis. The first dividend is
expected to be declared and paid following the first
full quarter after completion of the Offering. There can
be no assurance, however, that dividends will be paid
or, if paid, what the amount of the dividends will be,
or whether such dividends, once paid, will continue to
be paid. The Mutual Company may, from time to
7
<PAGE>
time, waive the receipt of dividends declared and paid
by the Company, subject to regulatory approval. There
can be no assurance that the Mutual Company will waive
the receipt of dividends, or that any dividend waiver
would be approved by applicable banking regulators. Any
waiver of dividends by the Mutual Company, if permitted
by regulatory authorities, is likely to (i) be subject
to various conditions, and (ii) result in a reduction of
the Minority Ownership Interest in the event of a
conversion of the Mutual Company to stock form (a
"Conversion Transaction") to reflect the benefit of any
waived dividends to the stockholders of the Company
other than the Mutual Company (the "Minority
Stockholders"). Such an adjustment would have the effect
of diluting the aggregate voting interest of the
Minority Stockholders in the Company immediately
following a Conversion Transaction. Moreover, in the
event of a Conversion Transaction, any dividends
received by the Mutual Company, as well as any other
assets of the Mutual Company (other than Common Stock in
the Company), will be credited to the Mutual Company in
determining the number of shares of Company Common Stock
that will be offered for sale in a Conversion
Transaction and the amount of any voting dilution of the
Minority Ownership Interest. See "Dividend Policy" and
"Risk Factors--Conversion of Mutual Company to Stock
Form."
Offering Expiration The Offering will terminate at 11:00 a.m., Boston Time,
Date: on February __, 1998 (the "Expiration Date"), unless
extended by the Bank and the Company with the approval
of the Division and FDIC, if necessary. Orders submitted
are irrevocable until completion of the Offering;
provided, that, if the Offering is not completed within
45 days after the close of the Subscription and
Community Offerings, unless such period has been
extended with the consent of the Division and the FDIC,
if necessary, all subscribers will have their funds
returned promptly with interest, and all authorizations
will be canceled. The Company and the Bank are not
required to give prospective purchasers notice of any
extension unless the Expiration Date is later than
___________, in which event prospective purchasers will
be given the right to increase, decrease, confirm or
rescind their orders. See "The Reorganization and Stock
Offering--Procedure for Purchasing Shares."
Conditions to Closing The Reorganization and Offering will not be consummated
of Reorganization until the following conditions are satisfied: (i) the
and Offering: Bank's corporators approve the Plan; (ii) the Bank
receives favorable rulings or opinions of counsel with
respect to the federal and Massachusetts tax
consequences of the Reorganization and Offering; (iii)
the FDIC issues a notice of non-objection to the
Reorganization and Offering, approves the merger portion
of the Reorganization under the Bank Merger Act, and
approves deposit insurance for the Stock Bank and the de
novo savings bank (the "De Novo") to be organized to
effect the Reorganization; (iv) the Division authorizes
the Reorganization and Offering and the Massachusetts
Board of Bank Incorporation ("BBI") approves the charter
of the Stock Bank and the De Novo organized to
facilitate the Reorganization; and (v) the FRB approves
applications by the Mutual Company and the Company under
the Bank Holding Company Act to acquire direct or
indirect control of the Bank. There can be no assurances
that the required approvals will be obtained. Moreover,
the Reorganization and Offering cannot be completed
until 15 days following approval by the FDIC and FRB of
the merger application and holding company applications,
respectively.
Accordingly, the Reorganization and Offering are
unlikely to be completed prior to __________, 1998.
Approvals, nonobjections, and authorizations by the
8
<PAGE>
FDIC, the FRB, the Division or the BBI do not constitute
recommendations or endorsements of the Reorganization by
such entities.
Reasons for the The primary purpose of the Reorganization is to
Reorganization: establish a stock holding company and to convert the
Bank to the stock form of ownership, which will enable
the Bank to compete and expand more effectively in the
financial services marketplace. The Reorganization will
permit the Company to issue capital stock, which is a
source of capital not available to mutual savings banks,
and will enable depositors, employees, management and
trustees to obtain an equity ownership interest in the
Bank. Since the Company will not be offering all of its
Common Stock for sale to depositors and the public in
the Offering, the Reorganization will result in less
capital raised in comparison to a standard
mutual-to-stock conversion. The Reorganization, however,
also will allow the Company and the Bank to raise
additional capital in the future since a majority of the
Company's Common Stock will be available for sale in the
event of a conversion of the Mutual Company to stock
form. The Reorganization also will provide the Bank with
greater flexibility to structure and finance the
expansion of its operations, including the potential
acquisition of other financial institutions, and to
diversify into other financial services, to the extent
permissible by applicable law and regulation. See "The
Reorganization and Offering--Reasons for the
Reorganization."
Use of Proceeds: Net proceeds from the sale of the Common Stock are
estimated to be between $85.7 million and $134.5
million, depending on the number of shares of Common
Stock sold and the expenses of the Offering. Up to 50%
of the net proceeds of the Offering will be retained by
the Company and used for general business purposes,
including a loan by the Company directly to the ESOP to
enable the ESOP to purchase up to 4% of the Common Stock
issued in the Offering. The remaining net proceeds
retained by the Company will be invested initially in
short- and medium-term fixed-income securities. To the
extent shares are unavailable to satisfy the ESOP's
subscription for 4% of the Common Stock issued, the ESOP
may purchase authorized but unissued shares of Common
Stock or purchase Common Stock in open market
transactions subsequent to the Offering. Net proceeds
from the Offering will be used by the Bank for general
corporate purposes, including origination of loans and
purchase of investments in the ordinary course of
business. Initially, the net proceeds are expected to be
invested primarily in short- and medium-term debt and
equity securities. The Bank also may use the proceeds
for the expansion of its facilities and to support the
acquisition of other financial services businesses, or
diversification into other related businesses or other
corporate purposes. The Bank has no arrangements or
understandings regarding acquisitions or diversification
into other related businesses at this time. See "Use of
Proceeds."
Management Purchases: Trustees, executive officers and associates intend to
subscribe for _______ shares of Common Stock, or ___% of
the 8,789,000 shares sold at the minimum of the Offering
Range and ____% of the 11,891,000 shares sold at the
maximum of the Offering Range. There is no assurance,
however, that such persons will not purchase more or
less than such number of shares or that there will be
sufficient shares available to fill such subscriptions.
Such persons will pay $10.00 per share for such shares.
In addition, the Mutual Company will control the voting
of at least 51% of the total outstanding Common Stock of
the Company, and the Bank's current trustees will
control the Mutual Company. See "Shares to be Purchased
by Management."
9
<PAGE>
Potential Management Among the benefits to the Bank and the Company
Benefits: anticipated from the Reorganization and Offering is the
ability to attract and retain personnel through the use
of stock options and other stock-based benefit programs.
Subsequent to the Offering, the Company intends to adopt
Stock Plans (as defined herein) and Stock Option Plans
(as defined herein) for the benefit of directors,
officers and employees of the Bank and the Company. Such
plans will be subject to stockholders' approval at a
meeting of stockholders which may not be held earlier
than six months after the Offering. The Company intends
to adopt the Stock Plans which would provide for the
granting of Common Stock to officers, directors and
employees of the Bank and the Company in an amount equal
to at least 4% of the Common Stock issued in the
Offering. The Stock Option Plans that the Company
intends to adopt would provide the Company with the
ability to grant options to purchase Common Stock to
officers, directors and employees of the Bank and the
Company in an amount equal to 10% of the number of
shares of Common Stock issued in the Offering. For a
further description of the Stock Plans and Stock Option
Plans, see "Risk Factors--Stock-Based Benefits to
Management, Employment Contracts and Change in Control
Payments" and "Management of the Stock
Bank--Compensation of Officers and Trustees through
Benefit Plans."
Market for Common The Company was recently formed and has never issued
Stock: capital stock, and, as a mutual institution, the Bank
has never issued capital stock. Consequently, there is
no existing market for the Common Stock. The Company has
received conditional approval to have the Common Stock
quoted on the Nasdaq National Market System under the
symbol "____" subject to the completion of the Offering
and compliance with certain conditions, including the
presence of at least three registered and active market
members. Although under no obligation to do so, Ryan
Beck has indicated its intention to act as a market
maker for the Common Stock following consummation of the
Offering. No assurance can be given that the Common
Stock will be quoted on the Nasdaq National Market
System or that an established and liquid trading market
for the Common Stock will develop. In addition, there
can be no assurances that purchasers will be able to
sell their shares at or above the Purchase Price after
the Offering. See "Market for Common Stock."
Conversion of Mutual The Reorganization does not preclude the conversion of
Company to Stock Form: the Mutual Company to the stock form of organization. A
Conversion Transaction would be effected through a
merger of the Mutual Company into the Company or the
Bank concurrently with the sale of the shares of Common
Stock held by the Mutual Company in a subscription
offering to qualifying depositors and others. The
Division has not yet adopted regulations governing the
conversion of Massachusetts-chartered mutual holding
companies to stock form. Accordingly, there can be no
assurance that the Mutual Company will convert to stock
form or of the conditions that the Division would impose
on a Conversion Transaction by the Mutual Company.
However, the Plan provides that any Conversion
Transaction shall be fair and equitable to Minority
Stockholders and establishes a formula for readjusting
the Minority Ownership Interest (if required by
applicable banking regulators) in the event the Mutual
Company has significant assets (other than Common Stock
of the Company) or the Mutual Company waives the receipt
of dividends declared by the Company. Neither the Bank
nor the Company has any plan to undertake a Conversion
Transaction. If a Conversion Transaction does not occur,
the Mutual Company will continue to own at least 51% of
the outstanding Common Stock and purchasers of the
10
<PAGE>
Common Stock in the Offering will remain Minority
Stockholders. See "Risk Factors--Conversion of Mutual
Company to Stock Form."
No Board of Trustees' The Bank's Board of Trustees and the Company's Board of
Recommendation: Directors are not making any recommendations to
depositors or other potential investors regarding
whether such persons should purchase Common Stock. An
investment in the Common Stock must be evaluated by each
investor.
Stock Information Any questions regarding the Reorganization and Offering
Center: should be directed to the Stock Information Center at
(617) ___-____.
Risk Factors: The purchase of the Common Stock involves a substantial
degree of risk. Prospective investors should carefully
consider the matters set forth under "Risk Factors." THE
SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY
AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK.
11
<PAGE>
DESCRIPTION OF REORGANIZATION
Pursuant to the Plan, the Bank will reorganize into a two-tier mutual
holding company structure. The two-tier mutual holding company will be
structured as follows and will consist of: (i) a Massachusetts mutual holding
company (the Mutual Company); (ii) a Massachusetts stock holding company (the
Company) that will issue and sell 47% of its Common Stock in the Offering, with
the remaining 53% of its Common Stock owned by the Mutual Company; and (iii) a
Massachusetts-chartered stock savings bank (the Stock Bank), which will be the
successor to the Bank in its current mutual form and which will be wholly-owned
by the Company.
----------------------- ------------------------
The Mutual Public
Company Stockholders
----------------------- ------------------------
53% of the 47% of the
Common Common
Stock Stock
---------------------------------------------------------
The Company
---------------------------------------------------------
100% of the
Common Stock
---------------------------------------------------------
The Stock Bank
---------------------------------------------------------
The Reorganization will structure the Bank in the stock form of
ownership, which is the corporate form used by commercial banks, most major
businesses and a large number of savings institutions. The primary purpose of
the Reorganization is to establish a holding company and to convert the Bank to
the stock form of ownership in order to compete and expand more effectively in
the financial services marketplace. The Reorganization also will enable
employees, management and trustees to have an equity ownership interest in the
Bank, which management believes will enhance long-term growth and performance of
the Bank and the Company by enabling the Bank to attract and retain qualified
employees who have a more direct interest in the financial success of the Bank.
The Reorganization will permit the Company to issue capital stock, which is a
source of capital not available to mutual savings banks. Since the Company will
not be offering all of its Common Stock for sale to depositors and the public in
the Offering, the Reorganization will result in less capital raised in
comparison to a standard mutual-to-stock conversion. The Reorganization,
however, also will allow the Bank to raise additional capital in the future
because a majority of the Company's Common Stock will be available for sale in
the event of a conversion of the Mutual Company to stock form. The
Reorganization also will provide the Bank with greater flexibility to structure
and finance the expansion of its operations, both directly and through the
Company, including the potential acquisition of other financial institutions,
and to diversify into other financial services, to the extent permissible by
applicable law and regulation. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Reorganization, subject to regulatory limitations and
the Company's financial position, to take advantage of any such opportunities
that may arise. Lastly, the Reorganization will enable the Bank to better manage
its capital by providing broader investment opportunities through the holding
company structure and by enabling the Company to repurchase its common stock as
market conditions permit. Although the Reorganization and Offering will create a
stock savings bank and stock holding company, only a minority of the Common
Stock will be offered for sale in the Offering. As a result, the Bank's mutual
form of ownership and its ability to provide community-oriented financial
services will be preserved through the mutual holding company structure.
12
<PAGE>
The Board of Trustees believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Company to
obtain majority ownership of the Company and the Bank, which may result in the
perpetuation of the management and Board of Directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Company that may be adopted from time-to-time may have an
adverse impact on Minority Stockholders. A majority of the voting stock of the
Company will be owned by the Mutual Company, which is a mutual institution that
will be controlled by the existing Board of Trustees of the Bank. While this
structure will permit management to focus on the Company's and the Bank's
long-term business strategy for growth and capital redeployment without undue
pressure from stockholders, it will also serve to perpetuate the existing
management and trustees of the Bank. The Mutual Company will be able to elect
all members of the Board of Directors of the Company, and will be able to
control the outcome of all matters presented to the stockholders of the Company
for resolution by vote except for certain matters, such as the approval of the
stock award plans and the stock option plans, that, if established within the
first year after the conclusion of the Offering, must be approved by a majority
of the shares held by the Minority Stockholders. No assurance can be given that
the Mutual Company will not take action adverse to the interests of the Minority
Stockholders. For example, the Mutual Company could revise the dividend policy,
prevent the sale of control of the Company, or defeat a candidate for the Board
of Directors of the Company or other proposals put forth by the Minority
Stockholders.
The Reorganization does not preclude the conversion of the Mutual
Company from the mutual to stock form of organization which would be effected
through a merger of the Mutual Company into the Company or the Bank and the
concurrent sale of the shares held by the Mutual Company in a subscription
offering. The Commissioner has not yet adopted regulations governing the
conversion of Massachusetts-chartered mutual holding companies to stock form.
Accordingly, there can be no assurance that the Mutual Company will convert to
stock form or of the specific conditions that the Commissioner would impose on a
stock conversion by the Mutual Company. However, the Plan provides that any
conversion shall be fair and equitable to Minority Stockholders and establishes
a formula for readjusting the Minority Stockholders' ownership interest (if
required by applicable banking regulators) if the Mutual Company has significant
assets other than its ownership of the Common Stock of the Company or if the
Mutual Company waives the receipt of dividends declared by the Company.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Company so long as they continue to hold deposit accounts with the Bank.
In addition, all persons who become depositors of the Bank subsequent to the
Reorganization will have such liquidation rights with respect to the Mutual
Company. Borrowers currently do not have liquidation rights in the Bank and will
not receive such rights with respect to the Mutual Company.
All insured deposit accounts of the Bank that are transferred to the
Stock Bank will continue to be insured by the FDIC and the Massachusetts
Depositors Insurance Fund ("DIF") up to the legal maximum limit in the same
manner as deposit accounts existing in the Bank immediately prior to the
Reorganization. Upon completion of the Reorganization, the Bank may exercise any
and all powers, rights and privileges of, and shall be subject to all
limitations applicable to, capital stock savings banks under Massachusetts law.
As long as the Mutual Company is in existence, the Mutual Company will be
required to own at least 51% of the voting stock of the Company, and the Company
will own 100% of the voting stock of the Bank. The Bank and the Company may
issue any amount of non-voting stock or debt to persons other than the Mutual
Company.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are the selected consolidated financial and other data
of the Bank. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At December 31,
At August 31, -----------------------------------------------------
1997/(1)/ 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets.................................... $ 680,316 $ 666,988 $ 632,788 $ 607,737 $ 550,025 $ 543,156
Loans (2)....................................... 485,515 480,683 448,631 422,036 378,045 378,413
Allowance for loan losses....................... 12,443 12,326 12,326 12,274 12,745 11,775
Debt securities (3):
Available for sale............................ 104,899 97,007 62,691 31,585 -- --
Held to maturity/held for investment.......... 49,801 41,620 89,342 125,126 151,131 140,948
Marketable equity securities (3):
Available for sale............................ 23,626 20,365 19,074 13,301 -- --
Held for investment........................... -- -- -- -- 3,790 3,973
Deposits........................................ 481,467 484,016 474,215 471,811 444,848 444,507
Borrowed funds.................................. 61,815 60,565 49,665 43,265 27,000 23,700
Retained earnings............................... 125,370 113,947 100,583 85,722 72,522 66,221
Net unrealized gain on securities
available for sale, net of taxes,
included in retained earnings................. 10,957 8,660 7,233 4,100 -- --
Non-performing loans............................ 1,412 1,337 748 1,284 3,360 4,768
Non-performing assets........................... 3,414 3,026 2,470 3,089 6,938 11,269
<CAPTION>
Eight months ended
August 31, Year ended December 31,
------------------------ --------------------------------------------------
1997/(1)/ 1996/(1)/ 1996 1995 1994 1993 1992
---------- ---------- ------- -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income.............................. $36,119 $33,563 $51,019 $48,920 $39,943 $37,461 $41,011
Interest expense............................. 17,204 16,859 25,458 23,938 17,761 16,793 21,075
------- ------- ------- ------- ------- ------- -------
Net interest income........................ 18,915 16,704 25,561 24,982 22,182 20,668 19,936
Provision (credit) for loan losses........... -- -- -- -- (477) 2,170 3,893
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
(credit) for loan losses................. 18,915 16,704 25,561 24,982 22,659 18,498 16,043
Gains (losses) on sales of securities, net... 74 464 464 877 4 (10) 132
Other real estate owned income (expense), net 158 186 299 (40) (741) (1,616) (1,253)
Other non-interest income.................... 597 839 1,077 768 816 789 793
Non-interest expense......................... (5,738) (4,807) (7,713) (7,450) (7,696) (7,493) (7,113)
------- ------- ------- ------- ------- ------- -------
Income before income taxes................... 14,006 13,386 19,688 19,137 15,042 10,168 8,602
Provision for income taxes................... 4,880 5,191 7,751 7,409 5,942 3,867 3,197
------- ------- ------- ------- ------- ------- -------
Net income................................... $ 9,126 $ 8,195 $11,937 $11,728 $ 9,100 $ 6,301 $ 5,405
======= ======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Eight months ended
August 31, Year ended December 31,
--------------------- -----------------------------------------------------
1997/(1)/ 1996/(1)/ 1996 1995 1994 1993 1992
--------- ---------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data (4):
Performance Ratios:
Return on average assets............................... 2.03% 1.91% 1.84% 1.91% 1.59% 1.16% 1.01%
Return on average retained earnings:
Inclusive of net unrealized gain on securities
available for sale, net of taxes................. 11.46 11.69 11.15 12.62 11.34 9.20 8.64
Exclusive of net unrealized gain on securities
available for sale, net of taxes................. 12.43 12.54 11.95 13.42 11.89 9.20 8.64
Retained earnings to total assets at end of period..... 18.43 16.53 17.08 15.89 14.11 13.19 12.19
Net interest rate spread (5)........................... 3.09 3.08 3.10 3.37 3.40 3.46 3.30
Net interest margin (6)................................ 4.06 3.96 4.00 4.15 3.96 3.92 3.83
Average interest-earning assets to
average interest-bearing liabilities................ 125.18 122.28 122.59 119.96 117.86 114.55 113.34
Total non-interest expense to average assets........... 1.27 1.12 1.19 1.21 1.34 1.38 1.33
Efficiency ratio (7)................................... 29.06 26.42 28.15 28.02 34.57 37.78 36.27
Regulatory Capital Ratios (8):
Tier 1 leverage capital................................ 16.95 15.81 15.86 14.96 13.63 13.31 12.39
Tier 1 risk-based capital.............................. 20.99 18.29 19.26 18.20 17.03 17.26 15.71
Total risk-based capital............................... 22.25 19.55 20.53 19.46 18.30 18.54 16.98
Asset Quality Ratios:
Non-performing loans as a percent of loans (9)......... 0.29 0.23 0.28 0.17 0.30 0.89 1.26
Non-performing assets as a percent of total assets..... 0.50 0.43 0.45 0.39 0.51 1.26 2.07
Allowance for loan losses as a percent of loans........ 2.56 2.55 2.56 2.75 2.91 3.37 3.11
Allowance for loan losses as a percent of
total non-performing loans.......................... 881.23 1,106.52 921.91 1,647.86 955.92 379.32 246.96
Number of Full Service Customer Facilities............... 5 5 5 5 5 5 5
</TABLE>
- --------------------
(1) The data presented at and for the eight months ended August 31, 1997 and
1996 was derived from unaudited consolidated financial statements and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the eight
months ended August 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
(2) Loans are comprised of gross loan balances less unadvanced funds on loans,
deferred loan origination fees and unearned discounts.
(3) The Bank adopted SFAS No. 115 as of January 1, 1994 and reclassified
securities having a market value of $26.0 million from its held to
maturity portfolio to its available for sale portfolio in November 1995
pursuant to a FASB interpretation of SFAS No. 115. Prior to the adoption
of SFAS No. 115, securities were carried at amortized cost, adjusted for
amortization of premiums and accretion of discounts over the remaining
terms of the securities from the dates of purchase. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average daily balances during the indicated periods and are annualized
where appropriate.
(5) The net interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(6) The net interest margin represents net interest income (tax equivalent
basis) as a percent of average interest-earning assets.
(7) The efficiency ratio represents the ratio of non-interest expenses,
divided by the sum of net interest income and non-interest income.
(8) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation--Regulatory Capital Requirements."
See "Regulatory Capital Compliance" for the Bank's pro forma capital
levels as a result of the Offering.
(9) Non-performing loans consist of all loans 90 days or more past due and
other loans which have been identified by the Bank as presenting
uncertainty with respect to the collectibility of interest or principal.
It is the Bank's policy to cease accruing interest on all such loans.
15
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
Lending Risks Associated with Multi-Family and Commercial Real Estate Mortgage
Lending
The Bank's urban and suburban market area is characterized by a large
number of apartment buildings, condominiums and office buildings. As a result,
in serving the borrowing needs of its customers, the Bank originates a
significant number of multi-family and commercial real estate mortgage loans.
Such loans generally involve larger principal amounts and a greater degree of
risk than one-to-four family residential mortgage loans. Many of the Bank's
borrowers have more than one multi-family or commercial real estate mortgage
loan outstanding with the Bank. Moreover, these loans are concentrated primarily
in the greater Boston metropolitan area and eastern Massachusetts. At August 31,
1997, the Bank's portfolio of multi-family, commercial real estate, and
construction and development mortgage loans totaled $365.1 million, or 73.2% of
gross loans, and 52.9% of total interest-earning assets. At that date,
multi-family real estate mortgage loans totaled $214.1 million, or 42.9% of
gross loans, commercial real estate mortgage loans totaled $143.2 million, or
28.7% of gross loans, and construction and development mortgage loans totaled
$7.8 million, or 1.6% of gross loans. Additionally at such date, the Bank had
$22.5 million of outstanding commitments to fund multi-family, commercial real
estate and construction and development mortgage loans. See "Business of the
Bank--Lending Activities."
Multi-family and commercial real estate mortgage loans are generally
viewed as exposing the lender to a greater risk of loss than one-to-four family
residential mortgage loans. Repayment of multi-family and commercial real estate
mortgage loans generally is dependent, in large part, on sufficient income from
the property to cover operating expenses and debt service. Economic events and
government regulations, which are outside the control of the borrower or lender,
could impact the value of the properties securing loans or the future cash flow
of the affected properties. See "Business of the Bank--Delinquent Loans, Other
Real Estate Owned and Classified Assets."
Geographic Concentration of Loans
The Bank's lending area is concentrated primarily in the greater Boston
metropolitan area and eastern Massachusetts (the "primary lending area").
Accordingly, the asset quality of the Bank's loan portfolio is highly dependent
upon the economy and unemployment rate in this area. These factors are affected
to a great extent by the success of financial service and "high technology"
companies headquartered in the area. The success of these companies in the past
few years has helped to keep the economy stable. Their continued success,
however, is dependent on the strength of national and international financial
markets and their ability to develop new technological products, both of which
are factors subject to rapid change. A downturn in the economy in the Bank's
primary lending area would likely adversely affect the Bank's operations. See
"Business of the Bank--Market Area and Competition."
Sensitivity to Changes in Interest Rates
The Bank's profitability, like that of most financial institutions,
depends to a large extent upon its net interest income, which is the difference
between its interest income on interest-earning assets, such as loans and
securities, and its interest expense on interest-bearing liabilities, such as
deposits and borrowed funds. Accordingly, the Bank's results of operations and
financial condition depend largely on movements in market interest rates and its
ability to manage its assets and liabilities in response to such movements.
The Bank has sought to manage its interest rate risk exposure by (i)
emphasizing the origination of adjustable rate mortgage loans and (ii) investing
in liquid and relatively short-term debt securities. At August 31, 1997, 95.4%
of the Bank's gross loans contractually due after August 31, 1998 had adjustable
interest rates. While management anticipates that adjustable rate mortgage loans
will better offset the adverse effects of an increase in interest rates, the
16
<PAGE>
larger mortgage payments required from adjustable-rate borrowers in a rising
interest rate environment could potentially lead to an increase in the Bank's
level of loan delinquencies and defaults.
Also at August 31, 1997, the $104.9 million of debt securities in the
Bank's investment portfolio classified as available for sale had a weighted
average life to maturity of 11 months, and the $49.8 million of debt securities
classified as held to maturity had a weighted average life of two years. These
securities, combined with the $27.1 million portfolio of equity securities,
represented 26.9% of the Bank's interest-earning assets at August 31, 1997. In
addition, short-term investments ($7.5 million) and commercial loan
participations ($36.5 million) maturing within 90 days from August 31, 1997
equaled 6.5% of interest-earning assets at that date.
At August 31, 1997, $441.2 million, or 82.8% of the Bank's
interest-bearing deposits and borrowed funds had maturities of one year or less.
As a result, at August 31, 1997, the Bank's cumulative one-year gap position,
the difference between the amount of interest-earning assets maturing or
repricing within one year and interest-bearing liabilities maturing or repricing
within one year, was a negative 9.81%. Due to the Bank's level of short-term
certificates of deposit, the Bank's cost of funds may increase at a greater rate
in a rising interest rate environment than if it had a greater amount of
transaction deposit accounts (NOW, savings and money market savings accounts)
which, in turn, may adversely affect net interest income and net income.
Accordingly, in a rising interest rate environment, the Bank's interest-bearing
liabilities may adjust upwardly more rapidly than the yield on its
adjustable-rate loans, thereby adversely affecting the Bank's interest rate
spread, net interest income and net income.
Uncertainty as to Future Growth Opportunities
In an effort to fully deploy post-Offering capital, in addition to
attempting to increase its loan and deposit growth, the Company may seek to
expand its banking franchise by acquiring other financial institutions or
branches. The Company's ability to grow through selective acquisitions of other
financial institutions or branches of such institutions will depend on
successfully identifying, acquiring and integrating such institutions or
branches. Moreover, the Bank's ability to increase its multi-family and
commercial real estate mortgage lending will depend on market conditions in the
Bank's primary lending area. There can be no assurance the Bank will be able to
generate loan growth internally or identify attractive acquisition candidates,
acquire such candidates on favorable terms or successfully integrate any
acquired institutions or branches into the Bank. Neither the Company nor the
Bank has any specific plans, arrangements or understandings regarding any such
expansions or acquisitions at this time, nor have criteria been established to
identify potential candidates for acquisition.
Low Return on Equity following the Reorganization
At August 31, 1997, the Bank's ratio of equity to assets was 18.43%.
The Bank's equity position will be significantly increased as a result of the
Offering. On a pro forma basis as of August 31, 1997, assuming the sale of
Common Stock at the midpoint of the Offering Range, the Company's consolidated
ratio of equity to assets would exceed 28%. The Company's ability to leverage
this capital will be significantly affected by competition for loans and
deposits and economic conditions. The Bank currently anticipates that it will
take considerable time to prudently deploy such capital. As a result, the Bank's
return on equity is expected to be below the industry average for a period of
time after the Offering.
Strong Competition within the Bank's Market Area
Competition in the banking and financial services industry is intense.
In its market area, the Bank competes for loans and deposits with commercial
banks, savings institutions, mortgage brokerage firms, credit unions, finance
companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere. Many of these competitors have
substantially greater resources and lending limits than the Bank and may offer
certain services that the Bank does not or cannot provide. Moreover, in recent
years, a more active secondary market for securitized commercial real estate
mortgage loans has developed, with the result that the Bank has encountered
greater competition for the origination of commercial real estate mortgage loans
from non-portfolio
17
<PAGE>
commercial lenders. Deposit customers have shifted funds from relatively
low-yielding deposit accounts at banking institutions into other types of
investments, including, in particular, mutual funds.
Regulatory Oversight and Legislation
The Bank is subject to extensive regulation, supervision and
examination by the Massachusetts Division of Banks, as its chartering authority,
and by the FDIC as insurer of its deposits up to applicable limits. The Bank
also is a member of the Federal Home Loan Bank System and is subject to certain
limited regulations promulgated by the Federal Home Loan Bank (the "FHLB"). As
the holding company of the Bank, the Company will be subject to regulation and
oversight by the FRB. Such regulation and supervision govern the activities in
which an institution and its holding company may engage and are intended
primarily for the protection of the insurance fund, depositors and borrowers.
Regulatory authorities have been granted extensive discretion in connection with
their supervisory and enforcement activities which are intended to strengthen
the financial condition of the banking and thrift industries, including the
imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the adequacy of an institution's
allowance for loan losses. Regulatory and law enforcement authorities also have
wide discretion and extensive enforcement powers under various consumer
protection and civil rights laws, including the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement
Procedures Act and the Massachusetts deceptive acts and practices law. These
laws permit private individual and class action law suits and provide for the
recovery of attorneys fees in certain instances. Any change in the
interpretation or application to the Bank of such laws, regulations and
oversight and enforcement powers, whether by the Division, the FDIC, other state
or federal authorities, or Congress, could have a material impact on the
Company, the Bank and their respective operations. See "Regulation."
Certain Anti-Takeover Provisions
The Mutual Holding Company Structure. Under Massachusetts law, at least
51% of the Company's voting shares must be owned by the Mutual Company, and the
Mutual Company will be controlled by its Board of Trustees who will consist
initially of the current members of the Board of Trustees of the Bank. The
Mutual Company, acting through its Board of Trustees, will be able to control
the business and operations of the Company and of the Bank and will be able to
prevent any challenge to the ownership or control of the Company by Minority
Stockholders.
Provisions in the Company's and the Bank's Governing Instruments.
Certain provisions of the Company's Articles of Organization and Bylaws,
particularly a provision limiting voting rights, and the Bank's Charter and
Bylaws, as well as certain federal and state regulations, assist the Company in
maintaining its status as an independent, publicly-owned corporation. These
provisions provide for, among other things, supermajority voting, staggered
boards of directors, noncumulative voting for directors, limits on the calling
of special meetings of stockholders and certain uniform price provisions for
certain business combinations. Moreover, the regulations of the Division
prohibit, for a period of three years following the date of a conversion, offers
to acquire or the acquisition of beneficial ownership of more than 10% of the
outstanding stock of the Bank. The Bank's Charter also prohibits for three years
the acquisition, directly or indirectly, of the beneficial ownership of more
than 4.9% of the Bank's equity securities and after such three year period, 10%
of the Bank's equity securities. Any person, or group acting in concert,
violating this restriction may not vote the Bank's or Company's securities in
excess of the designated percentage. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. See "Restrictions on Acquisition of the Company
and the Bank."
Absence of Market for Common Stock
The Company, as a newly organized company, has never issued capital
stock and, consequently, there is no established market for its Common Stock at
this time. The Company has received approval to have its Common Stock quoted on
the Nasdaq National Market under the symbol "_________" conditioned on the
consummation of the Offering. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon
18
<PAGE>
the existence of willing buyers and sellers at any given time, the presence of
which is dependent upon the individual decisions of buyers and sellers over
which neither the Company nor any market maker has control. Accordingly, there
can be no assurance that an active and liquid trading market for the Common
Stock will develop or that, if developed, will continue, nor is there any
assurance that purchasers of the Common Stock will be able to sell their shares
at or above the Purchase Price. In the event a liquid market for the Common
Stock does not develop or market makers for the Common Stock discontinue their
activities, such occurrences may have an adverse impact on the market value of
the Common Stock. See "Market for Common Stock."
Stock-Based Benefits to Management, Employment Agreements And Change in Control
Payments
Stock Plans. The Company intends to adopt one or more stock-based
benefit plans which would provide stock grants of Common Stock to non-employee
directors and selected officers and employees of the Company and the Bank (the
"Stock Plans") and intends to seek stockholder approval of such plans at a
meeting of stockholders following the Offering, which may be held no earlier
than six months after completion of the Offering. The Company expects to acquire
Common Stock on behalf of the Stock Plans in an amount equal to at least 4% of
the Common Stock issued in connection with the Offering, or 351,560 shares and
475,640 shares at the minimum and the maximum of the Offering Range,
respectively. These shares will be acquired either through open market purchases
or from authorized but unissued Common Stock. If the Stock Plans are funded by
the issuance of authorized but unissued shares, the voting interests of existing
shareholders would be diluted by 1.8%.
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Plans to the directors
and selected officers and employees of the Company and the Bank to the extent
permitted by applicable regulations. Current FDIC regulations provide that, to
the extent any non-tax qualified stock plan or stock option plan is implemented
within one year after conversion, no individual may receive more than 25% of the
shares of any such stock-based benefit plan and non-employee directors or
trustees may not receive more than 5% individually, or 30% in the aggregate, of
the shares awarded under any such plan. The shares granted under the Stock Plans
will be awarded at no cost to the recipients. Under the terms of the Stock
Plans, an independent trustee will vote unallocated shares in the same
proportion as it receives instructions from recipients with respect to allocated
shares which have not been earned and distributed. Recipients will vote
allocated shares. The plan trustee will not vote allocated shares if it does not
receive instructions from the recipient. The specific terms of the Stock Plans
intended to be adopted and the amounts of awards thereunder have not yet been
determined by the Board of Directors, and any such determination will include
consideration of various factors, including but not limited to, the financial
condition of the Company, current and past performance of plan participants and
tax and securities law and regulation requirements. The stock-based benefits
provided under the Stock Plans and stock option plans, discussed below, may be
provided under separate plans established for officers and employees and
non-employee trustees and directors or such benefits may be provided for under a
single master stock-based benefit plan adopted by the Company which would
incorporate the benefits and features of the separate plans. The implementation
of such Stock Plans may result in increased compensation expense to the Company
and may have a dilutive effect on existing stockholders. See "Management of the
Stock Bank--Compensation of Officers and Trustees through Benefit Plans."
Stock Option Plans. The Company also intends to adopt stock-based
benefit plans which would provide options to purchase Common Stock ("Stock
Options") to officers, employees and non-employee trustees and directors of the
Company and the Bank (the "Stock Option Plans") and intends to seek stockholder
approval of such plans at a meeting of stockholders following the Offering,
which may be held no earlier than six months after completion of the Offering.
Although no specific determinations have been made, the Company expects that
non-employee directors and selected officers and employees of the Company and
the Bank will be granted options to purchase Common Stock in an amount equal to
10% of the Common Stock issued in the Offering, (or 878,900 shares and 1,189,100
shares at the minimum and maximum of the Offering Range, respectively). It is
currently intended that the exercise price of the Stock Options will be equal to
the fair market value of the underlying Common Stock on the date of grant. Stock
Options will permit such trustees, directors, officers and employees to benefit
from any increase in the market value of the shares in excess of the exercise
price at the time of exercise. Recipients of Stock Options will not be required
to pay for the shares until the date of exercise. The specific terms of the
Stock Option Plans intended to be adopted and amounts and awards thereunder have
not yet been determined by the Board and any such determination will
19
<PAGE>
include consideration of various factors, including but not limited to, the
financial condition of the Company, current and past performance of award
recipients and tax and securities law and regulation requirements. The Stock
Options discussed above may be provided under a single stock option plan, may be
granted under separate stock option plans for officers and employees and
non-employee directors or may be provided for under the master stock-based
benefit plan which would incorporate the features and benefits of the separate
stock option plans and the Stock Plans. The implementation of such Stock Option
Plans may have a dilutive effect upon existing stockholders of the Company to
the extent option exercises are satisfied with authorized but unissued shares.
See "Management of the Stock Bank--Compensation of Officers and Trustees through
Benefit Plans--Stock Option Plan."
Change In Control Provisions. Employment agreements with certain
officers of the Bank and the Company provide for benefits and cash payments in
the event of a change in control of the Company or the Bank. These provisions
may have the effect of increasing the cost of acquiring the Company or the Bank,
thereby discouraging future attempts to take over the Company or the Bank.
Additionally, the Bank's employee severance agreements, which similarly provide
a cash payment and benefits to certain employees upon termination following a
change in control of the Company or the Bank, also may have the effect of
increasing the cost of acquiring the Company or the Bank. Based on current
salaries, cash payments to be paid in the event of a change in control pursuant
to the terms of the employment agreements and severance agreements would be
approximately $___ million. However, the actual amount to be paid in the event
of a change in control of the Bank or the Company cannot be estimated at this
time because the actual amount is based on the highest salary (or, in certain
cases, the average salary) of the employee and other factors existing at the
time of the change in control. See "Restrictions on Acquisition of the Company
and the Bank--Provisions of the Company's Articles of Organization and Bylaws,"
"Management of the Stock Bank--Employment and Severance Agreements," "--Change
in Control Agreements," "--Employee Severance Compensation Plan,"
"--Compensation of Officers and Trustees through Benefit Plans--Stock Option
Plan."
Possible Increase in Valuation Range and Number of Shares Issued
The number of shares to be sold in the Offering may be increased as a
result of an increase in the Valuation Range of up to 15% to reflect changes in
market and financial conditions following the commencement of the Subscription
and Community Offerings. In the event that the Offering Range is so increased,
it is expected that the Company will issue up to 13,674,650 shares of Common
Stock at the Purchase Price for an aggregate purchase price of up to
$136,746,500. An increase in the number of shares issued will decrease a
subscriber's pro forma net earnings per share and stockholders' equity per share
and will increase the Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share. See "The Reorganization and Offering--The Offering."
Conversion of Mutual Company to Stock Form
The Plan provides that the Mutual Company may convert to stock form (a
Conversion Transaction) by merging the Mutual Company either into the Company or
the Bank. In a Conversion Transaction, the shares of Common Stock owned by the
Mutual Company will be canceled and shares of Common Stock of the Company will
be offered for sale to eligible depositors and others in a subscription and
community offering in accordance with regulations of the FDIC and the Division.
The Plan provides that any Conversion Transaction shall be fair and equitable to
Minority Stockholders, and establishes a formula for adjusting the Minority
Ownership Interest in the event such adjustment is required by applicable
banking regulators. Proposed regulations of the Division would prohibit a
Conversion Transaction for three years following the Offering, subject to a
waiver by the Division for supervisory reasons. To date, however, the Division
has not yet issued regulations regarding the conversion of a Massachusetts
mutual holding company to stock form, and there can be no assurance that such
regulations will be effective at such time as the Mutual Company may wish to
undertake a Conversion Transaction. Moreover, there can be no assurance as to
what form such final regulations will take and what conditions the Division may
impose on a Conversion Transaction. Neither the Bank nor the Company has any
plan to undertake a Conversion Transaction. If a Conversion Transaction does not
occur, the Mutual Company will continue to own at least 51% of the outstanding
Common Stock, and purchasers in the Offering will remain Minority Stockholders.
20
<PAGE>
The Mutual Company may, from time-to-time, waive the receipt of
dividends declared and paid by the Company, subject to regulatory approval.
There can be no assurance that the Mutual Company will waive the receipt of
dividends, or that any dividend waiver would be approved by applicable banking
regulators. Any waiver of dividends by the Mutual Company, if permitted by
regulatory authorities, is likely to (i) be subject to various conditions, and
(ii) result in a reduction of the Minority Ownership Interest in the event of a
Conversion Transaction, to reflect the benefit of any waived dividends to the
Minority Stockholders. Such an adjustment would have the effect of diluting the
aggregate voting interest of the Minority Stockholders in the Company
immediately following a Conversion Transaction. Moreover, in the event of a
Conversion Transaction, any dividends received by the Mutual Company, as well as
any other assets of the Mutual Company (other than Common Stock in the Company),
will be credited to the Mutual Company in determining the number of shares of
Company Common Stock that will be offered for sale in a Conversion Transaction
and the amount of any voting dilution of the Minority Ownership Interest. See
"Dividend Policy."
BROOKLINE BANCORP, MHC
The Bank has applied to the Division to form the Mutual Company, and
has also applied to the FRB for approval of the Mutual Company to indirectly own
or control the Bank. No final approvals of the Division or the FRB have been
received as of the date of this Prospectus. As part of the Reorganization, the
Mutual Company will become a Massachusetts-chartered mutual holding company with
the powers set forth in its Charter and Bylaws and under Massachusetts law. The
Mutual Company will own at least 51% of the voting stock of the Company so long
as the Mutual Company remains in existence. The Bank will capitalize the Mutual
Company with approximately $250,000 in cash. The Mutual Company will be subject
to regulation and supervision by the FRB and the Division. See
"Regulation--Holding Company Regulation." Immediately after the consummation of
the Reorganization, the Mutual Company is not expected to engage in any business
activity other than to hold at least 51% of the Company's Common Stock and to
invest any liquid assets of the Mutual Company. The Mutual Company's offices
will be located at 160 Washington Street, Brookline, Massachusetts 02197, and
its telephone number at that address will be (617) 730-3500.
BROOKLINE BANCORP, INC.
Brookline Bancorp, Inc. was recently organized at the direction of the
Board of Trustees of the Bank for the purpose of acquiring all of the capital
stock of the Bank upon completion of the Reorganization and the Offering. The
Bank has applied to the Division to form the Company, and also has applied to
the FRB for the Company to own up to 100% of the voting stock of the Bank. No
final approvals of the Division or the FRB have been received as of the date of
this Prospectus. Upon completion of the Reorganization, the Company will be
subject to regulation and supervision by the Division and the FRB. See
"Regulation--General" and "--Holding Company Regulation." Upon completion of the
Reorganization, the Company will have no significant liabilities and no assets
other than 100% of the shares of the Bank's outstanding common stock, its loan
to the ESOP and up to 50% of the net proceeds of the Offering. The Company
intends to loan a portion of the net proceeds it retains to the ESOP to enable
the ESOP to purchase up to 4% of the stock issued in connection with the
Offering. See "Use of Proceeds." The management of the Company is set forth
under "Management of the Company." Initially, the Company will neither own nor
lease any property, but will instead use the premises, equipment and furniture
of the Bank. At the present time, the Company does not intend to employ any
persons other than certain officers who are currently officers of the Bank but
will utilize the support staff of the Bank from time to time. Additional
employees will be hired as appropriate to the extent the Company expands its
business in the future. The Company's offices are located at the executive
offices of the Bank, at 160 Washington Street, Brookline, Massachusetts 02147.
Its telephone number is (617) 730-3500.
BROOKLINE SAVINGS BANK
The Bank was organized in 1871 as a Massachusetts-chartered mutual
savings bank. The Bank's deposits are insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC, up to the maximum amount permitted by law
and by the Massachusetts Depositors Insurance Fund ("DIF") in excess of the
maximum FDIC insurance. The Bank conducts business from its home office in
Brookline, Massachusetts and its four other offices located in the Town of
Brookline. At August 31, 1997, the Bank had total assets of $680.3 million,
total deposits of $481.5 million,
21
<PAGE>
retained earnings of $125.4 million, and had a Tier 1 leverage capital ratio of
16.92% and a risk-based capital ratio of 20.95%. See "Regulation--Regulatory
Capital Requirements."
The Bank emphasizes the origination of multi-family and commercial real
estate mortgage loans, which constituted 71.6% of gross loans at August 31,
1997. The Bank also offers traditional deposit and single-family mortgage loan
products and, to a lesser extent, construction and development loans, home
equity loans and other consumer loans. The Bank also participates in short-term
commercial loans to national companies and organizations that are originated and
serviced primarily by money center banks. Of the Bank's total loan portfolio at
August 31, 1997, 42.9% consisted of loans secured by multi-family residential
properties, 28.7% were secured by commercial real estate, 13.1% consisted of
loans secured by one-to-four family residential properties, and 9.0% consisted
of commercial loans or participations in commercial loans. The Bank also invests
in securities and other short-term investments. At August 31, 1997, investment
securities and short-term investments amounted to $189.3 million, or 27.8% of
the Bank's assets.
The majority of the Bank's deposits are gathered from the general
public in the Town of Brookline, an urban/suburban community adjacent to the
City of Boston, and surrounding communities. The Bank's lending area is
concentrated primarily in the greater Boston metropolitan area and eastern
Massachusetts. This area benefits from the presence of numerous institutions of
higher learning and the corporate headquarters of several significant financial
service companies. Eastern Massachusetts also has many high technology companies
employing personnel with specialized skills. The presence of these factors
affects the demand for multi-family apartments, office buildings, shopping
centers, industrial warehouses and other commercial properties.
The Bank's executive office is located at 160 Washington Street,
Brookline, Massachusetts 02147. Its telephone number is (617) 730-3500.
22
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At August 31, 1997, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of August 31, 1997, on an actual and pro forma basis,
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Plans are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
Actual at
August 31, 1997
------------------------
Percent
of
Amount assets/(2)/
----------- -----------
(Dollars in thousands)
<S> <C> <C>
GAAP(3) Capital.............. $125,370 18.43%
======== ======
Leverage Capital:
Capital level(4)........... $114,413 16.95%
Requirement(5)............. 20,254 3.00
-------- ------
Excess..................... $ 94,159 13.95%
======== ======
Risk-Based Capital:
Capital level(4)(6)........ $121,297 22.25%
Requirement................ 43,615 8.00
-------- ------
Excess..................... $ 77,682 14.25%
======== ======
</TABLE>
<TABLE>
<CAPTION>
Pro forma at August 31, 1997 based upon the sale at $10.00 per share
------------------------------------------------------------------------------------------------------
13,674,000 shares
8,879,000 shares 10,340,000 shares 11,891,000 shares (15% above
(minimum of the (midpoint of the (maximum of the maximum of the
estimated estimated estimated estimated
price range) price range) price range) price range)/(1)/
----------------------- ------------------------- ------------------------ ------------------------
Percent Percent Percent Percent
of of of of
Amount assets/(2)/ Amount assets/(2)/ Amount assets/(2)/ Amount assets/(2)/
--------- ----------- ---------- ------------- ---------- ------------ ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP(3) Capital.............. $168,215 23.26% $175,970 24.08% $183,725 24.87% $192,643 25.77%
======== ===== ======== ===== ======== ===== ======== =====
Leverage Capital:
Capital level (4) ........ $157,258 21.90% $165,013 22.74% $172,768 23.55% $181,686 24.47%
Requirement (5) ........... 21,539 3.00 21,772 3.00 22,004 3.00 22,272 3.00
-------- ----- -------- ------ -------- ------ -------- -----
Excess..................... $135,719 18.90% $143,241 19.74% $150,764 20.55% $159,414 21.47%
======== ===== ======== ====== ======== ====== ======== =====
Risk-Based Capital:
Capital level(4)(6)........ $164,142 28.32% $171,897 29.35% $179,652 30.35% $188,570 31.48%
Requirement................ 46,362 8.00 46,859 8.00 47,356 8.00 47,928 8.00
-------- ----- -------- ------ -------- ------ -------- ------
Excess..................... $117,780 20.32% $125,038 21.35% $132,296 22.35% $140,642 23.48%
======== ===== ======== ====== ======== ====== ======== =====
</TABLE>
- -------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Range of up to 15% as a
result of regulatory considerations or changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Leverage capital levels are shown as a percentage of tangible assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP is defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Offering Range. These levels also assume funding by the
Company of the Stock Plans equal to 4% of the Common Stock issued and
repayment of the Company's loan to the ESOP to enable the ESOP to purchase
4% of the Common Stock issued valued at the minimum, midpoint and maximum
of the Offering Range. See "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans" for a discussion of the Stock
Plans and ESOP.
(5) The current leverage capital requirement for banks is 3% of total adjusted
assets for banks that receive the highest supervisory rating for safety and
soundness and that are not experiencing or anticipating significant growth.
The current leverage capital ratio applicable to all other banks is 4% to
5%. See "Regulation--Regulatory Capital Requirements." The Company is also
subject to regulatory capital requirements of the FRB.
See "Regulation--Holding Company Regulation."
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of August 31,
1997.
23
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Offering is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $85.7 million and $116.7 million (or $134.5 million if the Offering
Range is increased by 15%). See "Pro Forma Data" and "The Reorganization and
Offering--Stock Pricing and the Number of Shares to be Offered in the Offering"
as to the assumptions used to arrive at such amounts. The Company will be unable
to utilize any of the net proceeds of the Offering until the consummation of the
Offering.
The Company will contribute 50% of the net proceeds of the Offering to
the Bank, or $42.8 million to $58.4 million at the minimum and maximum of the
Offering Range, respectively. Such portion of net proceeds received by the Bank
from the Company will be added to the Bank's general funds which the Bank
currently intends to use for general corporate purposes, including investments
in short- and medium-term, investment grade debt securities and marketable
equity securities. Depending on market conditions, the Bank also intends to use
funds to increase its origination of multi-family, commercial real estate and
one-to-four family real estate mortgage loans. The Bank may also use funds for
the expansion of its facilities and to expand operations through acquisitions of
other financial institutions, branch offices or other financial services
companies. However, the Company and the Bank have no current arrangements,
understandings or agreements regarding any such transactions. To the extent that
the stock-based benefit programs which the Company or the Bank intend to adopt
subsequent to the Offering are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the Offering
to fund the purchase of stock to be awarded under such stock benefit programs.
See "Risk Factors--Stock-Based Benefits to Management, Employment Agreements and
Change in Control Payments" and "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans--Stock Option Plan" and
"--Compensation of Officers and Trustees through Benefit Plans--Stock Plan."
The Company intends to use a portion of the net proceeds it retains to
make a loan directly to the ESOP to enable the ESOP to purchase in the Offering,
or in the open market to the extent Common Stock is not available to fill the
ESOP's subscription, 4% of the Common Stock issued in connection with the
Offering. Based upon the sale of 8,789,000 shares or 11,891,000 shares at the
minimum and maximum of the Offering Range, the amount of the loan to the ESOP
(assuming the ESOP purchases Common Stock at the Purchase Price in the
Subscription Offering) would be $3.5 million or $4.8 million, respectively (or
$5.5 million if the Offering Range is increased by 15%). The Company and the
Bank may alternatively choose to fund the ESOP's stock purchases through a loan
by a third party financial institution. See "Management of the Stock
Bank--Compensation of Officers and Trustees through Benefit Plans--Employee
Stock Ownership Plan and Trust." The remaining net proceeds retained by the
Company will be invested initially in short- and medium-term fixed-income
securities.
Upon completion of the Offering, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. The FDIC may prohibit the holding company of a
state-chartered savings bank which has converted from the mutual to stock form
of ownership from repurchasing its capital stock within one year following the
date of its conversion to stock form, except that stock repurchases of no
greater than 5% of outstanding capital stock may be made during this one-year
period where compelling and valid business reasons are established to the
satisfaction of the FDIC. Based upon facts and circumstances following the
Offering and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares, and
the opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or the purchase of shares by the ESOP in the event the
ESOP is unable to acquire shares in the Subscription Offering, or to fund the
Stock Plans; and (iii) any other circumstances in which repurchases would be in
the best interests of the Company and its shareholders. In the event the Company
determines to repurchase stock, such repurchases may be made at market prices
which may be in excess of the Purchase Price in the Offering. Any stock
repurchases will be subject to the determination of the Board of Directors that
both the Company and the Bank
24
<PAGE>
will be capitalized in excess of all applicable regulatory requirements after
any such repurchases and that such capital will be adequate, taking into
account, among other things, the level of non-performing and other risk assets,
the Company's and the Bank's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations. See "The Reorganization and Offering--Procedure for Purchasing
Shares."
DIVIDEND POLICY
Upon completion of the Offering, the Board of Directors of the Company
will have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements. The Company intends to pay an initial
annual cash dividend of [$____] per share on the Common Stock, with the first
such dividend expected to be declared and paid following the first full quarter
after consummation of the Offering. There can be no assurance, however, that
dividends will be paid or if paid, what the amounts of dividends will be, or
whether such dividends, once paid, will continue to be paid. In addition, the
source of funds for the Company's payment of dividends will, in part, depend
upon dividends from the Bank, in addition to the net proceeds retained by the
Company and earnings thereon. The Mutual Company may, from time to time, waive
the receipt of dividends declared and paid by the Company, subject to regulatory
approval. Under the FRB policy, a bank holding company should pay dividends only
to the extent that the holding company's net income for the past year is
sufficient to cover both the payment of the dividend and a rate of earnings
retention that is consistent with the holding company's capital needs, asset
quality and overall financial condition. See "Regulation--Holding Company
Regulation--Dividends."
The Bank's ability to pay cash dividends on the Common Stock is subject
to various federal and state restrictions. Under FDIC regulations, the Bank
would be prohibited from paying dividends if, among other things, the Bank was
not in compliance with applicable regulatory capital requirements. Under
Massachusetts law, a stock-form savings bank may pay dividends only out of its
net profits and only to the extent it does not impair its capital and surplus
accounts. Provided that the Bank can meet these requirements, Massachusetts law
permits net profits of a bank to be distributed as a dividend so long as, after
such distribution, either (i) the capital and surplus accounts of the bank equal
at least 10% of its deposit liabilities, or (ii) the surplus account of the bank
equals 100% of its capital account, subject to certain statutory exceptions.
Dividends or any repurchase by the Bank of its stock in excess of the Bank's
current and accumulated earnings could result in the realization by the Bank of
taxable income. See "Federal and State Taxation--Federal Taxation."
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
received conditional approval to have its Common Stock quoted on the Nasdaq
National Market under the symbol "_______" subject to the completion of the
Offering and compliance with certain conditions including the presence of at
least three registered and active market makers. The Company will seek to
encourage and assist at least three market makers to make a market in its Common
Stock. Although under no obligation to do so, Ryan Beck has indicated its
intention to act as market maker for the Common Stock following consummation of
the Offering. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. There can be no assurance that the Common Stock will be able to
meet the applicable listing criteria in order to maintain its quotation on the
Nasdaq National Market or that an active and liquid trading market will develop
or, if developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Offering. See "Risk
Factors--Absence of Market for Common Stock."
25
<PAGE>
CAPITALIZATION
The following table presents the actual capitalization of the Bank at
August 31, 1997 and the pro forma consolidated capitalization of the Company
after giving effect to the Offering based upon the sale of the number of shares
indicated in the table and the other assumptions set forth under "Pro Forma
Data."
<TABLE>
<CAPTION>
Company pro forma based
upon the sale at $10.00 per share
-----------------------------------------------------
13,674,650
8,789,000 10,340,000 11,891,000 shares
shares shares shares 15% above
(minimum (midpoint (maximum maximum
of the of the of the of the
Bank estimated estimated estimated estimated
actual price range) price range) price range) price range(1)
------ ------------ ------------ ------------ --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................................... $481,467 $481,467 $481,467 $481,467 $481,467
Borrowed funds................................................ 61,815 61,815 61,815 61,815 61,815
-------- ------- -------- -------- --------
Total deposits and borrowed funds........................... $543,282 $543,282 $543,282 $543,282 $543,282
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000
shares authorized; none to be issued...................... $ - $ - $ - $ - $ -
Common Stock, $.01 par value, 45,000,000 shares authorized(3) - 88 103 119 137
Additional paid-in capital(3)............................... - 85,602 101,097 116,591 134,410
Retained earnings(4)........................................ 114,413 114,413 114,413 114,413 114,413
Net unrealized gain on securities available for sale, net of
taxes...................................................... 10,957 10,957 10,957 10,957 10,957
Less:
Common Stock acquired by the ESOP(5)........................ - (3,516) (4,136) (4,756) (5,470)
Common Stock acquired by the Stock Plans(6)................. - (3,516) (4,136) (4,756) (5,470)
-------- ------- ------- -------- --------
Total stockholders' equity.................................... $125,370 $204,028 $218,298 $232,568 $248,977
======== ======== ======== ======== ========
</TABLE>
- ----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offering. No effect has been
given to the issuance of additional shares of Common Stock pursuant to the
Company's proposed Stock Option Plans intended to be adopted by the
Company and presented for approval of stockholders at a meeting of
stockholders following the Offering. The Stock Option Plans would provide
the grant of stock options to purchase an amount of Common Stock equal to
10% of the shares of Common Stock issued in the Offering. See "Management
of the Stock Bank--Compensation of Officers and Trustees through Benefit
Plans--Stock Option Plan."
(4) The retained earnings of the Bank will be restricted at the time of the
Offering. See "Description of Capital Stock Offering of the
Company--Common Stock--Liquidation or Dissolution."
(5) Assumes that 4% of the shares issued in connection with the Offering will
be purchased by the ESOP and the funds used to acquire the ESOP shares
will be borrowed from the Company. The Common Stock acquired by the ESOP
is reflected as a reduction of stockholders' equity. See "Management of
the Stock Bank--Compensation of Officers and Trustees through Benefit
Plans--Employee Stock Ownership Plan and Trust" and "--Compensation of
Officers and Trustees through Benefit Plans--Stock Plan."
(6) Assumes that, subsequent to the Offering, an amount equal to at least 4%
of the shares of Common Stock issued in the Offering, is purchased by the
Stock Plans through open market purchases. The Common Stock purchased by
the Stock Plans is reflected as a reduction of stockholders' equity. See
Footnote 2 to the tables under "Pro Forma Data" and "Management of the
Stock Bank--Compensation of Officers and Trustees through Benefit Plans--
Stock Plan."
26
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $85.7 million and $116.7 million based upon the
assumption that estimated expenses for the Reorganization and Offering will be
$2.2 million, including a fee to Ryan Beck of $1.0 million. Actual Offering
expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the eight months
ended August 31, 1997 and for the year ended December 31, 1996 have been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 5.56% and 5.49%,
respectively (the one year U.S. Treasury bill rate as of August 31, 1997 and
December 31, 1996, respectively). The tables do not reflect the effect of
withdrawals from deposit accounts for the purchase of Common Stock. The pro
forma after-tax yield for the Company and the Bank is assumed to be 3.50% for
the eight months ended August 31, 1997 and 3.46% for the year ended December 31,
1996 (in both cases, based on an assumed tax rate of 37.0%). Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of Common Stock, as adjusted to
give effect to the purchase of shares by the ESOP. No effect has been given in
the pro forma stockholders' equity calculations for the assumed earnings on the
net proceeds. As discussed under "Use of Proceeds," for the purposes of these
calculations, the Company is assumed to retain 50% of the net Offering proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize actual data of the Bank and pro forma
data of the Company at or for the eight months ended August 31, 1997 and at or
for the year ended December 31, 1996, based on the assumptions set forth above
and in the tables and should not be used as a basis for projections of market
value of the Common Stock following the Offering. The tables give effect to the
Stock Plans, which are expected to be adopted by the Company following the
Offering and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Stock
Bank--Compensation of Officers and Trustees through Benefit Plans--Stock Plan."
No effect has been given in the tables to the possible issuance of additional
shares reserved for future issuance pursuant to the Stock Option Plans to be
adopted by the Board of Directors of the Company and presented to stockholders
for approval at a meeting of stockholders, nor does book value as presented give
any effect to the liquidation account to be established for the benefit of
Eligible Account Holders or Supplemental Eligible Account Holders or, in the
event of liquidation of the Bank, to the tax effect of the bad debt reserve and
other factors. See Footnote 3 to the tables below, "Description of Capital Stock
of the Company--Common Stock--Liquidation or Dissolution" and "Management of the
Stock Bank--Compensation of Officers and Trustees through Benefit Plans--Stock
Option Plan."
27
<PAGE>
<TABLE>
<CAPTION>
At or for the eight months ended August 31, 1997
--------------------------------------------------
13,674,650
8,789,000 10,340,000 11,891,000 shares
shares shares shares sold at
sold at sold at sold at $10.00
$10.00 $10.00 $10.00 per share
per share per share per share (15%
(minimum (midpoint (maximum above maximum
of offering of offering of offering of offering
range) range) range) range)(7)
----------- ----------- ----------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Gross proceeds.................................................... $ 87,890 $ 103,400 $ 118,910 $ 136,747
Less: estimated Offering expenses................................. (2,200) (2,200) (2,200) (2,200)
---------- ---------- --------- ---------
Estimated net proceeds.......................................... 85,690 101,200 116,710 134,547
Less: Common Stock acquired by the ESOP........................... (3,516) (4,136) (4,756) (5,470)
Less: Common Stock acquired by the Stock Plans.................... (3,516) (4,136) (4,756) (5,470)
---------- ---------- --------- ---------
Estimated net investable proceeds............................... $ 78,658 $ 92,928 $ 107,198 $ 123,607
========= ========= ========= =========
Net income:
Actual for the eight months ended August 31, 1997............... $ 9,126 $ 9,126 $ 9,126 $ 9,126
Pro forma income on estimated net investable proceeds........... 1,835 2,168 2,501 2,884
Pro forma ESOP adjustment(1).................................... (211) (248) (285) (328)
Pro forma Stock Plans adjustment(2)............................. (295) (347) (400) (459)
---------- ---------- --------- ---------
Pro forma net income........................................ $ 10,455 $ 10,699 $ 10,942 $ 11,223
========= ========= ========= =========
Net income per share:
Actual for the eight months ended August 31, 1997............... $ 0.50 $ 0.42 $ 0.37 $ 0.32
Pro forma income on estimated net investable proceeds........... 0.10 0.10 0.10 0.10
Pro forma ESOP adjustment(1).................................... (0.01) (0.01) (0.01) (0.01)
Pro forma Stock Plans adjustment(2)............................. (0.02) (0.02) (0.02) (0.02)
--------- -------- --------- ---------
Pro forma net income per share.............................. $ 0.57 $ 0.49 $ 0.44 $ 0.39
========= ======== ========= =========
Stockholders' equity:
Actual at August 31, 1997....................................... $ 125,370 $125,370 $ 125,370 $ 125,370
Estimated net proceeds.......................................... 85,690 101,200 116,710 134,547
Less: Common Stock acquired by the ESOP......................... (3,516) (4,136) (4,756) (5,470)
Less: Common Stock acquired by the Stock Plans.................. (3,516) (4,136) (4,756) (5,470)
---------- --------- --------- ---------
Pro forma stockholders' equity per share(2)(3)(4)........... $ 204,028 $ 218,298 $ 232,568 $ 248,977
========= ========= ========= =========
Stockholders' equity per share(5):
Actual at August 31, 1997....................................... $ 6.71 $ 5.70 $ 4.96 $ 4.31
Net proceeds.................................................... 4.58 4.60 4.61 4.63
Less: Common Stock acquired by the ESOP......................... (0.19) (0.19) (0.19) (0.19)
Less: Common Stock acquired by the Stock Plans.................. (0.19) (0.19) (0.19) (0.19)
--------- --------- --------- ---------
Pro forma stockholders' equity per share.................... $ 10.91 $ 9.92 $ 9.19 $ 8.56
========= ========= ========= =========
Offering price as a percentage of
pro forma stockholders' equity per share...................... 91.66% 100.81% 108.81% 116.82%
Offering price as a multiple of pro forma
net income per share(6)....................................... 11.70x 13.61x 15.15x 17.09x
</TABLE>
- -------------------------
(1) It is assumed that 4% of the shares of Common Stock issued in the Offering
will be purchased by the ESOP. For purposes of this table, the funds used
to acquire such shares are assumed to have been borrowed by the ESOP from
the Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The pro forma net income assumes: (i) that the ESOP
shares are released over seven years; (ii) that 33,484, 39,392, 45,301 and
52,096 shares at the minimum, midpoint, maximum and 15% above the maximum
of the range, respectively, were committed to be released during the eight
months ended August 31, 1997 at an average fair value of $10.00 per share
in accordance with Statement of Position ("SOP") 93-6; and (iii) only the
ESOP shares committed to be released were considered outstanding for
purposes of the net income per share calculations. See "Management of the
Stock Bank--Compensation of Officers and Trustees through Benefit
Plans--Employee Stock Ownership Plan and Trust."
(2) Gives effect to the Stock Plans expected to be adopted by the Company
following the Offering and presented for approval at a meeting of
stockholders. The Stock Plans intend to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock sold in the Offering or 351,560,
413,600, 475,640 and 546,986 shares of Common Stock at the minimum,
midpoint, maximum and 15% above the maximum of the Offering Range,
respectively, either through open market purchases, if permissible, or
from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. In calculating the pro forma effect of the Stock
Plans, it is assumed that the shares were acquired by the Stock Plans at
the beginning of the period presented in open market purchases at the
Purchase Price and that
28
<PAGE>
13.3% of the amount contributed was an amortized expense during such
period. The issuance of authorized but unissued shares of the Company's
Common Stock to the Stock Plans instead of open market purchases would
dilute the voting interests of existing stockholders by approximately 1.8%
and pro forma net earnings per share would be $0.56, $0.49, $0.44 and
$0.39 at the minimum, midpoint, maximum and 15% above the maximum of the
range, respectively, and pro forma stockholders' equity per share would be
$10.81, $9.92, $9.21 and $8.58 at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively. There can be no assurance
that the actual purchase price of the shares granted under the Stock Plans
will be equal to the Purchase Price. See "Management of the Stock
Bank--Compensation of Officers and Trustees through Benefit Plans--Stock
Plan."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Offering. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. Under the Stock
Option Plans, an amount equal to 10% of the Common Stock issued in the
Offering, or 878,900, 1,034,000, 1,189,100 and 1,367,465 shares at the
minimum, midpoint, maximum and 15% above the maximum of the Offering
Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the beginning of the
period at an exercise price of $10.00 per share, the pro forma net income
per share would be $0.54, $0.47, $0.42 and $0.37, respectively, and the
pro forma stockholders' equity per share would be $10.41, $9.49, $8.80 and
$8.20, respectively. See "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans--Stock Option Plan."
(4) The retained earnings of the Bank will continue to be restricted after the
Offering. See "Dividend Policy," "Description of Capital Stock of the
Company--Common Stock--Liquidation of Dissolutions" and "Regulation and
Supervision--Massachusetts Bank Regulation."
(5) Stockholders' equity per share data is based upon 18,700,000, 22,000,000,
25,300,000 and 29,095,000 shares outstanding representing shares sold in
the Offering, and shares purchased by the ESOP and Stock Plans.
(6) Based on annualization of pro forma net income for the eight months ended
August 31, 1997.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Independent Valuation and the
Offering Range of up to 15% as a result of regulatory considerations or
changes in market or general financial and economic conditions following
the commencement of the Subscription and Community Offerings.
29
<PAGE>
<TABLE>
<CAPTION>
At or for the year ended December 31, 1996
----------------------------------------------------
13,674,650
8,789,000 10,340,000 11,891,000 shares
shares shares shares sold at
sold at sold at sold at $10.00
$10.00 $10.00 $10.00 per share
per share per share per share (15%
(minimum (midpoint (maximum above maximum
of offering of offering of offering of offering
range) range) range) range)(6)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Gross proceeds.................................................... $ 87,890 $ 103,400 $ 118,910 $ 136,747
Less: estimated Offering expenses................................. (2,200) (2,200) (2,200) (2,200)
--------- --------- --------- ---------
Estimated net proceeds.......................................... 85,690 101,200 116,710 134,547
Less: Common Stock acquired by the ESOP........................... (3,516) (4,136) (4,756) (5,470)
Less: Common Stock acquired by the Stock Plans.................... (3,516) (4,136) (4,756) (5,470)
--------- --------- --------- ---------
Estimated net investable proceeds............................... $ 78,658 $ 92,928 $ 107,198 $ 123,607
========= ========= ========= =========
Net income:
Actual for the year ended December 31, 1996..................... $ 11,937 $ 11,937 $ 11,937 $ 11,937
Pro forma income on net proceeds................................ 2,722 3,215 3,709 4,277
Pro forma ESOP adjustment(1).................................... (316) (372) (428) (492)
Pro forma Stock Plans adjustment(2)............................. (443) (521) (599) (689)
--------- --------- --------- ---------
Pro forma net income........................................ $ 13,900 $ 14,259 $ 14,619 $ 15,033
========= ========= ========= =========
Net income per share:
Actual for the year ended December 31, 1996..................... $ 0.65 $ 0.55 $ 0.48 $ 0.42
Pro forma income on estimated net investable proceeds........... 0.15 0.15 0.15 0.15
Pro forma ESOP adjustment(1).................................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Plans adjustment(2)............................. (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ---------
Pro forma net income........................................ $ 0.76 $ 0.66 $ 0.59 $ 0.53
========= ========= ========= =========
Stockholders' equity(5):
Actual at December 31, 1996..................................... $ 113,947 $ 113,947 $ 113,947 $ 113,947
Estimated net proceeds.......................................... 85,690 101,200 116,710 134,547
Less: Common Stock acquired by the ESOP......................... (3,516) (4,136) (4,756) (5,470)
Less: Common Stock acquired by the Stock Plans.................. (3,516) (4,136) (4,756) (5,470)
--------- --------- --------- ---------
Pro forma stockholders' equity(2)(3)(4)..................... $ 192,605 $ 206,875 $ 221,145 $ 237,554
========= ========= ========= =========
Stockholders' equity per share(5):
Actual at December 31, 1996..................................... $ 6.10 $ 5.18 $ 4.51 $ 3.92
Net proceeds.................................................... 4.58 4.60 4.61 4.62
Less: Common Stock acquired by the ESOP......................... (0.19) (0.19) (0.19) (0.19)
Less: Common Stock acquired by the Stock Plans.................. (0.19) (0.19) (0.19) (0.19)
--------- --------- --------- ---------
Pro forma stockholders' equity.............................. $ 10.30 $ 9.40 $ 8.74 $ 8.16
========= ========= ========= =========
Offering price as a percentage of
pro forma stockholders' equity per share...................... 97.09% 106.38% 114.42% 122.55%
Offering price as a multiple of pro forma
net income per share.......................................... 13.16x 15.15x 16.95x 18.87x
</TABLE>
- -------------------------
(1) It is assumed that 4% of the shares of Common Stock issued in the Offering
will be purchased by the ESOP. For purposes of this table, the funds used
to acquire such shares are assumed to have been borrowed by the ESOP from
the Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The pro forma net income assumes: (i) that the ESOP
shares are released over seven years; (ii) that 50,223, 59,086, 67,943 and
78,143 shares at the minimum, midpoint, maximum and 15% above the maximum
of the range, respectively, were committed to be released during the year
ended December 31, 1996 at an average fair value of $10.00 per share in
accordance with SOP 93-6; and (iii) only the ESOP shares committed to be
released were considered outstanding for purposes of the net income per
share calculations. See "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans--Employee Stock Ownership Plan
and Trust."
(2) Gives effect to the Stock Plans expected to be adopted by the Company
following the Offering and presented for approval at a meeting of
stockholders. The Stock Plans intend to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock issued with the Offering, or
351,560, 413,600, 475,640 and 546,986 shares of Common Stock at the
minimum, midpoint, maximum and 15% above the maximum of the Offering
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock
of the Company, if any. In calculating the pro forma effect of the Stock
Plans, it is assumed that the shares were acquired by the Stock Plans at
the beginning of the period presented in open market purchases at the
Purchase Price and that
30
<PAGE>
20.0% of the amount contributed was an amortized expense during such
period. The issuance of authorized but unissued shares of the Company's
Common Stock to the Stock Plans instead of open market purchases would
dilute the voting interests of existing stockholders by approximately 1.8%
and pro forma net income per share would be $0.75, $0.65, $0.58 and $0.52
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share would be
$10.29, $9.41, $8.76 and $8.20 at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively. There can be no assurance
that the actual purchase price of the shares granted under the Stock Plans
will be equal to the Purchase Price. See "Management of the Stock
Bank--Compensation of Officers and Trustees through Benefit Plans--Stock
Plan."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Offering. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. Under the Stock
Option Plans, an amount equal to 10% of the Common Stock issued in the
Offering, or 878,900, 1,034,000, 1,189,100 and 1,367,465 shares at the
minimum, midpoint, maximum and 15% above the maximum of the Offering
Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the beginning of the
period at an exercise price of $10.00 per share, the pro forma net income
per share would be $0.71, $0.62, $0.56 and $0.50, respectively, and the
pro forma stockholders' equity per share would be $9.84, $9.00, $8.38 and
$7.84, respectively. See "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans--Stock Option Plan."
(4) The retained earnings of the Bank will continue to be restricted after the
Offering. See "Dividend Policy," "Description of Capital Stock of the
Company--Common Stock--Liquidation or Dissolution" and "Regulation and
Supervision--Massachusetts Bank Regulation."
(5) Stockholders' equity per share data is based upon 18,700,000, 22,000,000,
25,300,000 and 29,095,000 shares outstanding representing shares sold in
the Offering, and shares purchased by the ESOP and Stock Plans.
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Independent Valuation and the
Offering Range of up to 15% as a result of regulatory considerations or
changes in market or general financial and economic conditions following
the commencement of the Subscription and Community Offerings.
31
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three year period ended December 31, 1996 have been audited by
Grant Thornton LLP, independent certified public accountants, whose report
thereon appears elsewhere in this Prospectus. With respect to information for
the eight months ended August 31, 1997 and 1996, which is unaudited, in the
opinion of management, all adjustments necessary for a fair presentation of such
periods have been included and are of a normal recurring nature. Results for the
eight months ended August 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. These statements
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Eight months ended
August 31, Year ended December 31,
------------------ ------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans....................................................... $29,350 $27,230 $41,251 $38,949 $31,711
Debt securities............................................. 5,778 5,320 8,115 8,963 7,189
Marketable equity securities................................ 472 476 697 678 566
Restricted equity securities................................ 147 124 191 185 203
Short-term investments...................................... 372 413 765 145 274
------- ------- ------- ------- -------
Total interest income 36,119 33,563 51,019 48,920 39,943
------- ------- ------- ------- -------
Interest expense:
Deposits.................................................... 14,463 14,530 21,775 20,910 15,835
Borrowed funds.............................................. 2,741 2,329 3,683 3,028 1,926
------- ------- ------- ------- -------
Total interest expense................................... 17,204 16,859 25,458 23,938 17,761
------- ------- ------- ------- -------
Net interest income........................................... 18,915 16,704 25,561 24,982 22,182
Provision (credit) for loan losses............................ - - - - (477)
------- ------- ------- ------- -------
Net interest income after provision (credit) for loan losses.. 18,915 16,704 25,561 24,982 22,659
------- ------- ------- ------- -------
Non-interest income:
Fees and charges............................................. 525 729 957 759 722
Gains on sales of securities net............................. 74 464 464 877 4
Other real estate owned income (expense), net................ 158 186 299 (40) (741)
Other income................................................. 72 110 120 9 94
------- ------- ------- ------- -------
Total non-interest income................................. 829 1,489 1,840 1,605 79
------- ------- ------- ------- -------
Non-interest expense:
Compensation and employee benefits........................... 3,500 2,974 4,513 4,395 4,017
Occupancy.................................................... 473 409 627 579 591
Equipment and data processing................................ 720 606 892 882 878
Deposit insurance premiums................................... 47 7 11 561 1,023
Other........................................................ 998 811 1,670 1,033 1,187
------- ------- ------- ------- -------
Total non-interest expense 5,738 4,807 7,713 7,450 7,696
------- ------- ------- ------- -------
Income before income taxes..................................... 14,006 13,386 19,688 19,137 15,042
Provision for income taxes..................................... 4,880 5,191 7,751 7,409 5,942
------- ------- ------- ------- -------
Net income..................................................... $ 9,126 $ 8,195 $11,937 $11,728 $ 9,100
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly, has no
results of operations. The Bank's results of operations depend primarily on its
net interest income, which is the difference between the income earned on the
Bank's loan and securities portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. Results of operations are also
affected by the Bank's provision for loan losses, income and expenses pertaining
to other real estate owned, gains and losses from sales of securities, and
non-interest expenses. The Bank's non-interest expenses consist principally of
compensation and employee benefits, occupancy, equipment and data processing,
federal deposit insurance premiums and other operating expenses. Results of
operations are also significantly affected by general economic and competitive
conditions, changes in interest rates, as well as government policies and
actions of regulatory authorities. Future changes in applicable law, regulations
or government policies may materially affect the Company and the Bank.
Management Strategy
Historically, the Bank has focused on offering deposit products in the
Town of Brookline and surrounding communities. The Bank's lending activities are
concentrated primarily in the greater Boston metropolitan area and eastern
Massachusetts. The Bank generates its profitability primarily by originating
loans, investing in debt and equity securities, attracting and retaining
deposits by paying competitive interest rates, borrowing from the Federal Home
Loan Bank of Boston ("FHLB") and maintaining a lower operating expense ratio in
comparison to banks of similar size. Depending on demand and overall market
conditions, the Bank intends to continue to emphasize multi-family and
commercial real estate lending and to pursue opportunities for growth in these
areas of business. While this type of lending typically generates higher yields,
it is also involves greater credit risk. As a consequence, in future periods,
the Bank may increase the level of its provision for loan losses depending on
market conditions, the level of non-performing loans and other factors.
Management of Credit Risk
Management considers credit risk to be the most important risk factor
affecting the financial condition and operating results of the Bank. The
potential for loss associated with this risk factor is managed through a
combination of policies established by the Bank's Board of Trustees, the
monitoring of compliance with these policies, and the periodic reporting and
evaluation of loans with problem characteristics. Policies relate to the maximum
amount that can be granted to a single borrower and his or her related
interests, the aggregate amount of loans outstanding by type in relation to
total assets and capital, loan concentrations, loan to collateral value ratios,
approval limits and other underwriting criteria. Policies also exist with
respect to performing credit reviews by an officer not involved in loan
origination, the rating of loans, when loans should be placed in a
non-performing status and the factors that should be considered in establishing
the Bank's allowance for loan losses. See "Business of the Bank--Lending
Activities."
Management of Interest Rate Risk
Another important risk factor affecting the financial condition and
operating results of the Bank is interest rate risk. This risk is managed by
periodic evaluation of the interest rate risk inherent in certain balance sheet
accounts, determination of the level of risk considered appropriate given the
Bank's capital and liquidity requirements, business strategy, performance
objectives and operating environment, and maintenance of such risks within
guidelines approved by the Board of Trustees. Through such management, the Bank
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Bank's Asset/Liability Committee, comprised of senior management, is
responsible for managing interest rate risk and reviewing with the Board of
Trustees on a quarterly basis its activities and strategies, the effect of those
strategies on the Bank's operating results, the Bank's interest rate risk
position, and the effect changes in interest rates would have on the Bank's net
interest income. The extent of movement of interest
33
<PAGE>
rates is an uncertainty that could have a negative impact on the earnings of the
Bank. See "Risk Factors--Sensitivity to Changes in Interest Rates."
The principal strategies used by the Bank to manage interest rate risk
include (1) emphasizing on the origination and retention of adjustable-rate
loans or loans with maturities matched with those of the deposits and borrowings
funding the loans, (2) investing in debt securities with relatively short
maturities and (3) classifying of a significant portion of the Bank's investment
portfolio as available for sale so as to provide sufficient flexibility in
liquidity management.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is deemed to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest bearing-liabilities maturing or repricing within that
same time period. At August 31, 1997, the Bank's cumulative one-year gap
position, the difference between the amount of interest-earning assets maturing
or repricing within one year and interest-bearing liabilities maturing or
repricing within one year, was a negative 9.81%. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Accordingly, during a period of rising interest rates, an
institution with a negative gap position generally would not be in as favorable
a position, compared to an institution with a positive gap, to invest in higher
yielding assets. The resulting yield on the institution's assets generally would
increase at a slower rate than the increase in its cost of interest-bearing
liabilities. Conversely, during a period of falling interest rates, an
institution with a negative gap would tend to experience a repricing of its
assets at a slower rate than its interest-bearing liabilities which,
consequently, would generally result in its net interest income growing at a
faster rate than an institution with a positive gap position.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at August 31, 1997, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown (the "GAP Table"). Except as stated below,
the amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
August 31, 1997, on the basis of contractual maturities, anticipated prepayments
and scheduled rate adjustments within a three month period and subsequent
selected time intervals. The loan amounts in the table reflect principal
balances expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
The annual prepayment rate for real estate mortgage loans is assumed to be 7.5%.
See "Business of the Bank--Lending Activities," "--Investment Activities" and
"--Sources of Funds."
34
<PAGE>
<TABLE>
<CAPTION>
At August 31, 1997
----------------------------------------------------------------------
More More More
More More than than than
than three than six one three five
Three months to months to year years years More
months six one to three to five to ten than
or less months year years years years ten years
--------- ---------- ----------- ---------- --------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Short-term investments.................... $ 7,495 $ - $ - $ - $ - $ - $ -
Debt and equity securities(2)............. 29,603 15,117 30,833 79,243 218 579 489
Mortgage loans(3)......................... 172,844 29,292 49,822 138,821 42,261 7,951 201
Commercial participation loans............ 36,500 - - - - - -
Other loans............................... 5,846 39 169 1,454 151 34 -
-------- -------- -------- -------- -------- -------- --------
Total interest-earning assets.......... 252,288 44,448 80,824 219,518 42,630 8,564 690
-------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
NOW accounts.............................. 37,786 - - - - - -
Savings accounts.......................... 14,399 - - - - - -
Money market savings accounts............. 157,782 - - - - - -
Certificate of deposit accounts........... 74,928 59,521 75,352 43,503 8,079 - -
Borrowed funds............................ 6,850 3,000 11,600 25,015 15,350 - -
-------- -------- -------- -------- -------- -------- --------
Total interest-bearing liabilities..... 291,745 62,521 86,952 68,518 23,429 - -
-------- -------- -------- -------- -------- -------- --------
Interest sensitivity gap(4)................. $(39,457) $(18,073) $ (6,128) $151,000 $ 19,201 $ 8,564 $ 690
======== ======== ======== ======== ======== ======== ========
Cumulative interest sensitivity gap......... $(39,457) $(57,530) $(63,658) $ 87,342 $106,543 $115,107 $115,797
======== ======== ======== ======== ======== ======== ========
Cumulative interest sensitivity gap
as a percentage of total assets........... (5.80)% (8.46)% (9.36)% 12.84% 15.66% 16.92% 17.02%
Cumulative interest sensitivity
gap as a percentage of total
interest-earning assets................... (6.08)% (8.86)% (9.81)% 13.46% 16.42% 17.74% 17.84%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities............................... 86.48% 83.76% 85.57% 117.14% 119.98% 121.59% 121.72%
<CAPTION>
Total
-----
(Dollars in thousands)
<S> <C>
Interest-earning assets(1):
Short-term investments.................... $ 7,495
Debt and equity securities(2)............. 156,082
Mortgage loans(3)......................... 441,192
Commercial participation loans............ 36,500
Other loans............................... 7,693
---------
Total interest-earning assets.......... 648,962
---------
Interest-bearing liabilities:
NOW accounts.............................. 37,786
Savings accounts.......................... 14,399
Money market savings accounts............. 157,782
Certificate of deposit accounts........... 261,383
Borrowed funds............................ 61,815
---------
Total interest-bearing liabilities..... 533,165
---------
Interest sensitivity gap(4)................. $ 115,797
=========
</TABLE>
- -------------------
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Debt and equity securities include all debt securities and $1.5 million of
auction rate preferred stock, the maturities of which have been assumed to
be the date on which they are next auctioned (3 months or less). All other
marketable equity securities and restricted equity securities are
excluded.
(3) For purposes of the gap analysis, the allowance for loan losses, deferred
loan fees, unearned discounts and non-performing loans have been excluded.
(4) Interest sensitivity gap represents the difference between
interest-earning assets and interest-bearing liabilities, expressed as a
percentage.
Certain shortcomings are inherent in the method of analysis
presented in the GAP Table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets such as adjustable-rate
loans, have features which restrict changes in interest rates both
on a short-term basis and over the life of the asset. Further, in
the event of changes in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Finally, the ability of many
borrowers to service their adjustable-rate loans may decrease in the
event of an interest rate increase.
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 also depends on the relative amounts of
interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on them.
35
<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to the Bank at August 31, 1997, for the eight months ended
August 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994.
The average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown and reflect annualized yields and costs.
Average balances are derived from average daily balances. The yields and costs
include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Eight months ended August 31,
-------------------------------------------------
At August 31, 1997 1997
-------------------------- -------------------------------------------------
Average Average
yield/ Average yield/
Balance cost balance Interest/(1)/ cost
--------- ------- --------- -------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earnings assets:
Short-term investments............ $ 7,495 5.47% $ 10,332 $ 372 5.40%
Debt securities (2)............... 154,700 6.02 144,171 5,778 6.01
Equity securities (2)............. 27,145 4.72 24,858 792 4.78
Mortgage loans (3)(4)............. 441,320 8.91 434,363 26,072 9.00
Commercial participation loans (3) 36,500 5.69 51,017 1,916 5.63
Other commercial loans (3)........ 6,359 9.64 5,911 380 9.64
Consumer loans (3)................ 1,336 10.37 1,052 74 10.55
--------- --------- -------
Total interest-earning assets 674,855 7.88 671,704 35,384 7.90
----- ------- -----
Allowance for loan losses........... (12,443) (12,417)
Non-interest earning assets......... 17,904 15,830
--------- ---------
Total assets.................. $ 680,316 $ 675,117
========= =========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
NOW accounts.................. $ 37,786 1.75% $ 37,606 $ 430 1.72%
Savings accounts (5).......... 14,399 2.50 15,327 252 2.47
Money market savings accounts 157,782 3.81 158,618 4,066 3.85
Certificate of deposit
accounts.................... 261,383 5.64 262,009 9,715 5.56
--------- --------- -------
Total deposits............. 471,350 4.62 473,560 14,463 4.58
Borrowed funds.................... 61,815 6.44 63,019 2,741 6.52
--------- --------- -------
Total interest-bearing
liabilities 533,165 4.83 536,579 17,204 4.81
----- -----
Non-interest-bearing demand
checking accounts................. 10,356 9,723
Other liabilities................... 11,425 9,367
--------- ---------
Total liabilities.......... 554,946 555,669
Retained earnings................... 125,370 119,448
--------- ---------
Total liabilities and
retained earnings....... $ 680,316 $ 675,117
========= =========
Net interest income (tax equivalent
basis)/interest rate spread (6) 3.05% 18,180 3.09%
===== =====
Less adjustment of tax exempt income 173
-------
Net interest income (4)............. $18,007
=======
Net interest margin (7)............. 4.06%
=====
Ratio of interest-earning assets to
interest-bearing liabilities...... 126.58% 125.18%
====== ======
<CAPTION>
Eight months ended August 31,
---------------------------------------
1996
---------------------------------------
Average
Average yield/
balance Interest/(1)/ cost
-------- ------------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earnings assets:
Short-term investments............ $ 11,836 $ 413 5.23%
Debt securities (2)............... 131,828 5,320 6.05
Equity securities (2)............. 21,788 774 5.33
Mortgage loans (3)(4)............. 412,337 24,850 9.04
Commercial participation loans (3) 56,585 2,097 5.56
Other commercial loans (3)........ 3,172 195 9.22
Consumer loans (3)................ 1,138 88 11.60
-------- -------
Total interest-earning assets 638,684 33,737 7.92
------- ------
Allowance for loan losses........... (12,296)
Non-interest earning assets......... 15,975
--------
Total assets.................. $642,363
========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
NOW accounts.................. $ 36,649 $ 423 1.73%
Savings accounts (5).......... 17,818 290 2.44
Money market savings accounts 152,979 3,925 3.85
Certificate of deposit
accounts.................... 262,203 9,892 5.66
-------- -------
Total deposits............. 469,649 14,530 4.64
Borrowed funds.................... 52,645 2,329 6.64
-------- -------
Total interest-bearing
liabilities.............. 522,294 16,859 4.84
------- ------
Non-interest-bearing demand
checking accounts................. 9,439
Other liabilities................... 5,469
--------
Total liabilities.......... 537,202
Retained earnings................... 105,161
--------
Total liabilities and
retained earnings....... $642,363
========
Net interest income (tax equivalent
basis)/interest rate spread (6) 16,878 3.08%
======
Less adjustment of tax exempt income 174
-------
Net interest income (4)............. $16,704
=======
Net interest margin (7)............. 3.96%
======
Ratio of interest-earning assets to
interest-bearing liabilities...... 122.28%
======
</TABLE>
- --------------------
(1) Tax exempt income on equity securities is included on a tax equivalent
basis.
(2) Average balances include unrealized gains on securities available for
sale. Equity securities include marketable equity securities (preferred
and common stocks) and restricted equity securities.
(3) Loans on non-accrual status are included in the average balances.
(4) Excluded from interest income for the eight months ended August 31, 1997
is $908 collected from a borrower whose loans were on non-accrual and
which relates to interest earned in periods prior to January 1, 1997.
(5) Savings accounts include interest-bearing mortgagors' escrow deposits.
(6) Net interest spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(7) Net interest margin (annualized) represents net interest income (tax
equivalent basis) divided by average interest-earning assets.
36
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
Average Average
Average yield/ Average yield/
balance Interest/(1)/ cost balance Interest/(1)/ cost
--------- ----------- ----------- ----------- ------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments........... $ 14,562 $ 765 5.25% $ 2,511 $ 145 5.77%
Debt securities (2).............. 135,039 8,115 6.01 154,736 8,963 5.79
Equity securities (2)............ 21,746 1,142 5.25 18,387 1,110 6.04
Mortgage loans (3)............... 415,054 37,765 9.10 392,509 36,366 9.27
Commercial participation
loans (3)...................... 54,076 3,007 5.56 35,766 2,166 6.06
Other commercial loans (3)....... 3,792 345 9.10 2,624 271 10.33
Consumer loans (3)............... 1,098 134 12.20 1,338 146 10.91
--------- ------- --------- -------
Total interest-earning assets. 645,367 51,273 7.94 607,871 49,167 8.09
------- ------ ------- --------
Allowance for loan losses............ (12,319) (12,247)
Non-interest earning assets......... 15,863 18,857
--------- ---------
Total assets.................. $ 648,911 $ 614,481
========= =========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits
NOW accounts.................. $ 37,095 $ 641 1.73% $ 35,787 $ 620 1.73%
Savings accounts (4).......... 17,302 426 2.46 20,460 498 2.43
Money market savings accounts. 154,541 5,957 3.85 151,334 5,665 3.74
Certificate of deposit
Accounts 262,007 14,751 5.63 252,985 14,127 5.58
--------- ------- --------- -------
Total deposits.............. 470,945 21,775 4.62 460,566 20,910 4.54
Borrowed funds................... 55,497 3,683 6.64 46,172 3,028 6.56
--------- ------- --------- -------
Total interest-bearing liabilities.... 526,442 25,458 4.84 506,738 23,938 4.72
------- ------ ------- -----
Non-interest-bearing demand
checking accounts................. 9,595 8,266
Other liabilities................... 5,808 6,553
--------- ---------
Total liabilities............. 541,845 521,557
Retained earnings................... 107,066 92,924
--------- ---------
Total liabilities and retained
earnings................. $ 648,911 $ 614,481
========= =========
Net interest income (tax equivalent
basis)/interest rate spread (5).. 25,815 3.10% 25,229 3.37%
====== =====
Less adjustment of tax exempt
income............................ 254 247
------- -------
Net interest income................. $25,561 $24,982
======= =======
Net interest margin (6)............. 4.00% 4.15%
====== =====
Ratio of interest-earning assets to
interest-bearing liabilities..... 122.59% 119.96%
====== ======
<CAPTION>
Year Ended December 31,
-------------------------------------
1994
-------------------------------------
Average
Average yield/
balance Interest/(1)/ cost
--------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments........... 6,745 $ 274 4.06%
Debt securities (2).............. 142,504 7,189 5.04
Equity securities (2)............ 14,130 976 6.91
Mortgage loans (3)............... 361,061 29,730 8.23
Commercial participation loans (3) 37,259 1,691 4.54
Other commercial loans (3)....... 2,380 160 6.72
Consumer loans (3)............... 1,318 130 9.86
-------- ------ -------
Total interest-earning assets. 565,397 40,150 7.10
====== =======
Allowance for loan losses........... (12,741)
Non-interest earning assets......... 21,010
---------
Total assets.................. $ 573,666
=========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits
NOW accounts..................... $ 37,226 $ 657 1.76%
Savings accounts (4)............. 25,673 628 2.45
Money market savings accounts.... 172,859 5,278 3.05
Certificate of deposit accounts.. 211,066 9,272 4.39
--------- -------
Total deposits................. 446,824 15,835 3.54
Borrowed funds...................... 32,904 1,926 5.85
--------- -------
Total interest-bearing liabilities..... 479,728 17,761 3.70
--------- ------- ------
Non-interest-bearing demand
checking accounts.................... 7,678
Other liabilities...................... 6,013
---------
Total liabilities.............. 493,419
Retained earnings...................... 80,247
---------
Total liabilities and
retained earnings............ $ 573,666
=========
Net interest income (tax equivalent
basis)/interest rate spread (5)..... 22,389 3.40%
=====
Less adjustment of tax exempt income... 207
-------
Net interest income.................... $22,182
=======
Net interest margin (6)................ 3.96%
=====
Ratio of interest-earning assets to
interest-bearing liabilities........ 117.86%
======
</TABLE>
(1) Tax exempt income on equity securities is included on a tax equivalent
basis.
(2) Average balances include unrealized gains on securities available for
sale. Equity securities include marketable equity securities (preferred
and common stocks) and restricted equity securities.
(3) Loans on non-accrual status are included in the average balances.
(4) Savings accounts include interest-bearing mortgagors' escrow deposits.
(5) Net interest spread represents the difference between the yield on
interest-earning assets and interest-bearing liabilities.
(6) Net interest margin (annualized) represents annualized net interest income
(tax equivalent basis) divided by average interest-earning assets.
37
<PAGE>
Rate/Volume Analysis. The following table presents, on a tax equivalent
basis, the extent to which changes in interest rates and changes in volume of
interest-earning assets and interest-bearing liabilities have affected the
Bank'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.
<TABLE>
<CAPTION>
Eight months ended Year ended
August 31, 1997 December 31, 1996
compared to compared to
eight months ended year ended
August 31, 1996 December 31, 1995
----------------------------------- -----------------------------------
Increase (decrease) Increase (decrease)
due to due to
---------------------- ----------------------
Volume Rate Net Volume Rate Net
--------- --------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments............... $ (64) $ 23 $ (41) $ 634 $ (14) $ 620
Debt securities...................... 529 (71) 458 (1,174) 326 (848)
Equity securities.................... 149 (131) 18 187 (155) 32
Mortgage loans....................... 1,416 (194) 1,222 2,060 (661) 1,399
Commercial participation loans....... (234) 53 (181) 1,031 (190) 841
Other commercial loans............... 176 9 185 109 (35) 74
Consumer loans....................... (6) (8) (14) (28) 16 (12)
--------- --------- ------- ------- ------ --------
Total interest-earning assets...... 1,966 (319) 1,647 2,819 (713) 2,106
--------- --------- ------- ------- ------ --------
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
NOW accounts....................... $ 14 $ (7) $ 7 $ 23 $ (2) $ 21
Savings accounts................... (44) 6 (38) (78) 6 (72)
Money market savings accounts 148 (7) 141 122 170 292
Certificate of deposit accounts.... (7) (170) (177) 507 117 624
--------- --------- ------- ------- ------ --------
Total deposits..................... 111 (178) (67) 574 291 865
Borrowed funds....................... 487 (75) 412 618 37 655
--------- --------- ------- ------- ------ --------
Total interest-bearing liabilities. 598 (253) 345 1,192 328 1,520
--------- --------- ------- ------- ------ --------
Net change in net interest income....... $ 1,368 $ (66) $ 1,302 $ 1,627 $(1,041) $ 586
========= ========= ======= ======= ====== ========
<CAPTION>
Year ended
December 31, 1995
compared to
year ended
December 31, 1994
-----------------------------------
Increase (decrease)
due to
----------------------
Volume Rate Net
--------- --------- ---------
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments............... $ (215) $ 86 $ (129)
Debt securities...................... 651 1,123 1,774
Equity securities.................... 268 (134) 134
Mortgage loans....................... 2,722 3,914 6,636
Commercial participation loans....... (70) 545 475
Other commercial loans............... 18 93 111
Consumer loans....................... 4 12 16
------- -------- --------
Total interest-earning assets...... 3,378 5,639 9,017
------- -------- --------
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
NOW accounts....................... $ (25) $ (12) $ (37)
Savings accounts................... (127) (3) (130)
Money market savings accounts...... (710) 1,097 387
Certificate of deposit accounts.... 2,053 2,802 4,855
------- -------- --------
Total deposits..................... 1,191 3,884 5,075
Borrowed funds....................... 849 253 1,102
------- -------- --------
Total interest-bearing liabilities. 2,040 4,137 6,177
------- -------- --------
Net change in net interest income....... $ 1,338 $ 1,502 $ 2,840
======= ======== ========
</TABLE>
Comparison of Financial Condition at August 31, 1997 and December 31, 1996
Total assets increased by $13.3 million, or 2.0%, from $667.0 million
at December 31, 1996 to $680.3 million at August 31, 1997. This growth was due
primarily to a $7.0 million, or 3.8%, increase in investments and a $4.7
million, or 1.0%, increase in net loans. Asset growth was funded primarily by an
$11.4 million, or 10.0%, increase in retained earnings.
The Bank's investment strategy between December 31, 1996 and August 31,
1997 was to reduce excess liquidity and slightly extend the maturity of its
investments. As a result, short-term investments decreased by $12.4 million and
investments in debt securities increased by $16.1 million. The change in debt
securities included an $8.6 million increase in corporate obligations, a $7.7
million increase in U.S. Government and Agency obligations and a $204,000
decrease in mortgage-backed securities. Most of the debt securities purchased
had maturities in the range of two years.
The net increase in loans resulted from greater mortgage loan
originations which was partially offset by fewer purchases of commercial loan
participations. From December 31, 1996 to August 31, 1997, one-to-four family
mortgage loans increased by $7.5 million (13.0%), multi-family mortgage loans
increased by $13.7 million (6.8%) and commercial real estate mortgage loans
increased by $3.8 million (2.7%). These increases were offset by a reduction in
commercial loan participations from $53.0 million at December 31, 1996 to $36.5
million at August 31, 1997 and
38
<PAGE>
modest decreases in other loan categories. Commercial loan participations
represent purchases of a portion of loans to national companies originated and
serviced by money center banks. The participations generally mature between one
day and three months. The Bank views such participations as an alternative
investment to slightly lower yielding short-term investments.
Total deposits at August 31, 1997 were $481.5 million, a decrease of
$2.5 million, or 0.5%, compared to $484.0 million at December 31, 1996. The
modest decline in deposits was attributable to continuation of a low interest
rate environment wherein the Bank must compete against other instruments
available to the public such as mutual funds and annuities. Total borrowed funds
were $61.8 million at August 31, 1997 compared to $60.6 million at December 31,
1996, an increase of $1.2 million, or 2.1%. The increase in retained earnings of
$11.4 million to $125.4 million at August 31, 1997, or 18.4% of total assets,
resulted from net earnings of $9.1 million for the eight months ended August 31,
1997 and a $2.3 million increase in unrealized gains (net of taxes) on
securities available for sale, most of which pertained to the Bank's marketable
equity securities portfolio.
Comparison of Financial Condition at December 31, 1996 and December 31, 1995
Total assets were $667.0 million at December 31, 1996 compared to
$632.8 million at December 31, 1995, an increase of $34.2 million, or 5.4%.
Substantially all of the growth was due to a $32.1 million, or 7.3%, increase in
net loans. Asset growth was funded primarily from increased deposits
($9.8 million), increased borrowings from the FHLB ($10.9 million) and increased
retained earnings ($13.4 million).
Total net loans increased from $448.6 million at December 31, 1995 to
$480.7 million at December 31, 1996. Between those dates, total mortgage loans
increased by $19.7 million, or 4.8%, to $431.1 million and total commercial
loans increased by $14.5 million, or 30.4%, to $62.2 million. The most
significant areas of mortgage loan growth were in commercial real estate loans
which increased by $14.1 million, or 11.2%, to $139.4 million and multi-family
loans which increased by $6.6 million, or 3.4%, to $200.4 million. While the
market in these lending areas was strong throughout the year, so too was the
competition for such business. Many borrowers took advantage of the increased
competition to refinance their properties. As a result, the Bank's net growth in
mortgage loans in 1996 ($19.7 million) was slightly less than that achieved in
1995 ($20.9 million), despite a higher level of loan originations in 1996 than
in 1995. Of the increase in commercial loans, $9.9 million was attributable to
commercial loan participations and $4.6 million to other commercial loans,
primarily to condominium associations.
While total investments increased modestly from $179.7 million at
December 31, 1995 to $182.3 million at December 31, 1996, the extent of change
within investment classifications was more significant. Short-term investments
increased $14.2 million, securities available for sale increased $35.6 million
and securities held to maturity decreased $47.7 million. In November 1995, in
accordance with the FASB interpretation regarding SFAS No. 115, the Bank
transferred debt securities having a carrying value and market value of
$26.0 million from its held to maturity portfolio to its available for sale
portfolio.
Total deposits increased 2.1% from $474.2 million at December 31, 1995
to $484.0 million at December 31, 1996. Substantially all of the growth came
from a $9.5 million increase in money market savings accounts to $158.1 million
at December 31, 1996. Total certificates of deposit increased slightly from
$260.9 million at December 31, 1995 to $261.8 million at December 31, 1996. The
modest inflow of deposits was caused primarily by customers opting to place
their funds in other instruments such as mutual funds and annuities rather than
in deposit products perceived to have less appealing returns. The Bank increased
its borrowings from the FHLB from $49.7 million at December 31, 1995 to
$60.6 million at December 31, 1996 as part of its management of interest rate
risk resulting from the origination and refinancing of multi-family and
commercial real estate loans at fixed interest rates for certain time intervals.
The increase in retained earnings of $13.4 million to $113.9 million at
December 31, 1996, or 17.1% of total assets, resulted from net earnings of
$11.9 million and a $1.4 million increase in unrealized gains (net of taxes) on
securities available for sale to $8.7 million.
39
<PAGE>
Comparison of Operating Results For the Eight Months Ended August 31, 1997 and
August 31, 1996
General. Net income increased by $931,000, or 11.4%, from $8.2 million
for the eight months ended August 31, 1996 to $9.1 million for the eight months
ended August 31, 1997. The improvement was attributable to higher net interest
income of $2.2 million and a $311,000 decrease in income tax expense resulting
from a lower effective income tax rate, partially offset by an increase of
$931,000 in non-interest expense due to higher operating costs and a $660,000
decline in non-interest income due in part to $390,000 less in gains from sales
of securities. The increase in net interest income was due primarily to growth
in average-interest earning assets and receipt of $908,000 in interest from a
borrower whose loans were on non-accrual and which related to interest earned in
periods prior to 1997.
Interest Income. Interest income for the eight months ended August 31,
1997 was $36.1 million, compared to $33.6 million for the eight months ended
August 31, 1996, an increase of $2.6 million, or 7.6%. Excluding the receipt of
$908,000 in interest income referred to in the preceding paragraph, the rate of
increase over the prior period was 4.9%. Subsequent discussion herein regarding
income from lending activities in 1997 excludes the effect of the $908,000 in
interest income. Substantially all of the increase in interest income resulted
from growth in average interest-earning assets of $33.0 million, or 5.2%. The
principal areas of growth related to mortgage loans (up $22.0 million, or 5.3%)
and debt securities (up $12.3 million, or 9.4%). Most of the mortgage loan
growth resulted from increased originations of one-to-four family, multi-family
and commercial real estate loans. The increase in debt securities resulted from
a decision to shift some of the Bank's liquid funds placed in short-term
investments and commercial loan participations into debt securities so as to
improve asset yield. Generally, debt securities with maturities in the two year
range earned approximately 30 to 50 basis points higher than the yields on
shorter term assets during the eight months ended August 31, 1997.
Interest Expense. Interest expense for the eight months ended
August 31, 1997 was $17.2 million, compared to $16.9 million for the eight
months ended August 31, 1996, an increase of $345,000, or 2.0%. This increase
resulted from a higher average balance of interest-bearing liabilities
($14.3 million, or 2.7%) which was partially offset by a 3 basis point reduction
in the average rate paid for funds. Average interest-bearing deposit balances
increased modestly ($3.9 million, or 0.8%) as a continued low rate environment
made it difficult to attract deposits at acceptable interest rate levels. The
Bank expanded its use of borrowings from the FHLB as part of its management of
interest rate risk. Interest expense on borrowed funds increased $412,000, or
17.7%, in the eight months ended August 31, 1997 due to a $10.4 million, or
19.7%, increase in the average balance of such funds to $63.0 million, which was
partially offset by a 12 basis point reduction in the average rate paid on
borrowed funds to 6.52% in the 1997 period compared to the 1996 period.
Provision for Loan Losses. The Bank did not provide for loan losses in
the eight month periods ended August 31, 1997 and 1996 based on continuation of
favorable trends in the various factors considered by management in evaluating
the adequacy of the Bank's allowance for loan losses. Non-performing loans
amounted to $1.4 million, or 0.3%, of total loans at August 31, 1997 and
$1.1 million, or 0.2%, at August 31, 1996. The allowance for loan losses was
$12.4 million at each of those dates, or 2.56% and 2.55%, respectively, of total
loans outstanding. During the eight months ended August 31, 1997, the Bank
experienced net recoveries of $117,000, compared to net recoveries of $66,000
for the eight months ended August 31, 1996. While management believes that,
based on information currently available, the Bank's allowance for loan losses
is sufficient to cover losses inherent in its loan portfolio at this time, no
assurances can be given that the level of the Bank's allowance will be
sufficient to cover future loan losses incurred by the Bank or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of the
allowance. In addition to the periodic evaluations made by management, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to provide additions to the allowance based upon judgments
different from those of management.
Non-Interest Income. Non-interest income is comprised of fees and
charges for Bank services, gains or losses from sales of assets, other real
estate owned activity and other income resulting from miscellaneous
transactions. Total non-interest income was $829,000 for the eight months ended
August 31, 1997 compared to $1.5 million for the eight months ended August 31,
1996, a decrease of $660,000, or 44.3%. The decrease resulted primarily from a
decline in
40
<PAGE>
Bank fees for services and charges and gains from sales of securities. Fees and
charges were reduced to $525,000 in the 1997 period from $729,000 in the 1996
period primarily because of $157,000 less in fees from loan prepayments and late
payments and $23,000 less in fees on deposit accounts where fees are not
assessed if customers maintain minimum deposit balances. Sales of marketable
equity securities resulted in gains of $74,000 in the 1997 period compared to
$464,000 in the 1996 period. Other real estate owned activity contributed income
of $158,000 and $186,000 for the eight months ended August 31, 1997 and 1996,
respectively. The 1997 income resulted from rental income exceeding related
property expenses while most of the 1996 income ($149,000) resulted from sales
of other real estate owned.
Non-Interest Expense. Non-interest expense increased by $931,000, or
19.4%, from $4.8 million for the eight months ended August 31, 1996 to
$5.7 million for the eight months ended August 31, 1997. Of this increase,
$526,000 related to compensation and employee benefits, which rose 17.7% to
$3.5 million for the eight months ended August 31, 1997. The higher level of
compensation and employee benefits was attributable to several factors: the
addition of a chief financial officer and another commercial loan officer,
increased use of temporary personnel from an outside agency because of personnel
turnover, increased accruals for supplemental executive retirement costs and
bonuses, a one-time charge for compensation-related costs pertaining to the
creation of a real estate investment trust, increased personnel benefit costs
and increased personnel training in connection with conversion to a new computer
system. While the rate of increase in compensation and employee benefits expense
is expected to be lower for the remainder of 1997, the Bank expects compensation
and employee benefits expense to increase significantly after the Offering,
primarily as a result of adoption of various employee benefit plans in
connection with the Offering. In this regard, the proposed ESOP, which intends
to purchase 4% of the Common Stock issued in connection with the Offering and
the Stock Plans which, if implemented, would purchase an amount of Common Stock
equal to 4% of the Common Stock issued in connection with the Offering, would
result in increased compensation and employee benefits expense as the
amortization of the ESOP loan and the Stock Plans awards would be reflected as
compensation expense. See "Management of the Stock Bank--Compensation of
Officers and Trustees through Benefit Plans--Employee Stock Ownership Plan and
Trust."
Occupancy expense increased $64,000, or 15.6%, to $473,000 for the
eight months ended August 31, 1997 primarily as a result of branch lease
renewals. Equipment and data processing expenses increased from $606,000 in the
1996 period to $720,000 in the 1997 period primarily as a result of the Bank's
conversion to a new computer system. The increase in other non-interest expense
from $811,000 in the 1996 period to $998,000 in the 1997 period was attributable
primarily to professional fees associated with the decision to establish a
mutual holding company, formation of a real estate investment trust subsidiary
and an increase in the accrual for annual audit costs.
Income Taxes. Total income tax expense for the eight months ended
August 31, 1997 was $4.9 million compared to $5.2 million for the eight months
ended August 31, 1996, resulting in effective tax rates of 34.8% and 38.8% for
the respective periods. The lower effective tax rate resulted from creation of a
real estate investment trust and continued utilization of a securities
investment subsidiary to substantially reduce state income taxes. See "Business
of the Bank--Subsidiary Activities". The rate of federal income taxes is
slightly less than the statutory rate as a result of the exemption from taxable
income of part of the Bank's dividend income on equity securities.
Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General. Net income was $11.9 million in 1996 compared to $11.7 million
in 1995, an increase of $209,000, or 1.8%. Despite an increase in average
interest-earning assets of $37.5 million, or 6.2%, net interest income increased
by only $579,000, or 2.3%, from $25.0 million in 1995 to $25.6 million in 1996
caused by a reduction in the Bank's interest rate spread from 3.37% in 1995 to
3.10% in 1996. The other significant factor affecting the change in net income
was a $342,000 increase in the Bank's income tax expense from $7.4 million in
1995 to $7.8 million in 1996.
Interest Income. Interest income was $51.0 million in 1996, compared to
$48.9 million in 1995, an increase of $2.1 million, or 4.3%. A $2.8 million
improvement in interest income resulting from interest-earning asset growth was
partially offset by a $713,000 decline resulting from lower yields. The average
yield on mortgage loans declined from 9.27% in 1995 to 9.10% in 1996 as a result
of a lower prime rate and the fact that a significant portion of the Bank's
mortgage loans are tied to the prime rate. As the prime rate decreased, some of
the Bank's commercial real estate
41
<PAGE>
borrowers refinanced their loans at fixed rates for three to five year intervals
so as to lock in more favorable interest rates. Increased competition within the
Bank's market area facilitated the ability of borrowers to arrange such
refinancings. In recognition of this trend and to protect against possible
negative consequences that would result from further reductions in the prime
rate, in 1996, the Bank placed more funds in short-term investments and
commercial loan participations rather than longer-term debt securities. The
yields on such short-term assets were lower in 1996 than in 1995. The decline in
the yield on the Bank's equity securities from 6.04% in 1995 to 5.25% in 1996
was caused by the inclusion of the increased unrealized appreciation on those
securities in average asset balances.
Interest Expense. Interest expense increased by $1.5 million, or 6.3%,
from $23.9 million in 1995 to $25.4 million in 1996. The increase resulted from
a $19.7 million, or 3.9%, increase in average interest-bearing liabilities and a
12 basis point, or 2.5%, increase in the average rate paid on such liabilities.
Total average interest-bearing deposits increased by $10.4 million, or 2.3%,
with most of the increase occurring in certificates of deposit because of the
higher rates offered on such deposits in comparison to those offered on other
types of deposits. The strength of the stock market made investment in mutual
funds an attractive alternative deployment of funds for many customers. Because
of the level of loan refinancings at fixed rates for three-to-five year
intervals, the Bank increased its borrowings from the FHLB as part of interest
rate risk management. The average amount of borrowings outstanding increased by
$9.3 million, or 20.2%, from $46.2 million in 1995 to $55.5 million in 1996.
Provision for Loan Losses. The Bank made no provision for loan losses
in 1996 and 1995 as all the significant factors considered by management in
evaluating the adequacy of the Bank's allowance for loan losses remained
positive. Non-performing loans were $1.3 million at the end of 1996 and $748,000
at the end of 1995, or 0.28% and 0.17% of total loans outstanding at those
respective dates. Loan recoveries ($166,000) equaled loan charge-offs in 1996
and exceeded loan charge-offs ($240,000) by $52,000 in 1995. The allowance for
loan losses was $12.3 million at the end of 1996 and 1995, or 2.56% and 2.75% of
total loans outstanding at those respective dates.
Non-Interest Income. Total non-interest income was $1.8 million in
1996, an increase of $235,000, or 14.6%, from $1.6 million in 1995. The increase
in fees and charges from $759,000 in 1995 to $957,000 in 1996 was substantially
attributable to a $205,000 increase in prepayment fees caused by loan payments
and refinancings. Sales of marketable equity securities generated net gains of
$464,000 in 1996 compared to $877,000 in 1995. Other real estate owned activity
contributed income of $299,000 in 1996, compared to a loss of $40,000 in 1995,
as a result of gains from sales of properties ($149,000 in 1996 and none in
1995) and income from the rental of properties exceeding property expenses by
$150,000 in 1996, compared to a shortfall of $40,000 in 1995. Other income was
higher in 1996 than in 1995 primarily as a result of funds received in 1996 from
a settlement involving a loan-related dispute and the partial charge-off in 1995
of a miscellaneous receivable included in other assets.
Non-Interest Expense. Total non-interest expense was $7.7 million in
1996, compared to $7.4 million in 1995, an increase of $263,000, or 3.5%. This
increase resulted in part from a $550,000 reduction in premiums paid to the FDIC
for deposit insurance. Some of this benefit was offset by an increase in
professional fees resulting from implementation of a tax strategy involving
creation of a real estate investment trust and a diagnostic review of the Bank's
risk management process. The increase in other expenses in 1996 was also
attributable to higher advertising and promotion costs and expenses incurred in
connection with the Bank's conversion to a new data processing system.
Income Taxes. Total income tax expense was $7.8 million in 1996
compared to $7.4 million in 1995. The effective tax rate was higher in 1996
(39.4%) than in 1995 (38.7%) primarily because the Bank was able to use capital
loss carryforwards in 1995 to reduce part of the tax due on gains from sales of
equity securities.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net income increased by $2.6 million, or 28.9%, from
$9.1 million in 1994 to $11.7 million in 1995. Contributing to the increase in
net income was a $2.8 million, or 12.6%, improvement in net interest income,
$873,000 more in gains from sales of marketable equity securities, $701,000 less
in expenses relating to other real estate owned and a $462,000 reduction in
premiums paid to the FDIC for deposit insurance. Partially offsetting these
additions to income was a $1.5 million increase in the provision for income
taxes and a credit of $477,000 for loan losses in 1994.
42
<PAGE>
Interest Income. Interest income was $48.9 million in 1995, compared to
$39.9 million in 1994, an increase of $9.0 million, or 22.5%. Of this increase,
$5.6 million resulted from higher asset yields and $3.4 million from a higher
volume of interest-earning assets. The 99 basis point, or 13.9%, increase in the
average yield on interest-earning assets was caused by the upward movement in
the prime rate throughout 1994 and most of 1995. This movement was beneficial to
the Bank since much of its loan portfolio was priced off of the prime rate and
its investment portfolio had relatively short maturities. Maturing investments
were replaced with somewhat similar instruments earning higher interest rates.
In addition, the Bank shifted some of its funds from short-term investments and
commercial loan participations into debt securities. Total average
interest-earning assets increased by $42.5 million, or 7.5%, to $607.9 million
in 1995. Most of the growth was in mortgage loans (up $31.4 million, or 8.7%)
and in debt securities (up $12.2 million, or 8.6%). Improved economic conditions
resulted in an increased level of loan originations in the multi-family and
commercial real estate sectors.
Interest Expense. Interest expense was $23.9 million in 1995, compared
to $17.7 million in 1994, an increase of $6.2 million, or 34.8%. Of this
increase, $4.1 million resulted from higher rates paid on deposits and borrowed
funds and $2.1 million from higher levels of deposits and borrowed funds. While
average interest-bearing deposits increased by only $13.7 million, or 3.1%,
significant shifts in the mix of deposits took place as interest rates rose in
1994 and 1995. The average balance of certificates of deposit increased by
$41.9 million, or 19.9%, from $211.1 million in 1994 to $253.0 million in 1995.
The average balances of money market savings accounts and regular savings
accounts declined by $21.5 million (12.5%) and $5.2 million (20.3%),
respectively, from 1994 to 1995. As a result of these changes, the average rate
paid on all interest-bearing deposits increased by 100 basis points, or 28.2%,
from 3.54% in 1994 to 4.54% in 1995. The average balance of borrowed funds
increased 40.3% from $32.9 million in 1994 to $46.2 million in 1995 as part of
the Bank's management of interest rate risk. The average rate paid on borrowed
funds was 6.56% in 1995, compared to 5.85% in 1994, an increase of 71 basis
points, or 12.1%.
Provision for Loan Losses. In 1994, the Bank reduced its allowance for
loan losses by $477,000 and credited expense by the same amount. No provision
for loan losses was recorded in 1995. Correspondingly, in 1994, the Bank
established a valuation allowance for losses on other real estate owned by a
$541,000 charge to income. The reduction in the allowance for loan losses was
deemed appropriate by management after its review of all significant factors
normally considered in its evaluation process. Non-performing loans declined
from $3.4 million, or 0.89% of total loans outstanding at the end of 1993, to
$1.3 million, or 0.30% of loans outstanding at the end of 1994, and $748,000, or
0.17% of total loans outstanding at the end of 1995. During 1995 and 1994, loan
recoveries exceeded loan charge-offs by $52,000 and $6,000, respectively.
Non-Interest Income. Non-interest income increased to $1.6 million in
1995 from $79,000 in 1994, primarily as a result of transactions involving
investment securities and other real estate owned. Sales of marketable equity
securities generated gains of $877,000 in 1995 compared to $4,000 in 1994. Other
real estate owned activity resulted in net charges to income of $40,000 in 1995
compared to $741,000 in 1994. The higher level in 1994 resulted from the
establishment of a valuation allowance by a $541,000 charge to income, property
expenses exceeding income from the rental of properties by $200,000 in 1994
compared to $40,000 in 1995 and the lack of gains from sales of properties in
1994 compared to $149,000 of gains in 1995. Write-downs of $84,000 and $138,000
were charged to the valuation allowance in 1995 and 1994, respectively. Other
sources of income, primarily fees and charges, did not change significantly
between 1995 and 1994.
Non-Interest Expense. Total non-interest expense was $7.5 million in
1995, compared to $7.7 million in 1994, a decrease of $246,000, or 3.2%. The
decrease was attributable to a $462,000 reduction in premiums paid to the FDIC
for deposit insurance, from $1.0 million in 1994 to $561,000 in 1995.
Compensation and employee benefits increased by $378,000, or 9.4%, to
$4.4 million in 1995. The increase resulted from a higher provision for
supplemental executive retirement benefits ($160,000), increased postretirement
benefit expense ($68,000) and general salary increases. Other operating expense
categories did not change significantly between 1995 and 1994, except for legal
fees which declined from $153,000 in 1994 to $54,000 in 1995.
43
<PAGE>
Income Taxes. Income tax expense was $7.4 million in 1995 and
$5.9 million in 1994, an increase of $1.5 million, or 24.7%. The effective tax
rate declined from 39.5% in 1994 to 38.7% in 1995 primarily as a result of the
availability of capital loss carryforwards to reduce part of the tax due on
gains from sales of equity securities.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and
interest payments on loans and debt securities and borrowings from the FHLB.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by interest
rate trends, economic conditions and competition.
Total assets increased by $13.3 million, $34.2 million, $25.1 million
and $57.7 million for the eight months ended August 31, 1997 and the years ended
December 31, 1996, 1995 and 1994, respectively. These increases included
$4.8 million, $32.1 million, $26.6 million and $44.0 million, respectively, of
growth in the loan portfolio.
During the past few years, the combination of generally low interest
rates on deposit products and the attraction of alternative investments such as
mutual funds and annuities has significantly affected deposit flows. The Bank
experienced a $2.5 million net deposit outflow for the eight months ended
August 31, 1997 and net deposit inflows of $9.8 million, $2.4 million and
$27.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Bank expanded the use of borrowings from the FHLB as part of
its management of interest rate risk. Such borrowings increased by $1.3 million,
$10.9 million, $6.4 million and $16.3 million, during the eight months ended
August 31, 1997 and the years ended December 31, 1996, 1995 and 1994,
respectively. At August 31, 1997, total borrowings from the FHLB amounted to
$61.8 million and the Bank had the capacity to increase that total to
$244.9 million. Depending on market conditions and the Bank's liquidity and GAP
position, the Bank may continue to borrow from the FHLB.
The Bank's most liquid assets are cash and due from banks, short-term
investments, debt securities and commercial loan participations that generally
mature within 90 days. The levels of these assets are dependent on the Bank's
operating, financing, lending and investment activities during any given period.
At August 31, 1997, cash and due from banks, short-term investments, commercial
loan participations and debt securities maturing within one year amounted to
$121.8 million, or 17.9% of total assets.
At August 31, 1997, the Bank had commitments to originate loans, unused
outstanding lines of credit and undisbursed proceeds of loans totaling
$47.9 million. The Bank anticipates that it will have sufficient funds available
to meets its current loan commitments. Certificates of deposit maturing within
one year from August 31, 1997 amounted to $209.8 million. The Bank expects that
substantially all of the maturing certificate accounts will be retained by the
Bank at maturity.
At August 31, 1997, the Bank exceeded all of its regulatory
requirements with a leverage capital of $114.4 million, or 17.0% of adjusted
assets, which is above the required level of $20.3 million, and risk-based
capital of $121.3 million, or 22.2% of adjusted assets, which is above the
required level of $43.6 million, or 8.00%. See "Regulation--Regulatory Capital
Requirements" and "--Insurance of Accounts and Regulation by the FDIC."
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollar
amounts 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 Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do no necessarily move in
the same direction or to the same extent as the price of goods and services.
44
<PAGE>
Impact of New Accounting Standards
Accounting for Long-Lived Assets. In 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long Lived Assets to be Disposed of" ("SFAS No. 121"). This
Statement established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable intangibles
to be disposed of. This Statement became effective on January 1, 1996.
Adoption of this Statement did not have a material impact on the financial
position or operating results of the Bank.
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"). This Statement established financial
accounting standards for stock-based employee compensation plans. SFAS No. 123
permits the Bank to choose either a new fair value based method or the current
Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net earnings and earnings per share computed as if the
fair value based method had been applied in financial statements of companies
that continue to follow current practice in accounting for such arrangements
under APB Opinion 25. SFAS No. 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans. SFAS
No. 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock (e.g., stock
option plans, stock purchase plans, restricted stock plans and stock
appreciation rights). The Statement also specifies the accounting for
transactions in which a company issues stock options or other equity instruments
for services provided by nonemployees or to acquire goods or services from
outside suppliers or vendors. The recognition provisions of SFAS No. 123 for
companies choosing to adopt the new fair value based method of accounting for
stock-based compensation arrangements is applicable to all transactions entered
into in fiscal years that begin after December 15, 1995. Any effect that this
Statement will have on the Bank will be applicable upon consummation of the
Offering.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application of this Statement is not permitted. In December 1996,
the FASB issued Statement of Financial Accounting Standards No. 127, "Deferral
of the Effective Date of Certain Provisions of SFAS No. 125" ("SFAS No. 127").
This Statement requires the deferral of implementation as it relates to
repurchase agreements, dollar-rolls, securities lending and similar transactions
until years beginning after December 31, 1997. Earlier or retroactive
application of this Statement is not permitted. Adoption of SFAS No. 125 and
SFAS No. 127 are not expected to have a material impact on the financial
position or operating results of the Bank.
Earnings Per Share. In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
This Statement, which supersedes APB Opinion 15, simplifies the reporting of
earnings per share by eliminating the presentation of primary earnings per share
and requiring the presentation of basic earnings per share. The calculation of
basic earnings per share excludes the effect of potential common shares to be
issued, thus resulting in no dilution. The Statement requires entities with
complex capital structures to present basic and diluted earnings per share on
the face of the income statement and eliminates the modified treasury stock
method of computing potential common shares. The Statement is effective for
financial
45
<PAGE>
statements issued for fiscal years ending after December 15, 1997. The Company
will follow the guidance of SFAS No. 128 when it is required to report earnings
per share.
Reporting Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This Statement requires entities presenting a complete set of
financial statements to include details of comprehensive income that arise in
the reporting period. Comprehensive income consists of net income or loss for
the current period and other comprehensive income consisting of revenue,
expenses, gains and losses that bypass the income statement and are reported
directly in a separate component of equity. Other comprehensive income includes,
for example, unrealized gains and losses on certain investment securities,
minimum pension liability adjustments and foreign currency items. SFAS No. 130
requires that components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. At August 31, 1997, the Bank's other comprehensive income consisted
of unrealized gains on securities classified as available for sale. This
Statement is effective for fiscal years beginning after December 31, 1997 and
requires restatement of prior period financial statements presented for
comparative purposes.
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). This Statement changes the current practice for reporting segment
information under SFAS No. 14, "Financial Reporting for Segments of an
Enterprise." Public entities are required to report financial and descriptive
information about their reportable operating segments. An operating segment is a
component of an entity for which financial information is developed and
evaluated by the entity's chief operating decision maker to assess performance
and to make decisions about resource allocation. Disclosures about operating
segments should generally be based on the information used internally. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. On adoption, comparative information for earlier years is to
be restated. Based on current operations, the Company does not believe adoption
of this Statement will have any impact on its public financial reporting.
BUSINESS OF THE COMPANY
General
As part of the Reorganization, the Company was established as a
majority-owned subsidiary of the Mutual Company. The Company is currently not an
operating company. Following the Reorganization and the Offering, in addition to
directing, planning and coordinating the business activities of the Bank, the
Company will initially invest up to 50% of the net proceeds primarily in short-
and medium-term fixed-income securities. The Company also intends to fund the
loan to the ESOP to enable the ESOP to subscribe for up to 4% of the Common
Stock issued in the Offering, although a third party lender may be utilized to
lend funds to the ESOP. In the future, the Company may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. See "Use of Proceeds." Currently, there are no agreements or
understandings for an expansion of the Company's operations. Initially, the
Company will neither own nor lease any property from any third party, but will
instead use the premises, equipment and furniture of the Bank. At the present
time, the Company does not intend to employ any persons other than certain
officers of the Bank, who will not be separately provided cash compensation by
the Company. The Company may utilize support staff of the Bank from time to
time, if needed. Additional employees will be hired as appropriate to the extent
the Company expands its business in the future.
BUSINESS OF THE BANK
General
The Bank is a community-oriented mutual savings bank which was
originally chartered by the Commonwealth of Massachusetts in 1871. The Bank's
principal business consists of accepting retail deposits from the general public
through its branch offices and investing those deposits, together with funds
generated from operations and borrowings,
46
<PAGE>
primarily in real estate mortgage lending and various debt and equity
securities. The Bank emphasizes the origination of multi-family and commercial
real estate mortgage loans as well as one-to-four family residential mortgage
loans. The Bank also originates construction and development mortgage loans,
home equity loans, commercial participation loans, other commercial loans and
consumer loans. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Management Strategy."
Market Area
The Bank operates five full-service banking offices in the Town of
Brookline, an urban/suburban community adjacent to the City of Boston. The
Bank's deposits are gathered from the general public primarily in the Town of
Brookline and surrounding communities. The Bank's lending activities are
concentrated primarily in the greater Boston metropolitan area and eastern
Massachusetts. The greater Boston metropolitan area benefits from the presence
of numerous institutions of higher learning, medical care and research centers
and the corporate headquarters of several significant mutual fund investment
companies. Eastern Massachusetts also has many high technology companies
employing personnel with specialized skills. These factors affects the demand
for multi-family apartments and office buildings, shopping centers, industrial
warehouses and other commercial properties.
For many years, the Bank has emphasized multi-family and commercial
real estate mortgage lending. These types of loans typically generate higher
yields, but also involve greater credit risk than one-to four-family mortgage
loans. During the late 1980s and early 1990s, a regional recession caused a
significant decline in employment and in real estate values, ultimately
resulting in the failure of many financial institutions in Massachusetts and New
England. In the past few years, the prices and values of real estate have
increased in a number of segments. See "Risk Factors--Weakness in Local
Economy."
Lending Activities
Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state law and regulations. Interest rates
charged by the Bank on loans are affected primarily by the demand for such
loans, the supply of money available for lending purposes and the rates offered
by competitors. These factors are, in turn, affected by national, regional and
local economic conditions, the levels of federal government spending and
revenue, monetary policies of the Federal Reserve Board, and tax policies.
The Bank's loan portfolio consists primarily of first mortgage loans
secured by multi-family, commercial and one-to-four family residential real
estate properties located in the Bank's primary lending area. Another component
of the loan portfolio consists of participations in commercial loans to national
companies and organizations originated and serviced primarily by money center
banks. Generally, the participations mature between one day and three months and
are viewed by the Bank as an alternative short-term investment for liquidity
management purposes rather than as traditional commercial loans. The Bank also
provides financing for construction and development projects, commercial lines
of credit primarily to condominium associations, home equity and second mortgage
loans and other consumer loans.
At August 31, 1997, the Bank's gross loan portfolio totaled
$498.6 million, of which $214.1 million, or 42.9% of gross loans, were multi-
family loans, $143.2 million, or 28.7% of gross loans, were commercial real
estate loans and $65.2 million, or 13.1% of gross loans, were one-to-four family
residential mortgage loans. Commercial loan participations were $36.5 million,
or 7.3% of gross loans. The remainder of the Bank's gross loans ($39.6 million,
or 8.0%) consisted of the other types of loans made by the Bank. If commercial
loan participations were excluded from gross loans, the percentages of multi-
family, commercial real estate and one-to-four family residential mortgage loans
to gross loans would increase to 46.3%, 31.0% and 14.1%, respectively.
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages by type of loan at the dates
indicated.
47
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
At August 31, 1997 1996 1995
-------------------------- ------------------------ ------------------------
Percent Percent Percent
Amount of total Amount of total Amount of total
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family......... $ 65,226 13.08% $ 57,725 11.68% $56,814 12.34%
Multi-family................ 214,062 42.93 200,368 40.54 193,812 42.11
Commercial real estate...... 143,187 28.72 139,430 28.21 125,363 27.24
Construction and development 7,849 1.57 7,261 1.47 10,288 2.24
Home equity................. 5,359 1.08 6,398 1.29 7,420 1.61
Second...................... 16,706 3.35 19,872 4.02 17,680 3.84
-------- ------- -------- ------- -------- --------
Total mortgage loans...... 452,389 90.73 431,054 87.21 411,377 89.38
-------- ------- -------- ------- -------- --------
Commercial loans:
Participations.............. 36,500 7.32 52,950 10.71 43,100 9.36
Other....................... 8,384 1.68 9,221 1.87 4,584 1.00
-------- ------- -------- -------- -------- --------
Total commercial loans.... 44,884 9.00 62,171 12.58 47,684 10.36
-------- ------- -------- -------- -------- --------
Consumer loans................ 1,336 0.27 1,023 0.21 1,192 0.26
-------- ------- -------- -------- -------- --------
Gross loans............... 498,609 100.00% 494,248 100.00% 460,253 100.00%
======= ======== ========
Less:
Unadvanced funds on loans... (11,812) (11,950) (9,879)
Deferred loan origination fees (1,272) (1,326) (1,012)
Unearned discounts.......... (10) (289) (731)
-------- --------- --------
Total loans............... $485,515 $480,683 $448,631
======== ======== ========
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1994 1993 1992
------------------------- ------------------------- ------------------------
Percent Percent Percent
Amount of total Amount of total Amount of total
--------- ---------- --------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family......... $ 57,792 13.39% $ 60,821 15.77% $63,904 16.64%
Multi-family................ 184,537 42.75 163,183 42.32 156,575 40.77
Commercial real estate...... 114,923 26.62 99,804 25.88 94,853 24.70
Construction and development 8,096 1.88 6,432 1.67 6,768 1.76
Home equity................. 7,791 1.80 9,098 2.36 9,826 2.56
Second...................... 17,369 4.02 16,426 4.26 16,881 4.39
-------- ------- -------- ------- ------- --------
Total mortgage loans...... 390,508 90.46 355,764 92.26 348,807 90.82
-------- ------- -------- ------- ------- --------
Commercial loans:
Participations.............. 36,400 8.43 25,800 6.69 31,500 8.20
Other....................... 3,062 .71 2,627 .68 2,002 .52
-------- ------- -------- ------- ------- --------
Total commercial loans.... 39,462 9.14 28,427 7.37 33,502 8.72
-------- ------- -------- ------- ------- --------
Consumer loans................ 1,722 0.40 1,428 0.37 1,743 0.46
-------- ------- -------- ------- ------- --------
Gross loans............... 431,692 100.00% 385,619 100.00% 384,052 100.00%
======= ======= ========
Less:
Unadvanced funds on loans... (8,158) (7,063) (5,186)
Deferred loan origination fees (767) (511) (453)
Unearned discounts.......... (731) - -
--------- -------- --------
Total loans............... $422,036 $378,045 $378,413
======== ======== ========
</TABLE>
48
<PAGE>
Loan Originations. Substantially all of the Bank's loan origination
activity is conducted by the Bank's loan personnel at its main office and, to a
lesser extent, at the Bank's other retail office locations. As of August 31,
1997, an Executive Vice President and four Vice Presidents were responsible for
originating and underwriting all loans other than one-to-four family residential
mortgage and consumer loans which were handled by other Bank personnel. The
President of the Bank and non-officer members of the Board of Trustees serving
on the Bank's Real Estate Committee and Board of Investment are also involved in
the loan approval process.
The Bank relies on community contacts as well as referrals from
existing customers, attorneys and other real estate professionals to generate
business within its lending area. In addition, existing borrowers are an
important source of business since many of its commercial real estate customers
have more than one loan outstanding with the Bank. A commissioned loan
originator on the staff of the Bank is also used to generate residential
mortgage loan business. The Bank's ability to originate loans depends on the
strength of the economy, trends in interest rates, customer demands and
competition. See "Risk Factors - Increased Lending Risks Associated With
Multi-Family, Commercial Real Estate and Construction and Development Lending."
Loan Sales and Servicing. Occasionally, the Bank originates large
multi-family and commercial real estate mortgage loans and sells a participation
in such loans to other financial institutions. This enables the Bank to
accommodate customers seeking larger loans without taking on credit risks beyond
policy guidelines. The sales are made on a non-recourse basis and the
institutions purchasing the participations are responsible for conducting their
own due diligence prior to the purchase. The Bank retains the servicing of all
loans sold on a participation basis. Sales of loans on a participation basis
amounted to $1.2 million for the eight months ended August 31, 1997 and $6.0
million, $3.0 million and $3.8 million for the years ended December 31, 1996,
1995 and 1994, respectively. At August 31, 1997, the balance of participation
loans serviced by the Bank for other financial institutions was $15.5 million.
No fees are collected by the Bank for servicing such loan participations.
Loan Purchases. The Bank purchases participations in commercial loans
to national companies and organizations primarily originated and serviced by
money center banks. The Bank only purchases participations in loans to companies
with commercial paper ratings by nationally recognized rating agencies that
generally meet the Bank's policy guidelines (A-2 rating by Moody's Investors
Services, Inc. or P-2 rating by Standard & Poor's). Purchases of such
participations amounted to $834.4 million for the eight months ended August 31,
1997 and $1,423.9 million, $603.7 million and $789.5 million for the years ended
December 31, 1996, 1995 and 1994, respectively. At August 31, 1997, the Bank's
investment in such participations amounted to $36.5 million.
Occasionally, the Bank purchases participations in commercial real
estate loans originated by other financial institutions. Such purchases are made
only after the Bank performs the same underwriting procedures followed for
similar loans originated by the Bank. At August 31, 1997, the Bank owned
participations amounting to $4.7 million in seven loans originated and serviced
by other financial institutions. At that date, all of the loans were performing
in accordance with their original terms.
The Bank also purchases adjustable-rate one-to-four family mortgage
loans primarily secured by residential properties in the Bank's primary lending
area originated by mortgage companies. All loans are purchased at par and must
meet the underwriting standards applied to loans originated by the Bank. Such
loan purchases totaled $7.2 million for the eight months ended August 31, 1997
and $5.0 million, $2.4 million and none for the years ended December 31, 1996,
1995 and 1994, respectively.
49
<PAGE>
The following table sets forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
------------------------- -----------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans outstanding at beginning of period............. $ 494,248 $ 460,253 $ 460,253 $ 431,692 $ 385,619
---------- --------- ---------- ---------- ----------
Loans originated:
Mortgage loans:
One-to-four family ......................... 6,207 4,863 6,463 5,758 7,710
Multi-family................................ 29,449 21,519 36,452 25,599 42,221
Commercial real estate...................... 17,737 23,724 34,214 18,399 20,130
Construction and development................ 7,186 9,850 9,850 10,638 3,762
Home equity................................. 3,034 3,366 4,995 6,322 5,007
Second mortgage............................. 1,400 2,150 2,200 1,765 895
---------- --------- ---------- ---------- ----------
Total mortgage loans.................... 65,013 65,472 94,174 68,481 79,725
Commercial loans................................ 1,466 4,254 5,728 2,395 845
Consumer loans.................................. 190 304 453 154 214
---------- --------- ---------- ---------- ----------
Total loans originated.................. 66,669 70,030 100,355 71,030 80,784
---------- --------- ---------- ---------- ----------
Purchases of one-to-four family mortgage loans....... 7,246 3,425 5,028 2,381 -
---------- --------- ---------- ---------- ----------
Commercial loan participations:
Purchases....................................... 834,418 1,029,905 1,423,850 603,700 789,515
Repayments...................................... (850,868) (1,009,255) (1,414,000) (597,000) (780,915)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
commercial loan participations.............. (16,450) 20,650 9,850 6,700 8,600
---------- --------- ---------- ---------- ----------
Less:
Principal repayments............................ 51,615 51,869 74,011 48,215 38,769
Participations sold............................. 1,198 3,965 5,965 3,000 3,831
Transfers to other real estate owned............ 285 526 1,096 95 671
Principal charged-off........................... 6 94 166 240 40
---------- --------- ---------- ---------- ----------
Loans outstanding at end of period................... $ 498,609 $ 497,904 $ 494,248 $ 460,253 $ 431,692
========== ========= ========== ========== ==========
</TABLE>
50
<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity and repricing dates of the Bank's loan portfolio at August 31, 1997.
The table does not include prepayments or scheduled principal amortization.
Prepayments and scheduled principal amortization totaled $51.6 million for the
eight months ended August 31, 1997 and $74.0 million, $48.2 million and $38.8
million for the years ended December 31, 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
At August 31, 1997
------------------------------------------------------------------------------------------
Real estate mortgage loans
-------------------------------------------------------- Other
Home commercial
One-to- Commercial Construction equity and Commercial and
four Multi- real and second loan consumer Total
family family estate development mortgage participations loans loans
--------- --------- --------- ----------- -------- -------------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due(1):
Within one year................ $ 22,023 $ 99,390 $ 78,858 $ 4,241 $11,091 $36,500 $ 6,000 $ 258,103
-------- -------- -------- ------- ------- ------- ------- ---------
After one year:
More than one year to three years 40,366 56,082 35,520 - 6,512 - 1,370 139,850
More than three years to five years 1,542 41,939 21,090 - 1,771 - 195 66,537
More than five years to ten years 372 13,060 6,278 796 - - 130 20,636
More than ten years........... 766 456 449 - - - - 1,671
-------- -------- ------- ------- ------- ------- ------- --------
Total due after August 31, 1998 43,046 111,537 63,337 796 8,283 - 1,695 228,694
-------- -------- ------- ------- ------- ------- ------- --------
Total amount due............. $ 65,069 $210,927 $142,195 $ 5,037 $19,374 $36,500 $ 7,695 486,797
======== ======== ======== ======= ======= ======= =======
Less:
Deferred loan origination fees. (1,272)
Unearned discounts............. (10)
Allowance for loan losses...... (12,443)
---------
Net loans.................... $ 473,072
=========
</TABLE>
- ---------------
(1) Amounts due are net of unadvanced funds on loans.
The following table sets forth at August 31, 1997 the dollar amount of
gross loans contractually due or scheduled to reprice after August 31, 1998 and
whether such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After August 31, 1998
------------------------------------
Fixed Adjustable Total
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
One-to-four family................................................... $ 1,300 $ 41,746 $ 43,046
Multi-family......................................................... 1,951 109,586 111,537
Commercial real estate............................................... 3,991 59,346 63,337
Construction and development......................................... - 796 796
Home equity and second mortgage...................................... - 8,283 8,283
---------- ---------- ----------
Total real estate mortgage loans.................................. 7,242 219,757 226,999
Consumer and commercial loans.......................................... 1,406 289 1,695
---------- ---------- ----------
Total loans....................................................... $ 8,648 $ 220,046 $ 228,694
========== ========== ==========
</TABLE>
Multi-family and commercial real estate loans with fixed interest rates
have fixed-rate periods ranging from one to ten years, with the most frequent
period being from three to five years. Depending on the size of the loan and the
term for which it is fixed, the Bank often borrows from the FHLB for a term that
matches the fixed interest rate period an amount equal to all or part of the
loan at the time of origination. In addition to normal fees collected upon loan
prepayments, fixed rate loans are also subject to "yield maintenance" fees when
such loans are paid prior to the maturity of their fixed-rate period.
51
<PAGE>
One-to-Four Family Loans. The Bank currently offers both fixed-rate and
adjustable-rate mortgage loans secured by one-to-four family residences located
in the Bank's primary lending area, with maturities up to thirty years.
One-to-four family mortgage loan originations are generally obtained by the
Bank's commissioned loan originator through relationships established with real
estate brokers within the Bank's market area and by personnel at the Bank's five
operating offices. The Bank does not originate fixed-rate one-to-four family,
owner-occupied loans for its own portfolio. The Bank offers fixed-rate loans
through third-party conduit lenders who typically are mortgage company
subsidiaries of other financial institutions. While the Bank initiates the
underwriting of these loans, the conduit lender completes the underwriting
process and determines whether a loan is approved or declined. Upon approval,
the conduit lender commits to fund and service the loan at the time of closing.
Although all loan documents are drawn in the name of the Bank, the documents are
assigned to the conduit lender upon loan funding at the time of closing. This
process enables the Bank to avoid the interest rate risk associated with fixed
rate lending. Loans originated through conduit lenders totaled $3.5 million for
the eight months ended August 31, 1997 and $2.4 million, $909,000 and
$3.7 million for the years ended December 31, 1996, 1995 and 1994, respectively.
At August 31, 1997, the Bank's one-to-four family mortgage loans totaled
$65.2 million, or 13.1% of gross loans.
The Bank currently offers the following adjustable-rate mortgage loan
programs: a one year adjustable-rate loan that reprices annually, a three year
adjustable-rate loan that reprices every third year and a "3-1" loan where the
interest rate is fixed for the first three years and is adjusted on an annual
basis thereafter. The interest rates on the one year adjustable-rate loan and
the 3-1 adjustable-rate loans are indexed to the weekly average of the one year
Constant Maturity Treasury ("CMT") Index. The three year adjustable-rate loans
are indexed to the weekly average of the three year CMT Index. The one year
adjustable-rate loan and the 3-1 adjustable-rate loans are subject to interest
rate caps of 2% for each adjustment period up to a maximum of 6% over the life
of the loan. The three year adjustable-rate loan is subject to a 3% cap for each
adjustment period up to a maximum of 6% over the life of the loan. As of
August 31, 1997, the interest rates offered by the Bank on the three types of
adjustable-rate loans were 2.75% above the Index rates. Depending on market
conditions, a rate less than 2.75% above the Index is charged from the time of
loan origination to the first interest rate adjustment.
The volume and type of adjustable-rate mortgage loans originated by the
Bank are affected by market factors such as interest rates, competition,
consumer preferences and the availability of funds. While the origination of
adjustable-rate loans helps reduce the Bank's exposure to increases in interest
rates, credit risk can increase if borrowers are unable to make the larger
payments that result from upward interest rate adjustments. Periodic and
lifetime caps on interest rate increases help to reduce the risks associated
with adjustable-rate loans but also limit the Bank's sensitivity to interest
rate risk.
One-to-four family residential mortgage loans are generally
underwritten in accordance with FNMA and FHLMC guidelines. Loans are originated
in amounts up to 95% of the lower of the appraised value or selling price of the
property securing the loan. The Bank requires private mortgage insurance to be
obtained for loans in excess of an 80% loan to value ratio.
The Bank provides financing for low and moderate income home buyers as
well as first time home buyers through participation in a program sponsored by
the Massachusetts Housing Finance Agency and through the Bank's first time home
buyer mortgage program. These programs generally provide low and moderate income
households with loans at interest rates below prevailing market rates and lower
down payments.
Multi-Family Lending. Origination of loans secured by multi-family
income properties is the Bank's most significant area of lending activity. The
loans are generally secured by five to one hundred unit apartment buildings
located in the Bank's primary lending area. It is the Bank's policy that
multi-family mortgage loans must comprise at least 50% of all income property
loans in its portfolio. Income property loans are defined by this policy as
multi-family and commercial real estate mortgage loans. At August 31, 1997,
multi-family mortgage loans totaled $214.1 million, or 42.9% of gross loans and
59.9% of income property loans.
Pursuant to the Bank's underwriting policies, a number of factors are
considered before a multi-family loan is made. The qualifications and financial
condition of the borrower, including credit history, profitability and
52
<PAGE>
expertise, as well as the value and condition of the underlying property, are
evaluated. When evaluating the qualifications of the borrower for a multi-family
mortgage loan, the Bank considers the financial resources of the borrower, the
borrower's experience in owning or managing similar property and the borrower's
payment history with the Bank and other financial institutions. Factors
considered in evaluating the underlying property include the net operating
income of the mortgaged premises before debt service and depreciation, the debt
service coverage ratio (the ratio of net operating income to debt service) and
the ratio of the loan amount to the appraised value.
According to Bank policy, multi-family mortgage loans may be made in an
amount up to 75% of the lower of the appraised value (as determined by the Bank
or a qualified independent appraiser, whichever is lower) or the sales price of
the underlying property, provided the debt service coverage ratio is not less
than 125%. Non-owner occupied condominium loans are generally limited to 70% of
the appraised value. The appraisal process takes into consideration rents in
comparison to the market, tenant mix, geographic location, comparable sales,
vacancy rates, operating expenses and historic, current and projected economic
conditions. Appraisals are obtained from independent licensed and certified fee
appraisers for all loan requests in excess of $250,000.
Typically, multi-family mortgage loans are made for five to ten year
terms, with an amortization period of twenty to twenty-five years, and are
priced on an adjustable-rate basis with the borrower's option to fix the
interest rate for the first few years (most frequently two to five years). The
adjustable-rate is generally tied to the Prime Rate as published in the Wall
Street Journal. At the borrower's option, at the time of origination or later
during the term, the multi-family mortgage loan may be converted to a fixed-rate
loan for two to five years, provided the fixed-rate period selected by the
borrower does not exceed the original term of the loan. The Bank often will
partially fund loans originated or converted to fixed-rate loans through
fixed-rate borrowings from the Federal Home Loan Bank of Boston obtained for
periods that approximate the fixed-rate terms of the loans originated.
The Bank's policy does not permit prepayments of multi-family mortgage
loans in the first year following origination. After the first year, fixed and
adjustable-rate loans may be prepaid subject to a 1% prepayment penalty. In
addition, fixed-rate loans are subject to a yield maintenance fee in the event
of prepayment.
Many of the Bank's borrowers have done business with the Bank for many
years and have more than one loan outstanding. It is the Bank's current policy
that the aggregate amount of loans outstanding to any one borrower or related
entities may not exceed 10% of the Bank's unimpaired surplus (retained earnings
exclusive of unrealized gains or losses on securities available for sale, net of
income taxes). At August 31, 1997, the largest borrower had aggregate loans
outstanding of $8.0 million, or 7.0% of unimpaired surplus. Including this
borrower, there were 12 borrowers each with aggregate loans outstanding at
August 31, 1997 in excess of $5.0 million, the cumulative total of which was
$79.0 million, or 15.8% of gross loans. Most of this cumulative amount is
comprised of multi-family and commercial real estate mortgage loans.
Loans secured by apartment buildings and other multi-family residential
properties generally involve larger principal amounts and a greater degree of
risk than one-to-four family residential mortgage loans. Because payments of
loans secured by multi-family properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. See "Risk Factors--Lending Risks Associated with Multi-family and
Commercial Real Estate Mortgage Lending."
Commercial Real Estate Lending. Another significant segment of the
Bank's lending activities involves the origination of loans secured by
properties used for business purposes or a combination of residential and retail
purposes located in the Bank's primary lending area. Business purpose properties
are comprised primarily of office buildings and industrial warehouse and
distribution facilities. Retail purpose properties typically involve shopping
plazas with up to 15 stores. At August 31, 1997, commercial real estate mortgage
loans totaled $143.2 million, or 28.7% of gross loans.
53
<PAGE>
The Bank's underwriting policies and procedures for originating
commercial real estate mortgage loans are similar to those followed for
originating multi-family mortgage loans. The Bank considers the net operating
income of the property, the profitability of the business, and the borrower's
expertise and credit history. Generally, the Bank considers loans secured by
commercial real estate properties to involve greater risk than multi-family
mortgage loans since they are even more dependent on the ability of the
borrowers to profitably manage a business and are more susceptible to adverse
conditions in the real estate market and economy. As a result, to offset the
greater risk, the Bank may require a somewhat higher debt service coverage ratio
and, in some cases, a higher interest rate than for multi-family mortgage loans.
The Bank intends to continue to emphasize its multi-family and
commercial real estate lending activities in its primary lending area depending
on the demand for such loans and trends in the real estate market and the
economy.
Construction and Development Lending. The Bank provides funding for
construction and development projects involving residential and commercial
properties within its primary lending area. These loans may be for the
construction of new properties or the rehabilitation of existing properties. The
Bank's construction lending includes loans on properties to be owner-occupied as
well as properties to be sold or operated as income-producing properties.
Generally, the Bank underwrites construction loans for owner-occupied properties
using standard FNMA and FHLMC underwriting guidelines in anticipation that such
loans will become long-term loans once construction is completed. For this type
of construction loan, the Bank will lend up to 95% of the lesser of appraised
value upon completion of construction or the cost of construction, provided
private mortgage insurance coverage is obtained for any loan with a loan to
value or loan to cost ratio in excess of 80%. For loans on one-to-four family
properties being constructed for sale, the Bank lends up to 75% of the lesser of
completed value or project cost. Typically, loan proceeds are disbursed in
increments as construction progresses as determined by property inspections.
Different criteria are applied in underwriting construction loans for
which the primary source of repayment is the sale of the property than for
construction loans for which the primary source of repayment is the stabilized
cash flow from the completed project. For those loans where the primary source
of repayment is from resale of the property, in addition to the normal credit
analysis performed for other loans, the Bank also analyzes project costs, the
attractiveness of the property in relation to the market in which it is located
and demand within the market area. For those construction loans where the source
of repayment is the stabilized cash flow from the completed project, the Bank
analyzes not only project costs but also how long it might take to achieve
satisfactory occupancy and the reasonableness of projected rental rates in
relation to market rental rates. At August 31, 1997, total construction and
development loans outstanding amounted to $7.8 million, or 1.6% of gross loans,
and the Bank had committed to fund additional construction loans totaling $8.3
million. This amount is comprised of $3.0 million pertaining to construction of
one-to-four family residential homes and $4.9 million pertaining to construction
of commercial properties, $4.0 million of which is for construction of an office
building.
Construction and development financing is generally considered to
involve a higher degree of risk than long-term financing on improved, occupied
real estate. Risk of loss on a construction loan is largely dependent upon the
accuracy of the initial estimate of construction costs, the estimated time to
sell or rent the completed property at an adequate price or rate of occupancy,
and market conditions. If the estimates and projections prove to be inaccurate,
the Bank may be confronted with a project which, upon completion, has a value
that is insufficient to assure full loan repayment.
Home Equity and Second Mortgage Lending. The Bank offers home equity
lines of credit on one-to-four family owner occupied properties in its primary
lending area. Loans are offered in amounts up to 60% of the tax assessed value
of the property securing the loan less the balance of any first mortgage loan or
75% of the appraised value of property less the balance of any first loan.
Generally, appraisals are required on all home equity loan requests in excess of
$50,000. The loans are offered on an adjustable-rate basis tied to the Prime
Rate as published in the Wall Street Journal. At August 31, 1997, the Bank had
$5.4 million in home equity loans, or 1.1% of gross loans.
The Bank also makes second mortgage loans on multi-family and other
types of commercial real estate properties. Generally, the Bank makes second
mortgage loans only on properties where it holds the first mortgage.
54
<PAGE>
The underwriting criteria for these loans is similar to that followed in
underwriting first mortgage loans on multi-family and commercial real estate
loans. Debt service coverage of the combined first and second mortgage loan
balances is typically expected to be at least 125% and the loan to value ratio
of the combined first and second mortgage loan balances is expected to be no
higher than 75%. The repayment period for second mortgage loans is generally
shorter than that for first mortgage loans and the interest rate is usually
adjustable at a percent that is higher than the rate charged on the first
mortgage loan. Second mortgage loans totaled $16.7 million, or 3.4% of gross
loans, at August 31, 1997.
Commercial Loans. At August 31, 1997, the commercial loan portfolio was
$44.9 million, or 9.0% of gross loans. Of that amount, $36.5 million, or 7.3% of
gross loans, represented purchases of a portion of loans to national companies
and organizations primarily originated and serviced by money center banks. These
participations mature between one day and three months and are viewed by the
Bank as alternative short-term investments. See "Loan Purchases." The remainder
of the commercial loan portfolio at August 31, 1997, $8.4 million or 1.7% of
gross loans, represented loans originated by the Bank. Of this amount, $6.2
million relates to loans made to condominium associations for the purpose of
funding capital improvements. In general, the Bank considers loans to well
established condominium associations. Typically, the interest rate is set at a
percentage above the Prime Rate as published in the Wall Street Journal. In some
instances, a fixed-rate is offered on condominium association loans. The Bank
expects to continue to pursue this type of commercial lending.
Consumer Loans. The Bank offers consumers loans as a convenience to its
customers. Generally, the loans are secured by collateral. At August 31, 1997,
consumer loans totaled $1.3 million, or 0.3% of the Bank's gross loans.
Loan Approval Procedures and Authority. The Board of Trustees
establishes the lending policies and loan approval limits of the Bank. Certain
loans require the approval of the Board of Investment or the Real Estate
Committee of the Board. The Board of Investment is comprised of the President
and four outside trustees. The Real Estate Committee is a sub-committee of the
Board of Investment comprised of the President and two outside trustees who also
serve on the Board of Investment. The President or the Senior Lending Officer,
individually, may approve any home equity loan up to and including $50,000
provided the loan to value ratio of the combined first mortgage loan and
requested home equity loan does not exceed 70%. All home equity loan requests
exceeding $50,000 and all first mortgage and condominium loan requests up to and
including $400,000 can be approved by the President and one other Lending Vice
President, provided the loan to value ratio does not exceed 70%. Loans over
$400,000 but not exceeding $1 million, or loans for lesser amounts where the
loan to value ratio exceeds 70%, require the approval of the Real Estate
Committee. All loans in excess of $1 million require the approval of the Board
of Investment and a review of the loan file by the Credit Review Officer. The
Credit Review Officer also reviews the loan file in instances when a new loan to
a borrower with existing loans at the Bank brings the aggregate amount of loans
outstanding to that borrower in excess of $2 million. The review of loan files
typically includes an assessment of compliance with the Bank's underwriting
criteria and an analysis of the net operating income derived from income
producing properties and/or the financial capacity of the borrower and
guarantors.
Annually, the Board approves independent appraisers used by the Bank
and the Bank's appraisal policy. The Bank requires an environmental site
assessment to be performed by an independent professional for all
non-residential mortgage loans. It is the Bank's policy to require title and
hazard insurance on all mortgage loans. In addition, the Bank may require
borrowers to make payments to a mortgage escrow account for the payment of
property taxes. Any exceptions to the Bank's underwriting policies must be
approved by the Bank's Real Estate Committee for loans up to and including $1
million and by the Board of Investment for loans over $1 million.
Environmental Issues
The Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property securing
their loans. In addition, the existence of hazardous materials may make it
unattractive for a lender to foreclose on such properties. Although
environmental risks are usually associated with loans secured by commercial
55
<PAGE>
real estate, risks also may be substantial for loans secured by multi-family and
residential real estate if environmental contamination makes the property
unsuitable for use. This could also have a negative effect on nearby property
values. The Bank attempts to control its risk by requiring completion of a phase
one environmental assessment as part of its underwriting of all non-residential
real estate mortgage loans.
The Bank believes its procedures regarding the assessment of
environmental risk are adequate and, as of August 31, 1997, the Bank was unaware
of any environmental issues which would subject it to any material liability.
However, no assurance can be given that the values of properties securing loans
in the Bank's portfolio will not be adversely affected by unforeseen
environmental risks.
Delinquent Loans, Other Real Estate Owned and Classified Assets
Delinquent Loans. Management performs a monthly review of all
delinquent loans and reports the results of its review to the Board of Trustees,
through its Watch Committee, on a quarterly basis. The Watch Committee is
comprised of the President and a non-officer member of the Board of Investment.
The Watch Committee reviews with the Bank's senior officers the status of the
loan portfolio, the classification of loans and the adequacy of the allowance
for loan losses. The actions taken by the Bank with respect to delinquencies
vary depending upon the nature of the loan and the period of delinquency.
Generally, the Bank requires that a delinquency notice be mailed no later than
the 16th day of delinquency. A late charge is assessed on any loan account where
the scheduled payment is unpaid after 14 days. After mailing a delinquency
notice, the Bank's loan collection personnel call the borrower to ascertain the
reasons for delinquency and the prospects for payment. On loans secured by
one-to-four family owner occupied properties, the Bank attempts to work out a
payment schedule with the borrower in order to avoid foreclosure. If a
satisfactory arrangement is not achieved, the Bank refers the loan to legal
counsel and foreclosure procedures are initiated. At any time prior to a sale of
the property at foreclosure, foreclosure proceedings will be terminated if the
borrower and the Bank are able to work out a satisfactory payment plan. On loans
secured by multi-family and commercial real estate properties, the Bank also
seeks to reach a satisfactory payment plan so as to avoid foreclosure.
Generally, when a multi-family or commercial real estate mortgage loan become 30
days past due, the Bank exercises its right to take possession of the property
and to collect rents, and refers the loan to legal counsel for initiation of
foreclosure proceedings. Prior to foreclosure, the Bank requires an updated
appraisal of the property.
Other Real Estate Owned. Property acquired through foreclosure or
acceptance of a deed in lieu of foreclosure are classified in the Bank's
financial statements as other real estate owned ("OREO"). When a property is
placed in OREO, the excess of the loan balance over the estimated fair value is
charged to the allowance for loan losses. Estimated fair value usually
represents the sales price a buyer would be willing to pay on the basis of
current market conditions, including normal loan terms from other financial
institutions, less estimated costs to sell the property. Management inspects all
OREO properties periodically. When a decline in estimated fair value of a
property is deemed to have taken place, management establishes an allowance for
such decline by a charge to income. The adequacy of the allowance for OREO is
evaluated by management and reviewed with the Watch Committee on a quarterly
basis, taking into consideration each property in the portfolio and current real
estate market conditions. At August 31, 1997, OREO consisted of two industrial
properties carried at $1.9 million and residential condominium units carried at
$320,000, net of a valuation allowance for OREO amounting to $186,000. For the
eight months ended August 31, 1997, the Bank collected income of $242,000 from
the rental of the two industrial buildings. The Bank expects to offer for sale
all properties in OREO at prices in excess of their carrying value. Ultimate net
proceeds from sales will depend on market conditions in effect at the time of
sale.
56
<PAGE>
Classified Assets. The Bank utilizes an internal rating system to
monitor and evaluate the credit risk inherent in its loan portfolio. At the time
of loan approval, all loans other than one-to-four family residential mortgage
loans, home equity loans and consumer loans, are assigned a rating based on all
the factors considered in originating the loan. In the latter part of 1996, the
Bank expanded the number of its loan ratings from five to eight. The initial
loan rating is recommended by the loan officer and approved by the individuals
or committee responsible for approving the loan. Loan officers are expected to
recommend to the Real Estate Committee changes in loan ratings when facts come
to their attention that warrant an upgrade or downgrade in a loan rating.
Problem and potential problem assets are assigned the three highest ratings.
Such ratings coincide with the "Substandard", "Doubtful" and "Loss"
classifications used by federal regulators in their examination of financial
institutions. Generally, an asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligers and/or the collateral pledged. Substandard assets include those
characterized by the distinct possibility that the insured financial institution
will sustain some loss if the deficiencies are not corrected. Assets classified
as Doubtful have all the weaknesses inherent in those classified Substandard
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific loss reserve and/or charge-off is not warranted.
Assets which do not currently expose the insured financial institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "Special Mention." The Bank
assigns its fourth highest rating to loans meeting this designation.
On a quarterly basis, management reviews with the Watch Committee the
status of each asset assigned one of the Bank's four adverse internal ratings,
including the specific and general valuation allowances for losses deemed
prudent. General valuation allowances represent loss allowances established to
recognize the inherent risk associated with lending activities which, unlike
specific allowances, have not been allocated to particular problem assets.
Assets, or portions of assets, classified Loss are either charged-off against
valuation allowances or a specific allowance is established in an amount equal
to the amount classified Loss.
The Bank's classification of its assets and the amount of the valuation
allowances it sets aside for estimated losses is subject to review by the FDIC
and the Division. Based on their reviews, these agencies can order the
establishment of additional general or specific loss allowances. The FDIC, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on allowances for loan and lease losses. The policy statement
provides guidance for financial institutions on both the responsibilities of
management for the assessment and establishment of adequate allowances and
guidance for banking agency examiners to use in determining the adequacy of a
financial institution's valuation methodology. Generally, the policy statement
recommends that financial institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable valuation
processes that meet the objectives set forth in the policy statement. While the
Bank believes that it has established adequate allowances for losses on loans
and OREO, there can be no assurance that the regulators, in reviewing the Bank's
loan portfolio and OREO, will not request the Bank to materially increase at
that time its allowances for losses, thereby negatively affecting the Bank's
financial condition and earnings at that time. Although management believes that
adequate specific and general loss allowances have been established, actual
losses are dependent upon future events and, as such, further additions to the
level of specific and general loss allowances may become necessary.
Allowance for Loan Losses
The allowance for loan losses is established through provisions for
loan losses based on management's on-going evaluation of the risks inherent in
its loan portfolio in consideration of the trends in the loan portfolio, the
national and regional economies and the real estate market in the Bank's primary
lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover estimated losses in its loan portfolio
which are deemed probable and estimable based on information currently known to
management. See "--Delinquent Loans, Other Real Estate Owned and Classified
Assets--Classified Assets."
57
<PAGE>
The following table sets forth activity in the Bank's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
Eight months
ended Year ended December 31,
August 31, -------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- --------- --------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $ 12,326 $ 12,326 $ 12,274 $ 12,745 $ 11,775 $ 8,617
Provision (credit) for loan losses.......... - - - (477) 2,170 3,893
Charge-offs:
Mortgage loans:
One-to-four family...................... - - - 3 142 -
Multi-family............................ - - - 13 234 150
Commercial real estate.................. - 151 237 - 675 465
Construction and development............ - - - - - 103
Home equity............................. - - - - 109 6
Second mortgage......................... - - - - 22 -
Other commercial.......................... - - - - 24 -
Consumer loans............................ 6 15 3 24 - 11
--------- --------- --------- --------- -------- --------
Total charge-offs..................... 6 166 240 40 1,206 735
--------- --------- --------- --------- -------- --------
Recoveries:
Mortgage loans: -
Multi-family............................ 18 140 271 31 6 -
Commercial real estate.................. - - 6 5 - -
Construction and development............ 103 21 - - - -
Consumer loans............................ 2 5 15 10 - -
--------- --------- --------- --------- -------- --------
Total recoveries...................... 123 166 292 46 6 -
--------- --------- --------- --------- -------- --------
Net (charge-offs) recoveries................ 117 - 52 6 (1,200) (735)
--------- --------- --------- --------- -------- --------
Balance at end of period.................... $ 12,443 $ 12,326 $ 12,326 $ 12,274 $ 12,745 $ 11,775
========= ========= ========= ========= ======== ========
</TABLE>
At August 31, 1997, loans designated as Substandard and Special Mention
totaled $3.9 million and $2.2 million, respectively. No loans were designated as
Doubtful or Loss. The Substandard loans include two loans to one borrower
totaling $2.3 million that are secured by office buildings and have had interest
rates at a below market rate since 1994. Loan payments are current and the
estimated market value of the underlying collateral exceeds the loan balances.
Also included in Substandard loans are two other loans totaling $1.4 million
that are secured by an office building and a building comprised of retail space
and apartments. Payments on one of the loans is past due, but both of the loans
are adequately secured by the estimated values of the underlying properties.
Special Mention loans include a $1.9 million loan secured by an office building.
The loan is adequately secured and payments are current.
58
<PAGE>
The following table sets forth delinquencies in the Bank's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
At August 31, 1997 At December 31, 1996
----------------------------------------------- --------------------------------------------
60-89 days 90 days or more 60-89 days 90 days or more
--------------------- ------------------------ -------------------- ----------------------
Principal Principal Principal Principal
Number balance Number balance Number balance Number balance
of loans of loans of loans of loans of loans of loans of loans of loans
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family............ 1 $ 48 2 $ 657 1 $ 156 1 $ 428
Multi-family.................. - - 1 94 - - 2 253
Commercial real estate........ - - 1 526 1 282 2 646
Construction and development.. - - - - - - 1 6
Home equity and second
mortgage..................... 1 8 3 133 1 50 - -
Consumer loans................... 1 2 1 2 4 4 1 4
---- ----- ---- ------- ---- ----- ---- --------
Total....................... 3 $ 58 8 $ 1,412 7 $ 492 7 $ 1,337
==== ===== ==== ======= ==== ===== ==== ========
Delinquent loans to total loans.. 0.01% 0.29% 0.10% 0.28%
==== ======= ===== ========
<CAPTION>
At December 31, 1997 At December 31, 1994
----------------------------------------------- --------------------------------------------
60-89 days 90 days or more 60-89 days 90 days or more
--------------------- ------------------------ -------------------- ----------------------
Principal Principal Principal Principal
Number balance Number balance Number balance Number balance
of loans of loans of loans of loans of loans of loans of loans of loans
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family............ - $ - 4 $ 736 1 $ 43 4 $ 296
Multi-family.................. - - - - - - 1 120
Commercial real estate........ 1 570 - - - - - -
Construction and development.. - - 1 6 - - 2 763
Home equity and second
mortgage..................... 1 89 - - - - 2 98
Consumer loans................... - - 7 6 3 1 5 7
---- ---- ---- ------- ---- ----- ---- -------
Total....................... 2 $659 12 $ 748 4 $ 44 14 $ 1,284
==== ==== ==== ======= ==== ===== ==== =======
Delinquent loans to total loans.. 0.15% 0.17% 0.01% 0.30%
==== ======= ===== ========
</TABLE>
59
<PAGE>
Non-Accrual Loans and Non-Performing Assets. The following table sets
forth information regarding non-accrual loans and other real estate owned.
<TABLE>
<CAPTION>
At December 31,
At August 31, ------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans (1):
Mortgage loans:
One-to-four family....................................... $ 657 $ 428 $ 736 $ 296 $1,070 $1,616
Multi-family............................................. 94 253 - 120 291 244
Commercial real estate................................... 526 646 - - 1,310 1,744
Construction and development............................. - 6 6 763 584 983
Home equity.............................................. 133 - - 98 94 148
Other commercial............................................ - - - - - 31
Consumer.................................................... 2 4 6 7 11 2
------ ------ ------ ------ ------ ------
Total non-accrual loans.................................. 1,412 1,337 748 1,284 3,360 4,768
Other real estate owned, net (2).............................. 2,002 1,689 1,722 1,805 3,578 6,501
------ ------ ------ ------ ------ ------
Total non-performing assets.............................. $3,414 $3,026 $2,470 $3,089 $6,938 $11,269
====== ====== ====== ====== ====== =======
Allowance for loan losses as a percent of total loans......... 2.56% 2.56% 2.75% 2.91% 3.37% 3.11%
Allowance for loan losses as a percent of total
non-performing loans(3)................................... 881.23 921.91 1,647.86 955.92 379.32 246.96
Non-performing loans as a percent of total loans.............. 0.29 0.28 0.17 0.30 0.89 1.26
Non-performing assets as a percent of total assets............ 0.50 0.45 0.39 0.51 1.26 2.07
</TABLE>
- -------------------
(1) Non-accrual loans include all loans 90 days or more past due and other
loans which have been identified by the Bank as presenting uncertainty with
respect to the collectibility of interest or principal.
(2) Other real estate owned balances are shown net of related loss allowances.
(3) Non-performing loans are comprised of non-accrual loans.
The following tables set forth the Bank's percent of allowance by loan
category and the percent of loans to total loans in each of the categories
listed at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
At August 31, 1997 1996 1995
--------------------------------- ---------------------------- --------------------------
Percent Percent Percent
of loans of loans of loans
Percent of in each Percent of in each Percent of in each
allowance category allowance category allowance category
to total to gross to total to gross to total to gross
Amount allowance loans Amount allowance loans Amount allowance loans
--------- --------- --------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family................. $ 228 1.83% 13.08% $ 202 1.64% 11.68% $ 199 1.61% 12.34%
Multi-family........................ 3,100 24.91 42.93 2,725 22.11 40.54 3,177 25.78 42.11
Commercial real estate.............. 2,918 23.45 28.72 3,256 26.42 28.21 2,695 21.86 27.24
Construction and development........ 219 1.76 1.57 463 3.76 1.47 504 4.09 2.24
Home equity......................... 54 0.43 1.08 64 0.52 1.29 74 0.60 1.61
Second ............................ 84 0.68 3.35 99 0.80 4.02 133 1.08 3.84
Commercial participation loans........ - - 7.32 - 10.71 - - 9.36
Other commercial loans................ 101 0.81 1.68 110 0.89 1.87 92 0.75 1.00
Consumer loans........................ 13 0.11 0.27 10 0.08 0.21 12 0.10 0.26
Unallocated........................... 5,726 46.02 - 5,397 43.78 - 5,440 44.13 -
------- ------- ------ ------- ------ ------ ------- ------- ------
Total allowance for loan losses.. $12,443 100.00% 100.00% $12,326 100.00% 100.00% $12,326 100.00% 100.00%
======= ======= ====== ======= ====== ====== ======= ====== ======
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------- ---------------------------- --------------------------
Percent Percent Percent
of loans of loans of loans
Percent of in each Percent of in each Percent of in each
allowance category allowance category allowance category
to total to gross to total to gross to total to gross
Amount allowance loans Amount allowance loans Amount allowance loans
--------- --------- --------- --------- --------- --------- -------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family................. $ 202 1.65% 13.39% $ 224 1.76% 15.77% $ 224 1.90% 16.64%
Multi-family........................ 2,956 24.08 42.75 2,244 17.61 42.32 2,204 18.72 40.77
Commercial real estate.............. 2,534 20.64 26.62 1,960 15.38 25.88 2,108 17.90 24.70
Construction and development........ 445 3.63 1.88 415 3.26 1.67 413 3.51 1.76
Home equity......................... 78 0.63 1.80 91 0.71 2.36 103 0.87 2.56
Second ............................ 130 1.06 4.02 123 0.96 4.26 127 1.08 4.39
Commercial participation loans........ - - 8.43 - - 6.69 - - 8.20
Other commercial loans................ 61 0.50 0.71 53 0.41 0.68 40 0.34 0.52
Consumer loans........................ 17 0.14 0.40 14 0.11 0.37 17 0.15 0.45
Unallocated........................... 5,851 47.67 - 7,621 59.80 - 6,539 55.53 -
------- ------ ------ ------- ------ ------ ------- ------ ------
Total allowance for loan losses.. $12,274 100.00% 100.00% $12,745 100.00% 100.00% $11,775 100.00% 100.00%
======= ====== ====== ======= ====== ====== ======= ====== ======
</TABLE>
Investment Activities
The investment policy of the Bank is reviewed and approved by the Board
of Trustees on an annual basis. The Bank views its investment portfolio as an
alternative earning asset vehicle into which to deploy excess funds during
periods of weak loan demand or perceived higher risks. The investment portfolio
provides asset diversification and the opportunity to achieve capital
appreciation through long-term investment in equity securities. Compliance with
the Bank's investment policy is the responsibility of the President. Based on
his guidance and direction, most investment purchases are initiated by the
Bank's Comptroller in accordance with specific guidelines and criteria specified
in the investment policy. No sales of investment securities can be made without
the prior permission of the President. All investment transactions are reported
to and reviewed by the Board of Investment on a monthly basis.
The Bank's current policy generally favors investment in U.S.
Government and Agency securities, corporate debt obligations and corporate
equities. The policy permits investment in mortgage-backed and mortgage-related
securities and allows the use of interest rate swaps, options and futures, but
only for purposes of hedging the interest or credit risk of specific Bank
assets. The notional value of hedges may not exceed 20% of retained earnings
without prior approval of the Board of Investment. The Bank has seldom used
hedging instruments and had no outstanding contracts involving such instruments
at August 31, 1997. The Bank's current investment strategy has emphasized the
purchase of U.S. Government and Agency obligations and corporate debt
obligations generally maturing within two years.
At August 31, 1997, the Bank had $181.8 million, or 26.7% of total
assets, in securities consisting primarily of U.S. Government and Agency
obligations ($77.7 million), corporate obligations ($74.4 million) and
marketable common and preferred equity securities ($23.6 million). Investment in
mortgage-backed securities was insignificant at that date ($2.6 million) and has
declined steadily over the past few years. Also included in investments is $3.5
million in restricted equity securities, $3.3 million of which is in the stock
of the FHLB. To avail itself of services offered by that organization, in
particular the ability to borrow funds, the Bank is required to invest in the
stock of the FHLB in an amount determined on the basis of the Bank's residential
mortgage loans and borrowings from the FHLB. The stock is redeemable at par and
earns dividends declared at the discretion of the FHLB.
SFAS No. 115 requires the Bank to designate its securities as held to
maturity, available for sale or trading depending on the Bank's intent regarding
its investments. The Bank does not currently maintain a trading portfolio of
securities. In accordance with the Special Report of the FASB regarding SFAS No.
115, in November 1995, the Bank transferred debt securities having a carrying
value and market value of $26.0 million from its held to maturity portfolio to
its available for sale portfolio. As of August 31, 1997, $128.5 million, or
70.7% of the portfolio, was classified as available for sale, $49.8 million, or
27.4% of the portfolio, was classified as held for investment and $3.5 million,
or
61
<PAGE>
1.9% of the portfolio, was invested in restricted equity securities. The net
unrealized gain on securities classified as available for sale was
$17.6 million, with $17.5 million of that amount attributable to marketable
equity securities. As of August 31, 1997, the weighted average life to maturity
of the Bank's $104.9 million of debt securities classified as available for sale
was eleven months and $49.8 million of debt securities classified as held to
maturity was two years.
U.S. Government and Agency Obligations. At August 31, 1997, the Bank's
U.S. Government and Agency securities portfolio totaled $77.7 million,
$73.7 million of which was classified as available for sale and $4.0 million of
which was classified as held to maturity. There were no structured notes in the
portfolio, but there were $3.3 million of callable debentures that mature within
one year.
Corporate Obligations. At August 31, 1997, the Bank's portfolio of
corporate obligations totaled $74.4 million, $31.2 million of which was
classified as available for sale and $43.2 million was classified as held to
maturity. The Bank's policy generally requires that investment in corporate
obligations of any issuer that exceed $1 million should meet one of the
following criteria: no more than $1 million of the investment should have a
maturity beyond one year, the issue should be rated "A" or better by at least
one nationally recognized rating agency at the time of purchase and investment
in bank issues should only be in banks followed by a particular investment
banking firm and that have a return on assets equal to at least 75 basis points.
The aggregate amount invested in any corporate issuer cannot exceed $2 million
without the prior approval of the President and $4 million without the prior
approval of the Board of Investment. The policy allows the purchase of
obligations rated "BBB" by at least one nationally recognized rating agency
provided the aggregate amount of such securities does not exceed 10% of the
Bank's retained earnings, they mature within two years and are only purchased at
the specific direction of the President. At August 31, 1997, the portfolio
included $1.0 million of corporate obligations with a "BBB" rating and
$1.1 million with a "BBB+" rating.
Marketable Equity Securities. At August 31, 1997, the Bank's marketable
equity securities portfolio totaled $23.6 million, $15.5 million of which was in
common stocks and $8.1 million in preferred stocks. The Bank's policy limits the
aggregate carrying value of marketable equity securities to no more than 30% of
the Bank's retained earnings. The purchase of an equity security with an initial
cost in excess of $100,000 requires the prior approval of the Board of
Investment. The aggregate carrying value of equity securities of any issuer
cannot exceed $500,000, excluding unrealized gains on such securities. The Bank
purchases marketable equity securities as long-term investments that can provide
the opportunity for capital appreciation and dividend income that is taxed on a
more favorable basis than operating income. There can be no assurance that
investment in marketable equity securities will achieve appreciation in value
and, therefore, such investments involve higher risk. Aggregate purchases of
marketable equity securities totaled $143,000 for the eight months ended
August 31, 1997 and $1.0 million in both 1996 and 1995. No purchases were made
in 1994. At August 31, 1997, net unrealized gains on common and preferred stocks
amounted to $13.0 million and $4.5 million, respectively. Of the net unrealized
gain on common stocks, $10.6 million relates to the Bank's investment in eight
national and regional money center banks and $1.5 million in three electric
utility companies. The net unrealized gain on preferred stocks is attributable
entirely to the Bank's investment in Freddie Mac senior preferred stock. See
"Regulation--Insurance of Accounts and Regulation by the FDIC."
62
<PAGE>
The following table sets forth the composition of the Bank's debt and
equity securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
At August 31, 1997 1996 1995 1994
------------------------- ------------------- ------------------- ---------------------
Percent Percent Percent Percent
Amount of total Amount of total Amount of total Amount of total
---------- ----------- ------- ---------- -------- ---------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government and
Agency obligations..... $77,706 42.73% $ 70,055 43.12% $71,848 41.30% $ 75,485 43.69%
Corporate obligations.... 74,434 40.93 65,808 40.50 77,035 44.28 76,819 44.47
Mortgage-backed
securities............. 2,560 1.41 2,764 1.70 3,150 1.81 4,407 2.55
-------- ------ -------- ------ ------- ------ -------- ------
Total debt securities 154,700 85.07 138,627 85.32 152,033 87.39 156,711 90.71
Marketable equity securities 23,626 12.99 20,365 12.54 19,074 10.96 13,301 7.70
Restricted equity securities 3,519 1.94 3,481 2.14 2,868 1.65 2,754 1.59
-------- ------ -------- ------ -------- ------ -------- ------
Total securities....... $181,845 100.00% $162,473 100.00% $173,975 100.00% $172,766 100.00%
======== ====== ======== ====== ======== ====== ======== ======
Debt and equity securities
available for sale....... $128,525 70.68% $117,372 72.24% $81,765 47.00% $ 44,886 25.98%
Debt securities held to
maturity................. 49,801 27.38 41,620 25.62 89,342 51.35 125,126 72.43
Restricted equity securities 3,519 1.94% 3,481 2.14 2,868 1.65 2,754 1.59
-------- ------ -------- ------ -------- ------ -------- ------
Total securities..... $181,845 100.00% $162,473 100.00% $173,975 100.00% $172,766 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
63
<PAGE>
The following table sets forth certain information regarding the
amortized cost and market values of the Bank's investment securities at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
At August 31, 1997 1996 1995 1994
---------------------- ----------------------- ---------------------- ----------------------
Amortized Market Amortized Market Amortized Market Amortized Market
cost value cost value cost value cost value
--------- -------- -------- --------- -------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and
Agency obligations....... $73,610 $73,719 $57,089 $ 57,104 $42,646 $ 42,901 $ 32,206 $ 31,585
Corporate obligations...... 31,171 31,180 39,890 39,903 19,745 19,790 - -
------- ------- ------- -------- ------- -------- -------- --------
Total debt securities.... 104,781 104,899 96,979 97,007 62,391 62,691 32,206 31,585
------- ------- ------- -------- ------- -------- -------- --------
Marketable equity securities:
Common stocks.............. 2,551 15,545 2,443 12,423 2,712 11,154 5,469 11,060
Preferred stocks........... 3,617 8,081 4,260 7,942 5,210 7,920 821 2,241
------- ------- ------- -------- ------- -------- -------- --------
Total marketable
equity securities...... 6,168 23,626 6,703 20,365 7,922 19,074 6,290 13,301
------- ------- ------- -------- ------- -------- -------- --------
Total securities
available for sale..... 110,949 128,525 103,682 117,372 70,313 81,765 38,496 44,886
Net unrealized gains on
securities available for
sale...................... 17,576 - 13,690 - 11,452 - 6,390 -
------- ------- ------- -------- ------- -------- -------- --------
Total securities
available for sale,
net.................... $128,525 $128,525 $117,372 $117,372 $81,765 $ 81,765 $ 44,886 $ 44,886
======== ======== ======== ======== ======= ======== ======== ========
Securities held to maturity:
U.S. Government and
Agency obligations.......... $ 3,987 $ 3,991 $12,951 $ 12,953 $28,947 $ 29,072 $ 43,900 $ 43,143
Corporate obligations......... 43,254 43,350 25,905 25,935 57,245 57,485 76,819 75,294
Mortgage-backed securities.... 2,560 2,605 2,764 2,807 3,150 3,252 4,407 4,409
------- ------- ------- -------- ------- -------- -------- --------
Total securities held
to maturity.............. $49,801 $49,946 $41,620 $ 41,695 $89,342 $ 89,809 $125,126 $122,846
======= ======= ======= ======== ======= ======== ======== ========
Restricted equity securities:
Federal Home Loan Bank
of Boston stock............. $ 3,266 $ 3,228 $ 2,615 $ 2,501
Massachusetts Savings Bank
Life Insurance Company
stock....................... 253 253 253 253
------- ------- ------- --------
Total restricted equity
securities............... $ 3,519 $ 3,481 $ 2,868 $ 2,754
======= ======= ======= ========
</TABLE>
64
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of August 31, 1997.
<TABLE>
<CAPTION>
At August 31, 1997
----------------------------------------------------------------------------
After one year After five years
One year or less through five years through ten years
----------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Carrying average Carrying average Carrying average
value yield value yield value yield
----------- ----------- ---------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government Agency obligations ..... $ 29,849 5.69% $ 43,870 6.03% $ - -
Corporate obligations .................. 28,949 5.93 2,045 5.58 186 5.51
-------- -------- -----
Total debt securities ............... 58,798 5.81 45,915 6.01 186 5.51
-------- -------- -----
Marketable equity securities(1):
Common stocks ..........................
Preferred stocks .......................
Total marketable equity securities ..
Total securities available for sale .
Securities held to maturity:
U.S. Government and Agency obligations .... 997 5.69 2,990 5.85 - -
Corporate obligations ..................... 10,015 6.05 33,139 6.28 100 7.50
Mortgage-backed securities ................ - - - - 213 7.63
-------- -------- -----
Total securities held to maturity ... 11,012 6.02 36,129 6.24 313 7.59
-------- -------- -----
Restricted equity securities:
Federal Home Loan Bank of Boston stock ....
Massachusetts Savings Bank Life Insurance
Company stock(1) .....................
Total restricted equity securities(1)
-------- -------- -----
Total securities .................... $ 69,810 5.84% $ 82,044 6.11% $ 499 6.81%
======== ======== =====
</TABLE>
<TABLE>
<CAPTION>
At August 31, 1997
--------------------------------------------------------
After ten years Total
------------------------ --------------------------
Weighted Weighted
Carrying average Carrying average
value yield value yield
----------- ----------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government Agency obligations ..... $ - - % $ 73,719 5.89%
Corporate obligations .................. - - 31,180 5.90
------- --------
Total debt securities ............... - - 104,899 5.89
------- --------
Marketable equity securities(1):
Common stocks .......................... 15,545 4.22
Preferred stocks ....................... 8,081 4.05
-------
Total marketable equity securities .. 23,626 4.16
-------
Total securities available for sale . 128,525 5.58
-------
Securities held to maturity:
U.S. Government and Agency obligations .... - - 3,987 5.81
Corporate obligations ..................... - - 43,254 6.23
Mortgage-backed securities ................ 2,347 7.95 2,560 7.92
------- --------
Total securities held to maturity ... 2,347 7.95 49,801 6.28
------- --------
Restricted equity securities:
Federal Home Loan Bank of Boston stock .... 3,266 6.50
Massachusetts Savings Bank Life Insurance
Company stock(1) ..................... 253 4.18
Total restricted equity securities(1) 3,519 6.33
------- --------
Total securities .................... $ 2,347 7.95% $181,845 5.79%
======= ========
</TABLE>
- ------------------
(1) The yields have been calculated on a tax equivalent basis.
65
<PAGE>
Sources of Funds
General. Deposits, repayments and prepayments of loans, proceeds from
sales of loans and securities, proceeds from maturing securities and cash flows
from operations are the primary sources of the Bank's funds for use in lending,
investing and other general purposes. The Bank utilizes borrowed funds from the
FHLB to fund its loans in connection with its management of the interest rate
sensitivity of its assets and liabilities.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of
non-interest-bearing checking accounts and interest-bearing NOW accounts,
savings accounts and money market savings accounts (referred to in the aggregate
as "transaction deposit accounts") and certificate of deposit accounts. The Bank
offers Individual Retirement Accounts ("IRAs") and other qualified plan
accounts. The Bank offers no fee checking and NOW accounts for persons under 18
and over 65 years of age as well as a low-cost checking account for low-income
customers.
At August 31, 1997, the Bank's deposits of $481.5 million were
comprised of $10.4 million in non-interest-bearing checking accounts and $471.1
million of interest-bearing deposit accounts. Interest-bearing deposits were
88.4% of total interest-bearing liabilities at that date. Transaction deposit
accounts amounted to $220.3 million, or 45.7% of total deposits at August 31,
1997. The percentage of average transaction deposit accounts to total average
deposits was 45.8% for the eight months ended August 31, 1997 and 45.5%, 46.0%
and 53.6% for the years ended December 31, 1996, 1995 and 1994, respectively.
The higher percentage in 1994 was attributable to the lower interest rates
offered on certificate of deposit accounts during that year. Of the $261.4
million of certificate of deposit accounts at August 31, 1997, $209.8 million,
or 80.3%, were scheduled to mature within one year. While this percentage is
significant, based on its monitoring of historical trends in deposit flows and
its current pricing strategy for deposits, management believes the Bank will
retain a large portion of its certificate of deposit accounts upon maturity.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and the
relative attractiveness of competing deposit and investment alternatives. During
the past few years, the strength of the stock market has affected deposit flows
as some customers have opted to place their funds in instruments such as mutual
funds rather than in deposit products perceived to have less attractive returns.
The Bank's deposits are obtained predominantly from the Town of Brookline and
surrounding communities. The Bank relies primarily on competitive pricing of its
deposit products and customer service and long-standing relationships with
customers to attract and retain these deposits. However, market interest rates
and rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain deposits. The Bank uses traditional means
of advertising its deposit products, including transit and print media, and
generally does not solicit deposits from outside its market area. The Bank does
not use brokers to obtain deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Eight months ended
August 31, Year ended December 31,
------------------------ -----------------------------------
1997 1996 1996 1995 1994
---------- --------- --------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net deposits (withdrawals)..................... $ (16,998) $(16,763) $(13,073) $ (18,334) $ 11,379
Interest credited on deposit accounts.......... 14,449 14,559 22,874 20,738 15,584
--------- -------- -------- --------- ---------
Total increase (decrease) in deposit accounts.. $ (2,549) $ (2,204) $ 9,801 $ 2,404 $ 26,963
========== ========= ======== ========= =========
</TABLE>
66
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize average daily balances.
<TABLE>
<CAPTION>
Eight months ended August 31, 1997 Year ended December 31, 1996
---------------------------------- ---------------------------------
Percent Percent
of total Weighted of total Weighted
Average average average Average average average
balance deposits rate balance deposits rate
--------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts........................................... $ 37,606 7.74% 1.72% $ 37,095 7.69% 1.73%
Savings accounts....................................... 15,327 3.16 2.47 17,302 3.59 2.46
Money market savings accounts.......................... 158,618 32.67 3.85 154,541 32.03 3.85
Non-interest-bearing demand checking accounts.......... 11,955 2.46 - 11,472 2.38 -
--------- ------- --------- -------
Total transaction deposit accounts................. 223,506 46.03 3.19 220,410 45.69 3.18
--------- ------- --------- -------
Certificate of deposit accounts:
Six months or less................................... 67,982 14.00 5.17 67,402 13.97 5.20
Over six through 12 months........................... 108,730 22.40 5.41 107,064 22.19 5.60
Over 12 months through 24 months..................... 28,579 5.89 5.79 32,298 6.70 5.84
Over 24 months....................................... 56,718 11.68 6.21 55,243 11.45 6.09
--------- ------- --------- -------
Total certificate of deposit accounts.............. 262,009 53.97 5.56 262,007 54.31 5.63
--------- ------- --------- -------
Total average deposits............................. $ 485,515 100.00% 4.47% $ 482,417 100.00% 4.51%
========= ======= ========= =======
<CAPTION>
Year ended December 31, 1995 Year ended December 31, 1994
---------------------------------- ---------------------------------
Percent Percent
of total Weighted of total Weighted
Average average average Average average average
balance deposits rate balance deposits rate
--------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts........................................... $ 35,787 7.60% 1.73% $ 37,226 8.17% 1.76%
Savings accounts....................................... 20,460 4.35 2.43 25,673 5.63 2.45
Money market savings accounts.......................... 151,334 32.16 3.74 172,859 37.91 3.05
Non-interest-bearing demand checking accounts.......... 10,050 2.13 - 9,128 2.00 -
--------- ------- --------- -------
Total transaction deposit accounts................. 217,631 46.24 3.11 244,886 53.71 2.68
--------- ------- --------- -------
Certificate of deposit accounts:
Six months or less................................... 68,921 14.64 5.57 53,736 11.79 3.89
Over six through 12 months........................... 93,925 19.96 5.63 74,236 16.28 3.98
Over 12 months through 24 months..................... 35,184 7.48 5.29 33,436 7.33 4.62
Over 24 months....................................... 54,955 11.68 5.72 49,658 10.89 5.40
--------- ------- --------- -------
Total certificate of deposit accounts.............. 252,985 53.76 5.58 211,066 46.29 4.39
--------- ------- --------- -------
Total average deposits............................. $ 470,616 100.00% 4.44% $ 455,952 100.00% 3.47%
========= ======= ========= =======
</TABLE>
67
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated:
<TABLE>
<CAPTION>
Period to maturity from August 31, 1997
-----------------------------------------------------
Less Three Four
than One to Two to to to At At
one two three four five August 31, December 31,
year years years years years 1997 1996
--------- --------- --------- --------- --------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate of deposit accounts:
4.01% to 5.00%............................ $ 13,337 $ 1,123 $ - $ - $ - $ 14,460 $ 14,619
5.01% to 6.00%............................ 185,477 21,185 5,542 1,678 1,692 215,574 212,312
6.01% to 7.00%............................ 8,972 25 4,077 1,355 3,354 17,783 21,696
7.01% to 7.50%............................ 2,015 - 11,551 - - 13,566 13,153
-------- ------- ------- ------- ------- -------- --------
Total.................................. $209,801 $22,333 $21,170 $ 3,033 $ 5,046 $261,383 $261,780
======== ======= ======= ======= ======= ======== ========
</TABLE>
At August 31, 1997, the Bank had outstanding $41.8 million in certificate
of deposit accounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
Weighted
Amount average rate
------ ------------
(Dollars in thousands)
Maturity Period
---------------
<S> <C> <C>
Three months or less................... $ 12,326 5.39%
Over three through six months.......... 10,089 5.51
Over six through twelve months......... 9,962 5.69
Over twelve months..................... 9,406 6.50
---------
$ 41,783 5.74%
=========
</TABLE>
Borrowings. The Bank utilizes advances from the FHLB primarily in
connection with its management of the interest rate sensitivity of its assets
and liabilities. The advances are collateralized primarily by certain of the
Bank's mortgage loans and secondarily by the Bank's investment in the stock of
the FHLB. The maximum amount that the FHLB will advance to member institutions,
including the Bank, fluctuates from time to time in accordance with the policies
of the FHLB. See "Regulation--Federal Home Loan Bank System." At August 31,
1997, the Bank had $61.8 million in outstanding advances from the FHLB and had
the capacity to increase that amount to $244.9 million. The Bank expects to
continue to utilize borrowings from the FHLB as part of its management of the
interest sensitivity of its assets and liabilities.
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
Eight months ended
August 31, Year ended December 31,
---------------------- -----------------------------------
1997 1996 1996 1995 1994
--------- -------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Advances from the FHLB:
Average balance outstanding................................. $ 63,019 $ 52,645 $ 55,497 $ 46,172 $ 32,904
Maximum amount outstanding at any month end
during the period........................................ 65,315 58,665 62,665 50,665 43,265
Balance outstanding at end of period........................ 61,815 58,665 60,565 49,665 43,265
Weighted average interest rate during the period............ 6.52% 6.64% 6.64% 6.56% 5.85%
Weighted average interest rate at end of period............. 6.44% 6.55% 6.49% 6.52% 6.32%
</TABLE>
68
<PAGE>
Subsidiary Activities
BBS Investment Corporation. BBS Investment Corporation ("BBS") is a
wholly-owned subsidiary of the Bank established in 1985 as a Massachusetts
security corporation for the purpose of buying, selling and holding investment
securities on its own behalf and not as a broker. The income earned on BBS's
investment securities is subject to a significantly lower rate of state tax than
that assessed on income earned on investment securities maintained at the Bank.
At August 31, 1997, BBS had total assets of $91.8 million, $90.0 million of
which was in investment securities.
160 Associates, Inc. 160 Associates, Inc. ("Associates") is a
wholly-owned subsidiary established in 1980 that engaged in marketing services
at insignificant levels of activity through the end of 1996. In January 1997,
Associates' articles of organization were restated to allow it, among other
things, to acquire and hold stock in any subsidiary engaged in business that
qualifies as a real estate investment trust. The amount of capital Associates
invests in such activity cannot exceed $200 million. At August 31, 1997, its
investment in such activity amounted to $180.3 million.
Brookline Preferred Capital Corporation. Brookline Preferred Capital
Corporation ("BPCC") was established in January 1997 to engage in real estate
business activities (including the acquisition and holding of securities and
mortgage loans) that enable it to be taxed as a real estate investment trust for
federal and Massachusetts tax purposes. At August 31, 1997, BPCC had total
assets of $190.7 million, $179.5 million of which were mortgage loans originated
by and acquired from the Bank. BPCC is a 99.9% owned subsidiary of Associates.
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The Boston metropolitan area has a high density of
financial institutions, many of which are branches of significantly larger
institutions which have greater financial resources than the Bank, and all of
which are competitors of the Bank to varying degrees. The Bank's competition for
loans comes principally from commercial banks, savings banks, savings and loan
associations, mortgage banking companies, credit unions, insurance companies and
other financial service companies. Its most direct competition for deposits has
historically come from commercial banks, savings banks, savings and loan
associations and credit unions. The Bank faces additional competition for
deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions.
69
<PAGE>
Properties
The Bank currently conducts its business through five full service
banking offices. The following table sets forth the Bank's offices as of August
31, 1997.
<TABLE>
<CAPTION>
Net book value of
property or
Original year leasehold
Leased or leased or Year of lease improvements at
Location owned acquired expiration August 31, 1997
- -------------------------------- ------------- ---------------- ----------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Corporate/Main Office:
160 Washington Street Owned 1921 Not Applicable $151
Brookline, MA 02147
Operations Center:
24 Webster Place Leased 1986 2001 165
Brookline, MA 02147
Other Branch Offices:
Coolidge Corner Office Leased 1977 2001 204
1330-1340 Beacon Street
Brookline MA 02147
South Brookline Office
1018 West Roxbury Parkway Leased 1952 2006 158
Brookline MA 02147
Longwood Office
1014 Beacon Street Leased 1956 2008 1
Brookline MA 02147
Washington Square Office
1661 Beacon Street Leased 1975 2001 27
Brookline MA 02147
</TABLE>
Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Bank.
Personnel
As of August 31, 1997, the Bank had 84 full-time employees and eight
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good. See "Management of the Stock Bank--Compensation of Officers and Trustees
through Benefit Plans" for a description of certain compensation and benefit
programs offered to the Bank's employees.
70
<PAGE>
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Mutual Company, the Company and the Bank will be subject
to federal income taxation in the same general manner as other corporations,
with some exceptions discussed below. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to
the Bank.
Method of Accounting. For federal income tax purposes, the Bank
currently reports it income and expenses on the accrual method of accounting and
uses a fiscal year ending October 31 for filing its consolidated federal income
tax returns. The Small Business Protection Act of 1996 (the "1996 Act")
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective for taxable years beginning after 1995 (after
October 31, 1996 in the case of the Bank).
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge-off method in computing its bad debt deduction beginning with
its fiscal year 1997 federal tax return. In addition, the federal legislation
requires the recapture (over a six year period) of the excess of tax bad debt
reserves accumulated after October 31, 1988. The amount of such reserve subject
to recapture by the Bank as of November 1, 1996 was $543,000.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to November 1, 1988 were subject to recapture into
taxable income should the Bank fail to meet certain thrift asset and
definitional tests. New federal legislation eliminated these thrift related
recapture rules. However, under current law, pre-1988 reserves remain subject to
recapture should the Bank make certain non-dividend distributions or cease to
maintain a bank charter. At October 31, 1996, the Bank's total federal pre-1988
reserve was $1.8 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no federal income tax provision has
been made.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1996. At August 31, 1997, the Bank had no net
operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. The Company may exclude from
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Following completion of the Reorganization and
Offering, it is expected that the Mutual Company will own less than 80% of the
outstanding Common Stock of the Company. As such, the Mutual Company will not be
permitted to file a consolidated federal income tax return with the Company and
the Bank. The corporate dividends-received deduction is 80% in the case of
dividends received from corporations with which a corporate recipient does not
file a consolidated return, and corporations which own less than 20% of the
stock of a corporation distributing a dividend may deduct only 70% of dividends
received or accrued on their behalf.
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<PAGE>
State Taxation
Massachusetts State Taxation. For Massachusetts income tax purposes, a
consolidated tax return cannot be filed. Instead, the Bank and each of its
subsidiaries file an annual income tax return. The Bank is subject to an annual
Massachusetts excise tax at a rate of 11.72% of its net income currently and
declining in increments to 10.50% for the fiscal year ending October 31, 2000.
In addition, one of the Bank's wholly-owned subsidiaries (160 Associates, Inc.)
is subject to an excise tax at the rate of 9.50% of its net income plus a tax on
its net worth. BBS Investment Corporation, the Bank's other wholly-owned
subsidiary, is a securities corporation and, accordingly, is subject to an
excise tax at the rate of 1.32% of its gross income. For these purposes,
Massachusetts net income is defined as gross income from all sources without any
exclusions, less the following deductions: all deductions (but not credits)
which are allowable under the Code except for those deductions under the Code
relating to (1) dividends received, (2) losses sustained in other taxable years
and (3) taxes on or measured by income, franchise taxes for the privilege of
doing business and capital stock taxes imposed by any state of the United
States, the District of Columbia, the Commonwealth of Puerto Rico, any territory
or possession of the United States or any foreign country, or a political
subdivision of any of the foregoing. The Bank is not permitted to carry its
losses forward or back for Massachusetts tax purposes. The Company intends to
apply to the Massachusetts Department of Revenue to be classified as a
Massachusetts security corporation. Bank holding companies that are so
classified are subject to a state tax rate of 0.33% of gross income.
In January 1997, the Bank incorporated Brookline Preferred Capital
Corporation ("BPCC") which has elected to be taxed as a real estate investment
trust ("REIT"). Shareholders of a REIT that are subject to the Massachusetts
corporate excise tax are entitled to a 95% dividends-received deduction. A REIT
corporation shareholder subject to Massachusetts corporate taxation will,
therefore, pay income tax on only 5% of the dividends received from the REIT.
For the eight months ended August 31, 1997, Massachusetts excise tax expense was
reduced by $1.1 million as a result of the REIT.
REGULATION
General
The Bank is a Massachusetts-chartered mutual savings bank and its
deposit accounts are insured up to applicable limits by the Bank Insurance Fund
("BIF") of the FDIC. The Bank is subject to extensive regulation by the
Massachusetts Division of Banks (the "Division"), as its chartering agency, and
by the FDIC, as its deposit insurer. The Bank is required to file reports with,
and is periodically examined by, the FDIC and the Division concerning its
activities and financial condition and must obtain regulatory approvals prior to
entering into certain transactions, including, but not limited to, mergers with
or acquisitions of other savings institutions. The Bank is a member of the
Federal Home Loan Bank ("FHLB") of Boston and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("FRB"). Both
the Company and the Mutual Company, as bank holding companies, will be subject
to regulation by the FRB and will be required to file reports with the FRB. Any
change in such regulations, whether by the Division, the FDIC, or the FRB could
have a material adverse impact on the Bank, the Company, or the Mutual Company.
Certain of the regulatory requirements applicable to the Bank, the Company and
the Mutual Company are referred to below or elsewhere herein.
Massachusetts Bank Regulation
As a Massachusetts-chartered savings bank, the Bank is subject to
supervision, regulation and examination by the Division and to various
Massachusetts statutes and regulations which govern, among other things,
investment powers, lending and deposit-taking activities, borrowings,
maintenance of surplus and reserve accounts, distribution of earnings, and
payment of dividends. In addition, the Bank is subject to Massachusetts consumer
protection and civil rights laws and regulations. The Division's approval is
required for a Massachusetts bank to establish or close branches, merge with
other banks, organize a holding company, issue stock and undertake certain other
activities.
72
<PAGE>
In response to a Massachusetts law enacted in 1996, the Massachusetts
Commissioner of Banks (the "Commissioner") adopted rules that generally give
Massachusetts banks powers equivalent to those of national banks. The
Commissioner also has adopted procedures reducing regulatory burdens and expense
and expediting branching by well-capitalized and well-managed banks.
Investment Activities. As a Massachusetts-chartered savings bank, the
Bank may invest in preferred and common stock of any corporation provided such
investments do not involve control of any corporation and do not, in the
aggregate, exceed 4% of the Bank's deposits. Subject to certain limits, a
Massachusetts-chartered savings bank may invest up to 7% of its deposits in
investments not otherwise legally permitted, provided that any such amounts
which exceed 3% of deposits must be invested in companies organized for the
purpose of acquiring, constructing, rehabilitating, leasing, financing and
disposing of housing, and no investment in the equity securities or debt
securities of any one issuer made pursuant to such authority may exceed 2% of
the bank's deposits.
Regulatory Enforcement Authority. Any Massachusetts bank that does not
operate in accordance with the regulations, policies and directives of the
Commissioner may be subject to sanctions for non-compliance, including seizure
of the property and business of the bank and suspension or revocation of its
charter. The Commissioner may under certain circumstances suspend or remove
officers or directors who have violated the law, conducted the Bank's business
in a manner which is unsafe, unsound or contrary to the depositors' interests,
or been negligent in the performance of their duties. In addition, upon finding
that a bank has engaged in an unfair or deceptive act or practice, the
Commissioner may issue an order to cease and desist and impose a fine on the
bank concerned. Finally, Massachusetts consumer protection and civil rights
statutes applicable to the Bank permit private individual and class action law
suits and provide for the rescission of consumer transactions, including loans,
and the recovery of statutory and punitive damages and attorneys' fees in the
case of certain violations.
Depositors Insurance Fund. All Massachusetts-chartered savings banks
are required to be members of the Depositors Insurance Fund (the "DIF"), a
corporation created by the Commonwealth of Massachusetts that insures savings
bank deposits not covered by federal deposit insurance. The DIF is authorized to
charge savings banks an annual assessment of up to 1/16th of 1% of a savings
bank's deposits.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
charges deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a risk to the insurance fund. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the Commissioner an opportunity to take such action, and may terminate deposit
insurance if it determines that the institution has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.
In September 1995, the BIF achieved its statutorily mandated reserve
levels. As a result, in 1995 the FDIC issued a final rule effective with respect
to the semi-annual premium assessment beginning January 1, 1996, which reduced
deposit insurance premiums for BIF member institutions to zero basis points
(subject to an annual minimum of $2,000) for institutions in the lowest risk
category. Deposit insurance premiums for Savings Association Insurance Fund
("SAIF") members were maintained at 23 basis points for institutions in the
lowest risk category because the SAIF had not achieved its required statutory
reserve levels.
On September 30, 1996, legislation was enacted to eliminate the premium
differential between SAIF-insured institutions and BIF-insured institutions by
recapitalizing the SAIF to the required ratio of 1.25% of insured deposits. The
legislation provided (i) that the holders of SAIF-assessable deposits pay a
one-time special assessment to recapitalize the SAIF, (ii) for the merger of the
BIF and the SAIF, with such merger being conditioned upon the prior elimination
of the thrift charter, and (iii) that BIF-insured institutions would share in
part in the obligation to repay
73
<PAGE>
Financing Corporation bonds that were issued in 1987 to help finance losses to
the former insurance fund for state and federal savings associations.
Following the imposition of the one-time special assessment, the FDIC
lowered assessment rates for SAIF members to reduce the disparity in the
assessment rates paid by BIF and SAIF members. From 1997 through 1999,
FDIC-insured institutions will pay approximately 1.3 basis points of their
BIF-assessable deposits and 6.4 basis points of their SAIF-assessable deposits
to fund the Financing Corporation bonds. The Bank's insurance premium, which had
amounted to the minimum $2,000 annual fee for its BIF-insured deposits, was
increased to 1.3 basis points.
Regulatory Capital Requirements
FDIC-insured savings banks are subject to risk-based capital guidelines
that establish a framework for making regulatory capital requirements more
sensitive to the risk profiles of each institution. The Bank is required to
maintain certain levels of regulatory capital in relation to risk-weighted
assets. The ratio of such regulatory capital to risk-weighted assets is referred
to as the Bank's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio equal to at least 8% of risk-weighted assets, of which at least 4%
must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage capital ratio (Tier I capital to adjusted total assets as
specified in the regulations). These regulations provide for a minimum Tier I
leverage ratio of 3% for banks that meet certain specified criteria, including
that they have the highest examination rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a Tier
I leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points. The FDIC may, however, set higher leverage and risk-based capital
requirements on individual institutions when particular circumstances warrant.
Savings banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
The FDIC has also proposed that a bank's interest rate risk exposure
should be quantified using either the measurement system set forth in the
proposal or the institution's internal model for measuring such exposure.
Management of the Bank has not determined what effect, if any, the proposed
interest rate risk component would have on the Bank's capital if adopted as
proposed.
Standards for Safety and Soundness
The federal banking agencies have adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
federal law. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The standards set forth
in the Guidelines address internal controls and information systems; internal
audit program; credit underwriting; loan documentation; interest rate risk
exposure; asset growth; and compensation, fees and benefits. The agencies also
adopted additions to the Guidelines which require institutions to examine asset
quality and earnings standards. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance
74
<PAGE>
with the standard, as required by federal law. The final regulations establish
deadlines for the submission and review of such safety and soundness compliance
plans.
Limitations on Dividends and Other Capital Distributions
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. Massachusetts law also
restricts the Bank from declaring a dividend which would reduce its capital
below (i) the amount required to be maintained by state and federal law and
regulations, or (ii) the amount of the Bank's liquidation account established in
connection with the Reorganization.
Prompt Corrective Action
The federal banking agencies have promulgated regulations to implement
the system of prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of
6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized" banks
are subject to one or more of a number of additional restrictions, including an
order by the FDIC to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks or to dismiss directors or officers, and restrictions
on interest rates paid on deposits, compensation of executive officers and
capital distributions by a parent holding company.
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
Activities and Investments of Insured State-Chartered Banks
Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things: (i) acquiring or retaining a majority interest in a
subsidiary; (ii) investing as a limited partner in a partnership, the sole
purpose of which is direct or indirect investment in the acquisition,
rehabilitation, or new construction of a qualified housing project, provided
that such limited partnership investments may not exceed 2% of the bank's total
assets; (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures directors', trustees' and officers' liability insurance
coverage or bankers' blanket bond group insurance coverage for
75
<PAGE>
insured depository institutions; and (iv) acquiring or retaining, through a
subsidiary, up to 10% of the voting shares of a depository institution if
certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the
foregoing limitations. For example, certain state-chartered banks, such as the
Bank, may continue to invest, up to certain limits, in common or preferred stock
listed on a National Securities Exchange or the National Market System of
NASDAQ, and in the shares of an investment company registered under the
Investment Company Act of 1940, as amended. Such banks may also continue to sell
savings bank life insurance. As of August 31, 1997, the Bank had marketable
equity securities with a carrying value of $23.6 million pursuant to this
exception.
Transactions with Affiliates
Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings bank's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus. The term "covered transaction" includes the making of loans
or other extensions of credit to an affiliate; the purchase of assets from an
affiliate; the purchase of, or an investment in, the securities of an affiliate;
the acceptance of securities of an affiliate as collateral for a loan or
extension of credit to any person; or issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances or letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings
bank with respect to loans to directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers and shareholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal shareholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Holding Company Regulation
General. Upon consummation of the Reorganization, the Company, as the
sole shareholder of the Bank, and the Mutual Company, as the indirect
controlling shareholder of the Bank, will become bank holding companies. Bank
holding companies are subject to comprehensive regulation and regular
examinations by the FRB under the BHCA, and the regulations of the FRB. The FRB
also has extensive enforcement authority over bank holding companies, including,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices. As a savings bank, the Bank may elect to have the Company and the
Mutual Company regulated as savings and loan holding companies
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by the Office of Thrift Supervision ("OTS"). Regulation as a savings and loan
holding company would require application to, and prior approval of, the OTS.
Under FRB policy, a bank holding company must serve as a source of
strength for its subsidiary bank. Under this policy, the FRB may require, and
has required in the past, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the FRB includes,
among other things, operating a savings institution, mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. The Company and the Mutual Company have no
present plans to engage in any of these activities.
Interstate Banking and Branching. Federal law allows the FRB to approve
an application of an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank located in a state other than such holding company's home state,
without regard to whether the transaction is prohibited by the laws of any
state. The FRB may not approve the acquisition of the bank that has not been in
existence for the minimum time period (not exceeding five years) specified by
the statutory law of the host state. The FRB is prohibited from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. Individual states continue to
have authority to limit the percentage of total insured deposits in the state
which may be held or controlled by a bank or bank holding company to the extent
such limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit referred to above.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transactions are prohibited by the law of any state, unless the
home state of one of the banks "opted out" by adopting a law which applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. Interstate acquisitions of branches are permitted
only if the law of the state in which the branch is located permits such
acquisitions.
In 1996, the Massachusetts legislature enacted a new interstate banking
statute pursuant to which an out-of-state bank may (subject to various
regulatory approvals and to reciprocity in its home state) establish and
maintain bank branches in Massachusetts by (i) merging with a Massachusetts bank
that has been in existence for at least three years, (ii) acquiring a branch or
branches of a Massachusetts bank without acquiring the entire bank, or (iii)
opening such branches de novo. Massachusetts banks' ability to exercise similar
interstate banking powers in other states depend upon the laws of the other
states. For example, according to the law of the bordering state of New
Hampshire, out-of-state banks may acquire New Hampshire banks by merger, but may
not acquire individual branches or establish de novo bank branches in New
Hampshire.
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Federal law authorizes the FDIC to approve interstate branching de novo
by national and state banks, respectively, only in states which specifically
allow for such branching. The appropriate federal banking agencies are required
to prescribe regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
The FDIC and FRB have adopted such regulations. These regulations include
guidelines to ensure that interstate branches operated by an out-of-state bank
in a host state are reasonably helping to meet the credit needs of the
communities which they serve. Should the FDIC determine that a bank's interstate
branch is not reasonably helping to meet the credit needs of the communities
serviced by the interstate branch, the FDIC is authorized to close the
interstate branch or not permit the bank to open a new branch in the state in
which the bank previously opened an interstate branch.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that the holding
company's net income for the past year is sufficient to cover both the cash
dividends and a rate of earnings retention that is consistent with the holding
company's capital needs, asset quality and overall financial condition. The FRB
also indicated that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, under the
prompt corrective action regulations adopted by the FRB, the FRB may prohibit a
bank holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized." See "--Regulatory Capital
Requirements."
Bank holding companies are required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the consolidated net worth of the bank
holding company. The FRB may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe or unsound practice or
would violate any law, regulation, FRB order, or any condition imposed by, or
written agreement with, the FRB. This notification requirement does not apply to
any company that meets the well-capitalized standard for commercial banks, has a
safety and soundness examination rating of at least a "2" and is not subject to
any unresolved supervisory issues.
Dividend Waivers by the Mutual Company. It has been the policy of many
mutual holding companies to waive the receipt of dividends declared by their
savings institution subsidiary. In connection with its approval of mutual
holding company reorganizations since 1994, however, the FRB has imposed certain
conditions on the waiver of dividends by mutual holding companies declared on
the common stock of subsidiary savings banks, and the Mutual Company expects
that the FRB will impose such conditions on any dividend waivers by the Mutual
Company on the Common Stock of the Company.
In particular, it is expected that the FRB will require that the
amount of any waived dividends will not be available for payment to Minority
Stockholders and will be excluded from capital for purposes of calculating
dividends payable to Minority Stockholders. Moreover, the cumulative amount of
waived dividends must be maintained in a restricted capital account which would
be added to any liquidation account of the Bank in the event of a conversion of
the Mutual Company to stock form (a "Conversion Transaction"), and would not be
available for distribution to Minority Stockholders. The restricted capital
account and liquidation account amounts would not be reflected in the Bank's
financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policy of the Office of Thrift
Supervision except that such rules would be administered by the FRB, and any
other rules and regulations adopted by the FRB. The Plan also provides that if
the Mutual Company converts to stock form in the future, any waived dividends
may reduce the Minority Ownership Interest following such Conversion
Transaction. See "The Reorganization and Offering--Conversion of the Mutual
Company to Stock Form."
If the Mutual Company decides that it is in its best interest to waive
a particular dividend to be paid by the Company, and the FRB approves such
waiver, then the Company would pay such dividend only to Minority Stockholders,
and the amount of the dividend waived by the Mutual Company would be treated in
the manner described above. The Mutual Company's decision as to whether or not
to waive a particular dividend, if such waiver is approved by the FRB, will
depend on a number of factors, including the Mutual Company's capital needs, the
investment alternatives available to the Mutual Company as compared to those
available to the Company, and regulatory approvals. There can be no assurance
(i) that after the Reorganization the Mutual Company will waive dividends paid
by the Company, (ii) that the FRB will approve any dividend waivers by the
Mutual Company or (iii) of the terms that may be imposed by the FRB on any
dividend waiver.
Federal Securities Law
The common stock of the Company to be issued in the Offering will be
registered with the Securities and Exchange Commission ("SEC") under the
Exchange Act. The Company will be subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
Company Common Stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration, unless such Common Stock is sold in accordance with
certain resale restrictions. If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The FRB requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At August
31, 1997, the Bank was in compliance with these reserve requirements. Savings
banks are authorized to borrow from the Federal Reserve Bank "discount window,"
but FRB regulations require savings banks to exhaust other reasonable
alternative sources of funds, including FHLB borrowings, before borrowing from
the Federal Reserve Bank.
Community Reinvestment Act
Under the Community Reinvestment Act, as amended (the "CRA"), as
implemented by FDIC regulations, a savings bank has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not
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establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the FDIC, in connection with its
examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution, including
applications to acquire branches and other financial institutions. The CRA
requires the FDIC to provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating was "satisfactory."
Massachusetts has its own statutory counterpart to the Community
Reinvestment Act which is also applicable to the Bank. The Massachusetts version
is generally similar to the Community Reinvestment Act but utilizes a
five-tiered descriptive rating system. Massachusetts law requires the
Commissioner to consider, but not be limited to, a bank's record of performance
under Massachusetts law in considering any application by the bank to establish
a branch or other deposit-taking facility, to relocate an office, or to merge or
consolidate with or acquire the assets and assume the liabilities of any other
banking institution. The Bank's most recent rating under the Massachusetts law
was "satisfactory."
Consumer Protection and Fair Lending Regulations
The Bank is subject to a variety of federal and Massachusetts statutes
and regulations that are intended to protect consumers and prohibit
discrimination in the granting of credit. These statutes and regulations provide
for a range of sanctions for non-compliance, including imposition of
administrative fines and remedial orders, and referral to the Attorney General
for prosecution of a civil action for actual and punitive damages and injunctive
relief. Certain of these statutes authorize private individual and class action
lawsuits and the award of actual, statutory and punitive damages and attorneys'
fees for certain types of violations.
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Federal Home Loan Bank System
The Bank is a member of the FHLB of Boston, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Boston. At August 31, 1997, the Bank owned $3.3 million of FHLB stock.
In past years, the Bank has received dividends on its FHLB stock. The dividend
yield from FHLB stock was 6.41% for the year ended December 31, 1996. No
assurance can be given that such dividends will continue in the future at such
levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
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MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
The Board of Directors of the Company currently consists of 15 members,
each of whom is currently serving as a trustee of the Bank. The current trustees
of the Bank are as follows:
<TABLE>
<CAPTION>
DATED
ELECTED
TO BANK'S
AGE AT TERM BOARD
NAME AUGUST 31, 1997 EXPIRES OF TRUSTEES
----------------------- --------------- ------- -----------
<S> <C> <C> <C>
Oliver F. Ames 76 2000 1973
Dennis S. Aronowitz 66 2000 1991
George C. Caner, Jr. 71 1999 1966
David C. Chapin 61 1998 1989
Richard P. Chapman, Jr. 62 1999 1972
William G. Coughlin 65 2000 1976
John L. Hall, II 57 1998 1983
Charles H. Peck 56 1998 1995
Hollis W. Plimpton, Jr. 67 1998 1974
Edward D. Rowley 79 1999 1966
Joseph J. Slotnik 61 2000 1970
William V. Tripp, III 59 1999 1975
Rosamond B. Vaule 59 1998 1989
Peter O. Wilde 58 1999 1993
Franklin Wyman, Jr. 76 1998 1974
</TABLE>
Each director of the Company has served as such since the Company's
incorporation in November 1997. Directors of the Company will serve three-year
staggered terms so that approximately one-third of the Directors will be elected
at each annual meeting of stockholders.
The Reorganization will not result initially in an increase in the total
compensation currently paid to trustees of the Bank. Such compensation, however,
will be paid in part by the Mutual Company, the Company and the Stock Bank based
on the services performed by such individuals for such entities. Subsequent to
the Reorganization, compensation of the directors of the Company may be
increased to reflect the additional responsibilities of directors of a stock
company with public stockholders.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names. The biographical information
for each executive officer is set forth under "Management of the Stock Bank--
Biographical Information."
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ------------------------- ---- ---------
<S> <C> <C>
Richard P. Chapman, Jr. 62 President and Chief Executive Officer
Charles H. Peck 56 Executive Vice President
Paul R. Bechet 55 Senior Vice President and Chief Financial
Officer
Susan M. Ginns 52 Senior Vice President and Treasurer
George C. Caner, Jr. 71 Secretary
</TABLE>
________________
*As of August 31, 1997
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The Board of Directors of the Company shall appoint a President, a Chief
Executive Officer, one or more Vice Presidents, and a Secretary after the annual
meeting of stockholders. The Board of Directors may appoint such other officers
from time to time as it may deem proper.
Since the formation of the Company, none of the executive officers has
received remuneration from the Company. It is not anticipated that the
executive officers of the Company will initially receive any remuneration in his
or her capacity as an executive officer. For information concerning
compensation of executive officers of the Bank, see "Management of the Stock
Bank."
INDEMNIFICATION
The Articles of Organization of the Company provide that a director or
officer of the Company shall be indemnified by the Company to the fullest extent
authorized by Massachusetts law against all expenses, liability and loss
reasonably incurred or suffered by such person in connection with his activities
as a director or officer or as a director or officer of another company, if the
director or officer held such position at the request of the Company.
Massachusetts law requires that such director, officer, employee or agent, in
order to be indemnified, must have acted in good faith and in a manner
reasonably believed to be not opposed to the best interests of the Company and,
with respect to any criminal action or proceeding, either had reasonable cause
to believe such conduct was lawful or did not have reasonable cause to believe
his conduct was unlawful.
In addition, the Articles of Organization and Massachusetts law also
provide that the Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Company has the power to
indemnify such person against such expense, liability or loss under
Massachusetts law. The Company intends to obtain such insurance.
MANAGEMENT OF THE STOCK BANK
DIRECTORS OF THE STOCK BANK
Upon completion of the Reorganization, the initial directors of the Stock
Bank will consist of those persons who currently serve on the Board of
Investment and the Auditing Committee of the Board of Trustees of the Bank. The
directors of the Stock Bank will have three year terms which will be staggered
to provide for the election of approximately one-third of the board members each
year. Directors of the Stock Bank will be elected by the Company as sole
stockholder of the Stock Bank. The proposed directors of the Stock Bank are as
follows:
<TABLE>
<CAPTION>
DIRECTOR AGE* OCCUPATION TERM EXPIRES
- -------- ---- ---------- ------------
<S> <C> <C> <C>
Oliver F. Ames 76 Retired 2000
David C. Chapin 61 President; Cameron Properties 1998
Richard P. Chapman, Jr. 62 President and Chief Executive Officer;
Brookline Savings Bank 1999
William G. Coughlin 65 Private investor in commercial real estate 2000
Joseph J. Slotnik 61 Private investor 2000
William V. Tripp, III 59 Attorney; Sherburne, Powers and Needham, P.C. 1999
Peter O. Wilde 58 Managing Director; Beckwith Bemis Incorporated 1999
Franklin Wyman, Jr. 76 Chairman and Treasurer; O'Conor, Wright, Wyman, Inc. 1998
</TABLE>
______________
*As of August 31, 1997
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<PAGE>
EXECUTIVE OFFICERS OF THE STOCK BANK
The following table sets forth certain information regarding the executive
officers of the Stock Bank, all of whom currently serve in their indicated
position as executive officers of the Bank.
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ---- ---- --------
<S> <C> <C>
Richard P. Chapman, Jr. 62 President and Chief Executive Officer
Charles H. Peck 56 Executive Vice President
Paul R. Bechet 55 Senior Vice President and Chief Financial Officer
Susan M. Ginns 52 Senior Vice President and Treasurer
George C. Caner, Jr. 71 Clerk
</TABLE>
______________
*As of August 31, 1997
The Chief Executive Officer and Treasurer of the Stock Bank will be elected
annually by the Board of Directors at its first meeting following the first
annual meeting of stockholders of the Stock Bank after the Reorganization. The
Clerk will be elected by the stockholders of the Stock Bank at annual meetings
of the stockholders of the Stock Bank. Other officers will be elected by the
Board of Directors of the Bank and will serve at its pleasure.
BIOGRAPHICAL INFORMATION
Trustees of the Bank
OLIVER F. AMES has served as a Trustee of the Bank since 1973 and a member
of the Board of Investment of the Bank since 1974. Mr. Ames is retired, and has
served on the board of directors of a number of civic and charitable
organizations. From 1962 through 1970, Mr. Ames served as a State Senator.
DENNIS S. ARONOWITZ has served as a Trustee of the Bank since 1991. In
1996, Mr. Aronowitz, an attorney, retired from Boston University where he served
on the faculty of the Law School since 1967 and was Director of the Banking Law
Center and Graduate Banking Law programs. He also is a trustee of a number of
John Hancock mutual funds.
GEORGE C. CANER, JR. has served as a Trustee of the Bank since 1966 and
also serves as the Clerk of the Bank. Mr. Caner is an attorney at the law firm
of Ropes & Gray, where he was a partner from 1965 through 1996. Mr. Caner
currently is Of Counsel at the firm.
DAVID C. CHAPIN has served as a Trustee of the Bank since 1989. Mr. Chapin
is President of Cameron Properties, a real estate investment, property appraisal
and management company, and has served in that capacity since 1975.
RICHARD P. CHAPMAN, JR. has served as a Trustee of the Bank since 1972 and
has also served as President of the Bank since 1973 and Chief Executive Officer
since 1975. Mr. Chapman is also a trustee of a number of John Hancock mutual
funds, a director of Lumber Insurance Cos. and a trustee of Northeastern
University.
WILLIAM G. COUGHLIN has served as a Trustee of the Bank since 1976 and
became a member of the Board of Investment in 1997. Mr. Coughlin is a private
investor in commercial real estate.
JOHN L. HALL, II has served as a Trustee of the Bank since 1983. Mr. Hall
is President of Hall Properties, Inc., a real estate investment, management and
development company, and has served in that capacity since 1989.
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CHARLES H. PECK has served as a Trustee of the Bank since 1995. Mr. Peck
also is an Executive Vice President of the Bank and has served as the Senior
Loan Officer of the Bank since 1970.
HOLLIS W. PLIMPTON, JR. has served as a Trustee of the Bank since 1974.
Reverend Plimpton is Rector of St. George's Anglican Church.
EDWARD D. ROWLEY has been a Trustee of the Bank since 1966 and also serves
as the Assistant Clerk of the Bank. Prior to his retirement, Mr. Rowley was
associated with a retail merchandising firm and served in an administrative
position at the Harvard Business School.
JOSEPH J. SLOTNIK has served as a Trustee of the Bank since 1970 and a
member of the Board of Investment since 1974. Mr. Slotnik is a private investor
and previously was managing partner of the Boston office of a brokerage and
investment firm.
WILLIAM V. TRIPP, III has served as a Trustee since 1975. Mr. Tripp is an
attorney and partner at Sherburne, Powers and Needham, P.C., and has been with
that firm since 1968.
ROSAMOND B. VAULE has served as a Trustee of the Bank since 1989. Ms.
Vaule is active in volunteer work for various educational and charitable
organizations.
PETER O. WILDE has served as a Trustee of the Bank since 1993. In 1997,
Mr. Wilde became Managing Director of Beckwith Bemis Incorporated, a coatings
and finishing company. Previously, he was Vice President of Finance and
Administration at Ran Demo, Inc., a materials technology company, and served in
that position since 1991.
FRANKLIN WYMAN, JR. has served as a Trustee of the Bank since 1974 and
became a member of the Board of Investment in 1979. Mr. Wyman is Chairman and
Treasurer of O'Conor, Wright, Wyman, Inc., a consulting firm providing advisory
services in mergers and acquisitions, where he has been since 1984. He is also
a director of Unitil Corporation, an electric utility company in New Hampshire,
and a director of Fitchburg Gas & Electric Company.
Executive Officers of the Bank Who Are Not Trustees
SUSAN M. GINNS is Senior Vice President and Treasurer of the Bank, a
position she has held since 1987. Her primary areas of responsibility include
retail banking, marketing and personnel.
PAUL R. BECHET is Senior Vice President and Chief Financial Officer of the
Bank, a position he has held since June 1997. Mr. Bechet is a certified public
accountant who, prior to joining the Bank, was a partner at KPMG Peat Marwick
LLP since 1972. His primary areas of responsibility include financial reporting
and risk management.
MEETINGS AND COMMITTEES OF THE BOARD OF THE BANK
The Board of Trustees of the Bank meets quarterly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law. During the year ended December 31, 1996, the Board held four meetings. No
trustee attended fewer than 75% in the aggregate of the total number of meetings
of the Board or Board committees on which such trustee served for the year ended
December 31, 1996. The Board of Trustees of the Bank has a Board of Investment
as well as the following standing committees of the Board of Trustees: Audit
Committee, CRA Committee, Real Estate Committee and Watch Committee.
BOARD OF DIRECTORS AND COMMITTEES OF THE STOCK BANK AND THE COMPANY AFTER THE
REORGANIZATION
Following the Reorganization, the Board of Directors of the Stock Bank will
meet monthly, or more often as may be necessary. The Board of Directors
initially is expected to have an Audit Committee, an Executive
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<PAGE>
Committee, a Loan Committee and a Watch Committee. The Board of Directors may,
by resolution, designate one or more additional committees to be comprised of
those directors elected by the Board of Directors.
The Audit Committee initially will consist of the following directors of
the Stock Bank: Messrs. Chapin, Tripp and Wilde. The Audit Committee is expected
to meet at least quarterly to review the contents of and conclusions in the
audit reports prepared by the independent auditors and Internal Auditor of the
Stock Bank, to review and approve the annual engagement of the Stock Bank's
independent auditors and to review the internal audit function and internal
accounting controls of the Stock Bank.
The CRA Committee initially will consist of the following directors of the
Stock Bank: Messrs. Ames and Aronowitz and Ms. Vaule. The CRA Committee is
expected to meet quarterly to review the status of the Bank's CRA program and
any reports issued by regulators resulting from their examination of the Bank's
compliance with CRA regulations.
The Executive Committee initially will consist of the following directors
of the Stock Bank: Messrs. Ames, Chapman, Coughlin, Slotnik and Wyman. The
Executive Committee is expected to meet monthly to exercise general control and
supervision of all matters pertaining to the interests of the Stock Bank,
subject at all times to the direction of the Board of Directors.
The Loan Committee initially will consist of the following directors of the
Stock Bank: Messrs. Chapman, Coughlin and Wyman. The Loan Committee is expected
to meet weekly to review and approve all loan requests of $400,000 and over.
The Watch Committee initially will consist of the following directors of
the Stock Bank: Messrs. Chapman and Slotnik. The Watch Committee is expected to
meet quarterly to review the status of the loan portfolio and OREO properties,
the classification of loans and the adequacy of the allowance for losses on
loans and OREO.
The Nominating Committee initially will consist of the following directors
of the Stock Bank: Messrs. Coughlin, Wilde and Wyman. The Nominating Committee
is expected to meet on an annual basis to identify, evaluate and recommend to
the Board of Directors potential candidates for election as directors and
appointments to the Board's committees.
COMPENSATION OF TRUSTEES AND DIRECTORS
Executive officers of the Bank receive no fees for service on the Board of
Trustees of the Bank or any committees of the Board. Trustees of the Bank
receive fees of $500 for each meeting attended, and the Clerk of the Bank
receives an additional $600 per meeting. Members of the Bank's Board of
Investment are paid a quarterly retainer of $2,000 and a $500 fee for each
meeting attended. The vice-chairman of the Board of Investment is paid an
additional quarterly retainer of $875. Trustees who are not members of the Board
of Investment but attend meetings of the Board of Investment are paid $500 for
each meeting they attend.
Members of the Bank's Real Estate Committee receive a quarterly retainer of
$3,750. Members of the Bank's Audit Committee receive a quarterly retainer of
$750. The chairman of the Audit Committee receives an additional $375 quarterly
retainer. Members of the Bank's CRA Committee receive a fee of $500 per
quarterly meeting. Members of the Bank's Watch Committee receive a quarterly
retainer of $1,750.
Subsequent to the consummation of the Reorganization, it is expected that
the level and structure of compensation paid to the Boards of Directors of the
Company and the Stock Bank and committees of such Boards will be reviewed in
light of the levels and structure of compensation paid to Boards of Directors
and committees of similarly-situated publicly traded financial institutions.
After such review, the amount of compensation paid to Board and committee
members may be adjusted.
85
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the year ended December
31, 1996 to the Chief Executive Officer of the Bank and the two other executive
officers of the Bank who received total annual compensation in excess of
$100,000 ("Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
-------------------------------- ---------------------- ------
YEAR OTHER OPTIONS/ ALL
ENDED ANNUAL RESTRICTED SARS OTHER
NAME AND 12/31 COMPENSATION STOCK (#) LTIP COMPENSATION
PRINCIPAL POSITION (1) SALARY BONUS (2) AWARDS(3) (4) PAYOUTS (5)
- ------------------------- ----- -------- ------- ------------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard P. Chapman, Jr. 1996 $300,000 $82,500 - - - - $246,806
President and Chief
Executive Officer
Charles H. Peck 1996 152,000 35,000 - - - - 63,368
Executive Vice
President
Susan M. Ginns 1996 115,000 26,500 - - - - 18,619
Senior Vice President
and Treasurer
</TABLE>
__________________
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC, Summary Compensation information is excluded
for the years ended December 31, 1995 and 1994, as the Bank was not a
public company during such periods.
(2) The Bank also provides certain members of senior management with the use of
an automobile, club membership dues and certain other personal benefits,
the aggregate value of which did not exceed the lesser of $50,000 or 10% of
the total annual salary and bonus reported for each officer.
(3) Does not include awards pursuant to the Stock Plans, as such awards were
not earned or granted in 1996. For a discussion of the terms of the Stock
Plans which are intended to be adopted by the Company, see "--Compensation
of Officers and Trustees through Benefit Plans--Stock Award Plan."
(4) No stock options or SARs were earned or granted in 1996. For a discussion
of the Stock Option Plan which is intended to be adopted by the Company,
see "--Compensation of Officers and Trustees through Benefit Plans--Stock
Option Plan."
(5) Other compensation includes supplemental retirement benefits and group term
life insurance.
EMPLOYMENT AND SEVERANCE AGREEMENTS
[Employment Agreements. Upon completion of the Offering, it is anticipated
that the Bank will enter into substantially identical employment agreements with
Messrs. Chapman and Peck. Each of the agreements will have a term of 36 months.
On each anniversary date, the agreement may be extended for an additional twelve
months, so that the remaining term shall be 36 months. If the agreement is not
renewed, the agreement will expire 36 months following the anniversary date.
Under the agreements, the current Base Salaries for Messrs. Chapman and Peck
will be $_______ and $________, respectively. The Base Salary may be increased
but not decreased. In addition to the Base Salary, the agreement provides for,
among other things, participation in retirement plans and other employee and
fringe benefits applicable to executive personnel. The agreement provides for
termination by the Bank for cause at any time. In the event the Bank terminates
the executive's employment for reasons other than for cause, or in the event of
the executive's resignation from the Bank upon (i) failure to re-elect the
executive to his current offices, (ii) a material change in the executive's
functions, duties or responsibilities, or relocation of his principal place of
employment by more than 30 miles, (iii) liquidation or dissolution of the Bank,
(iv) a breach of the agreement by the Bank, or (v) following a change in control
of the Bank or the Company, the executive, or in the event of death, his
beneficiary, would be entitled to severance pay in an amount equal to three
times the Base Salary and the highest bonus paid during any of the last three
years. The Bank would also continue the executive's life, health, dental and
disability coverage for 36 months from the date of termination. In the event the
payments to the executive would
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<PAGE>
include an "excess parachute payment" as defined by Code Section 280G (relating
to payments made in connection with a change in control), the payments would be
reduced in order to avoid having an excess parachute payment.
Under the agreement, the executive's employment may be terminated upon his
retirement in accordance with any retirement policy established on behalf of the
executive and with his consent. Upon the executive's retirement, he will be
entitled to all benefits available to him under any retirement or other benefit
plan maintained by the Bank. In the event of the executive's disability for a
period of six months, the Bank may terminate the agreement provided that the
Bank will be obligated to pay him his Base Salary for the remaining term of the
agreement or one year, whichever is longer, reduced by any benefits paid to the
executive pursuant to any disability insurance policy or similar arrangement
maintained by the Bank. In the event of the executive's death, the Bank will
pay his Base Salary to his named beneficiaries for one year following his death,
and will also continue medical, dental, and other benefits to his family for one
year. The employment agreement provides that, following his termination of
employment, the executive will not compete with the Bank for a period of one
year.]
[Severance Agreements. Upon completion of the Offering, it is anticipated
that the Bank will enter into Severance Agreements (the "Severance Agreements")
with [ ] of the Bank which would provide certain benefits in the
event of a change in control of the Bank or the Company. The Severance
Agreements would provide for up to a three-year term. Commencing on each
anniversary date, the Board of Directors may extend any Severance Agreement for
an additional year. The Severance Agreements would enable the Bank to offer to
designated officers certain protections against termination without cause in the
event of a "change in control." For these purposes, a "change in control" is
defined generally to mean: (i) consummation of a plan of reorganization, merger
or sale of substantially all of the assets of the Bank or the Company where the
Bank or the Company is not the surviving entity; (ii) changes to the Board of
Directors of the Bank or the Board of Directors of the Company whereby
individuals who constitute the current Board cease to constitute a majority of
the Board, subject to certain exceptions; (iii) a change in "control" as defined
by the BHCA, in effect on the date of the Severance Agreement; (iv) a
transaction or occurrence whereby any person becomes the beneficial owner of 25%
or more of the voting securities of the Company; and (v) a tender offer is made
for 25% or more of the voting securities of the Company and 25% or more of the
shareholders have tendered their shares. These protections against termination
without cause in the event of a change in control are frequently offered by
other financial institutions, and the Bank may be at a competitive disadvantage
in attracting and retaining key employees if it does not offer similar
protections. Although the Severance Agreements may have the effect of making a
takeover more expensive to an acquiror, the Bank believes that the benefits of
enhancing the Bank's ability to attract and retain qualified management persons
by offering the Severance Agreements outweighs any disadvantage of such
agreements.
Following a change in control of the Company or the Bank, an officer would
be entitled to a payment under the Severance Agreement if the officer
voluntarily or involuntarily terminates employment during the term of such
agreement, other than for cause, as defined. In the event that an officer who
is a party to a Severance Agreement is entitled to receive payments pursuant to
the Severance Agreement, he would receive a cash payment up to a maximum of
three times the average of the three preceding years' annual base salary and
bonuses. In addition to the severance payment, each covered officer would be
entitled to receive life, health, dental and disability coverage for a period of
up to 36 months from the date of termination. Notwithstanding any provision to
the contrary in the Severance Agreement, payments under the Severance Agreements
are limited so that they will not constitute an excess parachute payment under
Section 280G of the Internal Revenue Code.]
COMPENSATION OF OFFICERS AND TRUSTEES THROUGH BENEFIT PLANS
The Bank's current tax-qualified employee pension benefit plans consist of
a defined benefit pension plan and a profit sharing plan with a salary deferral
feature under section 401(k) of the Code. As a result of the Reorganization,
the Company and the Bank will be able to compensate employees with stock-based
compensation pursuant to the ESOP, the Stock Plans and the Stock Option Plan
described below.
Medical, Dental, Life and Other Similar Employee Benefit Plans. The Bank
provides eligible employees (i.e., generally full-time employees and employees
who work more than 17 1/2 hours per week) with group life (after
87
<PAGE>
three months of employment), accidental death and dismemberment, and long term
disability coverage. For its eligible employees, the Bank pays 80% of the
monthly premiums for group health coverage and 50% of the monthly premiums for
individual and family dental coverage. The Bank pays 100% of the monthly
premiums for group life insurance coverage after the employee has completed one
year of service. The Bank also sponsors a flexible benefits plan under which
employees can pay their ratable share of health insurance premiums on a pre-tax
basis and a medical expense reimbursement plan under which employees can defer
their salary on a pre-tax basis to cover the costs of certain medical expenses
not reimbursed through insurance or otherwise.
Disability/Death Benefit Plan. The Bank has entered into a non-qualified
plan providing death and disability benefits to Mr. Chapman if he dies or
becomes disabled prior to his retirement date, i.e., his 65th birthday. In the
event of Mr. Chapman's death prior to his retirement date, his beneficiary will
be entitled to a benefit equal to 50% of the average three highest total annual
amounts of compensation paid to Mr. Chapman during the last five years of his
employment (the "Annual Benefit"), reduced by any distribution from the Bank's
tax-qualified defined benefit pension plan and one-half of any social security
benefits that any beneficiary derives through Mr. Chapman. The annual benefit
will be payable for 180 months. In the event of Mr. Chapman's disability prior
to his retirement date, the Bank will pay to Mr. Chapman a disability benefit
equal to the Annual Benefit, reduced by amounts paid to Mr. Chapman under any
disability income policy provided by the Bank. Any disability benefits paid to
Mr. Chapman under this plan will cease when Mr. Chapman attains his retirement
date.
Defined Benefit Pension Plan. The Bank maintains the Savings Banks
Employees Retirement Association Pension Plan, which is a qualified, tax-exempt
defined benefit plan ("Retirement Plan"). All employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of service with the Bank during the year are eligible to accrue
benefits under the Retirement Plan. The Bank annually contributes an amount to
the Retirement Plan necessary to satisfy the actuarially determined minimum
funding requirements in accordance with the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
At the normal retirement age of 65, the plan is designed to provide a
single life annuity. For a married participant, the normal form of benefit is an
actuarially reduced joint and survivor annuity where, upon the participant's
death, the participant's spouse is entitled to receive a benefit equal to 100%
of that paid during the participant's lifetime. The joint and survivor annuity
will be actuarially equivalent to the single life annuity. The retirement
benefit provided is an amount equal to 1.25% of a participant's average
compensation based on the average of the three consecutive years providing the
highest average multiplied by the participant's years of service (up to a
maximum of 25 years) plus .6% of such average compensation in excess of covered
compensation multiplied by the participant's total number of years of service
(up to a maximum of 25 years). Retirement benefits are also payable upon
retirement due to early and late retirement, disability or death. A reduced
benefit is payable upon early retirement at age 62, at or after age 55 and the
completion of ten years of service with the Bank, or at age 50 and the
completion of 15 years of service. Upon termination of employment other than as
specified above, a participant who was employed by the Bank for a minimum of
five years is eligible to receive his or her accrued benefit commencing,
generally, on such participant's normal retirement date. Benefits under the
Retirement Plan are payable in various annuity forms as well as in the form of a
single lump sum payment. As of October 31, 1996, the most recent date for which
information is available, the market value of the Retirement Plan assets equaled
$4.8 million. No contribution was made to the Retirement Plan for the plan year
ended October 31, 1996.
88
<PAGE>
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1997, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE AND BENEFIT PAYABLE AT RETIREMENT
------------------------------------------------------
AVERAGE
COMPENSATION 15 20 25 30 /2/ 35 /2/ 40 /2/
- ----------------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 9,375 $12,500 $15,625 $15,625 $15,625 $15,6255
100,000 18,750 25,000 31,250 31,250 31,250 31,2500
150,000 28,125 37,500 46,875 46,875 46,875 46,8755
200,000/1/ 37,500 50,000 62,500 62,500 62,500 62,5000
250,000/1/ 46,875 62,500 78,125 78,125 78,125 78,125
</TABLE>
___________________
/1/ Under present law, a retirement benefit cannot be funded based on
-
compensation in excess of $160,000. Prior to 1994, retirement benefits
could be funded based on compensation of up to $235,840. If a participant
had accrued a larger retirement benefit based on the law before 1994, the
participant would be entitled to the larger benefit.
/2/ Benefits under the Retirement Plan are calculated based on a
-
participant's average compensation over a 3 year period and years of
service, up to 25 years. Benefits do not increase due to years of service
in excess of 25.
At December 31, 1996, the approximate years of service for the named
executive officers were as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------
<S> <C>
Richard P. Chapman 25
Charles H. Peck 31
Susan M. Ginns 21
</TABLE>
Supplemental Retirement Income Agreement. The Bank has entered into non-
qualified supplemental retirement income agreements ("SRIA") for the benefit of
Mr. Richard P. Chapman, Mr. Charles H. Peck, and Ms. Susan M. Ginns. The SRIA
for Mr. Chapman and Mr. Peck provide them with benefits generally equal to 70%
of their average compensation for the three calendar years with the highest rate
of compensation in the ten calendar year period prior to retirement, reduced by
any distribution they are entitled to receive from the Bank's pension plan and
one-half of any Social Security benefits. The SRIA for the benefit of Ms. Ginns
provides for a benefit at normal retirement equal to $3,000 per month.
Retirement Benefits under the SRIA are generally payable as a monthly
benefit or, at the election of the Bank, as a lump sum benefit. The monthly
benefits are payable on early or normal retirement or disability and continue
until the later of the executive's death or 15 years from the executive's
retirement (20 years in the case of Mr. Chapman). Monthly benefits are provided
for designated beneficiaries of participants who do not survive until retirement
commencing on the date of death and ending on the earlier of (1) the date the
executive would have attained his standard life expectancy or (2) 15 years from
the date of death (20 years in the case of the death of Mr. Chapman). Under the
SRIAs for Messrs. Chapman and Peck, in the case of a change in control, the
executive (or in the event of the executive's death, his beneficiary) is
irrevocably entitled to elect a lump sum benefit equal to the actuarial
equivalent of the monthly benefit to which the executive is entitled at such
time. The SRIA is considered an unfunded plan for tax and ERISA purposes. All
obligations under the SRIA are payable from the general assets of the Bank.
401(k) Plan. The Bank maintains the Savings Banks Employees Retirement
Association 401(k) Plan which is a qualified, tax-exempt profit sharing plan
with a salary deferral feature under Section 401(k) of the Code (the "401(k)
Plan"). All employees who have attained age 21 and have completed one year of
employment during which they worked at least 1,000 hours are eligible to
participate.
89
<PAGE>
Under the 401(k) Plan, participants are permitted to make salary reduction
contributions equal to the lesser of 15% of compensation or $9,500 (as indexed
annually). For these purposes, "compensation" includes wages reported on
federal income tax form W-2, but does not include compensation in excess of the
Code Section 401(a)(17) limits (i.e., $160,000 for plan years beginning in
1997). All employee contributions and earnings thereon are fully and immediately
vested. A participant may withdraw salary reduction contributions in the event
the participant suffers a financial hardship. The 401 (k) Plan permits
employees to direct the investment of their own accounts into various investment
options.
Plan benefits will be paid to each participant in the form of a life
annuity (or joint and survivor annuity if married) upon retirement or death
unless an alternate form of distribution (lump sum or equal payments over a
fixed period) is selected. If a participant terminates employment prior to
retirement, his vested benefit will be held by the 401(k) Plan until the
participant elects to receive his benefit from the plan. If a participant (and
the participant's spouse, if married) elects to receive benefits after
termination of employment prior to normal or early retirement age, benefits will
be paid in a lump sum. Normal retirement age under the plan is age 65. Early
retirement age is the earliest of age 62, age 55 with ten years of service, or
the date on which a claim for Social Security disability income benefits is
approved.
Employee Stock Ownership Plan and Trust. The Bank intends to implement an
Employee Stock Ownership Plan (the "ESOP") in connection with the
Reorganization. Employees with at least one year of employment with the Bank
and who have attained age 21 are eligible to participate. As part of the
Reorganization, the ESOP intends to borrow funds from the Company and use those
funds to purchase a number of shares equal to up to 4% of the Common Stock to be
issued in the Offering. Collateral for the loan will be the Common Stock
purchased by the ESOP. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of not less than ten
years. It is anticipated that the interest rate for the loan either will be
indexed to the prime rate published in The Wall Street Journal ("Prime Rate")
from time to time, or will be a fixed rate loan set at the Prime Rate on the
date of closing of the Offering. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for up to 4 years of service prior
to the effective date of the ESOP. Benefits generally vest over a seven year
period. Benefits generally vest at the rate of 20% per year beginning in the
third year of service until a participant is 100% vested after seven years or
upon normal retirement (as defined in the ESOP), disability or death of the
participant or a change in control (as defined in the ESOP). A participant who
terminates employment for reasons other than death, retirement or disability
prior to seven years of credited service will forfeit the nonvested portion of
his benefits under the ESOP. Benefits will be payable in the form of Common
Stock and cash upon death, retirement, early retirement, disability or
separation from service. The Bank's contributions to the ESOP are discretionary,
subject to the loan terms and tax law limits and, therefore, benefits payable
under the ESOP cannot be estimated. The Bank is required to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account.
The Bank will establish a committee of non-employee directors to administer
the ESOP. The Bank will either appoint its non-employee directors or an
independent financial institution to serve as trustee of the ESOP. The ESOP
committee may instruct the trustee regarding investment of funds contributed to
the ESOP. The ESOP trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of
participating employees. Under the ESOP, nondirected shares and shares held in
the suspense account will be voted in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
ERISA.
Stock Option Plan. At a meeting of the Company's shareholders to be held
no earlier than six months after the completion of the Offering, the Board of
Directors intends to submit for shareholder approval the Stock Option Plan for
directors and officers of the Bank and of the Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10% of the shares
issued in the Offering would be reserved for issuance by the Company
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<PAGE>
upon the exercise of the stock options granted under the Stock Option Plan. Ten
percent of the shares issued in the Offering would amount to 878,900 shares,
1,034,000 shares, 1,189,100 shares or 1,367,465 shares at the minimum, mid-
point, maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. No options would be granted under the Stock Option Plan until the
date on which shareholder approval is received.
The exercise price of the options granted under the Stock Option Plan will
be equal to the fair market value of the shares on the date of grant of the
stock options. If the Stock Option Plan is adopted within one year following the
Offering, options will become exercisable at a rate of 20% at the end of each 12
months of service with the Bank after the date of grant. Options granted under
the Stock Option Plan would be adjusted for capital changes such as stock splits
and stock dividends. Notwithstanding the foregoing, awards will be 100% vested
upon termination of employment due to death or disability, and if the Stock
Option Plan is adopted more than 12 months after the Offering, awards would be
100% vested upon normal retirement or a change in control of the Bank or the
Company. Unless the Company decides to call an earlier special meeting of
shareholders, the date of grant of these options is expected to be the date of
the Company's annual meeting of shareholders to be held at least six months
after the Offering. Under FDIC rules, if the Stock Option Plan is adopted
within the first 12 months after the Offering, no individual officer may receive
more than 25% of the awards under the plan, no non-employee director may receive
more than 5% of the awards under the plan, and all non-employee directors as a
group can receive no more than 30% of the awards under the plan in the
aggregate.
The Stock Option Plan would be administered by a Committee of non-employee
members of the Company's Board of Directors. Options granted under the Stock
Option Plan to employees may be "incentive" stock options, to the extent
permitted under the Code, designed to result in a beneficial tax treatment to
the employee but no tax deduction to the Company. Non-qualified stock options
may also be granted to employees under the Stock Option Plan, and will be
granted to the non-employee directors who receive stock options. In the event an
option recipient terminated his employment or service as an employee or
director, the options would terminate during certain specified periods.
Stock Plan. At a meeting of the Company's stockholders to be held at least
six months after the completion of the Offering, the Board of Directors also
intends to submit a Recognition and Retention Plan (the "Stock Plan") for
stockholder approval. The Stock Plan will provide the Bank's directors and
officers an ownership interest in the Company in a manner designed to encourage
them to continue their service with the Bank. The Bank will contribute funds to
the Stock Plan from time to time to enable it to acquire an aggregate amount of
Common Stock equal to up to 4% of the shares of Common Stock issued in the
Offering or 351,560 shares, 413,600 shares, 475,640 or 546,986 shares at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively. The Stock Plan may acquire the shares either directly from
the Company or in open market purchases. In the event that additional
authorized but unissued shares would be acquired by the Stock Plan after the
Offering, the interests of existing stockholders would be diluted. The executive
officers and directors will be awarded Common Stock under the Stock Plan without
having to pay cash for the shares. No awards under the Stock Plan would be made
until the date the Stock Plan is approved by the Company's stockholders.
Awards under the Stock Plan would be nontransferable and nonassignable, and
during the lifetime of the recipient could only be earned by him. Under FDIC
rules, if the Stock Plan is adopted within one year following the Offering, the
shares which are subject to an award would vest and be earned by the recipient
at a rate of 20% of the shares awarded at the end of each full 12 months of
service with the Bank after the date of grant of the award. Awards would be
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability, and if the Stock Plan is
adopted more than 12 months after the Offering, awards would be 100% vested upon
normal retirement or a change in control of the Bank or the Company. If
employment or service were to terminate for other reasons, the award recipient
would forfeit any nonvested award. If employment or service is terminated for
cause (as defined in the Stock Plan), shares not already delivered under the
Stock Plan would be forfeited. Under FDIC rules, if the Stock Plan is adopted
within 12 months after the Offering, no individual officer may receive more than
25% of the awards under the plan, no non-employee trustee may receive more than
5% of the awards under the plan, and all non-employee trustees as a group may
receive no more than 30% of the awards under the plan in the aggregate.
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<PAGE>
When shares become vested under the Stock Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under (S) 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company. If the Stock Plan is adopted within one year following the Offering,
dividends and other earnings will accrue and be payable to the award recipient
when the shares vest. If the Stock Plan is adopted within one year following
the Offering, shares not yet vested under the Stock Plan will be voted by the
trustee of the Stock Plan, taking into account the best interests of the
recipients of the Stock Plan awards. If the Stock Plan is adopted more than one
year following the Offering, dividends declared on unvested shares will be
distributed to the participant when paid, and the participant will be entitled
to vote the unvested shares.
INDEBTEDNESS OF MANAGEMENT
The Bank makes loans to non-officer trustees. Such loans are made on
substantially the same terms and conditions as those of comparable transactions
with the general public and do not present more than the normal risk of
collectibility.
PURCHASES BY MANAGEMENT
The following table sets forth information regarding intended Common Stock
purchases by each of the trustees and executive officers of the Bank and their
associates and by all trustees and executive officers as a group. In the event
the individual maximum purchase limitation is increased, persons subscribing for
the maximum amount may increase their purchase orders. This table excludes
shares to be purchased by the ESOP or proposed restricted stock awards under the
proposed Stock Plan or proposed option grants pursuant to the proposed Stock
Option Plan. See "Management of the Bank." The trustees and executive officers
of the Bank have indicated their intention to purchase in the Offering an
aggregate of $___________ of Common Stock, equal to __________%, __________%,
___________%, and ___________% of the number of shares to be issued in the
Offering, at the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, respectively.
<TABLE>
<CAPTION>
AGGREGATE NUMBER PERCENT
PURCHASE OF AT
NAME PRICE SHARES MIDPOINT
- ----------- --------- ------ --------
<S> <C> <C> <C>
Oliver F. Ames
Dennis S. Aronowitz
Paul R. Bechet
George C. Caner, Jr.
David C. Chapin
Richard P. Chapman, Jr.
William G. Coughlin
Susan M. Ginns
John L. Hall, II
Charles H. Peck
Hollis W. Plimpton, Jr.
Edward D. Rowley
Joseph J. Slotnik
William V. Tripp, III
Rosamond B. Vaule
Peter O. Wilde
Franklin Wyman, Jr.
All trustees and executive officers
as a group (17 persons)
</TABLE>
_____________________
*less than 1%
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<PAGE>
THE REORGANIZATION AND OFFERING
THE DIVISION HAS APPROVED THE PLAN AND THE OFFERING OF THE COMMON STOCK
SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS IMPOSED BY THE DIVISION.
REGULATORY APPROVAL OF THE OFFERING, HOWEVER, DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE OFFERING OR THE PLAN BY THE DIVISION.
THE REORGANIZATION
The Board of Trustees of the Bank has unanimously adopted the Plan and the
Division has approved the Plan. Pursuant to the Plan, the Bank will reorganize
into a two-tier mutual holding company structure. The two-tier mutual holding
company structure will consist of: (i) a Massachusetts mutual holding company
(the Mutual Company); (ii) a Massachusetts stock holding company (the Company)
that will offer up to 47% of its Common Stock for sale in the Offering, with the
remaining 53% of its Common Stock owned by the Mutual Company; and (iii) a
Massachusetts-chartered stock savings bank (the Stock Bank), which will be the
successor to the Bank in its current mutual form and which will be wholly-owned
by the Company.
The Reorganization will be effected as follows, or in any other manner
approved by the Commissioner that is consistent with the purposes of the Plan
and applicable laws and regulations.
(i) The Bank will cause a Massachusetts-chartered de novo mutual savings
bank (the De Novo) to be organized;
(ii) The De Novo will reorganize into the Mutual Company and will form a
de novo stock savings bank subsidiary (the Stock Bank), and all of
the assets and liabilities of the De Novo will be transferred to the
Stock Bank;
(iii) The Bank will merge with and into the Stock Bank with the Stock Bank
as the resulting entity;
(iv) The Mutual Company will organize a Massachusetts-chartered stock
company (the Company) as a separate wholly-owned subsidiary of the
Mutual Company;
(v) The Mutual Company will contribute all of the shares of common stock
of the Stock Bank to the Company, which will result in the Mutual
Company owning 100% of the Common Stock of the Company and the
Company owning 100% of the common stock of the Stock Bank; and
(vi) The Company will offer to sell 47% of its Common Stock in the
Subscription Offering, the Community Offering and, if applicable,
the Syndicated Community Offering.
Upon consummation of the Reorganization, the legal existence of the Bank
will not terminate, but the Stock Bank will be a continuation of the Bank by
virtue of the merger (step (iii) above), and all property of the Bank of
whatsoever kind and nature, will vest in the Stock Bank. The Stock Bank will
continue to have, succeed to, and be responsible for all the rights, liabilities
and obligations of the Bank and will maintain its headquarters and operations at
the Bank's present locations. The Company expects to retain up to 50% of the net
proceeds of the Offering and to contribute the remaining net proceeds to the
Stock Bank. The Bank has applied to the Commissioner to capitalize the Mutual
Company with approximately $250,000. Each deposit account in the Bank
immediately prior to the consummation of the Reorganization will upon completion
of the Reorganization become a deposit account in the Stock Bank in the same
amount and on the same terms and conditions, and will continue to be federally
insured up to the legal maximum by the FDIC (and the remaining amounts will be
continued to be insured by the DIF) in the same manner as the deposit account
existed in the Bank immediately prior to the Reorganization. Upon consummation
of the Reorganization, all loans and other borrowings from the Bank shall retain
the same status with the Stock Bank after the Reorganization as they had with
the Bank immediately prior to the Reorganization.
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Upon completion of the Reorganization, the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under Massachusetts
law. The Stock Bank will be wholly-owned by the Company which, as the sole
holder of the outstanding capital stock of the Stock Bank, shall have exclusive
voting rights in the Stock Bank. The Company will be wholly-owned by its
stockholders who initially will consist of the Mutual Company and the persons
who purchase Common Stock in the Offering.
At the completion of the Reorganization, the Stock Bank or the Company will
establish a liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain deposit accounts
with the Stock Bank following the Reorganization. The amount of the liquidation
account will be equal to the Minority Ownership Interest multiplied by the net
worth of the Bank as set forth in the most recent statement of financial
condition contained in this Prospectus. In the unlikely event of a complete
liquidation of the Stock Bank and the Company (and only in such event), each
such account holder will be entitled to receive a liquidating distribution from
the liquidation account in the amount of the then-adjusted account balances for
such person's deposit accounts then held, following all liquidation payments to
creditors. Neither the Stock Bank nor the Company shall be required to set
aside funds for the purpose of establishing the liquidation account, and the
creation and maintenance of the account will not operate to restrict the use or
application of any of the net worth accounts of the Stock Bank, except that
neither the Stock Bank nor the Company shall declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect would cause its net worth
to be reduced below the amount required for the liquidation account.
The Company will have the power to issue shares of capital stock to persons
other than the Mutual Company. However, so long as the Mutual Company is in
existence, the Mutual Company will be required to own at least 51% of the voting
stock of the Company. The Company may issue any amount of non-voting stock to
persons other than the Mutual Company.
REASONS FOR THE REORGANIZATION
The Reorganization will structure the Bank in the stock form of ownership,
which is the corporate form used by commercial banks, most major businesses and
a large number of savings institutions. The primary purpose of the
Reorganization is to establish a holding company and to convert the Bank to the
stock form of ownership in order to compete and expand more effectively in the
financial services marketplace. The Reorganization also will enable employees,
management and trustees to have an equity ownership interest in the Bank, which
management believes will enhance long-term growth and performance of the Bank
and the Company by enabling the Bank to attract and retain qualified employees
who have a more direct interest in the financial success of the Bank. The
Reorganization will permit the Company to issue capital stock, which is a source
of capital not available to mutual savings banks. Since the Company will not be
offering all of its Common Stock for sale to depositors and the public in the
Offering, the Reorganization will result in less capital raised in comparison to
a standard mutual-to-stock conversion. The Reorganization, however, also will
allow the Bank to raise additional capital in the future because a majority of
the Company's Common Stock will be available for sale in the event of a
conversion of the Mutual Company to stock form. The Reorganization also will
provide the Bank with greater flexibility to structure and finance the expansion
of its operations, both directly and through the Company, including the
potential acquisition of other financial institutions, and to diversify into
other financial services, to the extent permissible by applicable law and
regulation. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be in a position
after the Reorganization, subject to regulatory limitations and the Company's
financial position, to take advantage of any such opportunities that may arise.
Lastly, the Reorganization will enable the Bank to better manage its capital by
providing broader investment opportunities through the holding company structure
and by enabling the Company to repurchase its common stock as market conditions
permit. Although the Reorganization and Offering will create a stock savings
bank and stock holding company, only a minority of the Common Stock will be
offered for sale in the Offering. As a result, the Bank's mutual form of
ownership and its ability to provide community-oriented financial services will
be preserved through the mutual holding company structure.
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The Board of Trustees believes that these advantages outweigh the potential
disadvantages of the mutual holding company structure to Minority Stockholders,
which may include: (i) the inability of stockholders other than the Mutual
Company to obtain majority ownership of the Company and the Bank, which may
result in the perpetuation of the management and Board of Directors of the Bank
and the Company; and (ii) that the mutual holding company structure is a
relatively new form of corporate ownership, and new regulatory policies relating
to the mutual interest in the Mutual Company that may be adopted from time-to-
time may have an adverse impact on Minority Stockholders. A majority of the
voting stock of the Company will be owned by the Mutual Company, which is a
mutual institution that will be controlled by the existing Board of Trustees of
the Bank. While this structure will permit management to focus on the Company's
and the Bank's long-term business strategy for growth and capital redeployment
without undue pressure from stockholders, it will also serve to perpetuate the
existing management and trustees of the Bank. The Mutual Company will be able
to elect all members of the Board of Directors of the Company, and will be able
to control the outcome of all matters presented to the stockholders of the
Company for resolution by vote except for certain matters, such as the approval
of the stock plans and the stock option plans, that, if established within the
first year after the conclusion of the Offering, must be approved by a majority
of the shares of the Minority Stockholders of the Company. No assurance can be
given that the Mutual Company will not take action adverse to the interests of
the Minority Stockholders. For example, the Mutual Company could revise the
dividend policy, prevent the sale of control of the Company, or defeat a
candidate for the Board of Directors of the Company or other proposals put forth
by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization which would be effected through a
merger of the Mutual Company into the Company or the Bank. In a Conversion
Transaction, the shares of Common Stock owned by the Mutual Company would be
cancelled and shares of Common Stock of the Company would be offered for sale to
eligible depositors and others in a subscription and community offering in
accordance with applicable regulations. Proposed regulations of the Division
would prohibit a Conversion Transaction for three years following the Offering,
subject to a waiver by the Division for supervisory reasons. The Commissioner
has not yet adopted regulations governing the conversion of Massachusetts-
chartered mutual holding companies to stock form. Accordingly, there can be no
assurance that the Mutual Company will convert to stock form or of the
conditions that the Commissioner would impose on a stock conversion by the
Mutual Company. However, the Plan provides that any conversion shall be fair and
equitable to Minority Stockholders and establishes a formula for readjusting the
Minority Stockholders' ownership interest (if required by applicable banking
regulators) if the Mutual Company has significant assets other than its
ownership of the Common Stock of the Company or if the Mutual Company waives the
receipt of dividends declared by the Company. See "--Conversion of Mutual
Company to Stock Form."
THE OFFERING
The Offering of between 8,789,000 and 11,891,000 shares of the Common Stock
(subject to adjustment to up to 13,674,650 shares in the event the estimated pro
forma market value of the Bank increases immediately prior to the conclusion of
the Offering) is being made concurrently with the Reorganization. The shares of
Common Stock that will be sold in the Offering will constitute no more than 47%
of the shares that will be outstanding after the Offering (the "Minority
Ownership Interest"). Following the Reorganization and the Offering, the
Company also will be authorized to issue additional common stock or preferred
stock to persons other than the Mutual Company, without prior approval of the
holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed price of
$10.00 per share in the Subscription Offering pursuant to subscription rights in
the following order of priority to: (i) holders of deposit accounts with a
balance of $50 or more on September 30, 1996 ("Eligible Account Holders"); (ii)
the Bank's ESOP; (iii) holders of deposit accounts with a balance of $50 or more
on December 31, 1997 ("Supplemental Eligible Account Holders"); and (iv)
employees, officers and trustees of the Bank. Concurrently, and subject to the
prior rights of holders of subscription rights, any shares of Common Stock not
subscribed for in the Subscription Offering are being offered in the Community
Offering at $10.00 per share to certain members of the general public with a
preference given to residents of the Bank's community. Subscription rights will
expire if not exercised by 11:00 a.m., Boston time, on February ___, 1998 unless
extended by the Bank and the Company.
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STOCK PRICING AND THE NUMBER OF SHARES TO BE OFFERED IN THE OFFERING
The shares of Common Stock will be issued at an aggregate purchase price
equal to the estimated pro forma market value of such stock based on an
independent appraisal of the Company and the Bank prepared by Feldman Financial,
an independent appraisal firm. Feldman Financial determined that the estimated
pro forma market value of the Common Stock as of November 7, 1997 (the
"Independent Valuation") ranged from $187.0 million to $253.0 million, with a
midpoint of $220.0 million (the "Valuation Range"). The shares of Common Stock
being sold in the Offering represent a minority ownership interest in the
outstanding Common Stock of the Company equal to 47.0% of the estimated pro
forma market value of the Common Stock based on the Independent Valuation. The
aggregate Purchase Price of the Common Stock to be sold in the Offering will
range from $87.9 million to $118.9 million (the "Offering Range") at a purchase
price of $10.00 per share. Following the commencement of the Subscription
Offering, the maximum of the Valuation Range may be increased by up to 15% to up
to $291.0 million, which would result in a corresponding increase in the maximum
of the Offering Range to up to 13,674,650 shares, to reflect changes in market
and financial conditions, without a resolicitation of subscribers. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless the gross proceeds from the sale
of the Common Stock are less than the minimum or more than 15% above the maximum
of the Offering Range. Any adjustment of shares will have a corresponding effect
on the estimated net proceeds of the Offering and the pro forma capitalization
and per share data of the Company. In addition to the shares of Common Stock to
be sold in the Offering, 53% of the shares of Common Stock outstanding upon the
closing of the Reorganization and the Offering will be issued to the Mutual
Company.
Depending on market and financial conditions at the time of the completion
of the Offering, the Bank may increase or decrease the number of shares to be
issued in the Offering. If the change in the number of shares to be issued in
the Offering results in fewer than 8,789,000 shares or more than 11,891,000
shares being sold in the Offering, the Bank may also elect to terminate the
Offering. In the event that the Bank elects to terminate the Offering,
subscribers will receive a prompt refund of their purchase orders, together with
interest earned thereon, at the Bank's current passbook rate from the date of
receipt to the date of termination of the Offering, and all authorizations for
withdrawals of deposits will be canceled. In the event the Bank receives orders
for fewer than 8,789,000 shares, at the discretion of the Board of Trustees and
subject to the approval of the Commissioner and the FDIC, if necessary, the Bank
may establish a new Offering Range and resolicit subscribers. In the event of
such a resolicitation, subscribers will be permitted to modify or cancel their
purchase orders. Any adjustments in the pro forma market value of the Bank and
the Company as a result of market and financial conditions, or a resolicitation
of prospective subscribers would be subject to Commissioner approval. A
resolicitation, if any, following conclusion of the Offering would not extend
beyond the Expiration Date, without prior approval of the Commissioner.
Pursuant to the Plan, the number of shares of Common Stock to be offered in
the Offering is based upon the estimated pro forma market value of the Common
Stock as determined by the Independent Valuation, and the purchase price of the
Common Stock as determined by the Bank. Based on factors including the size of
the Offering, marketability of the shares to be sold in the Offering, expected
liquidity of the shares in the aftermarket, and community preference, the Bank
determined that the shares should be sold in the Offering for $10.00 per share.
Based on the Independent Valuation and the Purchase Price, the Company will
issue up to 11,891,000 shares in the Offering. The number of shares issued will
change in the event the Independent Valuation changes when it is updated
immediately prior to the conclusion of the Offering, but the Purchase Price is
fixed at $10.00 per share and will not change if the Independent Valuation
changes.
Feldman Financial, which is experienced in the valuation and appraisal of
business entities, including savings institutions, has been retained by the Bank
to prepare the Independent Valuation. Feldman Financial will receive a fee of
$40,000 for its appraisal, including subsequent updates, plus its reasonable
out-of-pocket expenses incurred in connection with the Independent Valuation.
The Bank has agreed to indemnify Feldman Financial under certain circumstances
against liabilities and expenses (including certain legal fees) arising from or
based upon the services provided by Feldman Financial, except where the
liability is adjudicated to have resulted from Feldman Financial's negligence or
willful misconduct.
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The Independent Valuation was prepared by Feldman Financial in reliance
upon the information contained herein, including the consolidated financial
statements. The appraisal contains an analysis of a number of factors
including, but not limited to, the Bank's financial condition and operating
trends, the competitive environment within which the Bank operates, operating
trends of certain thrift institutions and savings and loan holding companies,
relevant economic conditions both nationally and in Massachusetts that affect
the operations of thrift institutions, and stock market values of certain
institutions. Feldman Financial has advised the Bank that it also has
considered the effect of the Minority Ownership Interest represented by the
Common Stock in the Offering in terms of liquidity of the Common Stock in the
after-market, marketability of the Common Stock, the proposed dividend policy,
the possibility of conversion of the Mutual Company to stock form, and other
factors considered relevant. In addition, Feldman Financial has advised the
Bank that it has considered and will consider the effect of the additional
capital raised by the sale of the Common Stock in the Offering on the estimated
aggregate pro forma market value of such shares.
On the basis of the foregoing, Feldman Financial has determined that as of
November 7, 1997, the estimated aggregate pro forma market value of the Common
Stock to be issued by the Company was $220.0 million. The Company and the Bank
have determined to offer the shares in the Offering at a price of $10.00 per
share. The Company and the Bank expect to sell a maximum of 47% of the Common
Stock, or 11,891,000 shares, in the Offering. The Bank's Board of Trustees and
the Company's Board of Directors reviewed the appraisal prepared by Feldman
Financial, as updated _______, 1998, and, in determining the reasonableness and
adequacy of such appraisal in consideration of FDIC and Massachusetts
regulations and policies, has reviewed the methodology and reasonableness of the
assumptions utilized by Feldman Financial in the preparation of such appraisal.
The Board of Trustees of the Bank and the Board of Directors of the Company have
also considered the implied pricing of the shares based on the appraised value
and the range of the number of shares offered in the Offering. In determining
the Offering Range, the Boards reviewed Feldman Financial's appraisal and, in
particular, considered (i) the Bank's financial condition and results of
operations for the year ended December 31, 1996 and the eight months ended
August 31, 1997, (ii) financial comparisons of the Bank in relation to financial
institutions of similar size and asset quality and (iii) stock market conditions
generally and in particular for financial institutions, all of which are set
forth in the appraisal. The Board also reviewed the methodology and the
assumptions used by Feldman Financial in preparing its appraisal. As discussed
above in this section, such number of shares are subject to change if the
Independent Valuation changes at the conclusion of the Offering.
The Independent Valuation will be updated at the time of the completion of
the Offering, and the shares to be issued in the Offering may increase or
decrease to reflect the changes in market conditions, the estimated pro forma
market value of the Bank and the Company, or both. If the updated estimate of
the pro forma market value of the Bank and the Company immediately upon
conclusion of the Offering changes, there will be a corresponding change to the
number of shares to be issued in the Offering. Subscribers will not be given
the opportunity to change or withdraw their orders unless the Independent
Valuation changes by more than 15%, or if more than 13,674,650 shares or fewer
than 8,789,000 shares are sold in the Offering. Any adjustment of shares of
Common Stock sold will have a corresponding effect on the estimated net proceeds
of the Offering and the pro forma capitalization and per share data of the
Company.
THE INDEPENDENT VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING THE COMMON
STOCK. IN PREPARING THE INDEPENDENT VALUATION, FELDMAN FINANCIAL HAS RELIED
UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF FINANCIAL AND STATISTICAL
INFORMATION PROVIDED BY THE BANK. FELDMAN FINANCIAL DID NOT INDEPENDENTLY
VERIFY THE FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR
DID FELDMAN FINANCIAL VALUE INDEPENDENTLY THE ASSETS AND LIABILITIES OF THE
BANK. THE INDEPENDENT VALUATION CONSIDERS THE BANK ONLY AS A GOING CONCERN AND
SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK.
MOREOVER, BECAUSE SUCH INDEPENDENT VALUATION IS BASED UPON ESTIMATES AND
PROJECTIONS ON A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME
TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING THE COMMON STOCK WILL
BE ABLE TO SELL SUCH SHARES AT A PRICE EQUAL TO OR GREATER THAN THE PURCHASE
PRICE.
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No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Feldman Financial confirms to the Bank, the FDIC and the Division
that, to the best of its knowledge, nothing of a material nature has occurred
that, taking into account all relevant factors, would cause Feldman Financial to
conclude that the Independent Valuation is incompatible with its estimate of the
pro forma market value of the Common Stock of the Company at the conclusion of
the Offering. Any change that would result in an aggregate Purchase Price that
is below the minimum or 15% above the maximum of the Offering Range would be
subject to Division and FDIC approval. If such confirmation is not received,
the Bank may extend the Offering, reopen or commence a new offering, establish a
new Offering Range and commence a resolicitation of all purchasers with the
approval of the Division and the FDIC or take such other actions as permitted by
the Division and the FDIC in order to complete the Offering.
SUBSCRIPTION OFFERING
Subject to the paragraph below and the limitations set forth in the "--
Limitations upon Purchases of Common Stock" section, the priorities for the
purchase of Common Stock in the subscription offering are as follows:
Priority 1: Eligible Account Holders. Each Eligible Account Holder shall
be given the opportunity to purchase up to $300,000 of Common Stock offered in
the Offering; provided that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the maximum
number of shares offered in the Offering or decrease such maximum purchase
limitation to as low as 0.1% of the maximum number of shares offered in the
Offering, subject to the overall purchase limitation set forth in the section
herein titled "Limitations upon Purchases of Common Stock." If there are
insufficient shares available to satisfy all subscriptions of Eligible Account
Holders, shares will be allocated to Eligible Account Holders so as to permit
each such subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated pro rata to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each such subscriber's
aggregate deposit account balances as of the Eligibility Record Date
("Qualifying Deposits") bears to the total amount of Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase Common Stock received by executive officers and
trustees of the Bank including associates of executive officers and trustees,
based on their increased deposits in the Bank in the one year preceding the
Eligibility Record Date, shall be subordinated to the subscription rights of
other Eligible Account Holders. To ensure proper allocation of stock, each
Eligible Account Holder must list on his subscription order form all deposit
accounts in which he had an ownership interest as of the Eligibility Record
Date.
Priority 2: Employee Stock Ownership Plan. The ESOP shall be given the
opportunity to purchase up to 8% of the Common Stock issued in the Offering. In
the event of an oversubscription in the Offering, subscriptions for shares by
the ESOP may be satisfied, in whole or in part, out of authorized but unissued
shares of the Company subject to the maximum purchase limitations set forth in
the section herein titled "Limitations Upon Purchases of Common Stock," or may
be satisfied, in whole or in part, through open market purchases by the ESOP
subsequent to the closing of the Offering. In the event of an increase in the
total number of shares offered in the Subscription Offering due to an increase
in the maximum of the Offering Range of up to 15% (the "Adjusted Maximum"), the
additional shares may be issued to fill the ESOP's subscription up to the
Adjusted Maximum.
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the ESOP, each Supplemental Eligible Account Holder shall
have the opportunity to purchase up to $300,000 of Common Stock offered in the
Offering; provided that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the maximum
number of shares offered in the Offering or decrease such maximum purchase
limitation to as low as 0.1% of the maximum number of shares offered in the
Offering subject to the overall purchase limitations set forth in the section
herein titled "Limitations Upon Purchases of Common Stock." In the event
Supplemental Eligible Account Holders subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders and the
ESOP, exceed available shares, the shares of Common Stock will be allocated
among subscribing Supplemental Eligible Account Holders so as to
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permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated to each subscribing Supplemental Eligible Account
Holder whose subscription remains unfilled in the same proportion that such
subscriber's aggregate deposit account balances as of the Supplemental
Eligibility Record Date ("Supplemental Qualifying Deposits") bear to the total
amount of Supplemental Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.
Priority 4: Employees, Officers and Trustees. To the extent there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, each
employee, officer and trustee shall have the opportunity to purchase up to
$300,000 of Common Stock offered in the Offering; provided that the aggregate
subscription rights granted to employees, officers and trustees shall be limited
to up to 25% of the total number of shares of Common Stock sold in the Offering.
Shares purchased under this section shall be aggregated with shares purchased
under the preceding priority categories when calculating the 25% purchase
limitation applicable to purchases by such persons. Shares purchased under this
section are also subject to purchase limitations on management persons set forth
in the section herein titled "Limitations Upon Purchases of Common Stock." For
purposes of this paragraph, trustees shall not be deemed to be associates or a
group acting in concert solely as a result of their membership on the Board of
Trustees of the Bank. In the event that employees, officers and trustees
subscribe under this section for more shares of Common Stock than are available
for purchase by them, the shares of Common Stock available for purchase will be
allocated by the Board of Trustees among such subscribing persons on a equitable
basis, such as by giving weight to the period of service, compensation and
position of the individual subscriber, provided that no fractional shares will
be allocated or issued.
The Bank shall have the right, in its sole discretion, to determine whether
prospective purchasers are "residents," "associates" or "acting in concert" as
defined by the Plan and in interpreting any and all other provisions of the
Plan. All such determinations are in the sole discretion of the Bank and may be
based on whatever evidence the Bank chooses to use in making any such
determination.
COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the Company and the Bank, and shall commence concurrently with, during or
promptly after the Subscription Offering. The Common Stock will be offered and
sold in the Community Offering, in accordance with FDIC and Division
regulations, so as to achieve the widest distribution of the Common Stock. No
person, by himself, or with an associate or group of persons acting in concert,
may subscribe for or purchase more than $300,000 of Common Stock offered in the
Community Offering.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to to
cover orders of natural persons residing in the Bank's local community,
consisting of the Town of Brookline, the City of Newton and the contiguous
Boston neighborhoods of Allston and Brighton, and certain abutting census tracts
of the Fenway, Jamaica Plain, Mission Hill and West Roxbury (the "Community"),
then to cover the orders of any other person subscribing for shares in the
Community Offering so that each such person may receive up to 1,000 shares, and
thereafter, on a pro rata basis to such persons based on the amount of their
respective subscriptions.
The terms "residence," "reside," or "residing" as used herein with respect
to any person shall mean any person who occupies a dwelling within the Bank's
Community, has an intent to remain in the Community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the Community together with an indication that such presence in
the Community is something other than merely transitory in nature. To the
extent the person is a corporation or other business entity, the principal place
of business or headquarters shall be in the Community. To the extent a person
is a personal benefit plan, the circumstances of the beneficiary shall apply
with respect to this definition. In the case of all other benefit plans, the
circumstances of the
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trustee shall be examined for purposes of this definition. The Bank may utilize
deposit or loan records or such other evidence provided to it to make a
determination as to whether a person is a resident. In all cases, however, such
a determination shall be in the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers to be managed by Ryan Beck in a Syndicated
Community Offering, subject to terms, conditions and procedures as may be
determined by the Bank and the Company in a manner that is intended to achieve
the widest distribution of the Common Stock subject to the rights of the Company
to accept or reject in whole or in part all orders in the Syndicated Community
Offering. It is expected that the Syndicated Community Offering will commence
as soon as practicable after termination of the Subscription Offering and the
Community Offering, if any. The Syndicated Community Offering shall be
completed within 45 days after the termination of the Subscription Offering,
unless such period is extended as provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Boards of
Directors of the Company and the Bank will seek to make other arrangements for
the sale of the remaining shares. Such other arrangements will be subject to
the approval of the Division and the FDIC and to compliance with applicable
state and federal securities laws.
RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING
Prior to the completion of the Offering, no depositor may transfer or enter
into an agreement or understanding to transfer the legal or beneficial ownership
of the shares of Common Stock to be purchased by such person in the Offering.
Each depositor who submits an Order Form will be required to certify that the
purchase of Common Stock by such person is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares. The Bank intends to pursue any and all legal and
equitable remedies in the event it becomes aware of any such agreement or
understanding, and will not honor orders reasonably believed by the Bank to
involve such an agreement or understanding.
PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses may not be mailed any later than five
days prior to such date or be hand delivered any later than two days prior to
such date. Order forms may only be distributed with a Prospectus.
Expiration Date. The Offering will terminate at 11:00 a.m. Boston Time on
February __, 1998, unless extended by the Bank and the Company for up to an
additional 45 days or, if approved by the Division and the FDIC, if necessary,
for an additional period after such 45-day extension (as so extended, the
"Expiration Date"). The Bank is not required to give purchasers notice of any
extension unless the Expiration Date is later than __________, 1998, in which
event purchasers will be given the right to increase, decrease, confirm or
rescind their orders. If the minimum number of shares offered in the Offering
(8,789,000 shares) is not sold by the Expiration Date, the Bank may terminate
the Offering and promptly refund all orders for Common Stock. If the number of
shares is reduced below the minimum of the Offering Range, purchasers will be
given an opportunity to increase, decrease or rescind their orders.
Use of Order Forms. In order to purchase the Common Stock, each purchaser
must complete an Order Form except for certain persons purchasing in the
Syndicated Community Offering as more fully described below. Any
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person receiving an Order Form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased. The Order Form
must be received prior to 11:00 a.m. Boston Time on February __, 1998. ONCE
TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE
BANK. Each person ordering shares is required to represent that he is purchasing
such shares for his own account. The interpretation by the Bank of the terms and
conditions of the Plan and of the acceptability of the Order Forms will be
final. The Bank is not required to accept copies of Order Forms.
Payment for Shares. Payment for all shares will be required to accompany
all completed Order Forms for the purchase to be valid. Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from
deposit accounts maintained with the Bank. Appropriate means by which such
withdrawals may be authorized are provided in the Order Forms. Once such a
withdrawal amount has been authorized, a hold will be placed on such funds,
making them unavailable to the depositor until the Offering has been completed
or terminated. In the case of payments authorized to be made through withdrawal
from deposit accounts, all funds authorized for withdrawal will continue to earn
interest at the contract rate until the Offering is completed or terminated.
Interest penalties for early withdrawal applicable to certificate accounts will
not apply to withdrawals authorized for the purchase of shares; however, if a
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate shall be canceled at the
time of withdrawal without penalty, and the remaining balance will earn interest
at the Bank's passbook rate subsequent to the withdrawal. In the case of
payments made by check or money order, such funds will be placed in a segregated
savings account and interest will be paid by the Bank at the Bank's passbook
rate, which was [2.50%] on the date of this Prospectus, from the date payment is
received until the Offering is completed or terminated. Such interest will be
paid by check, on all funds held, including funds accepted as payment for shares
of Common Stock, promptly upon completion or termination of the Offering. An
executed Order Form, once received by the Bank, may not be modified, amended or
rescinded without the consent of the Bank, unless the Offering is not completed
by __________, 1998, in which event purchasers may be given the opportunity to
increase, decrease, confirm or rescind their orders for a specified period of
time.
Depending on market conditions, the Common Stock may be offered for sale to
the general public on a best efforts basis in the Syndicated Community Offering
by a selling group (the "Selling Group") of broker-dealers ("Selected Dealers")
to be managed by Ryan Beck. Ryan Beck, in its discretion, will instruct
Selected Dealers as to the number of shares to be allocated to each Selected
Dealer. Only upon allocation of shares to Selected Dealers may Selected Dealers
take orders from their customers. Investors who desire to purchase shares in
the Community Offering directly through a Selected Dealer, which may include
Ryan Beck, are advised that the members of the Selling Group are required either
(a) upon receipt of an executed Order Form or direction to execute an Order Form
on behalf of an investor, to forward the appropriate purchase price to the Bank
for deposit in a segregated account on or before twelve noon, prevailing time,
of the business day next following such receipt or execution; or (b) upon
receipt of confirmation by such member of the Selling Group of an investor's
interest in purchasing shares, and following a mailing of an acknowledgment by
such member to such investor on the business day next following receipt of
confirmation, to debit the account of such investor on the fifth business day
next following receipt of confirmation and to forward the appropriate purchase
price to the Bank for deposit in the segregated account on or before 12:00 noon,
Boston time, of the business day next following such debiting. Payment for any
shares purchased pursuant to alternative (a) above must be made by check in full
payment therefor. Payment for shares purchased pursuant to alternative (b)
above may be made by wire transfer to the Bank.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offering. Individuals who are participants in
self-directed tax qualified plans maintained by self-employed individuals
("Keogh Plans") may use the assets in their self-directed Keogh Plan accounts to
purchase shares of Common Stock in the Offering. In addition, the provisions of
ERISA and IRS regulations require that executive officers, trustees and 10%
stockholders who use self-directed IRA funds and/or Keogh Plan accounts to
purchase shares of Common Stock in the Offering, make such purchase for the
exclusive benefit of the IRA and/or Keogh Plan participant.
If the ESOP purchases shares of the Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering, provided
that there is in force from the time the order is received a loan
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commitment from an unrelated financial institution to lend to the ESOP the
amount of funds necessary to purchase the number of shares ordered.
Delivery of Stock Certificates. Certificates representing Common Stock
issued in the Offering will be mailed by the Bank to the persons entitled
thereto at the registration address noted on the Order Form, as soon as
practicable following consummation of the Offering. Any certificates returned
as undeliverable will be held by the Bank until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Ryan Beck. All prospective purchasers must send payment directly
to the Bank, where such funds will be held in a segregated special escrow
account and not released until the Offering is completed or terminated.
To assist in the marketing of the Common Stock, the Bank and the Company
have retained Ryan Beck, which is a broker-dealer registered with the NASD.
Ryan Beck will assist the Bank in the Offering as follows: (i) in training and
educating the Bank's employees regarding the mechanics and regulatory
requirements of the Offering; (ii) in conducting informational meetings for
employees, customers and the general public; and (iii) in coordinating the
selling efforts in the Bank's local communities. Ryan Beck has agreed to use
its best efforts to assist the Bank in the solicitation of subscription and
purchase orders for shares of Common Stock in the Offering. For these services,
Ryan Beck will receive an advisory and marketing fee of $1.0 million and a
management fee of 5.5% of the aggregate dollar amount of the Common Stock sold
in the Syndicated Community Offering by NASD member firms (which may include
Ryan Beck) under selected dealer agreements.
The Bank also will reimburse Ryan Beck for its reasonable out-of-pocket
expenses (including legal fees up to a maximum of $55,000) associated with its
marketing effort. The maximum of Ryan Beck's out-of-pocket expenses to be
reimbursed by the Bank is $15,000 (excluding legal fees). The Bank has made an
advance payment to Ryan Beck in the amount of $25,000 upon commencement of the
Offering. If the Plan is terminated by the Bank, the Offering is not completed
by June 30, 1998, or if Ryan Beck terminates its agreement with the Bank in
accordance with the provisions of the agreement, Ryan Beck is entitled to
receive a fee of $25,000 for its advisory and administrative services, plus
reimbursement of its reasonable out-of-pocket expenses. The Bank will indemnify
Ryan Beck against liabilities and expenses (including legal fees) incurred in
connection with certain claims or litigation arising out of or based upon untrue
statements or omissions contained in the offering material for the Common Stock,
including liabilities under the Securities Act of 1933.
Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Exchange Act, so as to permit officers, trustees and employees to
participate in the sale of the Common Stock. No officer, trustee or employee of
the Bank will be compensated for his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
A Stock Information Center will be established at the Bank's main office,
in an area separated from the Bank's banking operations. Employees will inform
prospective purchasers to direct their questions to the Stock Information Center
and will provide such persons with the telephone number of the Center.
Other Restrictions. Notwithstanding any other provision of the Plan, no
person is entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal or state law or regulation (including state
"blue-sky" laws and regulations), or would violate regulations or policies of
the NASD, particularly those
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regarding free riding and withholding. The Bank and/or its agents may ask for an
acceptable legal opinion from any purchaser as to the legality of such purchase
and may refuse to honor any such purchase order if such opinion is not timely
furnished. The Plan prohibits the Bank from lending funds or extending credit to
any persons to purchase Common Stock in the Offering.
LIMITATIONS UPON PURCHASES OF COMMON STOCK
The following additional limitations have been imposed upon purchases of
shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan.
A. The aggregate amount of outstanding Common Stock of the Company owned
or controlled by persons other than the Mutual Company at the close of
the Offering shall not exceed 49% of the Company's total outstanding
Common Stock.
B. No Person or group of persons Acting in Concert, may purchase more
than $1.0 million of Common Stock offered in the Offering, except
that: (i) the Company may, in its sole discretion and without further
notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of
the number of shares offered in the Offering; (ii) Tax-Qualified
Employee Plans may purchase up to 10% of the shares offered in the
Offering; and (iii) for purposes of this paragraph shares to be held
by any Tax-Qualified Employee Plan and attributable to a person shall
not be aggregated with other shares purchased directly by or otherwise
attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering by all
Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25%
of the outstanding shares of Common Stock of the Company held by
persons other than the Mutual Company at the close of the Offering. In
calculating the number of shares held by Management Persons and their
Associates under this paragraph or under the provisions of paragraph D
below, shares held by any Tax-Qualified Employee Benefit Plan or any
Non-Tax-Qualified Employee Benefit Plan of the Bank that are
attributable to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Offering by all
Management Persons and their Associates, exclusive of any Common Stock
acquired by such persons in the secondary market, shall not exceed 25%
of the stockholders' equity of the Bank. In calculating the number of
shares held by Management Persons and their Associates under this
paragraph or under the provisions of paragraph C of this section,
shares held by any Tax-Qualified Employee Benefit Plan or any Non-Tax-
Qualified Employee Benefit Plan of the Bank that are attributable to
such persons shall not be counted.
E. With the approval of the Division, the Boards of Directors of the Bank
and the Company may, in their sole discretion, increase the maximum
purchase limitation set forth in paragraph B to up to 9.9%, provided
that orders for Common Stock in excess of 5% of the number of shares
of Common Stock offered in the Offering shall not in the aggregate
exceed 10% of the total shares of Common Stock offered in the Offering
(except that this limitation shall not apply to purchases by Tax-
Qualified Employee Plans). If such 5% limitation is increased,
subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Company and the Bank may be,
given the opportunity to increase their subscriptions up to the then
applicable limit. Requests to purchase additional shares of Common
Stock under this provision will be determined by the Board of
Directors of the Company, in its sole discretion.
F. In the event of an increase in the total number of shares offered in
the Subscription Offering due to an increase in the maximum of the
Offering Range of up to 15% (the "Adjusted Maximum"), the additional
shares will be issued in the following order of priority: (i) to fill
the ESOP
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subscription to the Adjusted Maximum; (ii) in the event that there is
an oversubscription in the Eligible Account Holder, Supplemental
Eligible Account Holder or employee, officer and trustee categories,
to fill unfulfilled subscriptions of such subscribers according to
their respective priorities set forth in the Plan.
G. Notwithstanding any other provision of the Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding and
withholding. The Company and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such purchase
and may refuse to honor any purchase order if such opinion is not
timely furnished.
H. The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing or intends to violate, evade or circumvent
the terms and conditions of the Plan.
The Company, in its sole discretion, may make reasonable efforts to comply
with the securities laws of any state in the United States in which its
depositors reside, and will only offer and sell the Common Stock in states in
which the offers and sales comply with such states' securities laws. However,
no person will be offered or allowed to purchase any Common Stock under the Plan
if he resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to purchase shares under the Plan reside in such state or
foreign country; (ii) the offer or sale of shares of Common Stock to such
persons would require the Bank or its employees to register, under the
securities laws of such state or foreign country, as a broker or dealer or to
register or otherwise qualify its securities for sale in such state or foreign
country; or (iii) such registration or qualification would be impracticable for
reasons of cost or otherwise.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
Consummation of the Reorganization is conditioned on prior receipt by the
Bank of (i) either an IRS ruling or an opinion of counsel with respect to the
federal income tax consequences of the Reorganization and (ii) either a ruling
from the Massachusetts Department of Revenue or an opinion of counsel or tax
advisor with respect to the Massachusetts tax consequences of the
Reorganization. Unlike private letter rulings, opinions of counsel are not
binding on the IRS or the Massachusetts Department of Revenue, and either agency
could disagree with such opinions. In the event of such disagreement, there can
be no assurance that the Stock Bank or the members would prevail in a judicial
proceeding.
In the following discussion, "Mutual Bank" refers to the Bank before the
Reorganization and "Stock Bank" refers to the Bank after the Reorganization.
The Mutual Bank will receive an opinion of counsel from Luse Lehman Gorman
Pomerenk & Schick, A Professional Corporation, to the effect that, for federal
income tax purposes, (1) the conversion of the De Novo Bank into the Mutual
Company, a Massachusetts mutual holding company, will qualify as a tax-free
reorganization under Code Section 368(a)(1)(F); (2) provided that the merger of
the Mutual Bank into the Stock Bank qualifies as a merger under Massachusetts
law, the merger of the Bank into the Stock Bank with the Stock Bank as the
survivor and the transfer of the depositors' equity interest in the Bank to the
Mutual Company in exchange for equity interests in the Mutual Company qualifies
as a tax-free reorganization described in Code Sections 368(a)(1)(A) and
368(a)(2)(D). The Bank, the Stock Bank and the Mutual Company are each "a party
to the reorganization," as defined in Code Section 368(b); (3) the Bank will
recognize no gain or loss upon the transfer of substantially all its assets to
the Stock Bank solely in exchange for equity interests (voting and liquidation
rights) in the Mutual Company and the Stock Bank's assumption of its
liabilities, if any; (4) neither the Stock Bank nor the Mutual Company will
recognize gain or loss upon the receipt by the Stock Bank of substantially all
of the assets of the Bank in exchange for equity interests in the Mutual Company
and the Stock Bank's assumption of the Bank's liabilities; (5) the Mutual
Company's basis in the stock of the Stock Bank will increase by an amount equal
to the Bank's net basis in the property transferred to the Stock Bank; (6) the
Stock Bank's basis in the property received from
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the Bank will be the same as the basis of such property in the hands of the Bank
immediately prior to the Reorganization; (7) the Stock Bank's holding period for
the property received from the Bank will include the period during which such
property was held by the Bank; (8) subject to the conditions and limitations set
forth in Code Sections 381, 382, 383 and 384 and the Treasury regulations
promulgated thereunder, the Stock Bank will succeed to and take into account the
items of the Bank described in Code Section 381(c); (9) no gain or loss will be
recognized by the depositors of the Bank on the receipt of equity interests with
respect to the Mutual Company in exchange for their equity interests surrendered
therefor; (10) each depositor's aggregate basis, if any, in the Mutual Company
equity interest received in the exchange will equal the aggregate basis, if any,
of each depositor's equity interest in the Bank; (11) the holding period of the
Mutual Company equity interests received by the depositors of the Bank will
include the period during which the Bank equity interests surrendered in
exchange therefor were held; (12) the Mutual Company and the Minority
Stockholders of the Company will recognize no gain or loss upon the transfer of
the Stock Bank stock and cash, respectively, to the Company in exchange for
stock of the Company; (13) the Company will recognize no gain or loss upon its
receipt of property from the Mutual Company and Minority Stockholders in
exchange for Common Stock of the Company; and (14) the Mutual Company will
increase its basis in its shares of Company Common Stock by the Mutual Company's
basis in its Stock Bank stock.
CONVERSION OF MUTUAL COMPANY TO STOCK FORM
Although Massachusetts law permits mutual holding companies to convert to
stock form, implementing regulations have not been adopted by the Division as of
this time. Moreover, proposed regulations of the Division would prohibit a
mutual holding company from converting to stock form for three years after its
initial minority stock offering, except for supervisory reasons. There can be
no assurance when, if ever, a Conversion Transaction will occur, and the board
of trustees has no current intention or plan to undertake a Conversion
Transaction. In a Conversion Transaction, the Mutual Company would merge with
and into the Bank or the Company, with the Bank or the Company as the resulting
entity, and the shares of Common Stock held by the Mutual Company would be
canceled and reissued by the Company for sale on a priority basis to eligible
depositors of the Bank and others pursuant to the formula set forth below.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders will be
entitled, without additional consideration, to maintain the same percentage
ownership interest in the Common Stock of the Company after the Conversion
Transaction as their ownership interest in the Common Stock of the Company
immediately prior to the Conversion Transaction (i.e., the Minority Ownership
Interest), subject only to the following adjustments (if required by federal
law, regulation, or regulatory policy) to reflect: (i) the cumulative effect of
the aggregate amount of dividends waived by the Mutual Company; and (ii) the
market value of assets of the Mutual Company (other than Common Stock of the
Company).
The adjustment referred to in clause (i) of the immediately preceding
paragraph above would require that the Minority Ownership Interest be adjusted
by multiplying the Minority Ownership Interest by the following fraction:
(Company stockholders' equity immediately preceding the Conversion Transaction)
- -------------------------------------------------------------------------------
- (aggregate amount of dividends waived by Mutual Company)
----------------------------------------------------------
Company stockholders' equity immediately preceding the Conversion Transaction
The adjustment referred to in clause (ii) above would further adjust the
Minority Ownership Interest by multiplying the result obtained in the preceding
paragraph by the following fraction:
(pro forma market value of Company) - (market value of assets of Mutual Company
- -------------------------------------------------------------------------------
other than Company common stock)
--------------------------------
pro forma market value of Company
At the sole discretion of the Board of Trustees of the Mutual Company and
the Board of Directors of the Company, a Conversion Transaction may be effected
in any other manner necessary to qualify the Conversion Transaction as a tax-
free reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders as set forth in the preceding paragraphs. If a Conversion
Transaction does not occur, the Mutual Company will always own a majority of the
voting stock of the Company.
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A Conversion Transaction would require the approval of applicable bank
regulators, and would be presented to a vote of the corporators of the Mutual
Company and the stockholders of the Company as of a voting record date prior to
the completion of the Conversion Transaction. Federal and state regulatory
policy requires that in any Conversion Transaction the depositors of the Stock
Bank will be accorded the same stock purchase priorities as if the Mutual
Company were a mutual savings bank converting to stock form.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
Although the Board of Directors of the Bank and the Company are not aware
of any effort that might be made to obtain control of the Company following the
Reorganization, the Board of Directors, as discussed below, believes that it is
appropriate to include certain provisions in the Company's Articles of
Organization and Bylaws to protect the interests of the Company and its
stockholders from takeovers which the Board of Directors of the Company might
conclude are not in the best interest of the Bank, the Company, or the Company's
stockholders. Even though the Mutual Company will own a minimum of 51% of the
Common Stock and may, therefore, prevent any takeover proposal simply by voting
its stock against any such a proposal, the Mutual Company may convert to the
stock form of ownership in the future, although it has no present intention to
do so. Accordingly, the Company is not assured that the Mutual Company will
always control the Company by virtue of its ownership of the majority of the
Common Stock. In addition, these provisions will increase protections available
to the Company against transactions that, although not resulting in an
acquisition of a majority of the Company's stock, nevertheless may harm the
Company and its stockholders by disrupting the Bank's operations and management,
and by causing the Company to incur substantial expenses.
The following discussion is a general summary of the material provisions of
the Company's Articles of Organization and Bylaws and certain other regulatory
provisions which may be deemed to have an "anti-takeover" effect. The following
description of certain of these provisions is necessarily general and, with
respect to provisions contained in the Company's Articles of Organization and
Bylaws and the Bank's proposed stock Charter and Bylaws, reference should be
made in each case to the document in question, each of which is part of the
Bank's application to the Commissioner and the Company's Registration Statement
filed with the SEC. See "Additional Information."
PROVISIONS OF THE COMPANY'S ARTICLES OF ORGANIZATION AND BYLAWS
Directors. Certain provisions of the Company's Articles of Organization
and Bylaws will impede changes in control of the Board of Directors. The
Company's Articles of Organization provide that the Board of Directors of the
Company will be divided into three classes, with directors in each class elected
for three-year staggered terms except for the initial directors. Thus, it would
take two annual elections to replace a majority of the Company's Board. The
Company's Articles of Organization provide that the size of the Board of
Directors may be increased or decreased only by a majority vote of the Board.
The Articles of Organization also provide that any vacancy occurring in the
Board of Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the Articles of Organization and
Bylaws impose certain notice and information requirements in connection with the
nomination by stockholders of candidates for election to the Board of Directors
or the proposal by stockholders of business to be acted upon at an annual
meeting of stockholders.
The Articles of Organization provide that a director may only be removed
for cause by the affirmative vote of 80% of the shares eligible to vote.
Removal for "cause" is limited to the grounds for termination in the federal
regulations that apply to employment contracts of federally insured savings
institutions.
Restrictions on Call of Special Meetings. The Articles of Organization
provide that a special meeting of stockholders may be called by a majority of
the authorized Board of Directors of the Company or pursuant to a resolution
adopted by a majority of the Board of Directors. Stockholders are not
authorized to call a special meeting of stockholders.
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Absence of Cumulative Voting. The Articles of Organization provide that
there shall be no cumulative voting for the election of directors.
Authorization of Preferred Stock. The Articles of Organization authorize
5,000,000 shares of serial preferred stock, par value $0.01 per share (the
"Preferred Stock"). The Company is authorized to issue Preferred Stock from
time to time in one or more series subject to applicable provisions of law, and
the Board of Directors is authorized to fix the designations, and relative
preferences, limitations, voting rights, if any, including without limitation,
offering rights of such shares (which could be multiple or as a separate class).
In the event of a proposed merger, tender offer or other attempt to gain control
of the Company that the Board of Directors does not approve, it might be
possible for the Board of Directors to authorize the issuance of a series of
Preferred Stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Directors
has no present plan or understanding to issue any Preferred Stock.
Other Control Considerations. The Articles of Organization further provide
that the Board of Directors of the Company, when determining whether the
interests of the Company and its stockholders will be served by any (i) exchange
or tender offer, (ii) merger or consolidation or (iii) sale of substantially all
of the assets of the Company, may consider the interests of the Company's
employees, suppliers, creditors and customers, the economy of the state, region
and nation, community and societal considerations and the long-term and short-
term interests of the Company and its stockholders, including the possibility
that these interests will be best served by the continued independence of the
Company.
Procedures for Certain Business Combinations. The Articles of Organization
require that certain business combinations between the Company (or any majority-
owned subsidiary thereof) and a 10% or greater stockholder either (i) be
approved by at least 80% of the total number of outstanding voting shares of the
Company or (ii) be approved by a majority of certain directors unaffiliated with
such 10% or greater stockholder or (iii) involve consideration per share
generally equal to the higher of (A) the highest amount paid by such 10%
stockholder or its affiliates in acquiring any shares of the Common Stock or (B)
the "Fair Market Value" (generally, the highest closing bid paid on the Common
Stock during the 30 days preceding the date of the announcement of the proposed
business combination or on the date the 10% or greater stockholder became such,
whichever is higher).
Amendment to Articles of Organization and Bylaws. The Articles of
Organization may be amended by the affirmative vote of at least 80% of the total
votes eligible to be cast by stockholders; provided, however, that if at least
two-thirds of the Directors then in office recommend approval of an amendment,
then such amendment shall require the affirmative vote of a majority of the
total votes eligible to be cast by stockholders.
The bylaws may be amended by the affirmative vote of the total number of
directors of the Company or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Company's Articles of
Organization and Bylaws. At least 51% of the Common Stock of the Mutual Company
will be controlled by the Mutual Company. Moreover, management believes that
under current policy of the FDIC and other federal regulators, the Mutual
Company could not be acquired without first converting the Mutual Company to
stock form. As a result, it is very unlikely that the Company could be
acquired so long as it is in a mutual holding company structure.
Notwithstanding the foregoing, the Mutual Company may convert to stock form in
the future and the Board of Directors believes that the provisions described
above are prudent and will reduce the Company's vulnerability to takeover
attempts and certain other transactions which have not been negotiated with and
approved by its Board of Directors. These provisions will also assist the Bank
in the orderly deployment of the Offering proceeds into productive assets during
the initial period after the Offering. The Board of Directors believes these
provisions are in the best interests of the Bank, the Company and its
stockholders. Attempts to acquire control of financial institutions and their
holding companies have become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Company
and its stockholders, with due consideration given to matters
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such as the management and business of the acquiring corporation and maximum
strategic development of the Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then-
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous or retaining their investment in an enterprise
which is under different management and the objectives of which may not be
similar to those of the remaining stockholders.
Potential Anti-Takeover Effects. Despite the belief of the Bank and the
Company as to the benefits to stockholders of these provisions of the Company's
Articles of Organization and Bylaws, these provisions, as well as the mutual
holding company structure, will have the effect of discouraging any takeover
attempt which would not be approved either by regulatory policy or by the
Company's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then-current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also make it more difficult to
remove the Company's Board of Directors and management. The Boards of Directors
of the Bank and the Company, however, have concluded that the potential benefits
outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Offering, the Company may adopt additional provisions to
its Articles of Organization regarding the acquisition of its equity securities
that would be permitted to a Massachusetts corporation. The Company and the
Bank do not presently intend to propose the adoption of further restrictions on
the acquisition of the Company's equity securities.
PROVISIONS OF THE STOCK BANK'S CHARTER AND BYLAWS
Limitation on Voting Rights. The Stock Bank's Charter provides that, for a
period of three years from the date of the Reorganization, no person shall
directly or indirectly offer to acquire beneficial ownership of more than 4.9%
of the outstanding shares of any class of equity securities of the Stock Bank
and, after such three year period, no person shall directly offer to acquire
beneficial ownership of more than 10% of the outstanding shares of any class of
equity securities of the Stock Bank. Shares beneficially owned in violation of
these stock ownership restrictions shall not be counted as shares entitled to
vote, shall not be voted or counted as voting shares in connection with any
matter submitted to the stockholders for a vote, and shall not be counted as
outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the Stock Bank's stockholders for a vote.
Additionally, the Stock Bank's Board of Directors may cause all securities
beneficially owned in excess of these limitations to be transferred to an
independent trustee for sale to the Stock Bank or on the open market.
Directors. Like the Company's Articles of Organization, the Stock Bank's
Charter provides that the Board of Directors of the Stock Bank will be divided
into three classes, with directors in each class elected for three-year
staggered terms except for the initial directors. Thus, it would take two
annual elections to replace a majority of the Stock Bank's Board of Directors.
Additionally, Directors of the Stock Bank may only be removed from office for
cause and only by the affirmative vote of the holders of at least 80% of the
Stock Bank's outstanding voting stock, voting together as a single class.
Authorization of Preferred Stock. The Stock Bank's Charter authorizes
5,000,000 shares of serial preferred stock, par value $1.00 per share (the "Bank
Preferred Stock"). The Bank is authorized to issue Bank Preferred Stock from
time to time in one or more series subject to applicable provisions of law, and
the Board of Directors is authorized to fix the designations, and relative
preferences, limitations, voting rights, if any, including without limitation,
offering rights of such shares (which could be multiple or as a separate class).
In the event of a proposed merger, tender offer or other attempt to gain control
of the Stock Bank that the Board of Directors does not approve, it might be
possible for the Board of Directors to authorize the issuance of a series of
Bank Preferred Stock with rights and preferences that would impede the
completion of such a transaction. An effect of the possible issuance of Bank
Preferred Stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans of understanding for
108
<PAGE>
the issuance of any Bank Preferred Stock but it may issue any Bank Preferred
Stock on terms which the Board deems to be in the best interests of the Company
and its stockholders.
MUTUAL HOLDING COMPANY STRUCTURE
Under Massachusetts law, at least 51% of the Company's voting shares must
be owned by the Mutual Company, and the Mutual Company will be controlled by its
Board of Trustees who will consist initially of the current members of the Board
of Trustees of the Bank. The Mutual Company, acting through its Board of
Trustees, will be able to control the business and operations of the Company and
the Bank and will be able to prevent any challenge to the ownership or control
of the Company by Minority Stockholders.
FRB REGULATIONS
The Change in Bank Control Act and the BHCA, together with the FRB
regulations under those acts, require that the consent of the FRB be obtained
prior to any person or company acquiring "control" of a bank holding company.
Control is conclusively presumed to exist if an individual or company acquires
more than 25% of any class of voting stock of the bank holding company. Control
is rebuttably presumed to exist if the person acquires more than 10% of any
class of voting stock of a bank holding company if either (i) the Company has
registered securities under Section 12 of the Exchange Act or (ii) no other
person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure to rebut
the rebuttable control presumption. Since the Company's Common Stock will be
registered under Section 12 of the Exchange Act, any acquisition of 10% or more
of the Company's Common Stock will give rise to a rebuttable presumption that
the acquiror of such stock controls the Company, requiring the acquiror, prior
to acquiring such stock, to rebut the presumption of control to the satisfaction
of the FRB or obtain FRB approval for the acquisition of control. Restrictions
applicable to the operations of bank holding companies may deter companies from
seeking to obtain control of the Company. See "Regulation."
MASSACHUSETTS BANKING LAW
Massachusetts banking law also prohibits any "company," defined to include
banking institutions as well as corporations, from directly or indirectly
controlling the voting power of 25% or more of the voting stock of two or more
banking institutions without the prior approval of the Division. Additionally,
an out-of-state company which already directly or indirectly controls voting
power of 25% or more of the voting stock of two or more banking institutions may
not also acquire direct or indirect ownership or control of more than 5% of the
voting stock of a Massachusetts banking institution without the prior approval
of the Division. Finally, for a period of three years following completion of a
conversion to stock form, no person may directly or indirectly offer to acquire
or acquire beneficial ownership of more than 10% of any class of equity security
of a converting mutual savings bank without prior written approval of the
Division.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 45 million shares of Common Stock having
a par value of $.01 per share and 5 million shares of serial Preferred Stock
having a par value of $.01 per share. The Company currently expects to issue
between 8,789,000 and 11,891,000 shares, with an adjusted maximum of 13,674,650
shares, of Common Stock and no shares of Preferred Stock in the Offering. Each
share of the Common Stock will have the same relative rights as, and will be
identical in all respects with, each other share of the Common Stock. Upon
payment of the Purchase Price for the Common Stock, in accordance with the Plan,
all such stock will be duly authorized, fully paid, validly issued and non-
assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE AND WILL NOT BE INSURED BY THE FDIC.
109
<PAGE>
COMMON STOCK
Voting Rights. Under Massachusetts law, the holders of the Common Stock
will possess exclusive voting power in the Company. Each stockholder will be
entitled to one vote for each share held on all matters voted upon by
stockholders, except as discussed in "Restrictions on Acquisition of the Company
and the Bank." If the Company issues Preferred Stock subsequent to the
Offering, holders of the Preferred Stock may also possess voting rights.
Dividends. Upon consummation of the Reorganization and the Offering, the
Company's assets will consist of the Bank's Common Stock and up to 50% of the
net proceeds of the Offering. The payment of dividends by the Company is
subject to limitations which are imposed by law and applicable regulation. See
"Dividends." The holders of Common Stock will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues
Preferred Stock, the holders thereof may have a priority over the holders of the
Common Stock with respect to dividends.
Liquidation or Dissolution. In the unlikely event of the liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive--after payment or provision for payment of all debts and liabilities of
the Company (including all deposits in the Bank and accrued interest thereon)
and after distribution of the liquidation account established upon the closing
of the Reorganization and the Offering for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders who continue their deposit
accounts at the Bank--all assets of the Company available for distribution, in
cash or in kind. If preferred stock is issued subsequent to the Offering, the
holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
Preferred Stock. None of the 5 million authorized shares of Preferred
Stock of the Company will be issued in the Offering. The Company Board of
Directors is authorized, without stockholder approval, to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares. If and when issued, the serial preferred stock
may rank senior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full, limited or no voting rights.
Accordingly, the issuance of preferred stock could adversely affect the voting
and other rights of holders of Common Stock.
TRANSFER AGENT AND REGISTRAR
_______________________ will act as the transfer agent and registrar for
the Common Stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Reorganization and the Offering will be passed upon for the Bank and the
Company by Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C. The
Massachusetts state income tax consequences of the Reorganization and the
Offering will be passed upon for the Bank and the Company by Foley, Hoag & Eliot
LLP, Boston, Massachusetts. Luse Lehman Gorman Pomerenk & Schick, P.C. and
Foley, Hoag & Eliot LLP have consented to the references herein to their
opinions. Certain legal matters will be passed upon for Ryan Beck by Peabody &
Brown, Boston, Massachusetts and Washington, D.C.
110
<PAGE>
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 appearing in
this Registration Statement have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their reports appearing elsewhere
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
Feldman Financial Advisors, Inc. has consented to the publication herein of
the summary of its report to the Bank and the Company setting forth its opinion
as to the estimated pro forma market value of the Common Stock upon
Reorganization and its valuation with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. The SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete but do contain all material information regarding such documents; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application for Offering with the Division with
respect to the Reorganization. Pursuant to the rules and regulations of the
Division, this Prospectus omits certain information contained in that
Application. The Application may be examined at the office of the Division, 100
Cambridge Street, Boston, Massachusetts and at the main office of the Bank at
160 Washington Street, Brookline, Massachusetts, without charge.
In connection with the Stock Offering, the Company will register the Common
Stock with the SEC under Section 12(g) of the Exchange Act; and, upon such
registration, the Company and the holders of its Common Stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan, the Company has undertaken that it will
not terminate such registration for a period of at least three years following
the Offering.
A copy of the Articles of Organization and Bylaws of the Company are
available without charge from the Bank.
111
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants................................................... F-2
Consolidated Balance Sheets as of August 31, 1997 (unaudited) and
December 31, 1996 and 1995 ..................................................................... F-3
Consolidated Statements of Income for the eight months ended August 31, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and 1994 ............................... 33
Consolidated Statements of Changes in Retained Earnings for the eight months ended
August 31, 1997 and 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994....... F-4
Consolidated Statements of Cash Flows for the eight months ended August 31, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and 1994................................F-5 to F-6
Notes to Consolidated Financial Statements...........................................................F-7 to F-28
</TABLE>
All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial statements or
notes thereto.
The financial statements of Brookline Bancorp, Inc. have been omitted
because Brookline Bancorp, Inc. has not yet issued any stock, has no assets
and no liabilities, and has not conducted any business other than of an
organizational nature.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Trustees
Brookline Savings Bank:
We have audited the accompanying consolidated balance sheets of
Brookline Savings Bank and subsidiaries (the Bank) as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in retained
earnings and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brookline Savings Bank and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
Boston, Massachusetts
February 13, 1997
F-2
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................................ $ 8,021 $ 6,465 $ 5,980
Short-term investments................................................. 7,495 19,870 5,698
Securities available for sale.......................................... 128,525 117,372 81,765
Securities held to maturity (market value of $49,946,
$41,695 and $89,809, respectively).................................... 49,801 41,620 89,342
Restricted equity securities........................................... 3,519 3,481 2,868
Loans.................................................................. 485,515 480,683 448,631
Allowance for loan losses.............................................. (12,443) (12,326) (12,326)
--------- --------- ---------
Net loans......................................................... 473,072 468,357 436,305
--------- --------- ---------
Accrued interest receivable............................................ 5,923 5,106 5,593
Bank premises and equipment, net....................................... 1,354 1,442 1,122
Other real estate owned, net........................................... 2,002 1,689 1,722
Deferred income tax asset, net......................................... - 875 1,676
Other assets........................................................... 604 711 717
--------- --------- ---------
Total assets...................................................... $ 680,316 $ 666,988 $ 632,788
========= ========= =========
LIABILITIES AND RETAINED EARNINGS
Deposits............................................................... $ 481,467 $ 484,016 $ 474,215
Borrowed funds......................................................... 61,815 60,565 49,665
Mortgagors' escrow deposits............................................ 2,348 2,777 2,374
Income taxes payable................................................... 3,825 1,399 1,997
Deferred income tax liability, net..................................... 554 - -
Accrued expenses and other liabilities................................. 4,937 4,284 3,954
--------- --------- ---------
Total liabilities................................................. $ 554,946 $ 553,041 $ 532,205
--------- --------- ---------
Commitments and contingencies
Retained earnings:
Retained earnings.................................................... 114,413 105,287 93,350
Net unrealized gain on securities available for sale,
net of taxes........................................................ 10,957 8,660 7,233
--------- --------- ---------
Total retained earnings........................................... 125,370 113,947 100,583
--------- --------- ---------
Total liabilities and retained earnings........................... $ 680,316 $ 666,988 $ 632,788
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
Eight months ended August 31, 1997 (unaudited) and
years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Net
unrealized gain
on securities
available
Retained for sale,
earnings net of taxes Total
------------ --------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993.............................. $ 72,522 $ - $ 72,522
Effect of change in accounting for securities available
for sale at January 1, 1994 - net unrealized gain,
net of taxes............................................ - 5,291 5,291
Net income for the year ended December 31, 1994........... 9,100 - 9,100
Change in net unrealized gain on securities
available for sale, net of taxes for the year ended
December 31, 1994....................................... - (1,191) (1,191)
---------- --------- -----------
Balance at December 31, 1994.............................. 81,622 4,100 85,722
Net income for the year ended December 31, 1995........... 11,728 - 11,728
Change in net unrealized gain on securities
available for sale, net of taxes for the year ended
December 31, 1995....................................... - 3,133 3,133
---------- -------- ----------
Balance at December 31, 1995.............................. 93,350 7,233 100,583
Net income for the year ended December 31, 1996........... 11,937 - 11,937
Change in net unrealized gain on securities
available for sale, net of taxes for the year ended
December 31, 1996....................................... - 1,427 1,427
---------- -------- ----------
Balance at December 31, 1996.............................. 105,287 8,660 113,947
Net income for the eight months ended
August 31, 1997 (unaudited)............................. 9,126 - 9,126
Change in net unrealized gain on securities available
for sale, net of taxes for the eight months ended
August 31, 1997 (unaudited)............................. - 2,297 2,297
---------- -------- ----------
Balance at August 31, 1997 (unaudited).................... $ 114,413 $ 10,957 $ 125,370
========== ======== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
--------- ----------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 9,126 $ 8,195 $ 11,937 $ 11,728 $ 9,100
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for loan losses......................... - - - - (477)
Provision for other real estate owned...................... - - - - 541
Depreciation and amortization.............................. 296 180 261 227 205
Amortization, net of accretion, of securities premiums
and discounts............................................ 389 542 526 1,226 1,696
Accretion of deferred loan origination fees
and unearned discounts................................... (512) (537) (619) (151) (90)
Net gains from sales of securities......................... (74) (464) (464) (877) (4)
Net gains from sales of other real estate owned............ - (149) (149) - -
Deferred income taxes...................................... (107) 128 (21) 272 (39)
(Increase) decrease in:
Accrued interest receivable.............................. (817) 516 487 (629) (772)
Other assets............................................. 75 32 6 198 21
Increase (decrease) in:
Income taxes payable..................................... 2,374 (1,387) (598) (49) 177
Accrued expenses and other liabilities................... 653 340 330 606 1,142
--------- -------- -------- --------- ---------
Net cash provided by operating activities............. 11,403 7,396 11,696 12,551 11,500
--------- -------- -------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of securities available for sale............. 752 2,712 2,712 1,256 4
Proceeds from redemptions and maturities of securities
available for sale............................................ 20,997 16,482 25,583 20,943 -
Proceeds from redemptions and maturities of securities
held to maturity.............................................. 18,607 61,902 110,400 48,159 61,352
Purchase of securities available for sale........................ (29,119) (38,766) (61,316) (27,241) (19,229)
Purchase of securities held to maturity.......................... (27,001) (10,333) (63,077) (39,499) (52,520)
Purchase of Federal Home Loan Bank of Boston stock............... (38) (318) (613) (113) -
Net increase in loans............................................ (22,136) (19,863) (28,644) (22,787) (37,797)
Proceeds from sales of participations in loans................... 1,198 3,965 5,965 3,000 3,831
Purchase of bank premises and equipment.......................... (193) (193) (570) (218) (250)
Capital expenditures on other real estate owned.................. (43) - (17) (49) -
Proceeds from sales of other real estate owned................... 32 683 1,284 219 1,903
--------- -------- -------- --------- ---------
Net cash provided by (used for) investing activities.. (36,944) 16,271 (8,293) (16,330) (42,706)
--------- -------- -------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in demand deposits and NOW, savings and
money market savings accounts................................. (2,152) 8,515 8,918 (18,987) (15,162)
Increase (decrease) in certificates of deposit................... (397) (917) 883 21,391 42,125
Proceeds from Federal Home Loan Bank of Boston advances.......... 11,492 10,206 22,796 19,900 22,265
Repayment of Federal Home Loan Bank of Boston advances........... (10,242) (1,206) (11,896) (13,500) (6,000)
Increase (decrease) in mortgagors' escrow deposits............... (429) (471) 403 114 301
--------- -------- -------- --------- ---------
Net cash provided by (used for) financing activities.. 1,728 6,127 21,104 8,918 43,529
--------- -------- -------- --------- ---------
Net increase (decrease) in cash and cash equivalents............... (27,269) 39,794 24,507 5,139 12,323
Cash and cash equivalents at beginning of period................... 79,285 54,778 54,778 49,639 37,316
--------- -------- -------- --------- ---------
Cash and cash equivalents at end of period......................... $ 52,016 $ 94,572 $ 79,285 $ 54,778 $ 49,639
========= ======== ======== ========= =========
</TABLE>
F-5
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
--------- ----------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds.................. $ 17,187 $ 16,840 $ 26,491 $ 23,727 $ 17,398
Income taxes............................................. 2,480 6,468 8,361 7,190 5,804
Non-cash activities:
Transfers from loans to other real estate owned.......... 285 526 1,096 95 671
Transfer of investment securities from held to maturity
to available for sale................................. - - - 25,952 19,267
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies and Related Matters
Brookline Savings Bank and its subsidiaries (collectively the "Bank") operate
five full service banking offices located in Brookline, Massachusetts. The
Bank's primary activities include acceptance of deposits from the general
public, origination of mortgage loans on residential and commercial real estate
located principally in Massachusetts, and investment in debt and equity
securities. The Bank is subject to competition from other financial and
non-financial institutions. As a Massachusetts chartered savings bank whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") and
the Deposit Insurance Fund, the activities of the Bank are subject to
regulation, supervision and examination by federal and state authorities.
(a) Principles of Consolidation and Basis of Financial Statement
Presentation
The consolidated financial statements include the accounts of Brookline Savings
Bank and its wholly-owned subsidiaries, 160 Associates, Inc. ("Associates") and
BBS Investment Corporation ("BBS"). Through 1996, Associates engaged in
marketing services at immaterial levels of activity. In 1997, Brookline
Preferred Capital Corporation ("BPCC") was established as a 99.9% owned
subsidiary of Associates. BPCC is a real estate investment trust that owns and
manages real estate mortgage loans originated by the Bank. BBS is engaged in
buying, selling and holding investment securities. All significant intercompany
transactions and balances are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expenses.
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.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on unanticipated changes in
economic conditions, particularly in the Boston metropolitan area and eastern
Massachusetts. In addition, the FDIC and the Massachusetts Division of Banks, as
an integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.
(b) Cash Equivalents
For purposes of reporting cash flows, cash equivalents include highly liquid
assets with an original maturity of three months or less. Highly liquid assets
include cash and due from banks, short-term investments and commercial loan
participations.
(c) Securities
Effective January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, marketable equity securities and debt
securities are classified as either trading account securities, held to maturity
securities (applicable only to debt securities) or available for sale
securities. Management determines the classification of securities at the time
of purchase.
F-7
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
Trading account securities are carried at estimated fair value with unrealized
gains and losses included in earnings. None of the securities purchased by the
Bank have been classified as trading account securities.
Debt securities for which the Bank has the positive intent and ability to hold
to maturity are classified as held to maturity and carried at amortized cost.
Those securities held for indefinite periods of time and not intended to be held
to maturity are classified as available for sale. Securities held for indefinite
periods of time include securities that management intends to use as part of its
asset/liability management strategy and that may be sold in response to changes
in interest rates or other business factors. Securities available for sale are
carried at estimated fair value. Unrealized gains (losses) are reported as a
separate component of retained earnings, net of related income taxes. Restricted
equity securities are carried at cost.
In November 1995, FASB issued an implementation guide for SFAS No. 115 that
allowed banks a one-time opportunity from mid-November 1995 to December 31, 1995
to reassess investment classifications and reclassify securities in the held to
maturity and available for sale categories without tainting the remainder of the
portfolio not reclassified. In connection with this opportunity, the Bank
reclassified $26.0 million of debt securities from the held to maturity category
to the available for sale category. Retained earnings increased by $62,000 as a
result of the reclassification.
Premiums and discounts on debt securities are amortized to expense and accreted
to income over the estimated life of the respective security using a method
which approximates the interest method. Security transactions are recorded on
the trade date. Realized gains and losses are determined using the specific
identification method. Security valuations are reviewed and evaluated
periodically by management. If the decline in the value of any security is
deemed to be other than temporary, the security is written down to a new cost
basis and the resulting loss is charged to income.
(d) Loans
Loans are reported at the principal amount outstanding, reduced by net deferred
loan origination fees, unearned discounts and unadvanced funds due mortgagors on
uncompleted loans.
Loan origination fees and direct loan origination costs are deferred, and the
net fee or cost is recognized in interest income using the interest method.
Deferred amounts are recognized for fixed rate loans over the contractual life
of the loans and for adjustable rate loans over the period of time required to
adjust the contractual interest rate to a yield approximating a market rate at
origination date.
Accrual of interest on loans is discontinued either when reasonable doubt exists
as to the full timely collection of interest and principal or when a loan
becomes past due 90 days. All interest previously accrued and not collected is
reversed against interest income. Interest payments received on non-accrual and
impaired loans are recognized as income unless further collections are doubtful,
in which case the payments are applied as a reduction of principal. Loans are
generally returned to accrual status when principal and interest payments are
current, full collectibility of principal and interest is reasonably assured and
a consistent record of performance (generally six months) has been achieved.
Effective January 1, 1995, the Bank prospectively adopted 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
Disclosure." Under SFAS No. 114, a loan is considered impaired when, based on
current information and events,
F-8
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
it is probable that a creditor will be unable to collect principal or interest
due according to the contractual terms of the loan. Impaired loans are measured
and reported based on one of three methods: the present value of expected future
cash flows discounted at the loan's effective interest rate; the loan's
observable market price; or the fair value of the collateral if the loan is
collateral dependent. If the measure is less than an impaired loan's recorded
investment, an impairment loss is recognized as part of the allowance for loan
losses. The adoption of SFAS No. 114 and SFAS No. 118 did not affect the Bank's
overall allowance for loan losses.
(e) Allowance for Loan Losses
The allowance for loan losses is based on a periodic analysis of the loan
portfolio by management of the amount deemed necessary to adequately provide for
losses in the loan portfolio. Factors considered in making the evaluation
include the Bank's loan growth, risk characteristics of the portfolio, current
economic conditions that may affect the ability of borrowers to pay, the value
of underlying collateral, and trends in loan delinquencies and charge-offs.
Provisions for losses on loans are charged to income. Loans are charged off
against the allowance when the collectibility of loan principal is unlikely.
Recoveries of loans previously charged off are credited to the allowance.
(f) Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated depreciation
and amortization, except for land which is carried at cost. Bank premises and
equipment are depreciated using the straight-line method over the estimate
useful life of the assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the improvements.
(g) Other Real Estate Owned
Other real estate owned is comprised of properties acquired through foreclosure
or acceptance of a deed in lieu of foreclosure. Such properties are recorded
initially at estimated fair value less costs to sell. When a property is
acquired, the excess of the loan balance over the estimated fair value is
charged to the allowance for loan losses. An allowance for losses on other real
estate owned is established by a charge to income when, upon periodic evaluation
by management, further declines in the estimated fair value of properties have
occurred. Such evaluations are based on an analysis of individual properties as
well as a general assessment of current real estate market conditions.
Holding costs and rental income on properties are included in current operations
while certain costs to improve such properties are capitalized. Gains and losses
from the sale of properties are reflected in operating results when realized.
(h) Employee Benefits
The Bank accounts for pension and post-retirement benefits on the net periodic
cost method. This method recognizes the compensation cost of employee benefits
over each employee's estimated service life. Pension costs are funded based on
the maximum amount that can be deducted for federal income tax purposes.
F-9
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(i) Income Taxes
The Bank utilizes the asset and liability method of accounting for income taxes.
Under this method, 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 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.
(j) New Accounting Pronouncements
Effective January 1, 1997, the Bank adopted SFAS No. 125, "Accounting for
Transfers of Financial Assets and Extinguishment of Liabilities." This Statement
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. However, SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS No. 125," requires the deferral of implementation as it
relates to repurchase agreements, dollar-rolls, securities lending and similar
transactions until years beginning after December 31, 1997. Earlier or
retroactive application of this Statement is not permitted. Adoption of SFAS No.
125 is not expected to have a significant effect on the Bank's financial
position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This Statement requires entities
presenting a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive income
consists of net income or loss for the current period and other comprehensive
income consisting of revenue, expenses, gains and losses that bypass the income
statement and are reported directly in a separate component of equity. Other
comprehensive income includes, for example, unrealized gains and losses on
certain investment securities, minimum pension liability adjustments and foreign
currency items. This Statement requires that components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. At August 31, 1997, the Bank's other
comprehensive income consisted of unrealized gains on securities classified as
available for sale. This Statement is effective for fiscal years beginning after
December 31, 1997 and requires restatement of prior period financial statements
presented for comparative purposes.
(2) Cash and Short-Term Investments (In Thousands)
Aggregate reserves (in the form of deposits with the Federal Reserve Bank and
vault cash) of $1,311, $1,155 and $1,268 were maintained to satisfy federal
regulatory requirements at August 31, 1997 and December 31, 1996 and 1995,
respectively.
Short-term investments are summarized as follows:
<TABLE>
<CAPTION>
December 31,
August 31, ------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Money market funds..................................................... $ 6,645 $ 15,870 $ 5,620
Federal funds.......................................................... 850 4,000 78
-------- --------- -------
$ 7,495 $ 19,870 $ 5,698
======== ========= ========
</TABLE>
F-10
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
Short-term investments are stated at cost which approximates market. Money
market funds are invested in a mutual fund whose assets are comprised primarily
of U.S. Treasury obligations, commercial paper and certificates of deposit with
average maturities of 90 days or less.
(3) Investment Securities (In Thousands)
Securities available for sale and held to maturity are summarized below:
<TABLE>
<CAPTION>
At August 31, 1997
-------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and Agency obligations...................... $ 73,610 $ 140 $ 31 $ 73,719
Corporate obligations....................................... 31,171 53 44 31,180
--------- -------- ----- ---------
Total debt securities.................................... 104,781 193 75 104,899
Marketable equity securities.................................... 6,168 17,530 72 23,626
--------- -------- ----- ---------
Total securities available for sale...................... $ 110,949 $ 17,723 $ 147 $ 128,525
========= ======== ===== =========
Securities held to maturity:
U.S. Government and Agency obligations.......................... $ 3,987 $ 5 $ 1 $ 3,991
Corporate obligations........................................... 43,254 108 12 43,350
Mortgage-backed securities...................................... 2,560 54 9 2,605
--------- -------- ----- ---------
Total securities held to maturity........................ $ 49,801 $ 167 $ 22 $ 49,946
========= ======== ===== =========
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and Agency obligations...................... $ 57,089 $ 101 $ 86 $ 57,104
Corporate obligations....................................... 39,890 73 60 39,903
--------- -------- ----- ---------
Total debt securities.................................... 96,979 174 146 97,007
Marketable equity securities.................................... 6,703 13,750 88 20,365
--------- -------- ----- ---------
Total securities available for sale...................... $ 103,682 $ 13,924 $ 234 $ 117,372
========= ======== ===== =========
Securities held to maturity:
U.S. Government and Agency obligations.......................... $ 12,951 $ 3 $ 1 $ 12,953
Corporate obligations........................................... 25,905 45 15 25,935
Mortgage-backed securities...................................... 2,764 54 11 2,807
--------- -------- ----- ---------
Total securities held to maturity........................ $ 41,620 $ 102 $ 27 $ 41,695
========= ======== ===== =========
</TABLE>
F-11
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and Agency obligations...................... $ 42,646 $ 262 $ 7 $ 42,901
Corporate obligations....................................... 19,745 104 59 19,790
--------- -------- ----- ---------
Total debt securities.................................... 62,391 366 66 62,691
Marketable equity securities.................................... 7,922 11,210 58 19,074
--------- -------- ----- ---------
Total securities available for sale...................... $ 70,313 $ 11,576 $ 124 $ 81,765
========= ======== ===== =========
Securities held to maturity:
U.S. Government and Agency obligations.......................... $ 28,947 $ 132 $ 7 $ 29,072
Corporate obligations........................................... 57,245 303 63 57,485
Mortgage-backed securities...................................... 3,150 105 3 3,252
--------- -------- ----- ---------
Total securities held to maturity........................ $ 89,342 $ 540 $ 73 $ 89,809
========= ======== ===== =========
</TABLE>
Restricted equity securities are as follows:
<TABLE>
<CAPTION>
December 31,
August 31, -------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Federal Home Loan Bank of Boston stock................................. $ 3,266 $ 3,228 $ 2,615
Massachusetts Savings Bank Life
Insurance Company stock.............................................. 253 253 253
-------- -------- -------
$ 3,519 $ 3,481 $ 2,868
======== ======== =======
</TABLE>
As a voluntary member of the Federal Home Loan Bank of Boston ("FHLB"), the Bank
is required to invest in $100 par value stock of the FHLB in an amount equal to
1% of its outstanding home loans or 5% of its outstanding advances from the
FHLB, whichever is higher. As and when such stock is redeemed, the Bank would
receive from the FHLB an amount equal to the par value of the stock. At its
discretion, the FHLB may declare dividends on the stock. Such dividends amounted
to $139 and $116 for the eight months ended August 31, 1997 and 1996 and $183,
$178 and $194 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-12
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The maturities of the investments in debt securities at August 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Available for sale
--------------------------
Amortized Estimated
Maturity cost fair value
- -------- --------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 58,752 $ 58,798
After 1 year through 5 years........................................... 45,832 45,915
After 5 years through 10 years......................................... 197 186
---------- ----------
$ 104,781 $ 104,899
========== ==========
<CAPTION>
Held to maturity
--------------------------
Amortized Estimated
Maturity cost fair value
- -------- --------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 11,012 $ 11,035
After 1 year through 5 years........................................... 36,129 36,206
After 5 years through 10 years......................................... 313 304
Over 10 years.......................................................... 2,347 2,401
--------- ---------
$ 49,801 $ 49,946
========= =========
</TABLE>
The maturities of the investments in debt securities at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Available for sale
--------------------------
Amortized Estimated
Maturity cost fair value
- -------- --------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 50,666 $ 50,731
After 1 year through 5 years........................................... 45,998 45,971
After 5 years through 10 years......................................... 315 305
--------- ---------
$ 96,979 $ 97,007
========= =========
<CAPTION>
Held to maturity
--------------------------
Amortized Estimated
Maturity cost fair value
- -------- --------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 19,066 $ 19,083
After 1 year through 5 years........................................... 19,790 19,805
After 5 years through 10 years......................................... 239 227
Over 10 years.......................................................... 2,525 2,580
--------- ---------
$ 41,620 $ 41,695
========= =========
</TABLE>
F-13
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The maturities of the investments in debt securities at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Available for sale
---------------------------
Amortized Estimated
Maturity cost fair value
- -------- ---------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 14,518 $ 14,532
After 1 year through 5 years........................................... 46,442 46,737
After 5 years through 10 years......................................... 1,431 1,422
--------- ---------
$ 62,391 $ 62,691
========= =========
<CAPTION>
Held to maturity
---------------------------
Amortized Estimated
Maturity cost fair value
- -------- ---------- ----------
<S> <C> <C>
Within 1 year.......................................................... $ 79,686 $ 80,008
After 1 year through 5 years........................................... 6,007 6,047
After 5 years through 10 years......................................... 499 502
Over 10 years.......................................................... 3,150 3,252
--------- ---------
$ 89,342 $ 89,809
========= =========
</TABLE>
Mortgage-backed securities are included above based on their contractual
maturities (primarily in excess of 10 years); the expected lives, however, are
expected to be shorter due to anticipated payments.
Sales of investment securities, all of which were marketable equity securities,
are summarized as follows:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Proceeds from sales.................................. $ 752 $ 2,712 $ 2,712 $ 1,256 $ 4
Gross gains from sales............................... 74 469 469 1,006 4
Gross losses from sales.............................. - 5 5 129 -
</TABLE>
F-14
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(4) Loans (In Thousands)
A summary of loans follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Mortgage loans:
One-to-four family ................................................ $ 65,226 $ 57,725 $ 56,814
Multi-family....................................................... 214,062 200,368 193,812
Commercial real estate............................................. 143,187 139,430 125,363
Construction and development....................................... 7,849 7,261 10,288
Home equity........................................................ 5,359 6,398 7,420
Second............................................................. 16,706 19,872 17,680
---------- ---------- ----------
Total mortgage loans........................................... 452,389 431,054 411,377
---------- ---------- ----------
Commercial loans:
Participations..................................................... 36,500 52,950 43,100
Other.............................................................. 8,384 9,221 4,584
---------- ---------- ----------
Total commercial loans......................................... 44,884 62,171 47,684
---------- ---------- ----------
Consumer loans....................................................... 1,336 1,023 1,192
---------- ---------- ----------
Total gross loans.............................................. 498,609 494,248 460,253
Unadvanced funds on loans............................................ (11,812) (11,950) (9,879)
Deferred loan origination fees....................................... (1,272) (1,326) (1,012)
Unearned discounts................................................... (10) (289) (731)
---------- ---------- ----------
$ 485,515 $ 480,683 $ 448,631
========== ========== ==========
</TABLE>
The Bank's portfolio, other than commercial loan participations, is
substantially concentrated within Massachusetts. Commercial loan participations
represent purchases of a portion of loans to national companies originated and
serviced by money center banks. Such participations generally mature between one
day and three months.
Non-accrual loans amounted to $1,412, $1,337 and $748 at August 31, 1997 and
December 31, 1996 and 1995, respectively. If interest payments on all
non-accrual loans for the eight months ended August 31, 1997 and 1996 and the
years ended December 31, 1996, 1995 and 1994 had been made in accordance with
original loan agreements, interest income of $92, $88, $201, $90 and $110 would
have been recognized on the loans compared to interest income actually
recognized of $12, $13, $39, $38 and $18, respectively.
Restructured loans amounted to $2,288, $5,438 and $10,922 at August 31, 1997 and
December 31, 1996 and 1995, respectively. Restructured loans represent currently
performing commercial real estate mortgage loans for which concessions (such as
reductions of interest rates to below market terms and/or extension of repayment
terms) have been granted due to the borrower's financial condition. At August
31, 1997, there were no outstanding commitments to lend additional funds to
borrowers with restructured loans.
F-15
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The recorded investment in impaired loans, as defined by SFAS No. 114 at the
dates indicated, is as follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Multi-family mortgage loans.......................................... $ 135 $ 768 $ 6,855
Commercial real estate mortgage loans................................ 2,038 5,097 8,762
Construction and development loans................................... - 687 685
-------- --------- ---------
$ 2,173 $ 6,552 $ 16,302
======== ========= =========
Average recorded investment in impaired loans for the
eight months ended August 31, 1997 and the years
ended December 31, 1996 and 1995................................... $ 4,363 $ 11,427 $ 12,307
======== ========= =========
</TABLE>
Impaired loans for which an allowance for impairment was not required primarily
due to prior charge-offs and/or the sufficiency of collateral values amounted to
$2,173, $1,527 and $1,637 at August 31, 1997 and December 31, 1996 and 1995,
respectively. The remaining impaired loans of $0, $5,025 and $14,665 at those
dates had an allowance for impairment of $0, $1,009 and $1,915, respectively,
all of which were included in the overall allowance for loan losses.
Interest income recognized on impaired loans, all of which was recorded on a
cash basis, was $124 and $310 for the eight months ended August 31, 1997 and
1996 and $844, $1,099 and $665 for the years ended December 31, 1996, 1995 and
1994, respectively.
A portion of certain commercial real estate loans originated and serviced by the
Bank are sold periodically to other banks on a non-recourse basis. The balance
of loans acquired by other banks amounted to $14,701, $17,277 and $16,756 at
August 31, 1997 and December 31, 1996 and 1995, respectively. No fees are
collected by the Bank for servicing such loan participations.
In the ordinary course of business, the Bank makes loans to its Trustees and
their related interests, generally at the same prevailing terms as those of
other borrowers. A summary of related party activity follows:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $ 571 $ 827 $ 827 $ 842 $ 854
Repayments........................................... 8 225 256 15 12
----- ------ ------ ------ ------
Balance at end of period............................. $ 563 $ 602 $ 571 $ 827 $ 842
===== ====== ====== ====== ======
</TABLE>
F-16
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(5) Allowance for Loan Losses (In Thousands)
An analysis of the allowance for loan losses for the periods indicated follows:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $ 12,326 $ 12,326 $ 12,326 $ 12,274 $ 12,745
Provision (credit) for loan losses................... - - - - (477)
Charge-offs.......................................... (6) (94) (166) (240) (40)
Recoveries........................................... 123 160 166 292 46
--------- --------- -------- --------- ---------
Balance at end of period............................. $ 12,443 $ 12,392 $ 12,326 $ 12,326 $ 12,274
========= ========= ======== ========= =========
</TABLE>
(6) Bank Premises and Equipment (In Thousands)
Bank premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Land ............................................................... $ 62 $ 62 $ 62
Office building and improvements..................................... 1,863 1,815 1,803
Furniture, fixtures and equipment.................................... 1,643 1,495 1,582
-------- -------- --------
3,568 3,372 3,447
Accumulated depreciation and amortization............................ 2,214 1,930 2,325
-------- -------- --------
$ 1,354 $ 1,442 $ 1,122
======== ======== ========
</TABLE>
(7) Other Real Estate Owned (In Thousands)
The composition of other real estate owned as of the dates indicated is as
follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Commercial real estate............................................... $ 1,868 $ 1,840 $ 1,693
Residential.......................................................... 320 70 348
-------- -------- ---------
2,188 1,910 2,041
Valuation allowance.................................................. 186 221 319
-------- -------- ---------
$ 2,002 $ 1,689 $ 1,722
======== ======== =========
</TABLE>
F-17
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
An analysis of the valuation allowance for the periods indicated follows:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $ 221 $ 319 $ 319 $ 403 $ -
Provision for losses................................. - - - - 541
Write-downs.......................................... (35) (82) (98) (84) (138)
------ ----- ----- ----- ------
Balance at end of period............................. $ 186 $ 237 $ 221 $ 319 $ 403
====== ===== ===== ===== ======
</TABLE>
Net other real estate owned income (expense) for the periods indicated is
comprised of the following:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Rental income........................................ $ 242 $ 139 $ 272 $ 168 $ 291
Provision for losses................................. - - - - (541)
Operating and foreclosure expenses................... (84) (102) (122) (208) (491)
Gains from sales..................................... - 149 149 - -
------ ----- ----- ----- -------
$ 158 $ 186 $ 299 $ (40) $ (741)
====== ===== ===== ===== =======
</TABLE>
(8) Deposits (Dollars In Thousands)
A summary of deposits follows:
<TABLE>
<CAPTION>
August 31, 1997 December 31, 1996 December 31, 1995
------------------------ ------------------------- --------------------------
Weighted Weighted Weighted
average average average
Amount rate Amount rate Amount rate
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand checking accounts.................... $ 10,356 0.00% $ 9,988 0.00% $ 9,461 0.00%
NOW accounts................................ 37,786 1.75 38,560 1.75 36,885 1.75
Savings accounts............................ 14,160 2.50 15,578 2.50 18,373 2.50
Money market savings accounts............... 157,782 3.81 158,110 3.85 148,599 3.83
--------- --------- --------
Total transaction deposit accounts.... 220,084 3.19 222,236 3.22 213,318 3.19
--------- --------- --------
Certificate of deposit accounts maturing:
Within six months....................... 134,449 5.43 121,116 5.30 131,566 5.70
After six months but within 1 year...... 75,352 5.64 74,709 5.55 68,410 5.65
After 1 year but within 2 years......... 22,333 5.70 36,917 5.85 24,050 6.01
After 2 years but within 3 years........ 21,170 6.75 13,135 6.18 18,838 6.17
After 3 years........................... 8,079 6.12 15,903 6.76 18,033 6.86
--------- --------- --------
Total certificate of deposit accounts 261,383 5.64 261,780 5.58 260,897 5.83
--------- --------- --------
$ 481,467 4.52% $ 484,016 4.50% $474,215 4.64%
========= ========= ========
</TABLE>
Certificate of deposit accounts issued in amounts of $100,000 or more totaled
$41,783, $38,251 and $33,183 at August 31, 1997 and December 31, 1996 and 1995,
respectively.
F-18
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
----------------------- ---------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NOW accounts......................................... $ 430 $ 423 $ 641 $ 620 $ 657
Savings accounts..................................... 252 290 426 498 628
Money market savings accounts........................ 4,066 3,925 5,957 5,665 5,278
Certificate of deposit accounts...................... 9,715 9,892 14,751 14,127 9,272
--------- --------- --------- -------- ---------
$ 14,463 $ 14,530 $ 21,775 $ 20,910 $ 15,835
========= ========= ========= ======== =========
</TABLE>
(9) Borrowed Funds (Dollars In Thousands)
Borrowed funds are comprised of the following advances from the FHLB:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
August 31, 1997 1996 1995
-------------------------- ------------------------ ----------------------
Weighted Weighted Weighted
average average average
Maturity Amount rate Amount rate Amount rate
- -------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Within 1 year............................... $ 21,450 6.25% $ 15,100 6.97% $ 8,600 6.94%
Over 1 year to 2 years...................... 12,615 6.29 20,665 5.98 15,100 6.97
Over 2 years to 3 years..................... 12,400 6.66 10,550 6.83 17,565 5.88
Over 3 years to 4 years..................... 5,350 6.73 4,900 6.13 3,500 7.31
Over 4 years to 5 years..................... 10,000 6.59 9,350 6.65 4,900 6.13
--------- --------- ---------
$ 61,815 6.44% $ 60,565 6.49% $ 49,665 6.52%
========= ========= =========
</TABLE>
The advances are secured by all the Bank's stock and deposits in the FHLB and a
general lien on one-to-four family residential mortgage loans and U.S.
Government and Agency obligations in an aggregate amount equal to outstanding
advances.
F-19
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(10) Income Taxes (Dollars in Thousands)
Provision for income taxes are comprised of the following amounts:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
----------------------- ---------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current:
Federal......................................... $ 4,685 $ 4,090 $ 5,957 $ 5,855 $ 4,446
State........................................... 88 1,229 1,773 1,826 1,457
-------- -------- ------- ------- --------
4,773 5,319 7,730 7,681 5,903
-------- -------- ------- ------- --------
Deferred:
Federal......................................... 16 (138) (31) (238) 27
State........................................... 91 10 52 (34) 12
-------- -------- ------- ------- --------
107 (128) 21 (272) 39
-------- -------- ------- ------- --------
$ 4,880 $ 5,191 $ 7,751 $ 7,409 $ 5,942
======== ======== ======= ======= ========
</TABLE>
The reduction in state income tax expense for the eight months ended August 31,
1997 is attributable primarily to the establishment of a real estate investment
trust.
Total income tax expense differed from the amounts computed by applying the
statutory U.S. federal income tax rate (between 34% and 35% for the periods
presented) to income before tax expense as a result of the following:
<TABLE>
<CAPTION>
Eight months
ended August 31, Year ended December 31,
----------------------- ---------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Expected income tax expense at
statutory federal tax rate......................... $ 4,862 $ 4,685 $ 6,891 $ 6,583 $ 5,144
State taxes, net of federal income tax benefit....... 116 818 1,204 1,183 969
Dividend income received deduction................... (118) (115) (167) (163) (137)
Change in federal tax rate applied to deferred
income taxes....................................... - (123) (123) - -
Utilization of capital loss carryforward............. - - - (124) -
Other, net........................................... 20 (74) (54) (70) (34)
-------- -------- ------- ------- --------
$ 4,880 $ 5,191 $ 7,751 $ 7,409 $ 5,942
======== ======== ======= ======= ========
Effective income tax rates........................... 34.8% 38.8% 39.4% 38.7% 39.5%
======== ======== ======= ======= ========
</TABLE>
F-20
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at the dates indicated are as
follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses.......................................... $ 5,208 $ 5,253 $ 5,177
Pension and postretirement benefits................................ 1,257 1,026 741
Loan origination fees.............................................. 1 80 178
Other.............................................................. 60 8 32
------- ------- --------
Total gross deferred tax assets................................ 6,526 6,367 6,128
------- ------- --------
Deferred tax liabilities:
Unrealized gain on available for sale securities................... 6,619 5,031 4,209
Post-1987 bad debt reserves........................................ 227 256 3
Savings Bank Life Insurance Company stock.......................... 108 108 106
Other.............................................................. 126 97 134
------- ------- --------
Total gross deferred tax liabilities........................... 7,080 5,492 4,452
------- ------- --------
Net deferred tax asset (liability)............................. $ (554) $ 875 $ 1,676
======= ======= ========
</TABLE>
For income tax purposes, the Bank uses October 31 as its fiscal year end date.
Historically, the Bank has been subject to special provisions in the tax law
regarding allowable tax bad debt deductions and related reserves. Bad debt
deductions were determined based on loss experience or a percentage of taxable
income. The bad debt reserve balance represents allowable deductions in excess
of actual losses and consists of a defined base-year amount (accumulated through
October 31, 1988) and additional amounts accumulated after that date.
Tax law changes were enacted in August 1996 that eliminated use of the
percentage of taxable income method for tax years after 1995 (after October 31,
1996 in the case of the Bank) and required recapture into taxable income over a
six year period all bad debt reserves accumulated after October 31, 1988. The
Bank had previously recorded a deferred tax liability with respect to these
post-1987 reserves and, therefore, this new requirement had no effect on the
Bank's income tax expense or net income.
The tax law changes also require recapture of pre-1988 bad debt reserves into
taxable income if the Bank makes "non-dividend distributions." Non-dividend
distributions is defined as distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation.
The amount of additional taxable income from a non-dividend distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if after Conversion, the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. The Bank does not intend to
pay dividends that would result in recapture of any portion of its bad debt
reserves, and accordingly, has not provided for any portion of the $772
liability relating to the balance of its pre-1988 bad debt reserves.
F-21
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(11) Employee Benefits (Dollars In Thousands)
Pension Plan
The Bank sponsors a non-contributory defined benefit pension plan that covers
all employees who meet specific age and length of service requirements, which is
administered by the Savings Banks Employees Retirement Association ("SBERA").
The plan provides for benefits to be paid to eligible employees at retirement
based primarily upon their years of service with the Bank and the average of
their three highest consecutive years of compensation. The Bank's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits
attained to date, but also for those expected to be earned in the future. The
plan assets are invested primarily in U.S. Government obligations, corporate
bonds and equity securities.
The following table sets forth the funded status of the plan for the years ended
October 31, the plan's latest valuation dates, as determined by the plan's
actuary:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $2,997 and $3,014............................................ $ 3,060 $ 3,090
========= ========
Projected service obligation for service rendered to date......... $ 4,338 $ 4,683
Plan assets at fair value......................................... 4,833 4,070
--------- --------
Plan assets greater (less) than projected benefit obligation.... 495 (613)
Unamortized transition assets..................................... (61) (65)
Unrecognized net gain............................................. (1,615) (239)
--------- --------
Accrued pension expense......................................... $ (1,181) $ (917)
========= ========
</TABLE>
Net pension expense for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Service cost-benefits earned during the year......................... $ 276 $ 207 $ 227
Interest cost on projected benefit obligation........................ 328 325 267
Actual return on plan assets......................................... (618) (695) (202)
Amortization of net (gains) losses................................... 279 385 (47)
------- ------- -----
Net pension expense................................................ $ 265 $ 222 $ 245
======= ======= =====
</TABLE>
Net pension expense for the eight months ended August 31, 1997 and 1996 amounted
to $60 and $176, respectively.
Assumptions used in determining the actuarial present value of projected benefit
obligations and pension expenses follow:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Discount rate........................................................ 7.00% 8.00% 8.00%
Rate of increase in compensation..................................... 6.00 7.00 7.00
Expected long-term rate of return on assets.......................... 8.00 7.00 7.00
</TABLE>
F-22
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
Supplemental Executive Retirement Agreements
The Bank maintains agreements that provide supplemental retirement benefits to
certain executive officers. Total expenses for benefits payable under the
agreements amounted to $438 and $209 for the eight months ended August 31, 1997
and 1996 and $311, $284 and $153 for the years ended December 31, 1996, 1995 and
1994, respectively. Aggregate benefits payable included in accrued expenses and
other liabilities at August 31, 1997 and December 31, 1996 and 1995 amounted to
$1,483, $1,045 and $734, respectively.
401(K) Plan
The Bank has an employee tax deferred thrift incentive plan under Section 401(k)
of the Internal Revenue Code. All employees who meet specified age and length of
service requirements are eligible for voluntary participation in the plan. The
plan is administered by SBERA and the Bank makes no contribution to the Plan.
Other Postretirement Benefits
The Bank provides for part of the annual expense of health insurance for certain
retired employees and their dependents. The Bank accrues the cost of these
benefits over the years employees provide service to the date of their
eligibility for such benefits. The transition obligation for future benefits is
being amortized over a twenty year period.
The following is a reconciliation of the postretirement benefit obligations and
the amount of accrued postretirement benefit cost included in the consolidated
balance sheet as of October 31, the latest valuation date.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of postretirement benefit obligations:
Retirees............................................................ $ 111 $ 141
Fully eligible employees............................................ 54 56
Other active employees.............................................. 201 204
------ ------
Accumulated postretirement benefit obligation (unfunded)......... 366 401
Unamortized net transition obligation............................... (317) (344)
Unrecognized net gain............................................... 76 -
------ ------
Total accrued postretirement benefit cost........................ $ 125 $ 57
====== ======
</TABLE>
The components of postretirement benefit expense for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Service cost-benefits earned during the year........................... $ 24 $ 23
Interest cost on accumulated postretirement benefit obligation......... 26 27
Amortization of transition obligation.................................. 18 18
------ ------
Net postretirement benefit expense.................................. $ 68 $ 68
====== ======
</TABLE>
Net postretirement expense for the eight months ended August 31, 1997 and 1996
amounted to $46 and $46, respectively, and $10 for the year ended December 31,
1994 (on a pay-as-you-go basis).
F-23
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The discount rate used to determine the accumulated postretirement benefit
obligations was 7.50% in 1996 and in 1995. The assumed health care trend rate
used to measure the accumulated postretirement benefit obligation at December
31, 1996 was 8.0% initially, decreasing gradually to 5.0% in 2001 and
thereafter. A 1% point increase in the assumed health care cost trend rate would
have increased the 1996 postretirement benefit expense by $12 and would have
increased the accumulated postretirement benefit obligation at December 31, 1996
by $69.
(12) Commitments and Contingencies (In Thousands)
Off-Balance Sheet Financial Instruments
The Bank is party to off-balance sheet risk in the normal course of business to
meet the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments
to extend credit and involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated balance sheet. The contract
amounts reflect the extent of the involvement the Bank has in particular classes
of these instruments. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument is represented by
the contractual amount of those instruments. The Bank uses the same policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
Financial instruments with off-balance sheet risk at the dates indicated
follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to originate loans:
Residential mortgage........................................... $ 263 $ 4,506 $ 2,395
Multi-family mortgage.......................................... 5,159 4,954 11,147
Commercial real estate mortgage................................ 9,090 7,315 10,723
Construction and development................................... 8,250 1,400 2,145
Commercial..................................................... 2,910 2,280 400
Unadvanced portion of loans........................................ 11,812 11,950 9,879
Unused lines of credit:
Equity......................................................... 9,043 8,272 8,903
Other.......................................................... 1,384 1,455 1,407
</TABLE>
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 the payment of a fee by the customer. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit-worthiness on a case-by-case basis. The amount of collateral
obtained, if any, is based on management's credit evaluation of the borrower.
F-24
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
Lease Commitments
The Bank leases certain office space under various noncancellable operating
leases. A summary of future minimum rental payments under such leases at the
dates indicated follows:
<TABLE>
<CAPTION>
Year ending August 31, December 31,
December 31, 1997 1996
------------ ------------- ------------
<S> <C> <C>
1997................................................... $ 98 $ 284
1998................................................... 295 295
1999................................................... 295 295
2000................................................... 292 292
</TABLE>
The leases contain escalation clauses for real estate taxes and other
expenditures. Total rental expense was $204 and $167 for the eight months ended
August 31, 1997 and 1996 and $258, $232 and $236 for the years ended December
31, 1996, 1995 and 1994, respectively.
Legal Proceedings
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consulting with legal counsel,
the consolidated financial position and results of operations of the Bank will
not be affected materially by the outcome of such proceedings.
(13) Regulatory Capital Requirements
The Bank is subject to a capital based supervisory system that applies to all
insured depository institutions. The category into which the Bank's capital
ratios fall determines the degree of regulatory supervision to which the Bank
could be subjected. Capital categories consist of "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized. " An institution is deemed to be "well
capitalized" if (a) its risk based capital is 10% or greater, (b) its Tier 1
risk based capital ratio is 6% or greater, and (c) its leverage ratio is 5% or
greater. At August 31, 1997, the Bank is "well capitalized."
When an insured institution's capital ratios fall below the "well capitalized"
level, it becomes subject to a series of increasingly restrictive supervisory
actions, to the point where a conservator or receiver must be designated for a
"critically undercapitalized" institution unless certain conditions are made by
the appropriate regulatory agencies. An institution is deemed to be "critically
undercapitalized" if its ratio of Tier I capital to total assets is 2% or less.
F-25
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(14) Fair Value of Financial Instruments (In Thousands)
The following is a summary of the carrying values and estimated fair values of
the Bank's significant financial and non-financial instruments as of the dates
indicated:
<TABLE>
<CAPTION>
August 31, 1997
----------------------------
Carrying Estimated
value fair value
----------- ----------
<S> <C> <C>
Financial assets:
Cash and due from banks................................................ $ 8,021 $ 8,021
Short-term investments................................................. 7,495 7,495
Securities............................................................. 181,845 181,990
Loans, net............................................................. 473,072 473,441
Accrued interest receivable............................................ 5,923 5,923
Financial liabilities:
Demand, NOW, savings and money market savings deposit accounts......... 220,084 220,084
Certificate of deposit accounts........................................ 261,383 260,745
Borrowed funds......................................................... 61,815 61,592
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks..................... $ 6,465 $ 6,465 $ 5,980 $ 5,980
Short-term investments...................... 19,870 19,870 5,698 5,698
Securities.................................. 162,473 162,548 173,975 174,442
Loans, net.................................. 468,357 466,666 436,305 436,287
Accrued interest receivable................. 5,106 5,106 5,593 5,593
Financial liabilities:
Demand, NOW, savings and money
market savings deposit accounts........... 222,236 222,236 213,318 213,318
Certificate of deposit accounts............. 261,780 262,023 260,897 261,959
Borrowed funds.............................. 60,565 60,583 49,665 50,234
</TABLE>
SFAS No. 107 requires disclosures about fair values of financial instruments for
which it is practicable to estimate fair value. Fair value is defined in SFAS
No. 107 as the amount that a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced liquidation
sale. Quoted market prices are used to estimate fair values when those prices
are available. However, active markets do not exist for many types of financial
instruments. Consequently, fair values for these instruments must be estimated
by management using techniques such as discounted cash flow analysis and
comparison to similar instruments. These instruments are highly subjective and
require judgments regarding significant matters such as the amount and timing of
future cash flows and the selection of discount rates that may appropriately
reflect market and credit risks. Changes in these judgments often have a
material impact on the fair value estimates. In addition, since these estimates
are as of a specific point in time, they are susceptible to material near-term
changes. Fair values disclosed in accordance with SFAS No. 107 do not reflect
any premium or discount that could result from the sale of a large volume of a
particular financial instrument, nor do they reflect the possible tax
ramifications or estimated transaction costs.
F-26
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
The following is a description of the principal valuation methods used by the
Bank to estimate the fair values of its financial instruments:
Securities
The fair values of securities were based principally on market prices and dealer
quotes. Certain fair values were estimated using pricing models or were based on
comparisons to market prices of similar securities. The fair value of stock in
the FHLB equals its carrying amount since such stock is only redeemable at its
par value.
Loans
The fair value of performing loans, other than commercial participation loans,
is estimated by discounting the contractual cash flows using interest rates
currently being offered for loans with similar terms to borrowers of similar
quality. The fair value of commercial participation loans is considered to equal
their carrying amounts since such loans generally are repayable within 90 days.
For non-performing loans where the credit quality of the borrower has
deteriorated significantly, fair values are estimated by discounting cash flows
at a rate commensurate with the risk associated with those cash flows.
Deposit Liabilities
In accordance with SFAS No. 107, the fair values of deposit liabilities with no
stated maturity (demand, NOW, savings and money market savings accounts) are
equal to the carrying amounts payable on demand. The fair value of time deposits
represents contractual cash flows discounted using interest rates currently
offered on deposits with similar characteristics and 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 compared to the cost of
alternative forms of funding ("deposit based intangibles").
Borrowed Funds
The fair value of borrowings from the FHLB represent contractual repayments
discounted using interest rates currently available for borrowings with similar
characteristics and remaining maturities.
Other Financial Assets and Liabilities
Cash and due from banks, short-term investments and accrued interest receivable
have fair values which approximate the respective carrying values because the
instruments are payable on demand or have short-term maturities and present
relatively low credit risk and interest rate risk.
Off-Balance Sheet Financial Instruments
In the course of originating loans and extending credit, the Bank will charge
fees in exchange for its commitment. While these commitment fees have value, the
Bank has not estimated their value due to the short-term nature of the
underlying commitments and their immateriality.
F-27
<PAGE>
BROOKLINE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
August 31, 1997 and 1996 (unaudited) and December 31, 1996, 1995 and 1994
(15) Plan of Reorganization
On October 8, 1997, the Board of Trustees of the Bank adopted a Plan of
Reorganization ("the Plan") whereby the Bank will be reorganized from a state
chartered mutual savings bank into a mutual holding structure, subject to
approval by regulatory authorities and the Corporators of the Bank. As part of
the Plan, the Bank will establish a state chartered mutual holding company
("MHC") and a capital stock holding company incorporated in Massachusetts, ("the
Company"). The Bank will become a state chartered capital stock bank wholly
owned by the Company. The Company plans to offer for sale 47% of the shares of
its common stock (the "Minority Ownership Interest") in a subscription offering
initially to Bank depositors, employee benefit plans of the Bank and other
certain eligible subscribers ("the Offering"). Any shares of common stock not
sold in the Offering are expected to be sold to underwriters for resale to the
public. After completion of the Offering, the MHC will be the 53% owner of the
Company.
As part of the Offering, the Bank will establish a liquidation account in an
amount equal to the Minority Ownership Interest multiplied by the net worth of
the Bank 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 account holders and supplemental eligible account holders who
maintain their accounts at the Bank after the Offering. The liquidation account
will be reduced annually to the extent that such account holders have reduced
their qualifying deposits as of each anniversary date. Subsequent increases will
not restore an account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible account holder will be entitled
to receive balances for accounts then held.
Subsequent to the Offering, the Company and the Bank may not declare or pay
dividends on and the Company may not, 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 or if such declaration,
payment or repurchase would otherwise violate regulatory requirements.
Offering costs will be deferred and reduce the proceeds from the shares sold in
the Offering. If the Offering is not completed, all costs will be expensed. As
of August 31, 1997, Offering costs of $30 have been incurred and are included in
other assets.
F-28
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the Offering made hereby and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Brookline Bancorp, Inc., Brookline Savings Bank or Ryan Beck &
Co., Inc. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of Brookline Bancorp, Inc. or Brookline Savings
Bank since any of the dates as of which information is furnished herein or since
the date hereof.
___________
TABLE OF CONTENTS
Page
----
Summary of Reorganization and Offering..........................................
Description of Reorganization...................................................
Selected Consolidated Financial and Other Data of the Bank......................
Risk Factors....................................................................
Brookline Bancorp, MHC..........................................................
Brookline Bancorp, Inc..........................................................
Brookline Savings Bank..........................................................
Regulatory Capital Compliance...................................................
Use of Proceeds.................................................................
Dividend Policy.................................................................
Market for Common Stock.........................................................
Capitalization..................................................................
Pro Forma Data..................................................................
Consolidated Statements of Income...............................................
Management's Discussion and Analysis of Financial...............................
Condition and Results of Operations............................................
Business of the Company.........................................................
Business of the Bank............................................................
Federal and State Taxation......................................................
Regulation......................................................................
Management of the Company.......................................................
Management of the Stock Bank....................................................
Participation by Management.....................................................
The Reorganization and Offering.................................................
Restrictions on Acquisition of the Company and the Bank.........................
Description of Capital Stock of the Company.....................................
Transfer Agent and Registrar....................................................
Legal and Tax Matters...........................................................
Experts.........................................................................
Additional Information..........................................................
Index to Consolidated Financial Statements......................................
___________
Until _______________, 1998, or 25 days after commencement of a broker
assisted public offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments of subscriptions.
================================================================================
11,891,000 SHARES
(ANTICIPATED MAXIMUM)
BROOKLINE
BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
BROOKLINE SAVINGS BANK)
COMMON STOCK
PAR VALUE $.01 PER SHARE
________________________________
PROSPECTUS
________________________________
RYAN, BECK & CO.
January ___, 1998
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
* Legal Fees ..................................... $ 290,000
* Printing and Mailing ........................... 225,000
* Appraisal and Business Plan Fees and Expenses... 49,500
* Accounting Fees and Expenses ................... 100,000
** Marketing Fees and Expenses .................... 1,055,000
* Filing Fees (SEC and Division of Banks of
The Commonwealth of Massachusetts) .......... 49,000
* Other Expenses ................................. 431,500
-----------
** Total .......................................... $ 2,200,000
===========
</TABLE>
____________
* Estimated
** The Bank and the Company have retained Ryan Beck & Co, Inc. ("Ryan Beck")
to assist in the sale of common stock on a best efforts basis in the
Subscription and Community Offerings. For purposes of computing estimated
expenses, it has been assumed that Ryan Beck will receive fees of
approximately $1,000,000, exclusive of attorneys' fees of $55,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF TRUSTEES AND OFFICERS OF BROOKLINE BANCORP, M.H.C.
Article VI of the Bylaws of Brookline Bancorp, M.H.C. (the "Mutual
Corporation") sets forth circumstances under which trustees, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they incur in their capacities as such.
ARTICLE VI. INDEMNIFICATION
Section 1. Definitions. For purposes of this Article: (a) "Officer" means
------------
any Trustee or officer of the Mutual Corporation who serves or has served in
such capacity and any heirs or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Mutual Corporation but who is not or was not an Officer, and any heirs or
personal representatives of such person; (c) "Proceeding" means any action, suit
or proceeding, civil or criminal, brought or threatened in or before any court,
tribunal, administrative or legislative body or agency and any claim which could
be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by
a judgment, order, decree or award in a Proceeding, any amount reasonably paid
in settlement of a Proceeding and any professional fees or disbursements or
other expenses reasonably incurred in a Proceeding.
Section 2. Indemnified Parties. Except as provided in Sections 4 and 5 of
--------------------
this Article VI, each Officer shall be indemnified by the Mutual Corporation
against any and all expenses incurred by such Officer in connection with any
Proceeding in which such Officer is involved as a result of serving or having
served (a) as a Corporator, Trustee, officer or employee of the Mutual
Corporation, (b) in any capacity with respect to any employee benefit plan
sponsored by the Mutual Corporation or any wholly-owned subsidiary of the Mutual
Corporation, (c) as a director, officer or employee of any wholly-owned
subsidiary of the Mutual Corporation, or (d) in any capacity with any other
corporation, organization, partnership, joint venture, trust or other entity at
the request or direction of the Mutual Corporation.
Section 3. Non-Officer Employees. Except as provided in Sections 4 and 5 of
----------------------
this Article VI, each Non-Officer Employee of the Mutual Corporation may, in the
discretion of the Board of Trustees, be indemnified by the Mutual Corporation
against any and all Expenses incurred by such Non-Officer Employee in connection
with any Proceeding in which such Non-Officer Employee is involved as a result
of serving or having served (a) as an employee of the Mutual Corporation, (b) in
any capacity with respect to any employee benefit plan sponsored by the Mutual
<PAGE>
Corporation or any wholly-owned subsidiary of the Mutual Corporation, (c) as a
director, officer or employee of any wholly-owned subsidiary of the Mutual
Corporation, or (d) in any capacity with any other corporation, organization,
partnership, joint venture, trust or other entity at the request or direction of
the Mutual Corporation.
Section 4. Service at the Request or Direction of the Mutual Corporation.
--------------------------------------------------------------
No indemnification shall be provided to any Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(d) or 3(d) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by a vote of the Board
of Trustees or by vote of the Executive Committee prior to the occurrence of the
event to which the indemnification relates, and (b) the Mutual Corporation
maintains insurance coverage for the type of indemnification sought. The Mutual
Corporation shall not be liable for indemnification under Section 2(d) or 3(d)
above for any amount in excess of the proceeds of insurance received with
respect to such coverage as the Mutual Corporation in its discretion may elect
to carry. The Mutual Corporation may, but shall not be required to, maintain
insurance coverage with respect to indemnification under Section 2(d) or 3(d)
above. Notwithstanding any other provision of this Section 4, but subject to
Section 5 of this Article VI, the Board of Trustees may provide an Officer or
Non-Officer Employee with indemnification under Section 2(d) or 3(d) above as to
a Proceeding even if one or both of the two conditions specified in this Section
4 have not been met and even if the amount of the indemnification exceeds the
amount of the proceeds of any insurance which the Mutual Corporation may have
elected to carry, provided that the Board of Trustees in its discretion
determines it to be in the best interests of the Mutual Corporation to do so.
Section 5. Good Faith. No indemnification shall be provided to an Officer
-----------
or to a Non-Officer Employee with respect to a matter as to which such person
shall have been adjudicated in any Proceeding not to have acted in good faith in
the reasonable belief that the action of such person was in the best interests
of the Mutual Corporation. In the event that a Proceeding is compromised or
settled so as to impose any liability or obligation upon an Officer or Non-
Officer Employee, no indemnification shall be provided to said person with
respect to a matter if there is a determination that with respect to such matter
that such person did not act in good faith in the reasonable belief that the
action of such person was in the best interests of the Mutual Corporation. The
determination shall be made by a majority vote of those trustees who are not
involved in such Proceeding. However, if more than half of the Trustees are
involved in such Proceeding, the determination shall be made by a majority vote
of a committee of three disinterested Trustees chosen at a regular or special
meeting of the Board of Trustees to make such determination; provided, however,
that if there are less than three disinterested Trustees, the determination
shall be made by a committee consisting of three disinterested Corporators,
chosen at a regular or special meeting of the Board of Trustees to make such
determination.
Section 6. Prior to Final Disposition. Any indemnification provided under
---------------------------
this Article, in the case of an Officer shall include, and in the case of a Non-
Officer Employee may in the discretion of the Board of Trustees include, payment
by the Mutual Corporation of Expenses incurred in defending a Proceeding in
advance of the final disposition of such Proceeding upon receipt of an
undertaking by the Officer or Non-Officer Employee to repay such payment if such
person shall be adjudicated or determined to be not entitled to indemnification
under this Article.
Section 7. Insurance. The Mutual Corporation may, but shall not be required
----------
to, purchase and maintain insurance to protect itself and any Officer or Non-
Officer Employee against any liability of any character asserted against or
incurred by the Mutual Corporation or any such person, or arising out of any
such status, whether or not the Corporation would have the power to indemnify
such person against such liability by law or under the provisions of this
Article.
Section 8. Independent Indemnification. Nothing in this Article shall limit
----------------------------
any lawful rights to indemnification existing independently of this Article.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF BROOKLINE BANCORP, INC.
Article VI of the Articles of Organization of Brookline Bancorp, Inc. (the
"Corporation") sets forth circumstances under which directors, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they incur in their capacities as such.
<PAGE>
6.6 INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Massachusetts Business Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B The right to indemnification conferred in Section A of this Section
6.6 shall include, in the case of a Director or officer at the level of Vice
President or above, and in the case of any other Officer or any employee may
include (in the discretion of the Board of Directors) the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses").
Notwithstanding the foregoing, expenses incurred by an indemnitee in advance of
the final disposition of a proceeding may be paid only upon the Corporation's
receipt of an undertaking by the indemnitee to repay such payment if he shall be
adjudicated or determined to be not entitled to indemnification under applicable
law. The Corporation may accept such undertaking without reference to the
financial ability of the Indemnitee to make such repayment. The rights to
indemnification and to the advancement of expenses conferred in Sections A and B
of this Section 6.6 shall be contract rights and such rights shall continue as
to an indemnitee who has ceased to be a Director, Officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Section 6.6 is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee also shall be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, he shall not have acted in good faith in the reasonable
belief that his action was in the best interests of the Corporation. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Massachusetts Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Section 6.6 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Section 6.6 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Charter, Bylaws, agreement, vote of stockholders or disinterested Directors or
otherwise.
<PAGE>
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Massachusetts Business Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Section 6.6 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation. Without
limiting the generality of the foregoing, the Corporation may enter into
specific agreements, commitments or arrangements for indemnification on any
terms not prohibited by law which it deems to be appropriate.
G. If the Corporation is merged into or consolidated with another
corporation and the Corporation is not the surviving corporation, the surviving
Corporation shall assume the obligations of the Corporation under this Section
6.6 with respect to any action, suit, proceeding or investigation arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
Article 11 of the Bylaws of Brookline Savings Bank (the "Bank") set forth
circumstances under which directors, officers, employees and agents of the Bank
may be insured or indemnified against liability which they may incur in their
capacities as such.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF BROOKLINE SAVINGS BANK
Section 11.1 Indemnification and Insurance.
-----------------------------
(A) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved (including, without limitation, as a witness)
in any action, suit or proceeding, whether civil, derivative, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
----------
fact that he or a person of whom he is the legal representative is or was a
director, officer, employee or agent of the Bank, or is or was serving at the
request of the Bank as a director, officer, partner, trustee, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to any employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
----------
action or inaction in an official capacity as a director, officer, partner,
trustee, employee or agent or in any other capacity while serving as a director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the Bank against all expense, liability and loss (including, without
limitation, attorneys' fees and disbursements, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid or to be paid in settlement) reasonably incurred by such
indemnitee in connection with such proceeding, provided that such indemnitee
shall have acted in good faith in the reasonable belief that such action was in,
or not opposed to, the best interests of the Bank or such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, as
the case may be; provided, however, that except as provided in paragraph (C) of
-------- -------
this Section 11.1 with respect to proceedings seeking to enforce rights to
------------
indemnification, the Bank shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors.
(B) The right to indemnification conferred in paragraph (A) of this
Section 11.1 shall include the right to be paid by the Bank the expenses
- ------------
(including attorneys' fees and disbursements) incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
--------------
expenses"); provided, however, that, to the extent required by applicable law,
--------- -------
an advancement of expenses incurred by an indemnitee in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Bank of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
-----------
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
------------------
such expenses under this paragraph (B) or otherwise.
<PAGE>
(C) If a claim under paragraphs (A) or (B) of this Section 11.1 is
------------
not paid in full by the Bank within thirty days after a written claim has been
received by the Bank, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Bank to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
the indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right of an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Bank to recover an advancement of expenses
pursuant to the terms of an undertaking, the Bank shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth under applicable law. Neither
the failure of the Bank (including its Board of Directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth under applicable law, nor an actual determination by the Bank
(including its Board of Directors, independent legal counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Bank to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden or proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under these Bylaws or otherwise
shall be on the Bank.
(D) The right to indemnification and the advancement of expenses conferred
in this Section 11.1 shall not be exclusive of any other right which any person
------------
may have or hereafter acquire under any statute, provision of the Charter,
provision of these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
(E) The Bank may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Bank or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Bank would have the power to indemnify
such person against such expense, liability or loss under applicable law.
(F) The Bank may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification, and rights to the advancement of
expenses, to any employee or agent of the Bank to the fullest extent of the
provisions of these Bylaws with respect to the indemnification and advancement
of expenses of directors and officers of the Bank.
(G) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (A) and (B) of these Bylaws shall be contract rights and
such rights shall continue as to an indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The exhibits and financial statement schedules filed as part of this
registration statement are as follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letter between Brookline Savings Bank and Ryan, Beck & Co.,
Inc.
1.2* Form of Agency Agreement among Brookline Bancorp, Inc., Brookline Savings
Bank, and Ryan, Beck and Co., Inc.
2 Plan of Reorganization
3.1 Articles of Organization of Brookline Bancorp, Inc. (Incorporated herein
by reference to Exhibit B of the Plan of Reorganization)
3.2 Bylaws of Brookline Bancorp, Inc. (Incorporated herein by reference to
Exhibit B of the Plan of Reorganization)
3.3 Proposed Stock Charter of Brookline Savings Bank (Incorporated herein by
reference to Exhibit A of the Plan of Reorganization)
3.4 Proposed Stock Bylaws of Brookline Savings Bank (Incorporated herein by
reference to Exhibit A of the Plan of Reorganization)
4 Form of Common Stock Certificate of Brookline Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality
of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of Foley, Hoag & Elliot LLP
8.3 Letter from Feldman Financial Advisors, Inc. with respect to Subscription
Rights
10.1 Form of Employment Agreement
10.2 Form of Severance Agreement
10.3 Supplemental Retirement Income Agreement with Richard P. Chapman, Jr.
10.4 Supplemental Retirement Income Agreement with Susan M. Ginns
10.5 Supplemental Retirement Income Agreement with Charles H. Peck
10.6 Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of Grant Thornton LLP
23.3 Consent of Feldman Financial Advisors, Inc.
23.4 Consent of Foley, Hoag & Elliot LLP (contained in opinion filed as Exhibit
8.2)
<PAGE>
24 Power of Attorney (set forth on Signature Page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Brookline Savings Bank and Feldman Financial
Advisors, Inc.
99.2 Appraisal Report of Feldman Financial Advisors, Inc.
99.3 Information Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form
____________________________
*To be filed supplementally or by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Brookline, Massachusetts on November
17, 1997.
BROOKLINE BANCORP, INC.
By: /s/ Richard P. Chapman, Jr.
---------------------------
Richard P. Chapman, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Brookline Bancorp, Inc. (the
"Company") hereby severally constitute and appoint Richard P. Chapman, Jr. as
our true and lawful attorney and agent, to do any and all things in our names in
the capacities indicated below which said Richard P. Chapman, Jr. may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form S-1
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said Richard P. Chapman, Jr. shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Richard P. Chapman, Jr. Chairman, President, and Chief November 17, 1997
- -----------------------------
Richard P. Chapman, Jr. Executive Officer (Principal
Executive Officer)
/s/ Charles H. Peck Executive Vice President and November 17, 1997
- -----------------------------
Charles H. Peck Director
/s/ Paul R. Bechet Senior Vice President and November 17, 1997
- -----------------------------
Paul R. Bechet Chief
Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Oliver F. Ames Director November 17, 1997
- -----------------------------
Oliver F. Ames
/s/ Dennis S. Aronowitz Director November 17, 1997
- -----------------------------
Dennis S. Aronowitz
/s/ George C. Caner, Jr. Director November 17, 1997
- -----------------------------
George C. Caner, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ David C. Chapin Director November 17, 1997
- -----------------------------
David C. Chapin
/s/ William G. Coughlin Director November 17, 1997
- -----------------------------
William G. Coughlin
/s/ John L. Hall, II Director November 17, 1997
- -----------------------------
John L. Hall, II
/s/ Hollis W. Plimpton, Jr. Director November 17, 1997
- -----------------------------
Hollis W. Plimpton, Jr.
/s/ Edward D. Rowley Director November 17, 1997
- -----------------------------
Edward D. Rowley
/s/ Joseph J. Slotnik Director November 17, 1997
- -----------------------------
Joseph J. Slotnik
/s/ William V. Tripp, III Director November 17, 1997
- -----------------------------
William V. Tripp, III
/s/ Rosamond B. Vaule Director November 17, 1997
- -----------------------------
Rosamond B. Vaule
/s/ Peter O. Wilde Director November 17, 1997
- -----------------------------
Peter O. Wilde
/s/ Franklin Wyman, Jr. Director November 17, 1997
- -----------------------------
Franklin Wyman, Jr.
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on November 18, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-1
_________________________
BROOKLINE BANCORP, INC.
================================================================================
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Brookline Savings Bank and Ryan, Beck & Co.,
Inc.
1.2/*/ Form of Agency Agreement among Brookline Bancorp, Inc., Brookline Savings
Bank, and Ryan, Beck and Co., Inc.
2 Plan of Reorganization
3.1 Articles of Organization of Brookline Bancorp, Inc. (Incorporated herein
by reference to Exhibit B of the Plan of Reorganization)
3.2 Bylaws of Brookline Bancorp, Inc. (Incorporated herein by reference to
Exhibit B of the Plan of Reorganization)
3.3 Proposed Stock Charter of Brookline Savings Bank (Incorporated herein by
reference to Exhibit A of the Plan of Reorganization)
3.4 Proposed Stock Bylaws of Brookline Savings Bank (Incorporated herein by
reference to Exhibit A of the Plan of Reorganization)
4 Form of Common Stock Certificate of Brookline Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality
of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of Foley, Hoag & Elliot LLP
8.3 Letter from Feldman Financial Advisors, Inc. with respect to Subscription
Rights
10.1 Form of Employment Agreement
10.2 Form of Severance Agreement
10.3 Supplemental Retirement Income Agreement with Richard P. Chapman, Jr.
10.4 Supplemental Retirement Income Agreement with Susan M. Ginns
10.5 Supplemental Retirement Income Agreement with Charles H. Peck
10.6 Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of Grant Thornton LLP
23.3 Consent of Feldman Financial Advisors, Inc.
23.4 Consent of Foley, Hoag & Elliot LLP (contained in opinion filed as
Exhibit 8.2)
24 Power of Attorney (set forth on Signature Page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Brookline Savings Bank and Feldman Financial
Advisors, Inc.
99.2 Appraisal Report of Feldman Financial Advisors, Inc.
<PAGE>
99.3 Information Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form
______________________
/*/ To be filed supplementally or by amendment.
<PAGE>
EXHIBIT 1.1
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO APPEARS HERE]
CONFIDENTIAL
------------
July 29, 1997
Mr. Richard P. Chapman, Jr.
Chairman, President and Chief Executive Officer
Brookline Savings Bank
160 Washington Street
Brookline, MA 02147-7612
Re: Stock Conversion - Subscription Enhancement and Administrative Services
-----------------------------------------------------------------------
Dear Mr. Chapman:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and
Brookline Savings Bank, (the "Institution") in connection with the proposed
conversion of the Institution from the mutual to the capital stock form of
organization.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm has been publicly held
since 1986 and is a registered broker-dealer with the Securities and Exchange
Commission, a member of the National Association of Securities Dealers, Inc.,
Securities Industry Association and a member of the Securities Investor
Protection Corporation. Ryan, Beck's corporate finance department is one of the
largest such groups devoted solely to financial institution matters in the
country. Moreover, Ryan, Beck is one of the largest market makers in bank and
thrift stocks.
2. PLAN OF CONVERSION
The Institution proposes to convert from the mutual to the stock form of
organization (the "Conversion") pursuant to applicable regulations and form a
holding company (the "Company"). Accordingly, the Institution's Board of
Directors will adopt a plan of conversion (the "Plan") and, if necessary,
convene a meeting of the Institution's corporators and/or depositors as soon as
practicable to obtain approval of the Plan in accordance with applicable federal
and state regulations. The Institution's Plan contemplates a Subscription and
Community Offering (the "Offerings").
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 2
In connection with the Institution's Conversion, Ryan, Beck proposes to act as
selling agent, financial advisor, and conversion manager to the Institution with
respect to the Conversion and the offering of the shares of common stock of the
Company (the "Common Stock") in the Offerings. Specific terms of the services
contemplated hereunder shall be set forth in a definitive agency agreement (the
"Definitive Agreement") between Ryan, Beck and the Institution to be executed on
the date the offering document is declared effective by the appropriate
regulatory authorities. The purchase price of the Common Stock offered in the
Offerings will be that price which is established by an independent appraisal in
accordance with applicable regulations and mutually acceptable to the parties
hereto.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful
-----------------
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offerings including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show script
advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
--------------------------------------------------------
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and NASD is essential. Ryan, Beck's
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 3
experience in managing many thrift conversions will minimize the burden on
your management and disruption to normal banking business. At the same
time, our legal, accounting and regulatory background ensures that details
are attended to in a professional fashion. A conversion requires accurate
and timely record keeping and reporting. Furthermore, customer inquiries
must be handled professionally and accurately. The Conversion Center
centralizes all data and work effort relating to the conversion.
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the on-site Conversion Center, the focal
point of conversion activity;
- Administer the Conversion Center;
- Prepare procedures for processing proxies, stock orders and cash, and for
handling requests for information;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with proxy and
order processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Organize and implement a proxy solicitation campaign;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the pro-
ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
-----------------------------
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 4
designed to attract a stockholder base comprised largely of community
oriented individuals loyal to the Institution.
Our specific actions include:
- Assign licensed registered representatives from our staff to work at the
Conversion Center to solicit orders on behalf of the Institution from
eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the conversion and investment
opportunity;
- Organize, coordinate and participate in community informational meetings.
These meetings are intended to both relieve customer anxiety and attract
potential investors. The meetings generate widespread publicity for the
conversion while providing local exposure of the Institution and
promoting favorable stockholder relations;
- Supervise and conduct a telemarketing campaign to identify prospects from
among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the offering; and
- If appropriate, assemble a selling group of selected local broker-dealers
to assist in selling stock during the offering. In so doing, prepare
broker "fact sheets" and arrange "road shows" for the purpose of
stimulating local interest in the stock and informing the brokerage
community of the particulars of the offering.
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck a total
inclusive Advisory and Marketing fee of $1,000,000.
In the event of an undersubscription, Ryan, Beck will form a selling group
of NASD member firms (including Ryan, Beck) under a selected dealers'
agreement (the "Selling Group"). The Institution will pay a fee equal to
five and one-half percent (5.5%) of the aggregate amount of stock sold
pursuant to such selected dealer agreements . Ryan, Beck will not commence
sales of the stock through members of the Selling Group without prior
approval of the Institution.
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 5
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$25,000 upon execution of this letter which will be applied to any fees due
hereunder, including fees payable pursuant to subparagraph (b) below. If,
pursuant to a resolicitation undertaken by the Institution, Ryan, Beck is
required to provide significant additional services, the parties shall
mutually agree to the dollar amount of the additional compensation due (if
any).
b. Ryan, Beck shall not be entitled to the fees set forth in subparagraph (a)
above if: (i) the Plan is abandoned or terminated by the Institution; (ii)
the Offerings are not consummated by June 30, 1998; (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
June 30, 1997; (iv) immediately prior to commencement of the Offerings,
Ryan, Beck terminates this relationship because the Institution has failed
to satisfactorily disclose all relevant information in the disclosure
documents or Ryan, Beck determines that market conditions exist which might
render the sale of the shares by the Institution hereby contemplated
inadvisable; or (v) the Institution terminates this relationship because, in
its reasonable judgement, it determines that an event has occurred, which
materially and adversely impacts the ability of Ryan, Beck to perform its
obligations hereunder. If any of the events in items (i) through (v) above
occurs, Ryan, Beck shall be entitled to receive a fee of $25,000 for its
advisory and administrative services, in addition to reimbursement of its
reasonable out-of-pocket expenses as set forth in paragraph 7; below;
provided, however, if (i) the Institution abandons or terminates the
offering of the Common Stock prior to filing the regulatory application for
conversion, Ryan, Beck shall not be entitled to receive for its advisory and
administrative services a fee of $25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare a prospectus and any other necessary disclosure documents relating
to the offering of the Common Stock in conformance with applicable rules and
regulations. As the Institution's financial advisor, Ryan, Beck, will, in
conjunction with counsel, conduct an examination
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 6
of the relevant documents and records of the Institution and will make such
other reasonable investigation as deemed necessary and appropriate under the
circumstances. The Institution agrees to make all such documents, records and
other information deemed necessary by Ryan, Beck, or its counsel, available to
them upon reasonable request. Ryan, Beck's counsel will prepare, subject to the
approval of the Institution's counsel, the Definitive Agreement. Ryan, Beck's
counsel shall be selected by Ryan, Beck, subject to the approval of the
Institution which will not unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $1,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $55,000 in legal
fees, and $15,000 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. We will provide you with a detailed
accounting of all reimbursable expenses to be paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 7
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of one year following the completion of the Conversion, advisory
services through the Ryan, Beck Strategic Advisory Services ("STARS") program.
If the Institution elects to avail itself of the STARS program, Ryan, Beck will
meet with the Institution at its request. Ryan, Beck also will provide opinions
and recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan, Beck's normal fee
schedule, and does not include retention of Ryan, Beck by the
Institution for any specific merger/acquisition situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for the STARS program for the first
year. The Institution also will reimburse Ryan, Beck's reasonable out-of-pocket
expenses incurred in conjunction with the performance of these services. Such
out-of-pocket expenses shall include travel (coach class only), legal and other
miscellaneous expenses. Ryan, Beck will not incur any single expense in excess
of $1,000 pursuant to this paragraph without the prior approval of the
Institution.
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 8
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to attorneys' fees, arising solely out of
the engagement described herein, except that such indemnification shall not
apply to Ryan, Beck's own bad faith, willful misconduct or gross negligence.
11. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Boston, MA before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall otherwise be conducted in
accordance with the rules then obtaining of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non-jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment
upon any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
12. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 9
participation as contemplated herein in the Conversion. Ryan, Beck is and will
remain through completion of the Conversion a member in a good standing of the
NASD and will comply with all applicable NASD requirements.
13. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the financial
condition or operations of the Institution: (ii) satisfactory disclosure of
all relevant information in the disclosure documents and a determination
that the sale of stock is reasonable given such disclosures; (iii) no
market conditions which might render the sale of the shares by the
Institution hereby contemplated inadvisable; and (iv) agreement that the
price established by the independent appraiser is reasonable in the then
prevailing market conditions.
<PAGE>
Brookline Savings Bank
July 29, 1997
Page 10
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
BY: /s/ Ben A. Plotkin
-------------------------------------------
Ben A. Plotkin
President and Chief Executive Officer
Accepted and Agreed to This 31st Day of July, 1997
BROOKLINE SAVINGS BANK
BY: /s/ Richard P. Chapman, Jr.
------------------------------------------------
RICHARD P. CHAPMAN, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 2
<PAGE>
BROOKLINE SAVINGS BANK
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Introduction - Business Purpose..................................................... 1
2. Definitions......................................................................... 2
3. The Reorganization.................................................................. 7
4. Conditions to Implementation of the Reorganization.................................. 10
5. Special Meeting of Corporators and Vote Required to Approve the Plan................ 11
6. Charters and Bylaws................................................................. 11
7. Liquidation and Voting Rights....................................................... 11
8. Conversion of MHC to a Federal MHC.................................................. 12
9. Conversion of MHC to Stock Form..................................................... 12
10. Timing of the Reorganization and Sale of Capital Stock.............................. 13
11. Number of Shares to be Offered...................................................... 13
12. Independent Valuation and Purchase Price of Shares.................................. 14
13. Method of Offering Shares and Rights to Purchase Stock.............................. 15
14. Additional Limitations on Purchases of Common Stock................................. 18
15. Payment for Stock................................................................... 20
16. Manner of Exercising Subscription Rights Through Order Forms........................ 21
17. Undelivered, Defective or Late Order Form; Insufficient Payment..................... 22
18. Completion of the Stock Offering.................................................... 22
19. Market for Common Stock............................................................. 23
20. Stock Purchases by Management Persons After the Stock Offering...................... 23
21. Resales of Stock by Management Persons.............................................. 23
22. Stock Certificates.................................................................. 23
23. Restriction on Financing Stock Purchases............................................ 23
24. Stock Benefit Plans................................................................. 23
25. Post-Reorganization Filing and Market Making........................................ 24
26. Liquidation Account................................................................. 24
27. Employment and Other Severance Agreements........................................... 26
28. Payment of Dividends and Repurchase of Stock........................................ 26
29. Reorganization and Stock Offering Expenses.......................................... 26
30. Interpretation...................................................................... 26
31. Amendment or Termination of the Plan................................................ 26
</TABLE>
Exhibits
- --------
Exhibit A Charter and Bylaws of the Bank
Exhibit B Articles of Organization and Bylaws of the Holding Company
Exhibit C Charter and Bylaws of the Mutual Holding Company
<PAGE>
1. INTRODUCTION - BUSINESS PURPOSE
The Board of Trustees of Brookline Savings Bank (the "Bank") has adopted
this Plan of Reorganization From a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank proposes
to reorganize from a state-chartered mutual savings bank into the mutual holding
company structure (the "Reorganization") under the laws of the Commonwealth of
Massachusetts and the regulations of the Division of Banks of the Commonwealth
of Massachusetts (the "Division") and the Federal Deposit Insurance Corporation
("FDIC"), and other applicable federal laws and regulations. As part of the
Reorganization and the Plan, the Bank will establish (i) a Massachusetts-
chartered stock savings bank (the "Stock Bank") that will succeed to all of the
rights and obligations of the Bank as set forth in the Plan; (ii) a
Massachusetts-chartered mutual holding company (the "MHC"), and (iii) a mid-tier
stock holding company (the "Holding Company"). The Holding Company will be a
majority-owned subsidiary of the MHC at all times so long as the MHC remains in
existence, and the Massachusetts-chartered stock savings bank resulting from the
Reorganization (the Stock Bank) will become a wholly-owned subsidiary of the
Holding Company. Concurrently with the Reorganization, the Holding Company
intends to offer for sale up to 49% of its Common Stock in the Stock Offering on
a priority basis to qualifying depositors, Tax-Qualified Employee Plans of the
Bank, and employees, officers and trustees of the Bank, with any remaining
shares offered to the public in a Direct Community Offering. In the event the
Holding Company is not established as part of the Reorganization, the Board of
Trustees may elect to proceed with the Reorganization by forming the Stock Bank
as a direct majority-owned subsidiary of the MHC. In such event, any reference
in the Plan to a Stock Offering by the Holding Company shall mean a stock
offering by the Stock Bank directly, and the terms and conditions of the Stock
Offering described herein shall apply to a stock offering by the Stock Bank.
The primary purpose of the Reorganization is to establish a holding company
and to convert the Bank to the stock form of ownership, which will enable the
Bank to compete and expand more effectively in the financial services
marketplace. The Reorganization will permit the Holding Company to issue
Capital Stock, which is a source of capital not available to mutual savings
banks. Since the Holding Company will not be offering all of its common stock
for sale to depositors and the public in the Stock Offering, the Reorganization
will result in less capital raised in comparison to a standard mutual-to-stock
conversion. The Reorganization, however, will also offer the Bank the
opportunity to raise additional capital since a majority of the Holding
Company's common stock will be available for sale in the future, subject to
regulatory approval. It will also provide the Bank with greater flexibility to
structure and finance the expansion of its operations, including the potential
acquisition of other financial institutions. Lastly, the Reorganization will
enable the Bank to better manage its capital by providing broader investment
opportunities through the holding company structure, and by enabling the Bank to
distribute capital to stockholders of the Holding Company in the form of
dividends. Although the Reorganization and Stock Offering will create a stock
savings bank and stock holding company, only a minority of the Common Stock will
be offered for sale in the Stock Offering. As a result, the Bank's mutual form
of ownership and its ability to remain an independent savings bank and to
provide community-oriented financial services will be preserved through the
mutual holding company structure. The Reorganization, and certain transactions
incidental to the Reorganization, are subject to the approval of the Division,
the Board of Bank Incorporation (the "BBI"), the Board of Governors of the
Federal Reserve System (the "FRB") and the FDIC, and must be approved by the
affirmative vote of at least (i) a majority of the Bank's corporators, and (ii)
a majority of the Bank's Independent Corporators (who must constitute not less
than 60% of all corporators) at an annual meeting or a special meeting called
for such purpose. By approving the Plan, the corporators will also be approving
all steps necessary and incidental to the formation of the Stock Bank, the
Holding Company, and the MHC, including any merger necessary to consummate the
Reorganization.
<PAGE>
Sections 1 through 9 and Sections 30 and 31 of this Plan shall constitute
the Brookline Savings Bank Plan of Reorganization from a Mutual Savings Bank to
a Mutual Holding Company (the "Reorganization Plan"). Section 2 and Sections 10
through 31 of this Plan shall constitute the Brookline Savings Bank Stock
Issuance Plan (the "Stock Issuance Plan"). The Reorganization Plan and Stock
Issuance Plan may be presented separately to the Division and the Corporators
for their respective review and approval.
2. DEFINITIONS
As used in the Plan, the terms set forth below have the following meanings:
ACTING IN CONCERT: The term "acting in concert" means (a) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal, whether or not pursuant to an express agreement; or (b)
persons seeking to combine or pool their voting or other interests in the
securities of an issuer for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. When persons act together for such purpose, their group is deemed to
have acquired their stock. The determination of whether a group is acting in
concert shall be made solely by the Board of Trustees of the Bank or officers
delegated by such Board and may be based on any evidence upon which the Board or
such delegatee chooses to rely, including, without limitation, joint account
relationships or the fact that such Persons have filed joint Schedules 13D with
the SEC with respect to other companies.
ACTUAL SUBSCRIPTION PRICE: The price per share, determined as provided in
the Plan, at which the Common Stock will be sold in the Subscription Offering.
AFFILIATE: An "affiliate" of, or a person "affiliated" with, a specified
person, is a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
person specified.
APPLICATION: The application, including a copy of the Plan, submitted by
the Bank to the Commissioner for approval of the Reorganization and Stock
Offering.
ASSOCIATE: The term "Associate," when used to indicate a relationship with
any Person, means: (i) any corporation or organization (other than the Bank, the
Holding Company, the MHC or a majority-owned subsidiary of any thereof) of which
such Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a similar fiduciary capacity;
(iii) any relative or spouse of such Person or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the Bank,
the MHC, the Stock Holding Company or any subsidiary of the MHC or the Holding
Company or any affiliate thereof; and (iv) any person Acting in Concert with any
of the persons or entities specified in clauses (i) through (iii) above;
provided, however, that any Tax-Qualified or Non-Tax-Qualified Employee Plan
shall not be deemed to be an associate of any director, trustee or officer of
the MHC, the Holding Company or the Bank, to the extent provided in Sections 12-
14. When used to refer to a Person other than an officer or director of the
Bank, the Bank in its sole discretion may determine the Persons that are
Associates of other Persons.
2
<PAGE>
BANK: Brookline Savings Bank in its pre-Reorganization mutual form.
BBI: The Board of Bank Incorporation.
BHCA: The Bank Holding Company Act of 1956, as amended.
BIF: The Bank Insurance Fund.
BMA: The Bank Merger Act.
CAPITAL STOCK: Any and all authorized stock of the Bank or the Holding
Company.
COMMISSIONER: The Office of the Commissioner of Banks of the Commonwealth
of Massachusetts.
COMMUNITY: The Town of Brookline, the City of Newton and the contiguous
Boston neighborhoods of Allston and Brighton, and certain abutting census tracts
of the Fenway, Jamaica Plain, Mission Hill and West Roxbury.
COMMUNITY OFFERING: The offering to certain members of the general public
of any unsubscribed shares in the Subscription Offering which may be effected
pursuant to the Plan. The Community Offering may include a Syndicated Community
Offering.
COMMON STOCK: The Common Stock to be issued by the Holding Company to the
MHC and to the public in the Stock Offering in connection with the
Reorganization and Stock Offering.
CORPORATOR: A member of the Bank's Board of Incorporation.
DEPOSIT ACCOUNT(S): Any withdrawable deposit(s) offered by the Bank,
including NOW account deposits, certificates of deposit, demand deposits and IRA
accounts and Keogh plans for which the Bank acts as custodian or trustee.
DIVISION: The Division of Banks of the Commonwealth of Massachusetts.
EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to consummate the Reorganization, and the transfer of assets and
liabilities of the Bank to the Stock Bank is completed.
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on the
Eligibility Record Date.
ELIGIBILITY RECORD DATE: September 30, 1996, the date for determining who
qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
ESTIMATED VALUATION RANGE: The range of the estimated pro forma market
value of the total number of shares of Common Stock, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
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EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
HOLDING COMPANY: Brookline Bancorp, Inc., the intermediate holding company
that will be a Massachusetts corporation which will be majority-owned by the MHC
and which will own 100% of the common stock of the Bank.
HOLDING COMPANY APPLICATION: The holding company application to be
submitted by the MHC and the Holding Company to the FRB to have the MHC and the
Holding Company acquire direct and indirect control of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to prepare an
appraisal of the pro forma market value of the Bank and the Holding Company.
INDEPENDENT CORPORATOR: A Corporator who is not an employee, officer,
trustee or "significant borrower" of the Bank.
INDEPENDENT VALUATION: The estimated pro forma market value of the Holding
Company and the Bank as determined by the Independent Appraiser.
LIQUIDATION ACCOUNT: The liquidation account established pursuant to the
Plan.
MANAGEMENT PERSON: Any officer, trustee or Corporator of the Bank, the
Holding Company or the MHC.
MARKETING AGENT: The broker-dealer responsible for organizing and managing
the Stock Offering and sale of the Common Stock.
MARKET MAKER: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
MHC: Brookline Bancorp, MHC, the mutual holding company resulting from the
Reorganization.
MINORITY OWNERSHIP INTEREST: The shares of the Holding Company's Common
Stock owned by persons other than the MHC.
MINORITY STOCKHOLDER: Any owner of the Holding Company's Common Stock,
other than the MHC.
MINORITY STOCK OFFERING: One or more offerings of up to 49% in the
aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
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NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
NOTICE: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the FDIC and the Division to notify the FDIC and the
Division of the Reorganization and the Stock Offering.
OFFERING RANGE: The aggregate purchase price of the Common Stock to be sold
in the Stock Offering based on the Independent Valuation expressed as a range
which may vary within 15% above or 15% below the midpoint of such range, with a
possible adjustment by up to 15% above the maximum of such range. The Offering
Range will be based on the Estimated Valuation Range, but will represent a
Minority Ownership Interest equal to up to 49% of the Common Stock.
OFFICER: The Chairman of the Board, the President, any officer of the
level of vice president or above, the Clerk and the Treasurer of the Bank.
PERSON: An individual, corporation, partnership, association, joint-stock
company, trust (including Individual Retirement Accounts and KEOGH Accounts),
unincorporated organization, government entity or political subdivision thereof
or any other entity.
PLAN: This Plan of Reorganization from Mutual Savings Bank to Mutual
Holding Company and Stock Issuance Plan.
QUALIFYING DEPOSIT: The aggregate balances of all Deposit Accounts of an
Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date, as the case may be, provided such
aggregate balance is not less than $50.
REGULATIONS: The regulations of the Division regarding mutual holding
companies and conversion to stock form.
REORGANIZATION: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Holding Company and
the Stock Bank pursuant to the Plan.
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Corporators called for the purpose
of voting on the Plan.
STOCK BANK: The Massachusetts chartered stock savings bank resulting from
the Reorganization in accordance with the Plan.
STOCK ISSUANCE PLAN: The portion of this Plan relating to the Stock
Offering including Section 2 and Sections 10 through 31 of this Plan.
STOCK OFFERING: The offering of Common Stock of the Holding Company to
persons other than the MHC, in a Subscription Offering and, to the extent shares
remain available, in a Community Offering and Syndicated Community Offering.
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SUBSCRIPTION OFFERING: The offering of Common Stock of the Holding Company
for subscription and purchase pursuant to the Plan.
SUBSIDIARY: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder or a Tax-Qualified Employee Plan of the Bank, or an officer,
director, trustee or Corporator of the Bank, or any associate thereof.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The supplemental record date for
determining who qualifies as a Supplemental Eligible Account Holder. The
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding the Commissioner's approval of the Reorganization.
SYNDICATED COMMUNITY OFFERING: At the discretion of the Bank and the
Holding Company, the offering of Common Stock following or contemporaneously
with the Community Offering through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or defined
contribution plan (including the ESOP, any stock bonus plan, profit-sharing
plan, or other plan) of the Bank, the Holding Company, the MHC or any of their
affiliates, which, with its related trusts, meets the requirements to be
qualified under Section 401 of the Internal Revenue Code. The term Non-Tax-
Qualified Employee Benefit Plan means any defined benefit plan or defined
contribution plan which is not so qualified.
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder:
(i) To vote for or to select directors of the Bank or the Holding
Company; and
(ii) To vote on or to direct the conduct of the operations or other
significant policies of the Bank or the Holding Company.
(2) Notwithstanding anything in paragraph (1) above, preferred stock is
not "Voting Stock" if:
(i) Voting rights associated with the preferred stock are limited
solely to the type customarily provided by statute with regard to
matters that would significantly and adversely affect the rights
or preferences of the preferred stock, such as the issuance of
additional amounts or classes of senior securities, the
modification of the terms of the preferred stock, the dissolution
of the Bank or the Holding Company, or the payment of dividends
by the Bank or the Holding Company when preferred dividends are
in arrears;
(ii) The preferred stock represents an essentially passive investment
or financing device and does not otherwise provide the holder
with control over the issuer; and
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(iii) The preferred stock does not at the time entitle the holder, by
statute, charter, or otherwise, to select or to vote for the
selection of directors of the Bank or the Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock
at the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization, the Bank will establish the Holding Company
as a Massachusetts corporation and the MHC as a Massachusetts corporation. The
Reorganization will be effected as follows, or in any other manner approved by
the Commissioner that is consistent with the purposes of the Plan and applicable
laws and regulations.
(i) The Bank will cause to be organized a Massachusetts chartered de novo
mutual savings bank (the "De Novo Bank");
(ii) The De Novo Bank will reorganize into the MHC and will form a de novo
stock savings bank subsidiary (the Stock Bank), and all of the assets
and liabilities of the De Novo Bank will be transferred to the Stock
Bank;
(iii) The Bank will merge with and into the Stock Bank with the Stock Bank
as the resulting entity;
(iv) The MHC will organize the Holding Company as a separate wholly-owned
subsidiary of the MHC;
(v) The MHC will contribute all of the shares of common stock of the
Stock Bank to the Holding Company, which will result in the MHC
owning 100% of the Common Stock of the Holding Company and the
Holding Company owning 100% of the common stock of the Stock Bank;
and
(vi) The Holding Company will offer to sell up to 49.0% of its Common
Stock in the Subscription Offering and, if applicable, the Community
Offering.
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Contemporaneously with the Reorganization, the Holding Company will offer
for sale in the Stock Offering shares of Common Stock representing up to 49.0%
of the pro forma market value of the Holding Company and the Bank. Such shares
will not be covered by deposit insurance. Upon consummation of the
Reorganization, the legal existence of the Bank will not terminate, but the
Stock Bank will be a continuation of the Bank, and all property of the Bank,
including its right, title, and interest in and to all property of whatsoever
kind and nature, interest and asset of every conceivable value or benefit then
existing or pertaining to the Bank, or which would inure to the Bank immediately
by operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in the Stock Bank. The Stock Bank
will have, hold, and enjoy the same in its right and fully and to the same
extent as the same was possessed, held, and enjoyed by the Bank. The Stock Bank
will continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank and will maintain its headquarters and
operations at the Bank's present locations. The Holding Company expects to
retain up to 50% of the net proceeds of the Stock Offering. The Stock Bank may
distribute additional capital to the Holding Company following the
Reorganization, subject to the applicable regulations governing capital
distributions.
Upon completion of the Reorganization and Stock Offering, the MHC, the
Holding Company and the Stock Bank will be structured as follows:
------------------- ---------------------
The MHC Public
Stockholders
------------------- ---------------------
53% of 47% of
the the
Common Common
Stock Stock
---------------------------------------------------
The Holding Company
---------------------------------------------------
100% of the
Common Stock
---------------------------------------------------
The Stock Bank
---------------------------------------------------
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Each deposit account in the Bank upon consummation of the Reorganization
will become a deposit account in the Stock Bank in the same amount and on the
same terms and conditions, and such deposit account will continue to be insured
by the FDIC and the Depositors Insurance Fund in the same manner, as the deposit
account existed in the Bank immediately prior to the Reorganization. Upon
consummation of the Reorganization, all loans and other borrowings from the Bank
shall retain the same status with the Stock Bank after the Reorganization as
they had with the Bank immediately prior to the Reorganization.
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C. THE BANK
Upon completion of the Reorganization, the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, stock savings banks under Massachusetts law. A
copy of the proposed Charter and Bylaws of the Stock Bank is attached hereto as
Exhibit A and is made a part of the Plan. The Reorganization will not result in
any reduction of the amount of retained earnings (other than the assets of the
Bank that are transferred to other capital stock accounts or retained by or
distributed to the Holding Company or the Mutual Holding Company), undivided
profits, and general loss reserves that the Bank had prior to the
Reorganization. Such retained earnings and general loss reserves will be
accounted for by the Holding Company and the Stock Bank on a consolidated basis
in accordance with generally accepted accounting principles.
The initial members of the Board of Directors of the Stock Bank will
consist of the eight persons who are the current members of the existing Board
of Investment and Auditing Committee of the Bank. The Stock Bank will be
wholly-owned by the Holding Company and the Holding Company, as the sole holder
of the outstanding Capital Stock of the Stock Bank, shall have exclusive voting
rights in the Stock Bank. The Holding Company will be wholly-owned by its
stockholders who will consist of the MHC and the persons who purchase Common
Stock in the Stock Offering and any subsequent Minority Stock Offering. Upon the
Effective Date, any liquidation rights of depositors of the Bank under
Massachusetts law will be transferred to the MHC and/or the Stock Bank and the
Holding Company, subject to the conditions specified below.
D. THE HOLDING COMPANY
The Holding Company will be chartered as a Massachusetts corporation and
will be authorized to exercise any and all powers, rights and privileges, and
will be subject to all limitations applicable to bank holding companies under
applicable federal and Massachusetts laws and regulations. The initial members
of the Board of Directors of the Holding Company will be the members of the
existing Board of Trustees of the Bank. Thereafter, the voting stockholders of
the Holding Company will elect annually approximately one-third of the Holding
Company's directors. A copy of the Certificate of Incorporation and Bylaws of
the Holding Company is attached as Exhibit B and is made part of this Plan.
The Holding Company will have the power to issue shares of Capital Stock to
persons other than the MHC. However, so long as the MHC is in existence, the
MHC will be required to own at least a majority of the Voting Stock of the
Holding Company. The Holding Company may issue any amount of Non-Voting Stock
to persons other than the MHC. The Holding Company will be authorized to
undertake one or more Minority Stock Offerings of up to 49.0% in the aggregate
of the total outstanding Common Stock of the Holding Company, and the Holding
Company intends to offer for sale up to 49.0% of its Common Stock in the Stock
Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. The trustees
of the MHC will have exclusive voting authority as to all matters relating to
the MHC except as otherwise provided to Corporators of the MHC under its
chartering instruments and other applicable law. The initial members of the
Board of Trustees of the MHC will consist of all of the existing members of the
Board of Trustees of the Bank. Thereafter, approximately one-third of the
trustees of the MHC will be elected annually by the Corporators
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of the MHC. The initial members of the Corporators of the MHC will consist of
all of the existing Corporators of the Bank. Thereafter, Corporators of the MHC
will be appointed pursuant to the chartering instruments of the MHC and
applicable law.
Any liquidation rights of depositors that existed under Massachusetts law
prior to the Reorganization shall continue in the MHC following the
Reorganization. The rights and powers of the MHC will be defined by the MHC's
Charter and Bylaws (a copy of which is attached to the Plan as Exhibit C and
made a part of the Plan) and by applicable statutory and regulatory provisions
of Massachusetts and federal law. The MHC may elect to be regulated by the
Office of Thrift Supervision as a savings and loan holding company, in which
case it would be subject to the limitations and restrictions imposed on savings
and loan holding companies by Section 10(o)(5) of the Home Owners' Loan Act.
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon prior
occurrence of the following:
A. Approval of the Plan by the affirmative vote of a majority of the
Board of Trustees of the Bank.
B. Approval of the Plan by the affirmative vote of a majority of the
Corporators at a regular or special meeting of such Corporators, and
by the affirmative vote of a majority of Independent Corporators (who
shall constitute not less than 60% of all Corporators).
C. Approval by the Commissioner of the Application, including the Plan,
the charter and bylaws of the Stock Bank and the MHC, and all other
transactions contemplated by the Plan for which approval is required
by the Commissioner; and approval by the BBI of the charter of the De
Novo Bank and the Stock Bank.
D. Submission of the Notice to the FDIC and the Bank either (i) receives
a notice of intent not to object from the FDIC, or (ii) 60 days
(subject to extension for an additional 60 days) have passed following
the acceptance of a complete FDIC Notice by the FDIC.
E. Approval by the FRB pursuant to the BHCA for the MHC and the Holding
Company to become bank holding companies by owning or acquiring,
directly or indirectly, the majority of the Stock Bank's common stock
to be issued in connection with the Reorganization.
F. Approval by the FDIC pursuant to the BMA of the transfer of assets and
liabilities of the MHC to the Stock Bank and the merger of the Bank
into the Stock Bank in connection with the Reorganization.
G. Receipt by the Bank of either a private letter ruling from the
Internal Revenue Service or an opinion of the Bank's counsel as to the
federal income tax consequences of the Reorganization to the MHC, the
Stock Bank and the Bank.
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H. Receipt by the Bank of either a private letter ruling of the
Massachusetts Department of Revenue or an opinion of counsel or the
Bank's independent public accountants as to the Massachusetts income
tax consequences of the Reorganization to the MHC, the Stock Bank and
the Bank.
5. SPECIAL MEETING OF CORPORATORS AND VOTE REQUIRED TO APPROVE THE PLAN
Subsequent to the approval of the Plan by the Commissioner, the Special
Meeting shall be scheduled in accordance with the Bank's Bylaws. Promptly after
receipt of all regulatory approvals necessary to distribute the Information
Statement, the Bank shall distribute the Information Statement to all
Corporators. A copy of the Plan will be provided to all Corporators. Pursuant
to the Regulations, an affirmative vote of at least (i) a majority of the Bank's
total Corporators, and (ii) a majority of the Bank's Independent Corporators
(who shall constitute not less than 60% of all Corporators) voting at the
Special Meeting shall be required for approval of the Plan.
6. CHARTERS AND BYLAWS
Copies of the proposed Charter and Bylaws of the Stock Bank, the proposed
Articles of Organization and Bylaws of the Holding Company and the proposed
Charter and Bylaws of the MHC are attached hereto as Exhibits A, B and C,
respectively, and are made a part of this Plan. By their approval of this Plan,
the Corporators shall have approved and adopted the Charter and Bylaws of the
Bank, the Holding Company and the MHC.
The total shares of Common Stock authorized under the Holding Company's
Articles of Organization will exceed the shares of Common Stock to be issued to
the MHC and the Minority Stockholders in the Reorganization. In addition, the
Articles of Organization of the Holding Company will contain provisions that
prohibit persons other than the Board of Directors of the Holding Company or
committees of the Board of Directors of the Holding Company from calling special
meetings of the stockholders of the Holding Company and require a supermajority
vote by stockholders to call a special meeting of stockholders.
7. LIQUIDATION AND VOTING RIGHTS
Following the Reorganization, each Eligible Account Holder and each
Supplemental Eligible Account Holder will have an interest in the Liquidation
Account established pursuant to the Plan so long as such person remains a
depositor of the Stock Bank after the Reorganization. In addition, following
the Reorganization, all depositors who had liquidation rights with respect to
the Bank as of the date of the Reorganization will continue to have such rights
solely with respect to the MHC for so long as they remain depositors of the
Stock Bank. In addition, all persons who become depositors of the Stock Bank
subsequent to the Reorganization also will have liquidation rights with respect
to the MHC. In each case, no person who ceases to be the holder of a Deposit
Account with the Bank after the Reorganization shall have any liquidation rights
with respect to the MHC. The MHC shall liquidate under M.G.L. c.167H, upon the
sale or acquisition of the Holding Company or the Stock Bank to a bank holding
company or savings and loan holding company which is not a mutual holding
company, or upon the sale of the Stock Bank to a banking or thrift institution
that is not a subsidiary of a mutual holding company.
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<PAGE>
8. CONVERSION OF MHC TO A FEDERAL MHC
Upon completion of the Reorganization, the MHC will be chartered under
Massachusetts law. The MHC, however, may elect to convert its charter to a
federal mutual holding company charter in the future, in which case the MHC
would be regulated by the Office of Thrift Supervision ("OTS") or any successor
thereto. Such a charter conversion shall be subject to the approval of the
Board of Trustees, the Corporators of the MHC, the OTS and applicable
Massachusetts regulatory authority.
9. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with M.G.L.c.167H, (S)9, the Massachusetts
conversion regulations set forth at 209 CMR Sections 33.01 et seq., and
-- ---
applicable federal laws and regulations (a "Conversion Transaction"). In the
event that the MHC is chartered under federal law at the time of a Conversion
Transaction, the Conversion Transaction shall be consummated pursuant to
applicable regulations of the OTS or any successor thereto. There can be no
assurance when, if ever, a Conversion Transaction will occur, and the Board of
Trustees has no intent or plan to undertake a Conversion Transaction at this
time. If the Conversion Transaction does not occur, the MHC will always own a
majority of the Common Stock of the Holding Company.
In a Conversion Transaction, the MHC would merge with and into the Stock
Bank or the Holding Company at the discretion of the MHC, and qualifying
depositors of the Stock Bank would receive the right to subscribe for a number
of shares of common stock of the Holding Company, as determined by the formula
set forth in the paragraphs below. The additional shares of Common Stock of the
Holding Company issued in the Conversion Transaction would be sold at their
aggregate pro forma market value as determined by an Independent Appraisal.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any, will
be entitled without additional consideration to maintain the same percentage
ownership interest in the Holding Company after the Conversion Transaction as
their ownership interest in the Holding Company immediately prior to the
Conversion Transaction (i.e., the Minority Ownership Interest), subject only to
the following adjustments (if required by federal law, regulation, or regulatory
policy) to reflect: (i) the cumulative effect of the aggregate amount of
dividends waived by the MHC; and (ii) the market value of assets of the MHC
(other than common stock of the Holding Company).
The adjustment referred to in clause (i) of the immediately preceding
paragraph above would require that the Minority Ownership Interest be adjusted
by multiplying the Minority Ownership Interest by the following fraction:
(Holding Company stockholders' equity immediately preceding the Conversion
--------------------------------------------------------------------------
Transaction) - (aggregate amount of dividends waived by MHC)
------------------------------------------------------------
Holding Company stockholders' equity immediately preceding the Conversion
Transaction
The adjustment referred to in clause (ii) above would further adjust the
Minority Ownership Interest by multiplying the result obtained in the preceding
paragraph by the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC
----------------------------------------------------------------------------
other than Holding Company common stock)
----------------------------------------
pro forma market value of Holding Company
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<PAGE>
At the sole discretion of the Board of Trustees of the MHC and the Board of
Directors of the Holding Company, a Conversion Transaction may be effected in
any other manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders as set forth in the preceding paragraphs. If a Conversion
Transaction does not occur, the MHC will always own a majority of the Voting
Stock of the Holding Company.
A Conversion Transaction would require the approval of applicable bank
regulators, and would be presented to a vote of the Corporators of the MHC and
the stockholders of the Holding Company as of a voting record date prior to the
completion of the Conversion Transaction. Federal and state regulatory policy
requires that in any Conversion Transaction the depositors of the Stock Bank
will be accorded the same stock purchase priorities as if the MHC were a mutual
savings bank converting to stock form.
10. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
The Holding Company may commence the Stock Offering concurrently with or at any
time after the mailing of an information statement or proxy materials to the
Corporators. The Holding Company may close the Stock Offering before the
Special Meeting, provided that the offer and sale of the Common Stock shall be
conditioned upon approval of the Plan by the Corporators at the Special Meeting.
The Stock Offering shall be conducted in compliance with the securities offering
regulations of the FDIC, the SEC and the Division. The Bank will not finance or
loan funds to any person to purchase Common Stock.
11. NUMBER OF SHARES TO BE OFFERED
The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Plan shall be determined initially by the
Board of Trustees of the Bank and the Board of Directors of the Holding Company
in conjunction with the determination of the Independent Appraiser. The number
of shares to be offered may be adjusted prior to completion of the Stock
Offering. The total number of shares of Common Stock that may be issued to
persons other than the MHC at the close of the Stock Offering must be no greater
than 49.0% of the issued and outstanding shares of Common Stock of the Holding
Company.
12. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
The total number of shares (and a range thereof) (the "Offering Range") of
Common Stock to be issued and offered for sale in the Stock Offering will be
determined jointly by the Board of Trustees of the Bank and the Board of
Directors of the Holding Company immediately prior to the commencement of the
Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the FDIC
and the Division, if necessary. In particular, the total number of shares may
be increased by up to 15% of the number of shares offered in the Subscription
and Community Offerings if the Estimated Valuation Range is increased subsequent
to the commencement of the Subscription and Community Offerings to reflect
changes in market and financial conditions and the aggregate purchase price is
not more than 15% above the maximum of the Estimated Valuation Range.
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All shares sold in the Stock Offering will be sold at a uniform price per
share referred to in this Plan as the Actual Subscription Price. The aggregate
purchase price for all shares of Common Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Holding Company and the
Bank. The estimated consolidated pro forma market value of the Holding Company
and the Bank will be determined for such purpose by the Independent Appraiser.
Prior to the commencement of the Subscription and Community Offerings, an
Estimated Valuation Range will be established, which range will vary within 15%
above to 15% below the midpoint of such range. The shares of Common Stock being
sold in the Stock Offering will represent a minority ownership interest in the
outstanding Common Stock of the Holding Company equal to up to 49% of the
estimated pro forma market value of the Common Stock based upon the Independent
Valuation. The percentage of Common Stock offered for sale in the Stock
Offering and the Offering Range shall be determined by the Board of Directors of
the Holding Company and the Board of Trustees of the Bank prior to commencement
of the Subscription Community Offerings, and will be confirmed upon completion
of the Stock Offering.
The number of shares of Common Stock to be issued in the Stock Offering and
the purchase price per share may be increased or decreased by the Holding
Company. In the event that the aggregate purchase price of the Common Stock is
below the minimum of the Estimated Valuation Range, or materially above the
maximum of the Estimated Valuation Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Valuation Range will not be deemed material so as to require a resolicitation.
Any such resolicitation shall be effected in such manner and within such time as
the Bank shall establish, with the approval of the FDIC and the Division, if
required. Up to a 15% increase in the number of shares to be issued which is
supported by an appropriate change in the estimated pro forma market value of
the Holding Company will not be deemed to be material so as to require a
resolicitation of subscriptions. Based upon the Independent Valuation as
updated prior to the commencement of the Subscription and Community Offerings,
the Board of Directors of the Holding Company will fix the Actual Subscription
Price. If there is a Syndicated Community Offering of shares of Common Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Common Stock is sold in such Syndicated Community Offering
shall be equal to the Actual Subscription Price.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company, the Bank and to the FDIC and the Division that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Common Stock
at the purchase price per share is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company and the
Bank. An increase in the aggregate value of the Common Stock by up to 15% would
not be deemed to be material. If such confirmation is not received, the Holding
Company may cancel the Stock Offering, extend the Stock Offering and establish a
new Actual Subscription Price and/or Estimated Valuation Range, extend, reopen
or hold a new Stock Offering or take such other action as the FDIC and the
Division may permit. The estimated market value of the Holding Company and the
Bank shall be determined for such purpose by an Independent Appraiser on the
basis of such appropriate factors as are not inconsistent with FDIC and Division
regulations. The Common Stock to be issued in the Stock Offering shall be fully
paid and nonassessable.
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13. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; and
(4) employees, officers and trustees of the Bank. Any shares of Common Stock
that are not subscribed for in the Subscription Offering at the discretion of
the Bank and the Holding Company may be offered for sale in a Direct Community
Offering, or a Syndicated Community Offering on terms and conditions and
procedures satisfactory to the Bank and the Holding Company. The minimum
purchase by any Person shall be 25 shares. The Bank may use its discretion in
determining whether prospective purchasers are "residents," "associates," or
"acting in concert", and in interpreting any and all other provisions of the
Plan. All such determinations are in the sole discretion of the Bank, and may
be based on whatever evidence the Bank chooses to use in making any such
determination.
In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the Division and the FDIC. The priorities for the purchase of
shares in the Stock Offering are as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
receive non-transferrable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to the greater of
$300,000, one-tenth of one percent (.10%) of the total shares offered in the
Stock Offering, or 15 times the product (rounded down to the nearest whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued in the Stock Offering by a fraction, of which the numerator is the
Qualifying Deposit of the Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Eligible Account Holders. If there
are insufficient shares available to satisfy all subscriptions of Eligible
Account Holders, shares will be allocated to Eligible Account Holders so as to
permit each such subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated pro rata to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each such subscriber's
Qualifying Deposit bears to the total amount of Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase Common Stock received by Officers and trustees
of the Bank including associates of Officers and trustees, based on their
increased deposits in the Bank in the one year preceding the Eligibility Record
Date, shall be subordinated to the subscription rights of other Eligible Account
Holders. To ensure proper allocation of stock, each Eligible Account Holder
must list on his subscription order form all Deposit Accounts in which he had an
ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the Tax-
Qualified Employee Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Holding Company subject to the maximum
purchase limitations applicable to such plans as set forth in Section 14, or may
be satisfied, in whole or in part, through open market purchases by the Tax-
Qualified Employee Plans subsequent to the closing of the Stock Offering.
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PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall receive non-transferable subscription rights to subscribe
for shares of Common Stock offered in the Stock Offering in an amount equal to
the greater of $300,000, one-tenth of one percent (.10%) of the total shares
offered in the Stock Offering, or 15 times the product (rounded down to the
nearest whole number) obtained by multiplying the total number of shares of
Common Stock to be issued in the Stock Offering by a fraction, of which the
numerator is the Qualifying Deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders. In the event Supplemental Eligible
Account Holders subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans,
exceed available shares, the shares of Common Stock will be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
Qualifying Deposits on the Supplemental Eligibility Record Date bear to the
total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled.
PRIORITY 4: EMPLOYEES, OFFICERS AND TRUSTEES. To the extent there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, Tax Qualified Employee Plans and Supplemental Eligible Account
Holders, each employee, officer and trustee shall receive non-transferable
subscription rights to subscribe for shares of Common Stock offered in the Stock
Offering in an amount equal to the greater of $300,000, one-tenth of one percent
(.10%) of the total shares offered in the Stock Offering, or 15 times the
product (rounded down to the nearest whole number) obtained by multiplying the
total number of shares of Common Stock to be issued in the Stock Offering by a
fraction, of which the numerator is the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of Qualifying Deposits of
all Eligible Account Holders; provided that the aggregate subscription rights
granted to employees, officers and trustees in this category shall be limited to
up to 25% of the total number of shares of Common Stock sold in the Stock
Offering. Shares purchased under this section shall be aggregated with shares
purchased under the preceding priority categories when calculating the 25%
purchase limitation applicable to purchases by such Persons. Shares purchased
under this section are also subject to purchase limitations on Management
Persons set forth in Section 14 hereof. For purposes of this paragraph, trustees
shall not be deemed to be Associates or a group Acting in Concert solely as a
result of their membership on the Board of Trustees of the Bank. In the event
that employees, officers and trustees subscribe under this section for more
shares of Common Stock than are available for purchase by them, the shares of
Common Stock available for purchase will be allocated by the Board of Trustees
among such subscribing persons on a equitable basis, such as by giving weight to
the period of service, compensation and position of the individual subscriber,
provided that no fractional shares will be allocated or issued.
B. COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the Holding Company and the Bank, and shall commence concurrently with,
during or
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promptly after the Subscription Offering. The Holding Company and the Bank may
use an investment banking firm or firms on a best efforts basis to sell the
unsubscribed shares in the Subscription and Community Offering. The Holding
Company and the Bank may pay a commission or other fee to such investment
banking firm or firms as to the shares sold by such firm or firms in the
Subscription and Community Offering and may also reimburse such firm or firms
for expenses incurred in connection with the sale. The Community Offering may
include a Syndicated Community Offering managed by such investment banking firm
or firms. The Common Stock will be offered and sold in the Direct Community
Offering, in accordance with FDIC and Division regulations, so as to achieve the
widest distribution of the Common Stock. No Person, by himself, or with an
Associate or group of Persons Acting in Concert, may subscribe for or purchase
more than $300,000 of Common Stock offered in the Direct Community Offering.
Further, the Holding Company may limit total subscriptions under this Section
12(B) so as to assure that the number of shares available for the public
offering may be up to a specified percentage of the number of shares of Common
Stock.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to cover
orders of natural persons residing in the Bank's Community, then to cover the
orders of any other Person subscribing for shares in the Community Offering so
that each such Person may receive 1,000 shares, and thereafter, on a pro rata
basis to such Persons based on the amount of their respective subscriptions.
The terms "residence," "reside," or "residing" as used herein with respect
to any person shall mean any person who occupies a dwelling within the Bank's
Community, has an intent to remain with the Community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the Community together with an indication that such presence
within the Community is something other than merely transitory in nature. To
the extent the Person is a corporation or other business entity, the principal
place of business or headquarters shall be in the Community. To the extent a
person is a personal benefit plan, the circumstances of the beneficiary shall
apply with respect to this definition. In the case of all other benefit plans,
the circumstances of the trustee shall be examined for purposes of this
definition. The Bank may utilize deposit or loan records or such other evidence
provided to it to make a determination as to whether a person is a resident. In
all cases, however, such a determination shall be in the sole discretion of the
Bank.
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this Section
13.
C. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures as may be determined by the Bank and the
Holding Company in a manner that is intended to achieve the widest distribution
of the Common Stock subject to the rights of the Holding Company to accept or
reject in whole or in part all order in the Syndicated Community Offering. It
is expected that the Syndicated Community Offering will commence as soon as
practicable after termination of the Subscription Offering and the Direct
Community Offering, if any. The Syndicated Community Offering shall be
completed within 45 days after the termination of the Subscription Offering,
unless such period is extended as provided herein. The Syndicated Community
Offering price and the underwriting discount in the Syndicated Community
Offering shall be determined
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by an underwriting agreement between the Holding Company, the Bank and the
underwriters. Such underwriting agreement shall be filed with the FDIC, the
Division and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Boards of
Directors of the Holding Company and the Bank will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the Division and the FDIC and to compliance with
applicable state and federal securities laws. Depending upon market and
financial conditions, the Board of Directors of the Holding Company and the
Board of Trustees of the Bank, with the approval of the Commissioner and FDIC,
may increase or decrease any of the purchase limitations set forth in this
Section 13.
14. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Holding
Company owned or controlled by persons other than the MHC at the close
of the Stock Offering shall not exceed 49% of the Holding Company's
total outstanding Common Stock.
B. No Person or group of persons Acting in Concert, may purchase more
than $1,000,000 of Common Stock offered in the Stock Offering to
Persons other than the MHC, except that: (i) the Holding Company may,
in its sole discretion and without further notice to or solicitation
of subscribers or other prospective purchasers, increase such maximum
purchase limitation to up to 5% of the number of shares offered in the
Stock Offering; (ii) Tax-Qualified Employee Plans may purchase up to
10% of the shares offered in the Stock Offering; and (iii) for
purposes of this subsection 14(B), shares to be held by any Tax-
Qualified Employee Plan and attributable to a person shall not be
aggregated with other shares purchased directly by or otherwise
attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25%
of the outstanding shares of Common Stock of the Holding Company held
by persons other than the MHC at the close of the Stock Offering. In
calculating the number of shares held by Management Persons and their
Associates under this paragraph or under the provisions of paragraph D
of this section, shares held by any Tax-Qualified Employee Benefit
Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank that
are attributable to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any Common
Stock acquired by such persons in the secondary market, shall not
exceed 25% of the stockholders' equity of the Bank. In calculating the
number of shares held by Management Persons and their Associates under
this paragraph or under the provisions of paragraph C of this section,
shares held by any Tax-Qualified Employee Benefit Plan or any Non-Tax-
Qualified
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Employee Benefit Plan of the Bank that are attributable to such
persons shall not be counted.
E. Subject to the approval of the Commissioner, the Boards of Directors
of the Bank and the Holding Company may, in their sole discretion,
increase the maximum purchase limitation set forth in paragraph 14(B)
hereof to up to 9.9%, provided that orders for Common Stock in excess
of 5% of the number of shares of Common Stock offered in the Stock
Offering shall not in the aggregate exceed 10% of the total shares of
Common Stock offered in the Stock Offering (except that this
limitation shall not apply to purchases by Tax-Qualified Employee
Plans). If such 5% limitation is increased, subscribers for the
maximum amount will be, and certain other large subscribers in the
sole discretion of the Holding Company and the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable
limit. Requests to purchase additional shares of Common Stock under
this provision will be determined by the Board of Directors of the
Holding Company, in its sole discretion.
F. In the event of an increase in the total number of shares offered in
the Subscription Offering due to an increase in the maximum of the
Offering Range of up to 15% (the "Adjusted Maximum"), the additional
shares will be issued in the following order of priority: (i) to fill
the Employee Plans' subscription to the Adjusted Maximum; (ii) in the
event that there is an oversubscription at the Eligible Account
Holder, Supplemental Eligible Account Holder, or employee, officer and
trustee categories, to fill unfulfilled subscriptions of such
subscribers according to their respective priorities set forth in this
Plan.
G. Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding and
withholding. The Holding Company and/or its agents may ask for an
acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such opinion is
not timely furnished.
H. The Board of Directors of the Holding Company has the right in its
sole discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of this Plan.
I. The Holding Company, in its sole discretion, may make reasonable
efforts to comply with the securities laws of any state in the United
States in which its depositors reside, and will only offer and sell
the Common Stock in states in which the offers and sales comply with
such states' securities laws. However, no person will be offered or
allowed to purchase any Common Stock under the Plan if he resides in a
foreign country or in a state of the United States with respect to
which any of the following apply: (i) a small number of persons
otherwise eligible to purchase shares under the Plan reside in such
state or foreign county; (ii) the offer or sale of shares of Common
Stock to such persons would require the
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Bank or its employees to register, under the securities laws of such
state or foreign country, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state or foreign
country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise.
Prior to the consummation of the Stock Offering, no Person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan. Each Person purchasing Common Stock shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO
CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE
CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK MAY TAKE ANY REMEDIAL
ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE
MATTER TO THE COMMISSIONER FOR ACTION, AS IN ITS SOLE DISCRETION THE BANK MAY
DEEM APPROPRIATE.
15. PAYMENT FOR STOCK
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the Employee Plans subscribe for shares
during the Subscription Offering, such plans will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of Common
Stock subscribed for by such plans at the Actual Subscription Price upon
consummation of the Stock Offering, provided that, in the case of the ESOP there
is in force from the time of its subscription until the consummation of the
Stock Offering, a loan commitment to lend to the ESOP, at such time, the
aggregated Actual Subscription Price of the shares for which it subscribed. The
Holding Company or the Bank may make scheduled discretionary contributions to an
Employee Plan provided such contributions from the Bank, if any, do not cause
the Bank to fail to meet its regulatory capital requirement.
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account at the Bank in an
amount equal to the purchase price of such shares. Such authorized withdrawal,
whether from a savings passbook or certificate account, shall be without penalty
as to premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
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Commissioner) following the Stock Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Bank at a rate established by the Bank on payment for Common Stock received in
cash or by check. Such interest will be paid from the date payment is received
by the Bank until consummation or termination of the Stock Offering. If for any
reason the Stock Offering is not consummated, all payments made by subscribers
in the Stock Offering will be refunded to them with interest. In case of
amounts authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Holding Company
and the Bank has been declared effective by the Commissioner and the SEC, copies
of the prospectus and order forms will be distributed to all Eligible Account
Holders, Supplemental Eligible Account Holders, the Employee Plans and
employees, officers and trustees at their last known addresses appearing on the
records of the Bank for the purpose of subscribing for shares of Common Stock in
the Subscription Offering and will be made available for use by those Persons
entitled to purchase in the Direct Community Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Direct Community Offerings. Each order form will contain, among other
things, the following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20, nor more than 45 days,
following the date on which the order forms are mailed by the Bank,
and which date will constitute the termination of the Subscription
Offering;
B. The purchase price per share for shares of Common Stock to be sold in
the Subscription and Direct Community Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock that may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Direct Community
Offering;
D. Instructions as to how the recipient of the order form is to indicate
thereon the number of shares of Common Stock for which such Person
elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the order form has received a
final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the
effect that all subscription rights are nontransferable, will be void
at the end of the Subscription Offering, and can only be exercised by
delivering to the Bank within the subscription period such properly
completed and executed order form, together with cash (if delivered in
person), check or money
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order in the full amount of the purchase price as specified in the
order form for the shares of Common Stock for which the recipient
elects to subscribe in the Subscription Offering (or by authorizing on
the order form that the Bank withdraw said amount from the
subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once received
by the Bank, may not be modified or amended by the subscriber without
the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event order forms (a) are not delivered and are returned to the Bank
by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed
in effect by the account holder, the subscription rights of the Person to whom
such rights have been granted will lapse as though such Person failed to return
the contemplated order form within the time period specified thereon; provided,
that the Bank may, but will not be required to, waive any immaterial
irregularity on any order form or require the submission of corrected order
forms or the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation by the Bank of terms and conditions of
this Plan and of the order forms will be final, subject to the authority of the
Commissioner and the FDIC.
18. COMPLETION OF THE STOCK OFFERING
The Stock Offering will be terminated if not completed within 90 days from
the date of approval by the Commissioner, unless an extension is approved by the
Commissioner.
19. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Holding Company has more than 300
shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain a market
for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
20. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the Commissioner, any Common Stock
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<PAGE>
of the Holding Company, except from a broker-dealer registered with the SEC. The
foregoing shall not apply to (i) negotiated transactions involving more than 1%
of the outstanding Common Stock, or (ii) purchases of stock made by and held by
any Tax-Qualified or Non-Tax Qualified Employee Plan of the Stock Bank or the
Holding Company even if such stock is attributable to Management Persons or
their Associates. In addition, without the prior written approval of the
Commissioner, no officer or director of the Stock Bank or their Associates shall
purchase capital stock of a bank from the Stock Bank for a period of three years
following the Reorganization.
21. RESALES OF STOCK BY MANAGEMENT PERSONS
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death or substantial disability, as
determined by the Commissioner, of the Management Person or Associate.
22. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice of the
restrictions set forth in Sections 20 and 21. Appropriate instructions shall be
issued to the Holding Company's transfer agent with respect to applicable
restrictions on transfers of such stock. Any shares of stock issued as a stock
dividend, stock split or otherwise with respect to such restricted stock, shall
be subject to the same restrictions as apply to the restricted stock.
23. RESTRICTION ON FINANCING STOCK PURCHASES
The Holding Company will not offer or sell any of the Common Stock proposed
to be issued to any person whose purchase would be financed by funds loaned to
the person by the Holding Company, Bank or any of their Affiliates.
24. STOCK BENEFIT PLANS
The Board of Directors of the Stock Bank and/or the Holding Company intend
to adopt one or more stock benefit plans for the benefit of the employees,
officers and directors of the Stock Bank and Holding Company, including an ESOP,
stock award plans and stock option plans, which will be authorized to purchase
Common Stock and grant options for Common Stock. However, only the Tax-
Qualified Employee Plans will be permitted to purchase Common Stock in the Stock
Offering subject to the purchase priorities set forth in the Plan. Pursuant to
the Regulations, the Bank and the Holding Company may authorize the ESOP and any
other Tax-Qualified Employee Plans to purchase in the aggregate up to 10% of the
Common Stock issued in the Stock Offering. The Stock Bank or the Holding
Company may make scheduled discretionary contributions to one or more Tax-
Qualified Employee Plans to purchase Common Stock issued in the Stock Offering
or to purchase issued and outstanding shares of Common Stock or authorized but
unissued shares of Common Stock subsequent to the completion of the Stock
Offering, provided such contributions do not cause the Stock Bank to fail to
meet any of its regulatory capital requirements. This Plan specifically
authorizes the grant and issuance by the Holding Company of (i) awards of Common
Stock after the Stock Offering pursuant to one or more stock recognition and
award plans (the "Recognition Plans") in an amount equal to up to 4% of the
number of shares of Common Stock issued in the Stock Offering (and in an amount
equal to up to 5% of the Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock
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Offering), (ii) options to purchase a number of shares of the Holding Company's
Common Stock in an amount equal to up to 10% of the number of shares of Common
Stock issued in the Stock Offering and shares of Common Stock issuable upon
exercise of such options, and (iii) Common Stock to one or more Tax Qualified
Employee Plans, including the ESOP, at the closing of the Stock Offering or at
any time thereafter, in an amount equal to up to 8% of the number of shares of
Common Stock issued in the Stock Offering if the Recognition Plans award Common
Stock sooner than one year after the completion of the Stock Offering, and up to
10% of the number of shares of Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering. Shares awarded to the Tax Qualified Employee Plans or pursuant
to the Recognition Plans, and shares issued upon exercise of options may be
authorized but unissued shares of the Holding Company's Common Stock, or shares
of Common Stock purchased by the Holding Company or such plans in the open
market. The Recognition Plans and the stock option plans will be subject to
stockholder approval.
25. POST-REORGANIZATION FILING AND MARKET MAKING
If the Holding Company has more than 300 stockholders of any class of
stock, the Holding Company shall register its Common Stock with the SEC pursuant
to the Exchange Act, and shall undertake not to deregister such Common Stock for
a period of three years thereafter.
26. LIQUIDATION ACCOUNT
The Stock Bank or the Holding Company shall establish at the completion of
the Reorganization a Liquidation Account in an amount equal to the product of
(i) the percentage of the Holding Company's Common Stock issued in the Stock
Offering, and (ii) the net worth of the Bank (determined in accordance with
generally accepted accounting principles) as set forth in the latest statement
of financial condition contained in the Prospectus used in connection with the
Stock Offering. For example, if the Stock Offering is for 49% of the Holding
Company's Common stock, then the initial liquidation account shall be equal to
49% of the net worth of the Bank as shown on its latest financial statement used
in connection with the Stock Offering. The Liquidation Account will be
maintained by the Stock Bank and/or the Stock Holding Company for the benefit of
the Eligible Account Holders and Supplemental Eligible Account Holders who
continue to maintain Deposit Accounts with the Stock Bank following the
Reorganization. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Deposit Account, hold a related inchoate
interest in a portion of the Liquidation Account balance, in relation to each
Deposit Account balance at the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, or to such balance as it may be
subsequently reduced, as hereinafter provided. The initial Liquidation Account
balance shall not be increased, and shall be subject to downward adjustment to
the extent of any downward adjustment of any subaccount balance of any Eligible
Account Holder or Supplemental Eligible Account Holder in accordance with 209
CMR 33.05(12).
In the unlikely event of a complete liquidation of the Stock Bank and the
Holding Company (and only in such event), following all liquidation payments to
creditors (including those to depositors to the extent of their Deposit
Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidating distribution from the Liquidation
Account, in the amount of the then-adjusted subaccount balances for his deposit
accounts then held, before any liquidating distribution may be made to any
holders of the Holding Company's or Stock Bank's capital stock. No Conversion
Transaction and no merger, consolidation, reorganization, purchase of bulk
assets with assumption of deposit accounts and other liabilities, or similar
transactions with an FDIC-insured institution, in which the
24
<PAGE>
Stock Bank or the Holding Company is not the surviving institution, shall be
deemed to be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Stock Bank. For
Deposit Accounts in existence on both dates, separate subaccounts shall be
determined on the basis of the Qualifying Deposits in such Deposit Accounts on
such record dates. Such initial subaccount balance shall not be increased by
additional Deposits, but shall be subject to downward adjustment as described
below.
If, at the close of business on the last day of any period for which the
Stock Bank or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of the Reorganization, the
deposit balance in the Deposit Account of an Eligible Account Holder or
Supplemental Eligible Account Holder is less than the lesser of: (i) the balance
in the Deposit Account at the close of business on the last day of any period
for which the Stock Bank or the Holding Company, as the case may be, has
prepared audited financial statements subsequent to the Eligibility Record Date
or Supplemental Eligibility Record Date, or (ii) the amount in such Deposit
Account as of the Eligibility Record Date or Supplemental Eligibility Record
Date, then the subaccount balance for such Deposit Account shall be adjusted by
reducing such subaccount balance in an amount proportionate to the reduction in
the balance of such Deposit Account. In the event of such downward adjustment,
the subaccount balance shall not be subsequently increased, notwithstanding any
subsequent increase in the deposit balance of the related Deposit Account. If
any such Deposit Account is closed, the related subaccount shall be reduced to
zero. For purposes of this Section and Section 86.4(f)(5) of the Regulations, a
time account shall be deemed to be closed upon its maturity date regardless of
any renewal thereof. A distribution of each subaccount balance may be made only
in the event of a complete liquidation of the Stock Bank and the Holding Company
subsequent to the Reorganization and only out of funds available for such
purpose after payment of all creditors.
Neither the Stock Bank nor the Holding Company shall be required to set
aside funds for the purpose of establishing the Liquidation Account, and the
creation and maintenance of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the Stock
Bank, except that neither the Stock Bank nor the Holding Company shall declare
or pay a cash dividend on, or repurchase any of, its capital stock if the effect
thereof would cause its net worth to be reduced below the amount required for
the Liquidation Account.
27. EMPLOYMENT AND OTHER SEVERANCE AGREEMENTS
Following or contemporaneously with the Reorganization, the Stock Bank
and/or the Holding Company may enter into employment and/or severance
arrangements with one or more executive officers of the Stock Bank and/or the
Holding Company. It is anticipated that any employment contracts entered into
by the Bank and/or the Holding Company will be for terms not exceeding three
years and that such contracts will provide for annual renewals of the term of
the contracts, subject to approval by the Board of Directors. The Stock Bank
and/or the Holding Company also may enter into severance arrangements
25
<PAGE>
with one or more executive officers which provide for the payment of severance
compensation in the event of a change in control of the Stock Bank and/or the
Holding Company. The terms of such employment and severance arrangements have
not been determined as of this time, but will be described in any prospectus
circulated in connection with the Stock Offering and will be subject to and
comply with all regulations of the Commissioner.
28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock if the effect thereof would cause its
regulatory capital of the Bank to be reduced below the amount required to
maintain the Liquidation Account and under FDIC rules and regulations.
Otherwise, the Holding Company may declare dividends or make other capital
distributions in accordance with applicable laws and regulations. Subject to
any applicable regulatory approvals, the MHC may waive its right to receive
dividends declared by the Holding Company.
29. REORGANIZATION AND STOCK OFFERING EXPENSES
The Regulations require that the expenses of the Reorganization must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
30. INTERPRETATION
All interpretations of the Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Commissioner.
31. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantively
amended by a majority vote of the Bank's Board of Trustees as a result of
comments from regulatory authorities or otherwise, at any time prior to approval
of the Plan by the Corporators. At any time after approval of the Plan by the
Corporators, the terms of the Plan that relate to the Reorganization may be
amended by a majority vote of the Board of Trustees only with the concurrence of
the Commissioner. The Plan may be terminated by a majority vote of the Board of
Trustees at any time prior to the date of the Special Meeting, and may be
terminated by a majority vote of the Board of Trustees at any time thereafter
with the concurrence of the Commissioner.
The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Corporators of the Bank approve the Plan,
and may not be extended by the Bank.
Dated: October 8, 1997, amended effective as of November 14, 1997
26
<PAGE>
CHARTER EXHIBIT A
OF
BROOKLINE SAVINGS BANK
WHEREAS, a Charter has been granted to incorporate Brookline De Novo
Savings Bank (hereinafter referred to as "De Novo") as a Massachusetts savings
bank;
WHEREAS, De Novo, in accordance with Chapter 167H of the Massachusetts
General Laws and all other applicable law, has determined to reorganize into a
mutual holding company by establishing a subsidiary banking institution as a
stock savings bank (hereinafter referred to as the "Bank") and transferring to
the Bank all or the substantial part of its assets and liabilities, including
all of its deposit liabilities; and
WHEREAS, De Novo, in accordance with said Chapter 167H, has determined to
establish the Bank as a stock savings bank organized under Massachusetts law;
NOW, THEREFORE, the Charter of the Bank hereby reads as follows:
ARTICLE 1.
Name
----
The name of the Bank is:
BROOKLINE SAVINGS BANK
ARTICLE 2.
Location
--------
The principal office of the Bank shall be located at 160 Washington Street,
Brookline, Massachusetts, and may be changed from time to time by the Board of
Directors of the Bank, subject to compliance with the provisions of Section 2 of
Chapter 167C of the Massachusetts General Laws, or successor statute.
ARTICLE 3.
Purpose and Powers
------------------
The Bank is a stock savings bank chartered under Chapters 167H and 168 of
the Massachusetts General Laws and shall have and may exercise all powers and
authority, express and implied, available to it under law.
ARTICLE 4.
Duration
--------
The duration of the Bank is perpetual.
ARTICLE 5.
Capital Stock
-------------
The total number of shares of all classes of capital stock which the Bank
is authorized to issue is fifty million (50,000,000) shares, of which forty-five
million (45,000,000) shares shall be common stock, $1.00 par value per share,
and five million (5,000,000) shares shall be preferred stock, $1.00 par value
per share. Subject to the approval of the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Commissioner of Banks"), if required
---------------------
<PAGE>
by law, the shares may be issued by the Bank from time to time by a vote of its
Board of Directors without the approval of its stockholders. Upon payment of
lawful consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the surplus of the
Bank which is transferred to stated capital upon the issuance of shares as a
stock dividend shall be deemed to be the consideration for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations and the relative rights, preferences
and limitations of the shares of each class and series of capital stock are as
follows:
A. Common Stock. Except as provided by law or in this Article 5 (or in any
------------ ---------
supplementary sections hereto or in any certificate of establishment of any
series of preferred stock), the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote on all matters for each share held by such holder. There
shall be no cumulative voting rights in the election of Directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of a sinking fund or a retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the Bank,
after there shall have been paid to or set aside for the holders of any class
having preference over the common stock in the event of liquidation, dissolution
or winding up of the Bank the full preferential amounts to which they are
respectively entitled, the holders of the common stock, and of any class or
series of stock entitled to participate in whole or in part therewith as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Bank, to receive the remaining
assets of the Bank available for distribution, in cash or in kind, in proportion
to their holdings.
B. Preferred Stock. Subject to the approval of the provisions of any
---------------
series of preferred stock by the Commissioner of Banks, if required by law, the
Board of Directors of the Bank is authorized by vote or votes, from time to time
adopted, to provide for the issuance of preferred stock in one or more series
and to fix and state the voting powers, designations, preferences and relative
participating, optional or other special rights of the shares of each series and
the qualifications, limitations and restrictions thereof, including, but not
limited to, determination of one or more of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends and the participating or
other special rights, if any, with respect to dividends;
(3) The voting powers, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, such shares may
be redeemed;
(5) The amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Bank;
(6) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
2
<PAGE>
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Bank, and if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) The price or other consideration for which the shares of such series
shall be issued; and
(9) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock and
whether such shares may be reissued as shares of the same or any other series of
stock.
Unless otherwise provided by law, any such vote shall become effective when
the Bank files with the Secretary of State of the Commonwealth of Massachusetts
a certificate of designation of one or more series of preferred stock signed by
the Chief Executive Officer, President or any Vice President and by the Clerk,
Assistant Clerk, Secretary or Assistant Secretary of the Bank, setting forth a
copy of the vote of the Board of Directors establishing and designating the
series and fixing and determining the relative rights and preferences thereof,
the date of adoption of such vote and a certification that such vote was duly
adopted by the Board of Directors.
ARTICLE 6.
No Action by Written Consent of Stockholders
--------------------------------------------
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Charter to elect
additional Directors under specific circumstances or to consent to specific
actions taken by the Bank, any action required or permitted to be taken by the
stockholders of the Bank must be effected at a duly called annual or special
meeting of stockholders of the Bank and may not be effected by any consent in
writing in lieu of a meeting of such stockholders.
ARTICLE 7.
Standards for Board of Directors' Evaluation of Offers
------------------------------------------------------
The Board of Directors of the Bank, when evaluating any offer to (A) make a
tender or exchange offer for any equity security of the Bank, (B) merge or
consolidate the Bank with another institution or (C) purchase or otherwise
acquire all or substantially all of the properties and assets of the Bank,
shall, in connection with the exercise of its judgment in determining what is in
the best interests of the Bank and its stockholders, give due consideration to
all relevant factors including, without limitation, the social and economic
effects of acceptance of such offer on the Bank's present and future account
holders, borrowers and employees; on the communities in which the Bank operates
or is located; and on the ability of the Bank to fulfill the objectives of a
Massachusetts-chartered stock savings bank under applicable statutes and
regulations.
ARTICLE 8.
Pre-emptive Rights
------------------
Holders of the capital stock of the Bank shall not be entitled to pre-
emptive rights with respect to any shares of the capital stock of the Bank which
may be issued.
3
<PAGE>
ARTICLE 9.
Beneficial Ownership Limitation
-------------------------------
From the date of consummation of the Bank Formation, no person shall
directly or indirectly offer to acquire or acquire beneficial ownership (as that
term is defined pursuant to Rule 13d-3 of the rules and regulations promulgated
under the Securities Exchange Act of 1934) of more than 4.9% of the outstanding
shares of any class of equity securities of the Bank during the three (3) year
period following the Bank Formation or after such three (3) year period more
than ten percent (10%) of the outstanding shares of any class of equity
securities of the Bank. This limitation shall not apply (A) to any acquisition
of shares of capital stock of the Bank which has been expressly approved in
advance by an affirmative vote of not less than two-thirds of the votes of each
class of shares eligible to be cast by stockholders at a duly constituted
meeting of stockholders called expressly for such purpose and, if required under
applicable law, by the Commissioner of Banks, (B) to any offer to the Bank made
by the underwriters selected by the Bank in connection with a public offering by
the Bank of the Bank's capital stock or (C) to a transaction in which the Bank
forms a holding company without change in the respective beneficial ownership
interests of its stockholders other than pursuant to the exercise of any
dissenters' appraisal rights.
For the purposes of determining the number of shares of equity securities
owned hereunder by any individual, group acting in concert, corporation,
partnership, association, joint venture, pool, joint stock company, trust,
unincorporated organization or similar company, syndicate or any other group
formed for the purpose of acquiring, holding or disposing of securities
("Person"), the number of shares of equity securities deemed to be outstanding
shall include shares deemed beneficially owned by such Person, but shall not
include any other shares of equity securities which may be issuable by the Bank
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options or otherwise.
In the event that beneficial ownership of any class of equity securities is
acquired in violation of this Article 9, (i) all shares of common or preferred
---------
stock beneficially owned by any Person in excess of 4.9% or ten percent (10%),
as the case may be, of the total number of outstanding shares of such class
shall not be counted as shares entitled to vote, shall not be voted by any
Person or counted as voting shares in connection with any matter submitted to
the stockholders for a vote, and shall not be counted as outstanding for
purposes of determining the affirmative vote necessary to approve any matter
submitted to the stockholders for a vote, and (ii) the Board of Directors may
cause all securities beneficially owned by any Person in excess of 4.9% or ten
percent (10%), as the case may be, of the total number of outstanding shares of
such class of equity securities to be transferred to an independent trustee for
sale to the Bank or on the open market at a price which shall be the lesser of
the purchase or the market price. The expenses of such trustee shall be paid out
of the proceeds from such sale. The term "offer" as used in this Article 9
----- ---------
includes every offer to buy or acquire, solicitation of an offer to sell, tender
offer for or request or invitation for tender of, a security or interest in a
security of value.
ARTICLE 10.
Directors
---------
The Bank shall be under the direction of a Board of Directors. The number
of Directors shall not be fewer than seven nor more than twenty-five. The names
of the original eight (8) Directors under this Charter, together with the year
of expiration of their respective terms, are set forth in Appendix A hereto. The
----------
Board of Directors shall be divided into three classes as nearly equal in number
as possible, with one class to be elected each year. Directors shall continue
to serve for the terms specified in Appendix A hereto and until their successors
----------
are elected and qualified, unless they sooner resign, retire, die or are
removed.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in any certificate of
establishment with respect thereto to elect additional Directors under specific
circumstances, any Director may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of the then outstanding Voting Stock, voting
4
<PAGE>
together as a single class. At least thirty days prior to such meeting of
stockholders, written notice shall be sent to the Director whose removal will be
considered at the meeting.
ARTICLE 11.
Directors' Liability
--------------------
No Director shall be personally liable to the Bank or its stockholders for
monetary damages for any breach of such Director's fiduciary duty as a Director,
notwithstanding any provision of law imposing such liability; provided, however,
that, to the extent required by applicable law, this provision shall not
eliminate the liability of a Director (i) for any breach of such Director's duty
of loyalty to the Bank or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under provisions of the Massachusetts General Laws imposing
liabilities on Directors in respect of distributions to the stockholders of the
Bank or loans to officers or Directors of the Bank, or (iv) any transaction from
which such Director derived any improper personal benefit. This provision shall
not eliminate the liability of a Director for any act or omission occurring
prior to the date upon which this provision becomes effective. No amendment to
or repeal of this provision shall apply to or have any effect on the liability
or alleged liability of any Director of the Bank for or with respect to any acts
or omissions of such Director occurring prior to the date of such amendment or
repeal.
ARTICLE 12.
Transactions with Interested Persons
------------------------------------
Section 1. Unless entered into in bad faith or in violation of any
---------
provision of this Charter, no contract or transaction by the Bank shall be void,
voidable or in any way affected by reason of the fact that it is with an
Interested Person.
Section 2. For the purposes of this Article 12, "Interested Person"
--------- ---------- -----------------
means any Person in any way interested in the Bank whether as a director,
officer, stockholder, employee or otherwise, and any other entity in which any
such Person is in any way interested.
Section 3. Unless such contract or transaction was entered into in
---------
bad faith or in violation of any provision of this Charter, no Interested
Person, because of such interest, shall be liable to the Bank or to any other
Person for any loss or expense incurred by reason of such contract or
transaction or shall be accountable for any gain or profit realized from such
contract or transaction.
Section 4. The provisions of this Article 12 shall be operative
--------- ----------
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of the Bank at
which such contract or transaction was authorized or that the vote of an
Interested Person was necessary for the authorization of such contract or
transaction.
ARTICLE 13.
Acting as a Partner
-------------------
To the extent not prohibited by applicable law, the Bank may be a partner
in any business enterprise which it would have power to conduct by itself.
ARTICLE 14.
Stockholders Meetings
---------------------
Meetings of stockholders may be held at such place in the Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United States
as the Board of Directors may determine.
5
<PAGE>
ARTICLE 15.
Call of Special Meetings
------------------------
Special meetings of the stockholders for any purpose or purposes may be
called at any time only by the President or by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of Directors that the
Bank would have if there were no vacancies (the "Whole Board"); provided,
-----------
however, that if there is an Interested Stockholder, any such call shall also
require the affirmative vote of a majority of the Continuing Directors then in
office. Only those matters set forth in the call of the special meeting may be
considered or acted upon at such special meeting, unless otherwise required by
law.
ARTICLE 16.
Amendment of Bylaws
-------------------
The Bylaws of the Bank may be adopted, altered, amended, changed or
repealed by the Board of Directors or the stockholders of the Bank. Such action
by the Board of Directors shall require the affirmative vote of at least a
majority of the Directors then in office at a duly constituted meeting of the
Board of Directors' unless at the time of such action there shall be an
Interested Stockholder, in which case such action shall also require the
affirmative vote of at least a majority of the Continuing Directors then in
office, at such a meeting. Such action by the stockholders shall require (i)
approval by the affirmative vote of a majority of Directors then in office,
unless at the time of such action there shall be an Interested Stockholder, in
which case such action shall also require the affirmative vote of at least a
majority of the Continuing Directors then in office, at such meeting, (ii)
unless waived by the affirmative vote of a majority of the Directors then in
office (and, if applicable, Continuing Directors) specified in the preceding
sentence, the submission by the stockholders of written proposals for adopting,
altering, amending, changing or repealing the Bylaws that comply in all respects
with the provisions of the Bylaws governing such submissions and (iii) the
affirmative vote of at least eighty percent (80%) of the voting power of the
then outstanding Voting Stock voting together as a single class at a duly
constituted meeting of stockholders called expressly for such purpose.
ARTICLE 17.
Amendment of Charter
--------------------
No amendment, addition, alteration, change or repeal of this Charter shall
be made, unless the same is first approved by the affirmative vote of a majority
of the Board of Directors of the Bank then in office, and if required by law,
the Commissioner of Banks, and thereafter approved by the affirmative vote of
stockholders holding not less than eighty percent (80%) of the voting power of
the then outstanding Voting Stock voting together as a single class cast at a
duly constituted meeting, or, in the case of Articles 1, 2 and 3 and the first
----------
sentence of Article 5 of this Charter, by not less than a majority of the voting
---------
power of the then outstanding Voting Stock voting together as a single class
cast at a duly constituted meeting; provided, however, that if, at any time
within the sixty day period immediately preceding the meeting at which the
stockholder vote is to be taken, there is an Interested Stockholder, such
amendment, addition, alteration, change or repeal shall also require the
affirmative vote of not less than a majority of the Continuing Directors then in
office, prior to approval by the stockholders. Unless otherwise provided by law,
any amendment, addition, alteration, change or repeal so acted upon shall be
effective on the date it is filed with the Secretary of State of the
Commonwealth of Massachusetts or on such other date as specified in such
amendment, addition, alteration, change or repeal or as the Secretary of State
may specify.
6
<PAGE>
APPENDIX A
----------
Directors of Brookline Savings Bank
<TABLE>
<CAPTION>
Year Initial Term as
Name Director Expires
- ---- --------------------
<S> <C>
Oliver F. Ames 2000
David C. Chapin 1998
Richard P. Chapman, Jr. 1999
William G. Coughlin 2000
Joseph J. Slotnik 2000
William V. Tripp, III 1999
Peter O. Wilde 1999
Franklin Wyman, Jr. 1998
</TABLE>
7
<PAGE>
BYLAWS
OF
BROOKLINE SAVINGS BANK
ARTICLE 1
ORGANIZATION
The name of this Bank is "Brookline Savings Bank". The Bank shall
have and fully exercise all powers and authority, both express and implied,
available to it under applicable law.
ARTICLE 2
OFFICES
Section 2.1 Principal Office. The principal office of the Bank shall
----------------
be located at 160 Washington Street, Brookline, Massachusetts and may be changed
from time to time by the Board of Directors of the Bank, subject, however, to
compliance with the provisions of Section 2 of Chapter 167C of the Massachusetts
General Laws, or successor statute.
Section 2.2 Additional Offices. The Bank may have such additional
------------------
offices, either within or without the Commonwealth of Massachusetts, as the
Board of Directors may from time to time designate or the business of the Bank
may require, subject, however, to compliance with the provisions of Section 3 of
Chapter 167C of the Massachusetts General Laws, or successor statute, and to the
approval of the Federal Deposit Insurance Corporation (the "FDIC") to the extent
----
required by law.
ARTICLE 3
STOCKHOLDERS
Section 3.1 Annual Meeting. The annual meeting of the stockholders of
--------------
the Bank shall be held on the third Thursday in April of each year, if not a
legal holiday, and if a legal holiday then on the next succeeding business day,
at the principal executive offices of the Bank, or at such other date, place
and/or time as may be fixed by resolution of the Board of Directors.
Section 3.2 Special Meeting. Subject to the rights of the holders of
---------------
any series of preferred stock, par value $1.00 per share (the "Preferred
---------
Stock"), or any other series or class of stock as set forth in the Charter (as
defined in Section 14.3 of these Bylaws) to elect additional directors under
------------
specified circumstances, special meetings of the stockholders may be called only
by the Chief Executive Officer or the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors that the Bank
would have if there were no vacancies (the "Whole Board"); provided, however,
----------- -------- -------
that if at the time of such call there is an Interested Stockholder, any such
call shall also require the affirmative vote of a majority of the Continuing
Directors then in office. As used in these Bylaws, the terms "Interested
----------
Stockholder" and "Continuing Director" shall have the same respective meanings
- ----------- -------------------
assigned to them in the Charter. Any determination of beneficial ownership of
securities under these Bylaws shall be made in the manner specified in the
Charter.
Section 3.3 Place of Meeting. The Board of Directors may designate
----------------
the place of meeting for any meeting of the stockholders. If no designation is
made by the Board of Directors, the place of meeting shall be the principal
executive offices of the Bank.
Section 3.4 Notice of Meeting. A written notice of all annual and
-----------------
special meetings of stockholders stating the hour, date, place and purposes of
such meetings shall be given by the Clerk or an Assistant Clerk (or other person
authorized by these Bylaws or by law) not less than seven days nor more than
fifty days before the meeting to each stockholder entitled to vote thereat or to
each stockholder who, under the Charter or under these
<PAGE>
Bylaws, is entitled to such notice by mailing it addressed to such stockholder
at the address of such stockholder as it appears on the stock transfer books of
the Bank. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid. In the case of a special
meeting the notice shall also state the purpose or purposes thereof. Any
previously scheduled meeting of the stockholders may be postponed by resolution
of the Board of Directors upon public notice given prior to the time previously
scheduled for such meeting of stockholders.
Section 3.5 Waiver of Notice. Notice of any stockholders' meeting may
----------------
be waived in writing by any stockholder either before or after the time stated
therein for convening of the meeting, and, if any person present in person or by
proxy at a stockholders' meeting does not protest, prior to or at the
commencement of the meeting, the lack of proper notice, such person shall be
deemed to have waived notice of such meeting.
Section 3.6 Quorum and Adjournment. Except as otherwise provided by
----------------------
law or by the Charter, the holders of a majority of the voting power of the then
outstanding shares of the Bank entitled to vote generally in the election of
directors (the "Voting Stock"), represented in person or by proxy, shall
------------
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series voting as a class, the holders
of a majority of the shares of such class or series shall constitute a quorum
for the transaction of such business. The chairman of the meeting or a majority
of the voting power of the shares of Voting Stock so represented may adjourn the
meeting from time to time, whether or not there is such a quorum (or in the case
of specified business to be voted on as a class or series, the chairman or a
majority of the shares of such class or series so represented may adjourn the
meeting with respect to such specified business). No notice of the time and
place of adjourned meetings need be given except as required by law. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 3.7 Proxies. Stockholders may vote either in person or by
-------
written proxy dated not more than six months before the meeting named therein.
Proxies shall be filed with the Clerk of the meeting or of any adjournment
thereof, before being voted. Except as otherwise limited therein, proxies shall
entitle the persons authorized thereby to vote at any adjournment of such
meeting, but they shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by or on behalf of any one of them unless at or prior to the
exercise of the proxy the Bank receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a stockholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
Section 3.8 Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) Annual Meetings of Stockholders
-------------------------------
(1) Nominations of persons for election to the Board of
Directors of the Bank and the proposal of business to be considered by the
stockholders may be made at an annual meeting of the stockholders (a)
pursuant to the Bank's notice of meeting delivered pursuant to Section 3.4
-----------
of these Bylaws, (b) by or at the direction of the Chief Executive Officer
or the Board of Directors pursuant to a resolution adopted by a majority of
the Whole Board (unless there is an Interested Stockholder, in which case
the affirmative vote of a majority of the Continuing Directors then in
office shall also be required) or (c) by any stockholder of the Bank who is
entitled to vote at the meeting, who complied with the notice procedures
set forth in clauses (2) and (3) of paragraph (A) of this Section 3.8 and
-----------
who was a stockholder of record at the time such notice is delivered to the
Clerk of the Bank
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 3.8, the stockholder must have given
-----------
timely notice thereof in writing to the Clerk of the Bank. To be timely, a
stockholder's notice shall be delivered to the Clerk at the principal
executive offices of the Bank not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that
-------- -------
2
<PAGE>
in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than seventy days, from such anniversary
date, notice by the stockholder to be timely must be so delivered not
earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each
case pursuant to regulations promulgated by the FDIC pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
------------
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected; (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Bank's books, and of such beneficial
owner and (ii) the class and number of shares of the Bank which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 3.8 to the contrary, in the event that the number of
-----------
directors to be elected to the Board of Directors is increased and there is
no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Bank at
least eighty days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by these Bylaws shall also
be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Clerk
at the principal executive offices of the Bank not later than the close of
business on the tenth day following the day on which such public
announcement is first made by the Bank.
(B) Special Meeting of Stockholders. Only such business shall be
-------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Bank's notice of meeting pursuant to Section 3.4 of
-----------
these Bylaws.
(C) General.
-------
(1) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in these Bylaws.
(2) Except as otherwise provided by law, the Charter or these
Bylaws, the Chief Executive Officer of the Bank as chairman of the meeting
shall have the power, and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance
with the procedures set forth in these Bylaws and, if any proposed
nomination or business is not in compliance with these Bylaws, to declare
that such defective proposal or nomination shall be disregarded.
(3) For purposes of these Bylaws, "public announcement" shall
-------------------
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Bank with the FDIC pursuant to Section 13, 14 or
15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of those Bylaws, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in those Bylaws. Nothing in these Bylaws shall be deemed
to affect any rights (i) of stockholders to request inclusion of proposals
in the Bank's proxy statement pursuant to rules promulgated
3
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under the Exchange Act or (ii) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
Section 3.9 Procedure for Election of Directors: Required Vote.
--------------------------------------------------
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by written ballot, and except as otherwise set forth in
the Charter with respect to the right of the holders of any series of Preferred
Stock or any other series or class of stock to elect additional directors under
specified circumstances, a plurality of the votes cast thereat shall elect the
directors. Except as otherwise provided by law, the Charter or these Bylaws, all
matters submitted to the stockholders at any meeting shall be decided by the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote on the matter and shall be the act of
the stockholders.
Section 3.10 No Stockholder Action by Written Consent. Subject to
----------------------------------------
the rights of the holders of any series of Preferred Stock or any other series
or class of stock as set forth in the Charter to elect additional directors
under specific circumstances or to consent to specific actions taken by the
Bank, any action required or permitted to be taken by the stockholders of the
Bank must be effected at an annual or special meeting of stockholders of the
Bank and may not be effected by any consent in writing by such stockholders.
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 General Powers. The business and affairs of the Bank
--------------
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Bank and do all
such lawful acts and things as are not by law or by the Charter or by these
Bylaws required to be exercised or done by the stockholders.
Section 4.2 Composition and Term. The Board of Directors shall be
--------------------
composed of: (a) those persons designated in the Charter of the Bank, such
persons to serve as directors until the respective expiration dates of their
terms as set forth therein and until their successors are elected and qualified
and (b) as such terms expire, those persons who are elected as directors from
time to time as provided herein. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
the Charter to elect directors under specified circumstances, the number of
directors shall be fixed from time to time exclusively pursuant to a resolution
adopted by a majority of the Whole Board (provided that if at the time of such
action there is an Interested Stockholder, a majority vote of the Continuing
Directors then in office shall also be required), but shall consist of not more
than twenty-five nor less than seven directors. The directors, other than those
who may be elected by the holders of any series of Preferred Stock or any other
series or class of stock as set forth in the Charter, shall be divided into
three classes as nearly equal in number as possible, and designated as Class I,
Class II and Class III. Members of each Class shall hold office until their
successors shall have been duly elected and qualified. At each succeeding annual
meeting of stockholders of the Bank, (i) the successors of the Class of
directors whose term expires at that meeting shall be elected by a plurality
vote of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, and until their successors are elected and qualified and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created. Up to two additional directors may be elected in any
fiscal year by vote of a majority of the directors then in office.
Section 4.3 Qualification. Each director shall have such
-------------
qualifications as are required by applicable law. Each director shall own, in
his own right and free of any lien or encumbrance, common stock, either of the
Bank or of a company owning seventy-five percent of the stock of the Bank,
having a par value, or a fair market value on the date the person became a
director, of not less than $1,000. Any director who ceases to be the owner of
the required number of shares of stock, or who becomes in any other manner
disqualified, shall vacate his office forthwith. Each director, when appointed
or elected, shall take an oath that he will faithfully perform the duties of his
office and that he is the owner, in his own right and free of any lien or
encumbrance, of the amount of stock required by this Section 4.3. The oath shall
-----------
be taken before a notary public or justice of the peace, who is not an
4
<PAGE>
officer the Bank, and a record of the oath shall be made a part of the records
of the Bank. To the extent required by law, members of the Board of Directors
shall be citizens and residents of the Commonwealth of Massachusetts.
Section 4.4 Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held without notice other than these Bylaws immediately
after, and at the same place as, each annual meeting of stockholders. The Board
of Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 4.5 Special Meetings. Special meetings of the Board of
----------------
Directors shall be called at the request of the Chairman of the Board, if one is
elected, the Chief Executive Officer, or a majority of the Board of Directors.
The person or persons authorized to call special meetings of the Board of
Directors may fix the place and time of the meetings.
Section 4.6 Notice. Notice of any special meeting shall be given to
------
each director at his business or residence in writing by hand delivery, first-
class or overnight mail or courier service, telegram or facsimile transmission
or orally by telephone communication. If mailed, such notice shall be deemed
adequately delivered when deposited in the United States mails so addressed,
with postage thereon prepaid, at least five days before such meeting. If by
telegram, overnight mail, or courier service such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph company or
its notice is delivered to the overnight mail or courier service company at
least twenty-four hours before such meeting. If by facsimile transmission, such
notice shall be deemed adequately delivered when the notice is transmitted at
least twenty-four hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least twelve hours prior to the time set
for the meeting. Neither business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these Bylaws as provided under
Article 12 of these Bylaws. A meeting may be held at any time without notice if
- ----------
all the directors are present or if those not present waive notice of the
meeting as provided in Section 4.7 of these Bylaws.
------------
Section 4.7 Waiver of Notice. Notice of any directors' meeting may
----------------
be waived in writing by all the directors and, if any director present at a
directors' meeting does not protest prior to or at the commencement of the
meeting the lack of proper notice, he shall be deemed to have waived notice of
such meeting.
Section 4.8 Quorum. A majority of the Whole Board shall constitute
------
a quorum for the transaction of business, but if at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time without further notice. The
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 4.9 Vacancies. Subject to the rights of the holders of any
---------
series of Preferred Stock or any other series or class of stock as set forth in
the Charter to elect additional directors under specified circumstances,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, unless there is an Interested Stockholder,
in which case such vacancy may only be filled by vote of a majority of the
Continuing Directors then in office. A director so elected shall hold office for
a term continuing until the next election of directors by the stockholders. No
decrease in the number of authorized directors shall shorten the term of any
incumbent director.
Section 4.10 Presumption of Assent. A director of the Bank who is
---------------------
present at a meeting of the Board of Directors at which action on any Bank
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file a written dissent to such action with the person acting as
the Clerk of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Clerk of the Bank within five days after the
date a copy of the minutes of the meeting is received. Such right to dissent
shall not apply to a director who voted in favor of such action.
5
<PAGE>
Section 4.11 Manner of Participation. Members of the Board of
-----------------------
Directors or of committees elected by the Board pursuant to Section 4.15 may
------------
participate in meetings of the Board or such committee by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Such participation shall constitute presence
in person but shall not constitute attendance for the purpose of compensation
pursuant to Section 4.12 or Section 5.8, unless the Board of Directors by
------------ -----------
resolution so provides.
Section 4.12 Compensation of Directors. The Board of Directors shall
-------------------------
have authority to fix fees of directors, including a reasonable allowance for
expenses actually incurred in connection with their duties.
Section 4.13 Resignation. Any director may resign at any time by
-----------
sending a written notice of such resignation to the principal executive office
of the Bank addressed to the Chairman of the Board, the Chief Executive Officer
or the Clerk. Unless the resigning director otherwise specifies in the notice of
resignation, such resignation shall take effect upon receipt by the Chairman of
the Board, the Chief Executive Officer or the Clerk.
Section 4.14 Committees. In addition to the Executive Committee
----------
referred to in Article 5 of these Bylaws and the Audit Committee referred to in
---------
Section 4.15 hereof, the Board of Directors may, by resolution adopted by a
- ------------
majority of the Whole Board, designate one or more additional committees, each
such additional committee to consist of those directors elected by the Board of
Directors. The Board of Directors may elect one or more directors as alternate
members of any such committee, who may take the place of any absent member or
members at a meeting of such committee.
If a member of any such committee shall be absent from any meeting, or
disqualified from voting thereat, the remaining member or members present and
not disqualified from voting, whether or not such member or members constitute a
quorum, may, by unanimous vote, appoint another member of the Board of Directors
to act at the meeting in place of an absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise, when the Board of Directors is not in session, all
the powers and authority of the Board of Directors in the direction of the Bank,
except action in respect to dividends to stockholders, election of the principal
officers, the filling of vacancies in the Board of Directors or committees
created pursuant to the authority set forth in this section, the amendment of
the Charter of the Bank, or the amendment of these Bylaws.
Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Unless otherwise specified in the resolution of the Board of Directors
designating the committee, the majority of the total number of members of the
committee shall constitute a quorum for the transaction of business, and (the
vote of the majority of the members of the committee present at any meeting of
which there is a quorum shall be the act of the committee. Each such committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors, when required.
Section 4.15 Audit Committee. The Board of Directors shall, by
---------------
resolution adopted by a majority of the Whole Board, designate certain directors
of the Bank to constitute an Audit Committee, none of whom shall be an operating
officer of the bank. The Board of Directors shall cause an annual audit to be
made of the financial statements of the Bank by certified public accountants
under the supervision of such Audit Committee, as of a date to be determined by
such Committee. The Audit Committee shall perform such other functions as a duly
adopted resolution of the Board of Directors may provide.
Section 4.16 Removal. Subject to the rights of the holders of any
-------
series of Preferred Stock or any other series or class of stock as set forth in
the Charter to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and then
only by the affirmative vote of the holders of at least eighty percent (80%) of
the voting power of the then outstanding Voting Stock, voting together as a
single class.
6
<PAGE>
ARTICLE 5
EXECUTIVE COMMITTEE
Section 5.1 Designation of Executive Committee. The Board of
----------------------------------
Directors, by resolution adopted by the affirmative vote of directors holding a
majority of the Whole Board, at a meeting at which quorum is present, shall
designate three (3) or more directors to constitute an Executive Committee. No
member of the Executive Committee shall continue to be such a member after he
ceases to be a director of the Bank. The Board of Directors shall have the power
at any time to increase or decrease the number of members of the Executive
Committee, to fill vacancies on it, to remove any member of it, and to change
its functions or terminate its existence.
Section 5.2 Powers of the Executive Committee. During the intervals
---------------------------------
between meetings of the Board of Directors, subject to such limitations as may
be prescribed by the Board of Directors, the Executive Committee shall have and
may exercise all the authority of the Board of Directors, including power to
authorize the seal of the Bank to be affixed to all documents that may require
it, but excluding those powers that by law, by the Charter or by these Bylaws,
may not be delegated. The Executive Committee may formulate and recommend to the
Board of Directors for approval general policies regarding the management of the
business and affairs of the Bank. The Executive Committee shall appoint a
Committee on Compensation consisting of the Chief Executive Officer, ex officio,
and four other directors, of whom one will be elected Chairman. The Committee
on Compensation shall recommend to the Board of Directors, for approval, bonuses
and any changes in the salaries of the three highest compensated officers of the
Bank. Salaries and bonuses paid to the other officers and employees of the Bank
shall be determined by the Chief Executive Officer. The Committee on
Compensation shall also recommend to the Board of Directors, for approval, the
amount of the Bank's blanket bond and directors' and officers' liability and
bank reimbursement insurance policy.
Section 5.3 Record of Proceedings. The Executive Committee shall keep
---------------------
minutes of its acts and proceedings which shall be submitted to the next
succeeding meeting of the Board of Directors for approval; but failure to submit
or to receive approval of such minutes shall not invalidate any action taken
upon an authorization contained in them.
Section 5.4 Place of Meetings. Meetings of the Executive Committee,
-----------------
regular or special, may be held either within or without the United States.
Section 5.5 Regular Meetings. Regular meetings of the Executive
----------------
Committee, of which no notice shall be necessary, shall be held on such days and
at such places as shall be established by resolution adopted by the majority of
the Executive Committee.
Section 5.6 Special Meetings. Special meetings of the Executive
----------------
Committee shall be called at the request of any member of the Executive
Committee and shall be held upon notice by mail, facsimile or comparable
facility, posted or delivered for transmission not later than during the third
day immediately preceding the day for the meeting, or by telephone not later
than the day immediately preceding the day for the meeting. Notice of any
special meeting of the Executive Committee may be waived in writing, signed by
the member or members entitled to the notice, whether before or after the time
of the meeting. Attendance of any member of the Executive Committee at a special
meeting shall constitute a waiver of notice of the meeting.
Section 5.7 Quorum. A majority of the Executive Committee shall be
------
necessary to constitute a quorum for the transaction of any business. The acts
of a majority of the members present at a meeting at which a quorum is present
shall be the acts of the Executive Committee.
Section 5.8 Compensation. The Board of Directors may authorize
------------
payment to the members of the Executive Committee of a reasonable fee as
compensation for service as a member of the Executive Committee.
7
<PAGE>
ARTICLE 6
OFFICERS
Section 6.1 Enumeration. The officers of the Bank shall consist of a
-----------
Chief Executive Officer, a President, a Treasurer, a Clerk and such other
officers, including, without limitation, a Chairman of the Board, and one or
more Vice Presidents as the Board of Directors may determine to be necessary for
the management of the Bank.
Section 6.2 Election. The Chief Executive Officer and Treasurer shall
--------
be elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders, and the Clerk (and, if any, the Secretary) shall
be elected by the stockholders at their annual meeting or at a special meeting
of stockholders duly called for such purpose. Other officers shall be elected by
the Board of Directors at such first meeting of the Board of Directors or at any
other meeting.
Section 6.3 Qualification. Any two or more offices may be held by any
-------------
person. The Chief Executive Officer shall be a Director. Any officer may be
required by the Board of Directors to give bond for the faithful performance of
his duties in such amount and with such sureties as the Board of Directors may
determine.
Section 6.4 Tenure. Except as otherwise provided by law, by the
------
Charter, or by these Bylaws, the Chief Executive Officer and Treasurer shall
hold office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until their respective successors are
elected and qualified; the Clerk (and, if any, the Secretary) shall hold office
until the next annual meeting of stockholders and until a successor is elected
and qualified; and all other officers shall hold office until the first meeting
of the Board of Directors following the next annual meeting of stockholders, or
for such shorter term as the Board of Directors may fix at the time such
officers are elected. The Chief Executive Officer may resign at any time by
written notice to the Board of Directors or the Clerk. Any other officer may
resign at any time by written notice to the Chief Executive Officer. Such
resignation shall be effective upon receipt unless the resignation otherwise
provides. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. The Board of Directors may, however, authorize
the Bank to enter into an employment contract with any officer in accordance
with law, but no such contract right shall impair the right of the Board of
Directors to remove any officer at any time in accordance with Section 6.5
-----------
hereof.
Section 6.5 Removal. Except as otherwise provided by law, the Charter
-------
or these Bylaws, the Board of Directors may remove any officer with or without
cause by the affirmative vote of a majority of the Whole Board; provided,
--------
however, that if at the time of such removal there is an Interested Stockholder,
- -------
the affirmative vote of a majority of the Continuing Directors then in office
shall also be required. Any such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the persons involved. Any officer
may be removed for cause only after ten days' written notice and opportunity to
be heard by the Board of Directors.
Section 6.6 Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
Section 6.7 Vacancies. Any vacancy in any office may be filled for
---------
the unexpired portion of the term by the Board of Directors.
Section 6.8 Chief Executive Officer. The Chief Executive Officer
-----------------------
shall, subject to the direction of the Board of Directors, have general
supervision and control of the Bank's business and shall preside, when present,
at all meetings of the stockholders and, in the absence of the Chairman of the
Board, at all meeting of the Board of Directors.
Section 6.9 Chairman of the Board. The Chairman of the Board, if any,
---------------------
shall preside at all meetings of the Board of Directors. If a Chairman of the
Board is not elected or is absent, the Chief Executive Officer shall preside at
all meetings of the Board of Directors. The Chairman of the Board shall have
such other powers and
8
<PAGE>
shall perform such other duties as the Board of Directors may from time to time
designate. If the Chairman of the Board is not the Chief Executive Officer, he
shall also have such powers and perform such duties as the Chief Executive
Officer may from time to time designate.
Section 6.10 The President. The President, if he is the Chief
-------------
Executive Officer, shall preside at all meetings of the stockholders. If a
Chairman of the Board is not elected or is absent, the President if he is the
Chief Executive Officer, shall preside at all meetings of the Board of
Directors. If the President is not the Chief Executive Officer, he shall have
such powers and perform such duties as the Chief Executive Officer may from time
to time designate.
Section 6.11 Vice Presidents, Treasurer and Other Officers. Any Vice
---------------------------------------------
President, the Treasurer and any other officers whose powers and duties are not
otherwise specifically provided for herein shall have such powers and shall
perform such duties as the Chief Executive Officer may from time to time
designate.
Section 6.12 Clerk and Assistant Clerks. The Clerk shall keep a
--------------------------
record of the meetings of stockholders. If a Secretary is not elected or is
absent, the Clerk shall keep a record of the meetings of the Board of Directors.
In the absence of the Clerk, an Assistant Clerk, if one is elected, shall
perform the Clerk's duties. Otherwise a Temporary Clerk designated by the person
presiding at the meeting shall perform the Clerk's duties.
Section 6.13 Secretary and Assistant Secretaries. The Secretary, if
-----------------------------------
one is elected, shall keep a record of the meetings of the Board of Directors.
In the absence of the Secretary, any Assistant Secretary, the Clerk, any
Assistant Clerk or a Temporary Secretary designated by the person presiding at
such meeting shall perform the Secretary's duties.
ARTICLE 7
STOCK CERTIFICATES AND TRANSFERS
Section 7.1 Certificates of Stock. Unless otherwise provided by the
---------------------
Board of Directors, each stockholder shall be entitled to a certificate of the
capital stock of the Bank in such form as may from time to time be prescribed by
the Board of Directors. Such certificate shall be signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer. Such signatures
may be facsimile if the certificate is signed by a transfer agent or by a
registrar, other than a Director, officer or employee of the Bank. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Bank with the same effect as if he were such
officer at the time of its issue. Every certificate for shares of stock which
are subject to any restriction on transfer and every certificate issued when the
Bank is authorized to issue more than one class or series of stock shall contain
such legend with respect thereto as is required by law.
Section 7.2 Transfers. Subject to any restrictions on transfer and
---------
unless otherwise provided by the Board of Directors, shares of stock may be
transferred on the books of the Bank by the surrender to the Bank or its
transfer agent of the certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed, with transfer stamps
(if necessary) affixed, and with such proof of the authenticity of signature as
the Bank or its transfer agent may reasonably require.
Section 7.3 Record Holders. Except as otherwise required by law, by
--------------
the Charter or by these Bylaws, the Bank shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote, regardless
of any transfer, pledge or other disposition of such stock, until the shares
have been transferred on the books of the Bank in accordance with the
requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Bank of his
address and any changes thereto.
9
<PAGE>
Section 7.4 Record Date. The Board of Directors may fix in advance a
-----------
time of not more than sixty days before the date of any meeting of the
stockholders, the date for the payment of any dividend or the making of any
distribution to stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case, only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Bank after the record
date.
If no record date is fixed and the transfer books are not closed, (a)
the record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be the close of business on
the date on which the Board of Directors acts with respect thereto.
Section 7.5 Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
Section 7.6 Issuance of Capital Stock. Except as provided by law, the
-------------------------
Board of Directors shall have the authority, with the approval of the
Commissioner of Banks of the Commonwealth of Massachusetts to the extent
required by law, to issue or reserve for issue from time to time the whole or
any part of the capital stock of the Bank which may be authorized from time to
time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses and on such terms as the Board of Directors may
determine, including, without limitation, the granting of options, warrants or
conversion or other rights to subscribe to said capital stock.
Section 7.7 Dividends. Subject to applicable law, the Charter and
---------
these Bylaws, the Board of Directors may from time to time declare, and the Bank
may pay, dividends on outstanding shares of its capital stock.
ARTICLE 8
DEPOSITS
Deposits of any type permitted by law may be received by the Bank on
such terms and subject to such limitations as are from time to time provided by
law and the rules, regulations and Bylaws of the Bank, but any deposit may be
refused by the Bank for any legal reason. Each depositor shall sign a statement
signifying assent to the rules, regulations and Bylaws of the Bank then in force
or as thereafter added or amended. All rules, regulations and Bylaws of the Bank
and all additions and amendments thereto from time to time in effect shall be
binding on all depositors and on all other persons dealing with the Bank whether
or not such statement is signed.
ARTICLE 9
WITHDRAWALS
Deposits may be withdrawn by the depositor or by any person legally
authorized to act on the depositor's behalf. Withdrawals may be made by written
order or by any other method permitted by the Bank, subject to such requirements
as may be established from time to time by the Bank or by law. Withdrawals
requesting payment to the depositor or to one or more persons may be honored by
the Bank. Any payment made by the Bank to the depositor in person or pursuant to
any such withdrawal shall discharge the liability of the Bank to all persons to
the extent of such payment. No alleged agreement with a depositor or with any
other person inconsistent with law, these Bylaws or with any of the rules or
regulations of the Bank shall be valid or binding upon the Bank.
10
<PAGE>
ARTICLE 10
INTEREST
The Bank may pay interest on deposits in accordance with law. The Bank
may elect not to include fractional parts of a dollar in principal in computing
interest. With respect to deposit accounts on which interest is payable, the
Bank may elect not to pay interest on accounts that have a balance of less than
ten dollars, or such other minimum amount as may be fixed or permitted by law,
unless otherwise provided by law.
ARTICLE 11
INDEMNIFICATION
Section 11.1 Indemnification and Insurance.
-----------------------------
(A) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved (including, without limitation, as a
witness) in any action, suit or proceeding, whether civil, derivative, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
----------
fact that he or a person of whom he is the legal representative is or was a
director, officer, employee or agent of the Bank, or is or was serving at the
request of the Bank as a director, officer, partner, trustee, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to any employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
----------
action or inaction in an official capacity as a director, officer, partner,
trustee, employee or agent or in any other capacity while serving as a director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the Bank against all expense, liability and loss (including, without
limitation, attorneys' fees and disbursements, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid or to be paid in settlement) reasonably incurred by such
indemnitee in connection with such proceeding, provided that such indemnitee
shall have acted in good faith in the reasonable belief that such action was in,
or not opposed to, the best interests of the Bank or such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, as
the case may be; provided, however, that except as provided in paragraph (C) of
-------- -------
this Section 11.1 with respect to proceedings seeking to enforce rights to
------------
indemnification, the Bank shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors.
(B) The right to indemnification conferred in paragraph (A) of this
Section 11.1 shall include the right to be paid by the Bank the expenses
- ------------
(including attorneys' fees and disbursements) incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
--------------
expenses"); provided, however, that, to the extent required by applicable law,
- -------- --------- -------
an advancement of expenses incurred by an indemnitee in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Bank of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
-----------
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
------------------
such expenses under this paragraph (B) or otherwise.
(C) If a claim under paragraphs (A) or (B) of this Section 11.1 is
------------
not paid in full by the Bank within thirty days after a written claim has been
received by the Bank, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Bank to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
the indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right of an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Bank to recover an advancement of expenses
pursuant to the terms of an undertaking, the Bank shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for
11
<PAGE>
indemnification set forth under applicable law. Neither the failure of the Bank
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth under applicable
law, nor an actual determination by the Bank (including its Board of Directors,
independent legal counsel or stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Bank to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden or proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under these Bylaws or otherwise shall be on the Bank.
(D) The right to indemnification and the advancement of expenses
conferred in this Section 11.1 shall not be exclusive of any other right which
------------
any person may have or hereafter acquire under any statute, provision of the
Charter, provision of these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
(E) The Bank may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Bank or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Bank would have the power to
indemnify such person against such expense, liability or loss under applicable
law.
(F) The Bank may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to the
advancement of expenses, to any employee or agent of the Bank to the fullest
extent of the provisions of these Bylaws with respect to the indemnification and
advancement of expenses of directors and officers of the Bank.
(G) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (A) and (B) of these Bylaws shall be contract rights and
such rights shall continue as to an indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
ARTICLE 12
AMENDMENTS
Section 12.1 Amendments. These Bylaws may be amended, added to,
----------
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of the Board of Directors, in a notice given no
less than twenty-four hours prior to the meeting; provided, however, that,
-------- -------
notwithstanding any other provisions of these Bylaws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of stock
required by law, the Charter or these Bylaws, the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these Bylaws.
ARTICLE 13
SPECIAL CORPORATE ACTS
Section 13.1 Execution of Negotiable Instruments. All checks,
-----------------------------------
drafts, notes, bonds, bills of exchange, and orders for the payment of money
shall be signed by such officer or officers of the Bank as the Board of
Directors shall determine from time to time. The Board of Directors may
authorize the use of facsimile signatures of any officer or employee in lieu of
manual signatures.
Section 13.2 Execution of Deeds, Contracts, Etc. Subject always to
----------------------------------
the specific directions of the Board of Directors or the Executive Committee,
all deeds, mortgages, assignments, extensions, releases, partial
12
<PAGE>
releases, and discharges of mortgages made by the Bank and all other written
contracts, agreements and undertakings to which the Bank shall be a party shall
be executed in its name by the Chairman of the Board of Directors, the Chief
Executive Officer, any Executive Vice President, any Senior Vice President, any
Vice President, or such other officer as may be designated by the Chairman of
the Board of Directors or the Chief Executive Officer, and, when requested, the
Clerk or an Assistant Clerk shall attest to such signatures and affix the
corporate seal to the instruments.
Section 13.3 Endorsement of Stock Certificates. Subject always to
---------------------------------
the specific directions of the Board of Directors or the Executive Committee,
any share or shares of stock issued by any corporation and owned by the Bank
(including reacquired shares of stock of the Bank) may, for sale or transfer, be
endorsed in the name of the Bank by the Chairman of the Board of Directors, the
Chief Executive Officer or such other officer as may be designated by the
Chairman of the Board of Directors or the Chief Executive Officer, and his
signature shall be attested to by the Clerk or an Assistant Clerk who shall
affix the corporate seal.
Section 13.4 Voting of Shares Owned by Bank. Subject always to the
------------------------------
specific directions of the Board of Directors or the Executive Committee, any
share or shares of stock issued by any other corporation and owned or controlled
by the Bank may be voted at any stockholders' meeting of the other corporation
by the Chief Executive Officer of the Bank, or in the absence by such other
officer as may be designated by the Chief Executive Officer. Whenever, in the
judgment of the Chief Executive Officer, or in his absence, of any such other
officer as may be designated by the Chief Executive Officer, it is desirable for
the Bank to execute a proxy or give a stockholders' consent in respect to any
share or shares of stock issued by any other corporation and owned or controlled
by the Bank, the proxy or consent shall be executed in the name of the Bank by
the Chief Executive Officer without necessity of any authorization by the Board
of Directors. Any person or persons designated in the manner above stated as the
proxy or proxies of the Bank shall have full right, power and authority to vote
the share or shares of stock issued by the other corporation.
Section 13.5 Foreclosure of Mortgage. Subject always to the
-----------------------
specific directions of the Board of Directors or the Executive Committee, in the
event of a breach of condition of any mortgage held by the Bank, the Chief
Executive Officer, the Chairman of the Board, the President, any Vice
Presidents, the Treasurer or any Assistant Treasurer are authorized and
empowered severally in the name and on behalf of the Bank, wherever authorized
by the Board of Directors or the Executive Committee, by general or specific
vote, to make entry for the purpose of taking possession of the mortgaged
property or of foreclosure of such mortgage and to perform any and all acts
necessary or proper to consummate such foreclosure and effect the due execution
of any power of sale contained in such mortgage, including the execution,
acknowledgment and delivery of all deeds and instruments of conveyance to the
purchaser and the execution of all affidavits and certificates required by law
or deemed necessary by any of such officers.
ARTICLE 14
MISCELLANEOUS PROVISIONS
Section 14.1 Fiscal Year. Except as otherwise determined by the
-----------
Board of Directors, the fiscal year of the bank shall be the twelve months
ending December 31 or on such other date as may be required by law.
Section 14.2 Seal. The Board of Directors shall have power to adopt
----
and alter the seal of the Bank.
Section 14.3 Charter. All references in these Bylaws to the Charter
-------
shall be deemed to refer to the Charter of the Bank, as amended and in effect
from time to time.
Section 14.4 Effective Date. These Bylaws shall become effective on
--------------
the date of the formation of the Bank as a Massachusetts-chartered stock savings
bank.
13
<PAGE>
ARTICLES OF ORGANIZATION EXHIBIT B
OF
BROOKLINE BANCORP, INC.
ARTICLE I. NAME
The exact name of the corporation is: Brookline Bancorp, Inc.
ARTICLE II. PURPOSE
The purpose of the corporation is to engage in the following business
activities: To buy, sell, deal in, or hold securities of every kind and
description; and in general to carry on any business permitted to corporations
organized under Chapter 156B of the Massachusetts General Laws as now in force
or hereafter amended.
ARTICLE III. AUTHORIZED CAPITAL STOCK
The total number of shares and par value of each class of stock that the
Corporation is authorized to issue is as follows:
Common: 45,000,000 shares, $.01 par value
Preferred: 5,000,000 shares, $.01 par value
ARTICLE IV. CAPITAL STOCK
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class and series of capital
stock are as follows:
A. COMMON STOCK. Except as provided by law or in this ARTICLE IV (or
in any certificate of establishment of series of preferred stock), holders of
the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote on all matters for each
share held by such holder. There shall be no cumulative voting rights in the
election of Directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the Common Stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock and on any class or series
of stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends; but only when and as declared by
the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the Common Stock in the event of liquidation,
dissolution or winding up of the full preferential amounts of which they are
respectively entitled, the holders of the Common Stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind, in proportion to their holdings.
Each share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
<PAGE>
B. PREFERRED STOCK. Subject to any limitations prescribed by law, the
Board of Directors of the Corporation is authorized, by vote or votes from time
to time adopted, to provide for the issuance of one or more classes of preferred
stock, which shall be separately identified. The Board of Directors shall have
the authority to divide any authorized class of preferred stock of the
Corporation into one or more series, to establish or change from time to time
the number of shares to be included in each such series, and to fix and state
the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of any series so established and
the qualifications, limitations and restrictions thereof. Each series shall be
separately designated so as to distinguish the shares thereof from the shares of
all other series and classes. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
one or more of the following:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment
date or dates for dividends, and the participating or other
special rights, if any, with respect to dividends;
3. The voting powers, full or limited, if any, of shares of such
series;
4. Whether the shares of such series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions
on which, such shares may be redeemed;
5. The amount or amounts payable upon the shares of such series
in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price or prices at which such shares may be
redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes
of stock of the Corporation, and if so convertible or
exchangeable, the conversion price or prices or the rate or
rates of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of preferred stock and whether such shares may be
reissued as shares of the same or any other series of stock;
and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as are permitted by law
and as the Board of Directors of the Corporation may deem
advisable.
Any such vote shall become effective when the Corporation files with the
Secretary of State of The Commonwealth of Massachusetts a certificate of
establishment of one or more series of preferred stock signed by the President
or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant
Secretary of the Corporation, setting forth a copy of the vote of the Board of
Directors establishing and designating the series and
-2-
<PAGE>
fixing and determining the relative rights and preferences thereof, the date of
adoption of such vote and a certification that such vote was duly adopted by the
Board of Directors.
Each share of each series of preferred stock shall have the same relative
rights as and be identical in all respects with all the other shares of the same
series.
Subject to the authority of the Board of Directors as set forth in
Paragraph 9 above, any shares of Preferred Stock shall, upon reacquisition
thereof by the Corporation, be restored to the status of authorized but unissued
Preferred Stock under this Section B.
Except as specifically provided in these Articles, the holders of Preferred
Stock or Common Stock shall not be entitled to any vote and shall not have any
voting rights concerning the designation or issuance of any shares of Preferred
Stock authorized by and complying with the conditions of these Articles, and
subject to the authority of the Board of Directors or any authorized committee
thereof as set forth above, the right to any such vote is expressly waived by
all present and future holders of the capital stock of the Corporation.
ARTICLE V. RESTRICTIONS ON TRANSFER OF SHARES
The restrictions, if any, imposed by these Articles upon the transfer of
shares of any class are: None.
ARTICLE VI. OTHER LAWFUL PROVISIONS.
6.1 CORPORATE GOVERNANCE
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its Directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by these Articles or the
Bylaws of the Corporation, the Directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide or unless so requested by a stockholder
entitled to vote thereon.
C. Any action to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by the unanimous consent in writing by such
stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directorships (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption) (the "Whole Board"), (provided, however,
that if there is an Interested Stockholder (as defined in Section C of Section
6.4), any such call by the Board of Directors shall also require the affirmative
vote of a majority of the Disinterested Directors (as defined in Section C of
Section 6.4) then in office). Special meetings shall be called by the Clerk, or
in the case of the death, absence, incapacity or refusal of the Clerk, by any
other officer, upon written application of one or more stockholders who hold at
least 80% in interest of the capital stock entitled to vote at such meeting.
Application to a court pursuant to Section 34(b) of Chapter 156B (the
"Massachusetts Business Corporation Law") of The General Laws of The
Commonwealth of Massachusetts (or successor provisions) requesting the call of a
special meeting of stockholders because none of the officers is able and willing
to call such a meeting may be made only by stockholders who hold at least 80% in
interest of the capital stock entitled to vote at such meeting.
-3-
<PAGE>
At a special meeting of stockholders, only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been stated in the
written notice of the special meeting, unless otherwise provided by law.
6.2 DIRECTORS
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three classes,
with the term of office of the first class to expire at the first annual meeting
of stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter. At
each annual meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, (provided, however, that if there is
an Interested Stockholder, any such action by the Board of Directors shall also
require the affirmative vote of a majority of the Disinterested Directors then
in office) and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been chosen expires. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80% of the voting power of all of the then-
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class. At
least 30 days prior to such meeting of stockholders, written notice shall be
sent to the Director whose removal will be considered at the meeting and, if the
removal is for cause, the Director will be provided an opportunity to be heard
before the stockholders.
6.3 AMENDMENT TO BYLAWS. The Board of Directors is expressly empowered to
adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment
or repeal of the Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the Whole Board (unless at the time of
such action there shall be an Interested Stockholder, in which case such action
shall require the affirmative vote of a majority of the Disinterested Directors
then in office at such meeting). The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by these Articles, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class, shall be required to
adopt, amend or repeal any provisions of the Bylaws of the Corporation.
6.4 CERTAIN BUSINESS COMBINATIONS
A. In addition to any affirmative vote required by law or these
Articles, and except as otherwise expressly provided in this Section 6.4:
1. any merger or consolidation of the Corporation or any
Subsidiary (as defined in Section C of this Section 6.4) with (i) any
Interested Stockholder (as defined in Section C of this Section 6.4), or
(ii) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or
-4-
<PAGE>
consolidation would be, an Affiliate (as defined in Section C of this
Section 6.4) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as herein defined in Section C of this Section 6.4) equaling
or exceeding 25% or more of the combined assets of the Corporation and its
Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value (as defined in Section C of this Section 6.4) equaling or exceeding
25% of the combined Fair Market Value of the outstanding Common Stock of
the Corporation and its Subsidiaries, except for any issuance or transfer
pursuant to an employee benefit plan of the Corporation or any Subsidiary
thereof (established with the approval of a majority of the Disinterested
Directors then in office); or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of these Articles or any Certificate of
Establishment or in any agreement with any national securities exchange or
otherwise.
The term "Business Combination" as used in this Section 6.4 shall mean any
transaction which is referred to in any one or more of paragraphs 1 through 5 of
Section A of this Section 6.4.
B. The provisions of Section A of this Section 6.4 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote (if any), as is required
by law or by these Articles, if, in the case of any Business Combination that
does not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is met or, in
the case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as defined in Section C of this Section
6.4) then in office.
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the holders of
Common Stock in such Business Combination shall at least be equal to the
higher of the following
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(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder or any of its Affiliates for any
shares of Common Stock acquired by it (i) within the two-
year period immediately prior to the first public
announcement of the proposal of the Business Combination
(the "Announcement Date"), or (ii) in the transaction in
which it became an Interested Stockholder, whichever is
higher.
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Section 6.4 as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any class of outstanding Voting
Stock other than Common Stock shall be at least equal to the
highest of the following (it being intended that the requirements
of this subparagraph (b) shall be required to be met with respect
to every such class of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares of
a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of
Voting Stock acquired by it (i) within the two-year period
immediately prior to the Announcement Date, or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for shares
of any class of Voting Stock with varying forms of consideration,
the form of consideration to be received per share by holders of
shares of such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with subparagraph
B.2 of this Section 6.4 shall be subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination of shares or similar event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (1) except as approved by a majority of the
Disinterested Directors (as defined in Section C of this Section
6.4) then in office, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or liquidation;
(2) there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as approved
by a majority of the Disinterested Directors then in office, and
(ii) an increase in such annual rate of dividends as necessary to
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reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure to so increase such annual
rate is approved by a majority of the Disinterested Directors
then in office, and (3) neither such Interested Stockholder or
any of its Affiliates shall have become the beneficial owner of
any additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming
an Interested Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or indirectly,
by the Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, and the rules or regulations thereunder) shall be
mailed to stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions).
C. For the purposes of Section 6.1 and this Section 6.4:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities or
any other entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary thereof) who or
which:
(a) is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 5%
or more of the voting power of the then outstanding Voting Stock;
or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933, as amended.
3. "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or statutory provision thereto, pursuant to said Rule
13d-3 as in effect on the date of filing of these Articles; provided,
however, that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(a) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
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(b) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately
or only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more
clauses of Section A of Section 6.4) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be deemed
to be the beneficial owner of any voting shares solely by reason
of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for
such meeting, with respect to shares of which neither such person
nor any such affiliate is otherwise deemed the beneficial owner);
or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any affiliate of any such Director or Officer) shall,
solely by reason of any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by another such
Director or Officer (or any affiliate thereof, and (2) neither any
employee stock ownership plan or similar plan of this Corporation or
any subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any purposes hereof,
to beneficially own any Common Stock held under any such plan. For
purposes of computing the percentage beneficial ownership of Common
Stock of a person, the outstanding Common Stock shall include shares
deemed owned by such person through application of this subsection but
shall not include any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes,
the outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as
in effect on the date of filing of these Articles.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph 2 of this
Section C, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was
a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
Director who is thereafter chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder and in connection with his initial
assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then in office.
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7. "Fair Market Value" means:
(a) in the case of stock, the highest closing sales price of
the stock during the 30-day period immediately preceding the date
in question of a share of such stock on the National Association
of Securities Dealers Automated Quotation System or any system
then in use, or, if such stock is admitted to trading on a
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair Market Value
shall be the highest sale price reported during the 30-day period
preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a
share of such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares
of such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of shares
of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares
of such stock, and
(b) in the case of property other than cash or stock, the
Fair Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Section 6.4 shall include the shares of Common Stock
and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Directors of the Corporation then in office
(provided, however, that if there is an Interested Stockholder, any such
determination shall also require the affirmative vote of a majority of the
Disinterested Directors then in office) shall have the power and duty to
determine for the purposes of this Section 6.4, on the basis of information
known to them after reasonable inquiry: (a) whether a person is an Interested
Stockholder; (b) the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of another; and (d)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination has, an aggregate
Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of
the Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors then in office shall have the further power to interpret
all of the terms and provisions of this Section 6.4.
E. Nothing contained in the Section 6.4 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Articles or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, these Articles or any Certificate of
Establishment, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this Section 6.4.
6.5 STANDARDS FOR BOARD OF DIRECTORS' EVALUATION OF OFFERS. The Board of
Directors of the Corporation, in determining whether the interests of the
Corporation and its stockholders will be served by any offer of another Person
(as defined in Section 6.4) to (i) make a tender or exchange offer for any
equity security of the Corporation, (ii) merge or consolidate the Corporation
with or into another institution, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation, may consider
the interests of the
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Corporation's employees, suppliers, creditors and customers, the economy of the
state, region and nation, community and societal considerations, and the long-
term and short-term interests of the Corporation and its stockholders, including
the possibility that these interests may be best served by the continued
independence of the Corporation.
6.6 INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Massachusetts Business Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Section
6.6 shall include, in the case of a Director or officer at the level of Vice
President or above, and in the case of any other Officer or any employee may
include (in the discretion of the Board of Directors), the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses").
Notwithstanding the foregoing, expenses incurred by an indemnitee in advance of
the final disposition of a proceeding may be paid only upon the Corporation's
receipt of an undertaking by the indemnitee to repay such payment if he shall be
adjudicated or determined to be not entitled to indemnification under applicable
law. The Corporation may accept such undertaking without reference to the
financial ability of the Indemnitee to make such repayment. The rights to
indemnification and to the advancement of expenses conferred in Sections A and B
of this Section 6.6 shall be contract rights and such rights shall continue as
to an indemnitee who has ceased to be a Director, Officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Section 6.6 is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee also shall be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, he shall not have acted in good faith in the reasonable
belief that his action was in the best interests of the Corporation. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Massachusetts Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the
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terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section 6.6 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Section 6.6 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Articles, Bylaws, agreement, vote of stockholders or disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Massachusetts Business Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Section 6.6 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation. Without
limiting the generality of the foregoing, the Corporation may enter into
specific agreements, commitments or arrangements for indemnification on any
terms not prohibited by law which it deems to be appropriate.
G. If the Corporation is merged into or consolidated with another
corporation and the Corporation is not the surviving corporation, the surviving
Corporation shall assume the obligations of the Corporation under this Section
6.6 with respect to any action, suit, proceeding or investigation arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
6.7 LIMITATION OF LIABILITY OF DIRECTORS.
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Section 6.7 shall not eliminate or limit any
liability of a Director (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Sections 61 or 62 of Chapter 156B of the General Laws of the
Commonwealth of Massachusetts, or (iv) with respect to any transaction from
which the Director derived an improper personal benefit.
B. No amendment or repeal of this Section 6.7 shall adversely affect
the rights and protection afforded to a Director of this Corporation under this
Section 6.7 for acts or omissions occurring prior to such amendment or repeal.
If the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
6.8 TRANSACTIONS WITH INTERESTED PERSONS
A. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
B. For the purposes of this Section 6.8, "Interested Person" means any
person or organization in any way interested in the Corporation whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of the Corporation is in any way
interested.
C. Unless such contract or transaction was entered into in bad faith,
no Interested Person, because of such interest, shall be liable to the
Corporation or to any other person or organization for any loss or expense
incurred by reason of such contract or transaction or shall be accountable for
any gain or profit realized from such contract or transaction.
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D. The provisions of this Section 6.8 shall be operative
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of the
Corporation at which such contract or transaction was authorized or that the
vote of an Interested Person was necessary for the authorization of such
contract or transaction.
6.9 ACTING AS A PARTNER
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
6.10 STOCKHOLDERS' MEETINGS
Meetings of stockholders may be held at such place in The Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United States
as the Board of Directors may determine.
6.11 OWNERSHIP OF VOTING STOCK BY MUTUAL HOLDING COMPANY
At all times so long as Brookline Bancorp, M.H.C. (the "Mutual Holding
Company"), the majority holder of the Corporation's Common Stock, shall be in
existence, the Mutual Holding Company shall own at least a majority of the
Voting Stock of the Corporation and the Corporation shall not be authorized to
issue any shares of Voting Stock or take any action while the Mutual Holding
Company is in existence if after such issuance or action the Mutual Holding
Company shall own less than the majority of the Corporation's Voting Stock. For
these purposes, "Voting Stock" means Common Stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder: (i) to vote for or to select directors of the Corporation; and (ii) to
vote on or to direct the conduct of the operations or other significant policies
of the Corporation. Notwithstanding anything in the preceding sentence,
preferred stock is not "Voting Stock" if: (i) voting rights associated with the
preferred stock are limited solely to the type customarily provided by statute
with regard to matters that would significantly and adversely affect the rights
or preferences of the preferred stock, such as the issuance of additional
amounts or classes of senior securities, the modification of the terms of the
preferred stock, the dissolution of the Corporation, or the payment of dividends
by the Corporation when preferred dividends are in arrears; (ii) the preferred
stock represents an essentially passive investment or financing device and does
not otherwise provide the holder with control over the Corporation; and (iii)
the preferred stock does not at the time entitle the holder, by statute,
charter, or otherwise, to select or to vote for the selection of directors of
the Corporation. Notwithstanding anything in the preceding two sentences,
"Voting Stock" shall be deemed to include preferred stock and other securities
that, upon transfer or otherwise, are convertible into Voting Stock or
exercisable to acquire Voting Stock where the holder of the stock, convertible
security or right to acquire Voting Stock has the preponderant economic risk in
the underlying Voting Stock. Securities immediately convertible into Voting
Stock at the option of the holder without payment of additional consideration
shall be deemed to constitute the Voting Stock into which they are convertible;
other convertible securities and rights to acquire Voting Stock shall not be
deemed to vest the holder with the preponderant economic risk in the underlying
Voting Stock if the holder has paid less than 50% of the consideration required
to directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
6.12 CONVERSION TRANSACTION
A. In the event that the Mutual Holding Company elects to convert to
stock form in accordance with applicable law and regulation (a "Conversion
Transaction"), the Mutual Holding Company or its successor may merge or combine
with the Corporation or Brookline Savings Bank (the "Bank"), the Corporation's
wholly-owned subsidiary, and the depositors of the Bank will receive the right
to subscribe for a number of shares of Common Stock of the surviving or
resulting corporation determined as set forth in the Plan of Reorganization From
a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the
"Plan") of the Bank's mutual savings bank predecessor. The additional shares of
Common Stock of the Corporation issued in the Conversion Transaction shall be
sold at their aggregate pro forma market value. Pursuant to the Plan, in any
Conversion Transaction, the minority stockholders of the Corporation (who
consist of the holders of Common Stock other than the Mutual Holding Company),
will be entitled to maintain the same percentage ownership interest in the
Common Stock of the
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Corporation (or the resulting corporation) after the Conversion Transaction as
their ownership interest in the Common Stock of the Corporation immediately
prior to the Conversion Transaction, subject only to adjustment (if required by
federal or state law, regulation, or regulatory policy) to reflect (i) the
cumulative effect of the aggregate amount of dividends waived by the Mutual
Holding Company, (ii) the market value of assets of the Mutual Holding Company
(other than Common Stock of the Corporation) and (iii) any other factors
required by applicable law.
B. At the sole discretion of the Board of Trustees of the Mutual
Holding Company and the Board of Directors of the Corporation, a Conversion
Transaction may be effected in any other manner necessary to qualify the
Conversion Transaction as a tax-free reorganization under applicable federal and
state tax laws, provided such Conversion Transaction does not diminish the
rights and ownership interest of Minority Stockholders as set forth in the
preceding paragraphs of this Section 6.11. If a Conversion Transaction does not
occur, the Mutual Holding Company will always own a majority of the Voting Stock
of the Corporation.
6.13 AMENDMENT TO ARTICLES OF ORGANIZATION.
These Articles may be amended at a duly constituted meeting of stockholders
called expressly for such purpose, by the affirmative vote of at least 80% of
the total votes eligible to be cast by stockholders on such amendment, voting
together as a single class; provided, however, that if the Board of Directors
recommends, by the affirmative vote of at least two thirds of the Directors then
in office at a duly constituted meeting of the Board of Directors (unless at any
time within the 60 day period immediately preceding the meeting at which the
stockholder vote is to be taken, there shall be an Interested Stockholder, in
which case such action shall also require the affirmative vote of a majority of
the Disinterested Directors then in office), that stockholders approve such
amendment at such meeting of stockholders, such amendment shall only require the
affirmative vote of a majority of the total votes eligible to be cast by
stockholders on such amendment, voting together as a single class.
ARTICLE VII. EFFECTIVE DATE
The effective date of organization of the Corporation shall be the date
approved and filed by the Secretary of the Commonwealth.
ARTICLE VIII. DIRECTORS AND OFFICERS
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address of the principal office of the Corporation in
Massachusetts is: 160 Washington Street, Brookline, Massachusetts 02147
b. The name, residential address and post office address of each Director and
Officer of the Corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Richard P. Chapman, Jr. 107 Upland Road Brookline, MA 02146
Treasurer: Paul R. Bechet 20 Wachusett Road Chestnut Hill, MA 02167
Clerk: Richard P. Chapman, Jr. 107 Upland Road Brookline, MA 02146
Director: Richard P. Chapman, Jr. 107 Upland Road Brookline, MA 02146
</TABLE>
c. The fiscal year (i.e., tax year) of the Corporation shall end on the last
day of the month of: December
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<PAGE>
d. The name and business address of the resident agent, if any, of the
Corporation is: NONE
ARTICLE IX. BYLAWS
Bylaws of the Corporation have been duly adopted and the President,
Treasurer, Clerk and Directors whose names are set forth above, have been duly
elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose
signature(s) appear below as incorporator(s) and whose name(s) and business or
residential address(es) are clearly typed or printed beneath each signature do
hereby associate with the intention of forming this Corporation under the
provisions of General Laws, Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 18th day of November, 1997
/s/ Peter W. Coogan, Esq.
-------------------------
Foley, Hoag & Eliot, LLP
One Post Office Square
----------------------
Boston, MA 02109
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<PAGE>
BROOKLINE BANCORP, INC.
BYLAWS
ARTICLE VII - STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for
the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix.
SECTION 2. SPECIAL MEETINGS. Subject to the rights of the holders of
any class or series of preferred stock of the Corporation, special meetings
of stockholders of the Corporation may be called by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
Directors which the Corporation would have if there were no vacancies on
the Board of Directors (hereinafter, the "Whole Board") or otherwise as set
forth in the Articles of Organization. The hour, date and place of any
special meeting and the record date for determining the stockholders having
the right to notice of and to vote at any such meeting shall be determined
by the Board of Directors or the President.
SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and
time of all meetings of the stockholders shall be given at least seven (7)
days before the date on which the meeting is to be held to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to
time by Chapter 156B of the General Laws of the Commonwealth of
Massachusetts (or successor provisions) (the "Massachusetts Business
Corporation Law"), other applicable law, or the Articles of Organization of
the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of
a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes
is required, a majority of the shares of such class or classes present in
person or represented by proxy shall constitute a quorum entitled to take
action with respect to that vote on that matter. The stockholders present
at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
SECTION 5. ORGANIZATION. Such person as the Board of Directors may
have designated or, in the absence of such a person, the Chairman of the
Board of the Corporation or, in his absence, the Chief Executive Officer
or, in his absence, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Clerk of the Corporation,
the secretary of the meeting shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the
conduct of discussion as seem to him in order. The date and
time of the opening and closing of the
<PAGE>
polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought
before the meeting: (i) by or at the direction of the Board
of Directors; or (ii) by any stockholder of the Corporation
who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this
Section 6(b). For business to be properly brought before an
annual meeting by a stockholder, the business must relate to
a proper subject matter for stockholder action and the
stockholder must have given timely notice thereof in writing
to the Clerk of the Corporation. To be timely, a
stockholder's notice must be received at the principal
executive offices of the Corporation not less than ninety
(90) calendar days in advance of the date of the
Corporation's proxy statement which was released to
stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, with respect to
the Corporation's first annual meeting of stockholders, to
be timely notice shall be received at the principal
executive offices of the Corporation not less than ninety
(90) days prior to the date of the annual meeting except
that in the event less than one hundred (100) days' notice
or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to
be timely must be received not later than the close of
business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the
Clerk shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (A) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business
at the annual meeting; (B) the name and address, as they
appear on the Corporation's books, of the stockholder
proposing such business; (C) the class and number of shares
of the Corporation's capital stock that are beneficially
owned by such stockholder; and (D) any material interest of
such stockholder in such business.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) as a result of a written application
for a special meeting brought by stockholders in accordance with the Articles of
Organization. Any such written application for a special meeting by one or more
stockholders shall set forth as to each matter proposed to be brought before the
special meeting the information described in subsections (A) through (D) of this
Section 6(b).
Notwithstanding anything in these Bylaws to the contrary, no business shall
be brought before or conducted at a meeting of stockholders except in accordance
with the provisions of this Section 6(b). The Officer of the Corporation or
other person presiding over the meeting shall, if the facts so warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6(b) and,
if he should so determine, he shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for
election as Directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at
a meeting of stockholders at which Directors are to be
elected only: (i) by or at the direction of the Board of
Directors; or (ii) by any stockholder of the Corporation
entitled to vote for the election of Directors at the
meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made
by or at the direction of the Board of Directors, shall be
made by timely notice in writing to the Clerk of the
Corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the
Corporation not less than ninety (90) calendar days in
advance of the date of the Corporation's proxy statement
which was released to stockholders in connection with the
previous year's annual meeting of stockholders; provided,
however, with respect to the Corporation's first annual
meeting of stockholders, to be timely notice shall be
received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date
of the annual meeting except that in the event less than one
hundred (100) days' notice or prior public disclosure of the
date
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<PAGE>
of the meeting is given or made to stockholders, notice by
the stockholder to be timely must be received not later than
the close of business on the 10th day following the day on
which such notice of the date of the annual meeting was
mailed or such public disclosure was made. Such
stockholder's notice shall set forth: (i) as to each person
whom such stockholder proposes to nominate for election or
re-election as a Director, all information relating to such
person that is required to be disclosed in solicitations of
proxies for the election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); and (ii)
as to the stockholder giving notice of (x) the name and
address, as they appear on the Corporation's books, of such
stockholder and (y) the class and number of shares of the
Corporation's capital stock that are beneficially owned by
such stockholder. At the request of the Board of Directors
any person nominated by the Board of Directors for election
as a Director shall furnish to the Clerk of the Corporation
that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the
provisions of this Section 6(c). The Officer of the
Corporation or other person presiding at the meeting shall,
if the facts so warrant, determine that a nomination was not
made in accordance with such provisions and, if he should so
determine, he shall declare to the meeting and the defective
nomination shall be disregarded.
(d) Nothing contained in this Section 6 shall require proxy
materials distributed by the management of the Corporation
to include any information with respect to nominations or
other proposals by stockholders.
SECTION 7. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by
law filed in accordance with the procedure established for the meeting. Any
copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission created pursuant to this paragraph may be
substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original
writing or transmission. Proxies shall be in written form and shall be
dated not more than six (6) months before the meeting named therein, unless
the proxy is coupled with an interest and provides otherwise. Proxies shall
be filed with the Clerk at the meeting, or of any adjournment thereof,
before being voted. Proxies solicited on behalf of the management shall be
voted as directed by the stockholder or, in the absence of such direction,
as determined by a majority of the Board of Directors. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to
vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by one of them
unless at or prior to exercise of the proxy the Clerk of the Corporation
receives a specific written notice to the contrary from any one of them.
Whenever stock is held in the name of two or more persons, in the absence
of specific written notice to the Corporation to the contrary, at any
meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such
ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares
of stock stand, the vote or votes to which those persons are entitled shall
be cast as directed by a majority of those holding such stock and present
in person or by proxy at such meeting, but no votes shall be cast for such
stock if a majority does not agree. A proxy purporting to be executed by or
on behalf of a stockholder shall be deemed valid unless successfully
challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or by his proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. The Corporation shall, in
advance of any meeting of stockholders,
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<PAGE>
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Articles of Organization or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
ARTICLE VIII - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. The business and
affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board
shall be such number as the Board of Directors shall from time to time have
designated, except that in the absence of any such designation, such number
shall be fifteen (15). The Board of Directors may annually elect a Chairman
of the Board from among its members who shall, when present, preside at its
meetings. In the absence of a Chairman of the Board, meetings of the Board
of Directors will be chaired by a Director selected by the Board of
Directors from among its members.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his successor shall have been duly elected and
qualified. At each annual meeting of stockholders, commencing with the first
annual meeting, Directors elected to succeed those Directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each Director to hold
office until his successor shall have been duly elected and qualified.
SECTION 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any class or series of Preferred Stock then
outstanding, newly created Directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause may be filled only by a majority vote of the
Directors then in office, though less than a quorum; (provided, however,
that if there is an Interested Stockholder, such action shall also require
the affirmative vote of a majority of the Disinterested Directors then in
office) and Directors so chosen shall hold office for a term specified by
the Directors then in office or, if not so specified, for a term expiring
at the annual meeting of stockholders at which the term of office of the
class to which they have been elected expires and until such Director's
successor shall have been duly elected and qualified. No decrease in the
number of authorized Directors constituting the Board shall shorten the
term of any incumbent Director.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and
at such time or times as shall have been established by the Board of
Directors and publicized among all Directors. A notice of each regular
meeting shall not be required.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by a majority of the Directors then in office or by
the Chief Executive Officer and shall be held at such place, on such date,
and at such time as they or he shall fix. Notice of the place, date, and
time of each such special meeting shall be given to each Director by whom
it is not waived by mailing written notice in person or by telephone or
sent to his business or home address by telecommunication at least twenty-
four (24) hours in advance of the meeting, or by written notice mailed to
his business or home address at least forty-eight (48) hours in advance of
such meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting. Notice of any special
meeting may be waived in accordance with Article VI, Section 2, hereof.
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<PAGE>
SECTION 5. QUORUM. At any meeting of the Board of Directors, a
majority of the Whole Board shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice
or waiver thereof.
SECTION 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board of Directors, or of any committee thereof, may participate in
a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting but shall not
constitute attendance for the purpose of compensation pursuant to Section 9
of this Article II, unless the Board of Directors by resolution so
provides.
SECTION 7. CONDUCT OF BUSINESS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the
Board may from time to time determine, and all matters shall be determined
by the vote of a majority of the Directors present, except as otherwise
provided herein or required by law. Action may be taken by the Board of
Directors without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
SECTION 8. POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, including, without limiting
the generality of the foregoing, the unqualified power:
(1) To declare, and the Corporation may pay, dividends on
outstanding shares of its capital stock;
(2) To issue or reserve for issue from time to time the
whole or any part of the capital stock of the
Corporation which may be authorized from time to time,
to such persons or organizations, for such
consideration, whether cash, property, services or
expenses, and on such terms as the Board of Directors
or a designated committee thereof may determine,
including without limitation the granting of options,
warrants, or conversion or other rights to subscribe to
said capital stock;
(3) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
(4) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of
every kind, negotiable or non-negotiable, secured or
unsecured, and to do all things necessary in connection
therewith;
(5) To remove any Officer of the Corporation with or
without cause, and from time to time to devolve the
powers and duties of any Officer upon any other person
for the time being;
(6) To confer upon any Officer of the Corporation the power
to appoint, remove and suspend subordinate Officers,
employees and agents;
(7) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for
Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time such insurance, retirement,
and other benefit plans for Directors, Officers,
employees and agents of the Corporation and its
subsidiaries as it may determine; and
(9) To adopt from time to time regulations, not
inconsistent with these Bylaws, for the management of
the Corporation's business and affairs.
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<PAGE>
SECTION 9. COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without
limitation, their services as members of committees of the Board of
Directors.
ARTICLE IX - COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the Whole Board, may from time to
time designate committees of the Board, with such lawfully delegable powers
and duties as it thereby confers, to serve at the pleasure of the Board and
shall, for those committees and any others provided for herein, elect a
Director or Directors to serve as the member or members, designating, if it
desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in
his place, the member or members of the committee present at the meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may by unanimous vote appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
SECTION 2. CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by
law. Adequate provision shall be made for notice to members of all
meetings. Action may be taken by any committee without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
SECTION 3. NOMINATING COMMITTEE. The Board of Directors shall appoint
a Nominating Committee of the Board consisting of not less than three (3)
members. The Nominating Committee shall have authority (a) to review any
nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6 of Article I of these Bylaws in order
to determine compliance with such Bylaw provision, and (b) to recommend to
the Whole Board nominees for election to the Board of Directors.
ARTICLE X - OFFICERS
SECTION 1. GENERALLY. The Board of Directors as soon as may be
practicable after the annual meeting of stockholders may choose a Chairman
of the Board, and shall choose a President, a Chief Executive Officer, a
Treasurer, and a Clerk, and from time to time may choose such other
Officers as it may deem proper. The Chairman of the Board, if any, shall be
chosen from among the Directors. Any number of offices may be held by the
same person.
(a) The term of office of all Officers shall be until the next
annual election of Officers and until their respective
successors are chosen, but any Officer may be removed from
office at any time by the affirmative vote of a majority of
the Directors then in office.
(b) All Officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of
this Article IV. Such Officers shall also have such powers
and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
chosen, shall, subject to the provisions of these Bylaws and to the
direction of the Board of Directors, serve in a general executive capacity
and, when present, shall preside at all meetings of the Board of Directors
or the stockholders of the Corporation. The Chairman of the Board shall
perform all duties and have all powers which are commonly incident to the
office of Chairman of the Board or which are delegated to him by the Board
of Directors. He shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized.
SECTION 3. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have general responsibility for the management and control of the business
and affairs of the Corporation and shall perform all duties and have all
powers which are commonly incident to the office of Chief Executive Officer
or which are delegated to him by the Board of Directors. Subject to the
direction of the Board of Directors, and in the
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<PAGE>
absence of a Chairman of the Board, the Chief Executive Officer shall have
all of the powers and perform all of the duties of the Chairman of the
Board (as designated in Section 2), and shall also have power to sign all
stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board, if any), employees and
agents of the Corporation.
SECTION 4. PRESIDENT. The President shall have such powers and shall
perform such duties as are provided in these Bylaws or as may be assigned
to him by the Board of Directors or the Chief Executive Officer.
SECTION 5. VICE PRESIDENTS. The Vice President or Vice Presidents
shall perform the duties and exercise the powers usually incident to their
respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors or the Chief Executive Officer.
A Vice President or Vice Presidents may be designated as Executive Vice
President or Senior Vice President.
SECTION 6. TREASURER, VICE TREASURERS, AND ASSISTANT TREASURERS. The
Treasurer shall, subject to the direction of the Board of Directors, have
general charge of the financial affairs of the Corporation and shall cause
to be kept accurate books of account. He shall have custody of all funds,
securities, and valuable documents of the Corporation, except as the Board
of Directors may otherwise provide. The Treasurer shall also perform such
other duties as the Board of Directors may from time to time designate. Any
Vice Treasurer and any Assistant Treasurer shall have such powers and
perform such duties as the Board of Directors or the Chief Executive
Officer may from time to time designate.
SECTION 7. CLERK. The Clerk or an Assistant Clerk shall issue notices
of meetings, shall keep their minutes, shall have charge of the seal and
the corporate books, shall perform such other duties and exercise such
other powers as are usually incident to such offices and/or such other
duties and powers as are properly assigned thereto by the Board of
Directors or the Chief Executive Officer.
SECTION 8. ASSISTANT CLERKS AND OTHER OFFICERS. The Board of Directors
may appoint one or more Assistant Clerks and such other Officers who shall
have such powers and shall perform such duties as are provided in these
Bylaws or as may be assigned to them by the Board of Directors or the Chief
Executive Officer.
SECTION 9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chief Executive
Officer or any Officer of the Corporation authorized by the Chief Executive
Officer shall have power to vote and otherwise act on behalf of the
Corporation, in person or in which the Corporation may hold securities and
otherwise to exercise any and all rights and powers which the Corporation
may possess by reason of its ownership of securities in such other
corporation.
ARTICLE XI - STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled
to a certificate of the capital stock of the Corporation in such form as
may from time to time be prescribed by the Board of Directors. Such
certificate shall be signed by the Chairman of the Board, President or a
Vice President and by the Treasurer or an Assistant Treasurer, and sealed
with the corporate seal or a facsimile thereof. Such signatures may be
facsimile if the certificate is signed by a transfer agent, or by a
registrar, other than a Director, Officer or employee of the Corporation.
In case any officer who has signed or whose signature has been placed on
such certificate shall have ceased to be such Officer before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such Officer at the time of its issue. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. Every certificate for shares of stock which are
subject to any restriction on transfer and every certificate issued when
the Corporation is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the
stock of the Corporation. Except where a certificate is issued in
accordance with Section 4 of Article V of
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<PAGE>
these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
SECTION 3. RECORD DATE. The Board of Directors may fix in advance a
time of not more than sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of
any distribution to stockholders, or the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose, as
the record date for determining the stockholders having the right to notice
of and to vote at such meeting, and any adjournment thereof, or the right
to receive such dividend or distribution or the right to give such consent
or dissent. In such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books
of the Corporation after the record date. Without fixing such record date
the Board of Directors may for any of such purposes close the transfer
books for all or any part of such period.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the
loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors
may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
SECTION 5. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE - NOTICES
SECTION 1. NOTICES. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any stockholder,
Director, Officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such
notice by telecommunication. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his last known address
as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through
the mails or by telecommunication, shall be the time of the giving of the
notice.
SECTION 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after
the time of the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder,
Director, Officer, employee or agent. Neither the business nor the purpose
of any meeting need be specified in such a waiver.
ARTICLE XIII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any Officer or Officers of the Corporation may be
used whenever and as authorized by the Board of Directors or a committee
thereof.
SECTION 2. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be
in the charge of the Clerk. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and
used by the Comptroller or by an Assistant Clerk or an assistant to the
Comptroller.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director,
each member of any committee designated by the Board of Directors, and each
Officer of the Corporation shall, in the performance of his duties, be
fully protected in relying in good faith upon the books of account or other
records of the
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<PAGE>
Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its Officers or employees, or
committees of the Board of Directors so designated, or by any other person
as to matters which such Director or committee member reasonably believes
are within such other person's professional or expert competence and who
has been selected with reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
SECTION 5. TIME PERIODS. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of
days prior to an event or that an act be done during a period of a
specified number of days prior to an event, calendar days shall be used,
the day of the doing of the act shall be excluded, and the day of the event
shall be included.
SECTION 6. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other instruments and obligations to be entered
into by the Corporation in the ordinary course of its business without
Board of Directors action may be executed on behalf of the Corporation by
the Chairman of the Board, President, any Vice President, Treasurer or any
other officer, employee or agent of the Corporation as the Board of
Directors may authorize.
SECTION 7. ARTICLES OF ORGANIZATION. All references in these Bylaws to
the Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as amended and in effect from time to
time.
SECTION 8. POWERS OF CORPORATION. The Corporation shall have and may
exercise all the powers, privileges and authority, express, implied and
incidental, now or hereafter conferred by applicable law and the
Corporation's Articles of Organization.
ARTICLE - AMENDMENT
SECTION 1. AMENDMENT BY DIRECTORS. The Bylaws of the Corporation may
be amended or repealed by the affirmative vote of a majority of the whole
Board at a duly constituted meeting of the Board of Directors, unless at
the time of such action there shall be an Interested Stockholder, in which
case such action shall also require the affirmative vote of a majority of
the Disinterested Directors (as such term is defined in the Articles of
Organization) then in office at such meeting. Not later than the time of
giving notice of the annual meeting of stockholders next following the
amending or repealing by the Directors of any Bylaw, notice thereof stating
the substance of such change shall be given to all stockholders entitled to
vote on amending the Bylaws.
SECTION 2. AMENDMENT BY STOCKHOLDERS. The Bylaws of the Corporation
may be amended or repealed at a duly constituted meeting of stockholders
called expressly for such purpose, by the affirmative vote of at least 80%
of the total voting power of all of the then-outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class.
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<PAGE>
CHARTER EXHIBIT C
OF
BROOKLINE BANCORP, M.H.C.
WHEREAS, a charter has been granted to incorporate Brookline De Novo
Savings Bank (hereinafter referred to as the "Bank") as a Massachusetts savings
bank; and
WHEREAS, the Bank, in accordance with Chapter 167H of the Massachusetts
General Laws and all other applicable law, has voted to reorganize into a mutual
holding company;
The charter of the Bank is hereby amended and restated in its entirety to
read as follows:
ARTICLE I
NAME
The name of this corporation shall be "Brookline Bancorp, M.H.C.," (the
"Corporation") and may be changed from time to time by the Corporators of the
Corporation.
ARTICLE II
MAIN OFFICE
The main office of the Corporation shall be located at 160 Washington
Street, Brookline, Massachusetts, and may be changed from time to time by the
Board of Trustees of the Corporation.
ARTICLE III
DURATION
The duration of the Corporation is perpetual.
ARTICLE IV
NATURE AND POWERS
The Corporation is a mutual holding company organized under Chapter 167H of
the Massachusetts General Laws and shall have and may exercise all powers and
authority, express and implied, available to it under Chapter 167H, as it may be
amended from time to time, and under all other applicable state and federal law.
Notwithstanding any other provision contained herein, the Corporation shall have
no power to take deposits.
ARTICLE V
CORPORATORS
The Corporation shall have a Board of Corporators which shall initially
consist of those persons who both (a) are serving as Corporators of the
Corporation on the date of the reorganization of the Corporation into a mutual
holding company in accordance with the provisions of said Chapter 167H and (b)
meet the qualifications for the position of Corporator set forth in the by-laws
of the Corporation. Such initial Corporators shall continue to serve as
Corporators for the balance of the terms to which they were elected prior to the
mutual holding company reorganization, subject to the provisions of the by-laws
of the Corporation. Corporators shall otherwise be elected as provided in the
by-laws of the Corporation.
<PAGE>
ARTICLE VI
TRUSTEES
The Corporation shall have a Board of Trustees which shall initially
consist of those persons who both (a) are serving as Trustees of the Corporation
on the date of the reorganization of the Corporation into a mutual holding
company in accordance with the provisions of said Chapter 167H and (b) meet the
qualifications for the position of Trustee set forth in the by-laws of the
Corporation. Such initial Trustees shall continue to serve as Trustees for the
balance of the terms to which they were elected prior to the mutual holding
company reorganization, subject to the provisions of the by-laws of the
Corporation. Trustees shall otherwise be elected as provided in the by-laws of
the Corporation.
ARTICLE VII
LIQUIDATION AND DISSOLUTION
Section 1. Liquidation and Dissolution.
----------------------------
The Corporation may liquidate its affairs and be dissolved in accordance
with the procedures set forth in Chapter 168, Section 33 of the Massachusetts
General Laws, as it may be amended from time to time.
Section 2. Liquidation Rights.
-------------------
All persons who have deposit accounts with any subsidiary bank of the
Corporation on the date of the vote of liquidation in accordance with said
Chapter 168, Section 33, or such other date, if any, as may be provided in said
Section, as said Section may be amended from time to time, shall have the right,
upon the liquidation of the Corporation, to receive any proceeds of the
Corporation's assets and property which may remain after payment of expenses of
settling the Corporation's affairs and satisfaction of all liabilities of the
Corporation, as provided in said Chapter 168, Section 33.
Section 3. Limitations.
------------
Liquidation rights accorded depositors under said Chapter 168, Section 33
shall relate to the liquidation of the Corporation and not to the liquidation or
other disposition of any asset or group of assets owned by the Corporation,
including without limitation any stock bank or other subsidiary which may be
owned in whole or in part by the Corporation. No depositor of any subsidiary
bank of the Corporation shall, as such, have any rights with respect to the
Corporation or any of its assets or properties, except (a) liquidation rights
with respect to the Corporation provided for herein and (b) rights as a creditor
with respect to any subsidiary bank of the Corporation in which the depositor
has a deposit. No merger, consolidation, disposition or acquisition of assets or
liabilities or other similar transaction or business combination to which the
Corporation is a party or otherwise involving the Corporation will constitute a
liquidation for the purposes of this Article VII, whether the Corporation is or
is not the surviving entity in such transaction or combination. Only a
liquidation of the Corporation in accordance with said Chapter 168, Section 33
will constitute a liquidation for the purposes of this Article VII.
ARTICLE VIII
INDEMNIFICATION
The Trustees, officers, and employees of the Corporation shall be
indemnified to the extent provided in the by-laws of the Corporation.
ARTICLE IX
LIMITATION OF LIABILITY
The following provision shall be applicable if and when permitted by
applicable law: No Trustee of the Corporation shall be personally liable to the
Corporation for monetary damages for breach of his fiduciary duty as
2
<PAGE>
a Trustee, except for liability (i) for any breach of such Trustee's duty of
loyalty to the Corporation, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or in knowing violation of law, or (iii)
for any transaction from which the Trustee derived an improper personal benefit.
Any repeal or modification of this Article IX shall not adversely effect any
right or protection existing at the time of such repeal or modification with
respect to any acts or omissions occurring before such repeal or modification.
ARTICLE X
AMENDMENT OF CHARTER
This charter may be amended by a two-thirds vote of the Corporators present
in person and voting at a duly constituted regular or special meeting of
Corporators; provided, however, that the notice for such meeting must state that
a purpose of the meeting is to consider and act upon a proposed amendment to the
charter and shall include the text of the proposed amendment or a summary
thereof.
3
<PAGE>
BY-LAWS
OF
BROOKLINE BANCORP, M.H.C.
ARTICLE I. ORGANIZATION
The name of the Corporation is Brookline Bancorp, M.H.C. The location of
its main office shall be as set forth in the charter. The Corporation may have
such additional offices, either within or without the United States, as the
Board of Trustees may from time to time designate in accordance with applicable
law.
ARTICLE II. CORPORATORS
Section 1. Number; Election; Term. The initial members of the Board of
-----------------------
Corporators shall consist of those persons who both (a) are serving as
Corporators of Brookline De Novo Savings Bank on the date of the reorganization
of Brookline De Novo Savings Bank into a mutual holding company in accordance
with the provisions of Chapter 167H of the Massachusetts General Laws, and (b)
meet the qualifications for the position of Corporator set forth in Section 6 of
this Article II. Such initial Corporators shall continue to serve as Corporators
for the balance of the terms to which they were elected prior to the
reorganization, subject to the provisions of Sections 5 and 6 of this Article
II. Corporators may be elected at any annual or special meeting of Corporators
if the notice of the proposed meeting includes the election of Corporators as an
item for action at the meeting. Except as provided in the second sentence of
this paragraph, all Corporators shall be elected for a term of ten years, or, if
a Corporator was elected at a special meeting of Corporators, such Corporator
shall serve until the annual meeting next following the tenth anniversary of
such Corporator's election. There shall be at least twenty-five Corporators.
Section 2. Meetings. The Annual Meeting of the Corporators shall be held
--------
on the third Thursday of April of each year or on such other day (other than a
legal holiday) as the Board of Trustees, the Chairman of the Board or the
President may designate. The time and place of the meeting shall be designated
by the Board of Trustees, the Chairman of the Board or the President. Special
meetings may be called by the Board of Trustees, the Chairman of the Board or
the President, or as otherwise required by law. Only those matters set forth in
the notice of a special meeting may be acted upon at such special meeting. The
Chairman of the Board of the Corporation shall preside at all meetings of the
Corporators. If there is no Chairman or in the absence of the Chairman, the
President of the Corporation shall preside. If the President is not present, a
Trustee of the Corporation shall be appointed by the corporators present to
preside at the meetings.
Section 3. Notice. Notice of each annual or special meeting of the
------
Corporators shall be given by the Clerk by mailing written notice of the meeting
to each Corporator not less than seven days before the meeting, and by
advertisement in a newspaper as required by law. Each such notice shall be
mailed to the Corporator at his address as appearing on the records of the
Corporation and shall state the date, time, place and purposes of the meeting.
The giving of notice to any Corporator may be waived by such Corporator in
writing either before or after the meeting.
Section 4. Quorum and Voting. Except as otherwise provided in the charter
------------------
or these by-laws, a quorum shall consist of thirteen Corporators or twenty-five
percent of the total number of Corporators, whichever is greater, provided,
however, that in any event not more than fifty Corporators shall be necessary to
constitute a quorum. Each Corporator must be present in person to be entitled to
vote, and each Corporator present in person shall be entitled to one vote.
Except as otherwise provided in the charter or these by-laws, all questions
shall be determined by vote of a majority of Corporators present in person at a
meeting of the Corporators at which a quorum is present. If less than a quorum
is present, a meeting of Corporators may be adjourned and reconvened from time
to time until a quorum is present.
Section 5. Resignation and Removal. Any Corporator may resign at any time
------------------------
by giving written notice to the Chief Executive Officer or the Clerk. Unless
otherwise specified in the notice, the resignation shall take effect immediately
upon receipt. Any Corporator who fails to attend two or more successive annual
meetings of the Corporators may be removed by the Corporators at any meeting
within three years following the last such successive annual meeting missed. Any
Corporator may be removed for cause, including but not limited to a violation of
the Corporation's Standards of Conduct as in effect on the date of such
violation, by a vote of a majority of the
<PAGE>
Corporators. In the event any Corporator is employed by a subsidiary bank of the
Corporation as an officer or other employee and such officer or other employee
resigns from such position or is terminated from such position, with or without
cause, then the Board of Trustees may in its discretion remove such person from
his position as a Corporator, with or without cause.
Section 6. Qualification. No Corporator shall serve as a corporator,
-------------
trustee or officer of any other mutual holding company, as a trustee, director
or officer of any bank or thrift institution which is not a subsidiary of the
Corporation, or as a director or officer of any holding company for any bank or
thrift institution which is not a subsidiary of the Corporation. No person shall
be elected or appointed to serve or shall continue serving as a Corporator if he
shall fail to be a depositor of a subsidiary bank of the Corporation.
ARTICLE III. TRUSTEES
Section 1. Number; Election; Term. The initial members of the Board of
-----------------------
Trustees shall consist of those persons who both (a) are serving as Trustees of
Brookline De Novo Savings Bank on the date of the reorganization of Brookline De
Novo Savings Bank into a mutual holding company in accordance with the
provisions of said Chapter 167H, and (b) meet the qualifications for the
position of Trustee set forth in Section 6 of this Article III. Such initial
Trustees shall continue to serve as Trustees for the balance of the terms to
which they were elected prior to the reorganization, subject to the provisions
of this Section 1 and Sections 5 and 6 of this Article III. Trustees may be
elected at any annual or special meeting of Corporators if the notice of the
proposed meeting includes the election of Trustees as an item for action at the
meeting. The number of Trustees shall be established from time to time by the
Board of Trustees, provided that the number so fixed shall be at least 11. The
Trustees shall be divided into three groups as nearly equal in number as
possible and one of such groups shall be elected annually to serve for a term of
three years and until their successors are elected and qualified. When the
number of Trustees is changed, the Board of Trustees shall determine the class
or classes to which the increased or decreased number of Trustees shall be
apportioned. Any vacancy in the Board of Trustees, resulting from an increase in
the number of Trustees or otherwise, may be filled by the Trustees for the
balance of the vacant term.
Persons who have served as Trustees for ten years or more may be elected
Honorary Trustees for specific or indefinite terms at any meeting of the
Corporators. Honorary Trustees shall not be deemed to be officers or members of
the Board of Trustees, shall not receive compensation, shall not be required to
attend meetings and shall not be authorized or required to perform any duties.
Section 2. Meetings. The Board of Trustees shall hold a regular meeting at
---------
least once every three months. Such meetings shall be held on such dates, at
such times and at such places as determined by the Chief Executive Officer.
Special meetings may be called and held at any time as provided by law.
Section 3. Notice. Notice of each special meeting of the Trustees shall be
-------
given by the Clerk by mailing written notice of the meeting to each Trustee not
less than seven days before the meeting or by notice given to each Trustee in
person or by telephone, telegram, facsimile or express delivery sent to his
business or home address at least twenty-four hours in advance of the meeting.
Notices sent by mail shall be mailed to each Trustee at his address as appearing
on the records of the Corporation. The notice shall state the date, time and
place of the meeting. The giving of notice to any Trustee may be waived by such
Trustee in writing either before or after the meeting. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting, except
where a Trustee attends a meeting for the express purpose of objecting to the
transaction of any business because such meeting is not lawfully called or
convened.
Section 4. Quorum and Voting. Except as otherwise provided in the charter
------------------
or these by-laws, a quorum shall consist of a majority of the total number of
the Trustees and all questions shall be determined by vote of a majority of
Trustees present in person at a meeting of Trustees at which a quorum is
present. If less than a quorum is present, a meeting of Trustees may be
adjourned and reconvened from time to time until a quorum is present.
2
<PAGE>
Section 5. Resignation and Removal. Any Trustee may resign at any time by
------------------------
giving written notice to the Chief Executive Officer or the Clerk. Unless
otherwise specified in the notice, the resignation shall take effect immediately
upon receipt. At any meeting of the Trustees, the Trustees may remove any
Trustee or Trustees for cause, including but not limited to a violation of the
Corporation's Standards of Conduct as in effect on the date of such violation,
by a vote of a majority of the entire Board of Trustees. Any Trustee who is
absent from more than three regular meetings in a twelve month period or more
than four regular meetings in a twenty-four month period shall no longer be
qualified to serve as a Trustee and shall automatically be removed from his
position as Trustee.
Section 6. Qualification. No Trustee shall serve as a corporator, trustee
-------------
or officer of any other mutual holding company, as a trustee, director or
officer of any bank or thrift institution which is not a subsidiary of the
Corporation, or as a director or officer of any holding company for any bank or
thrift institution which is not a subsidiary of the Corporation. No person shall
be elected or appointed to serve or shall continue serving as a Trustee if he is
not a Corporator, except that any person elected by the Board of Trustees
pursuant to the last sentence of Article III, Section 1 hereof to fill a vacancy
on the Board of Trustees, however created, need not be a Corporator at the time
of such election or at any time prior to the next Annual Meeting of Corporators.
Section 7. Powers and Duties. The Trustees shall have the power and
------------------
authority to govern the business and affairs of the Corporation subject to the
charter and these by-laws.
Section 8. Compensation. Trustees shall receive such compensation as may be
------------
determined from time to time by the Board of Trustees.
Section 9. Manner of Participation. Members of the Board of Trustees or
------------------------
committees of the Board appointed pursuant to these by-laws may participate in
meetings by means of a conference telephone or similar communication equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 8 of this Article
III, unless the Board of Trustees by resolution so provides.
ARTICLE IV. COMMITTEES
A committee of at least three Trustees who are not officers of the
Corporation shall be appointed by the Board of Trustees to serve as an Audit
Committee. Each member of the Audit Committee shall serve for a three-year term.
The Board of Trustees shall appoint an Executive Committee and may appoint,
or authorize the Chief Executive Officer to appoint, such other committees as
the Board of Trustees may determine. The Executive Committee shall exercise all
powers of the Board of Trustees between meetings of the Board of Trustees,
except those powers which by law, the charter or these by-laws may not be
delegated. The Executive Committee members shall be elected from the Board of
Trustees to serve for five year terms, provided the Chief Executive Officer and
the Chairman of the Board of the Corporation shall serve as members of the
Executive Committee. Members of committees appointed by the Board of Trustees
other than the Audit Committee and the Executive Committee shall serve at the
pleasure of the Board of Trustees. Members of committees appointed by the Chief
Executive Officer shall serve at the pleasure of the Chief Executive Officer.
ARTICLE V. OFFICERS
Section 1. Composition and Duties. The officers of the Corporation shall
-----------------------
consist of a President, a Treasurer, a Clerk and such other officers as the
Trustees may from time to time elect. Such officers shall serve at the pleasure
of the Board of Trustees. The powers and duties of the officers shall be as
follows:
(a) Chairman of the Board of Trustees. The Board of Trustees
----------------------------------
may annually elect from their membership a Chairman. The Chairman, if one be
elected, shall preside at all meetings of the Trustees and at all meetings of
the Corporators. In the absence of the Chairman, the President shall preside. In
the event that all of the aforementioned officers are absent, another member of
the Board of Trustees may be appointed by the Trustees
3
<PAGE>
present to preside at such meeting. The Chairman shall perform such other duties
as the corporators or the Board of Trustees direct.
(b) President. The President shall be the Chief Executive Officer if
---------
so designated by the Board of Trustees. If the President is not the Chief
Executive Officer, he shall have such powers and duties as may be prescribed by
law, by the Chief Executive Officer or by the Board of Trustees.
(c) Chief Executive Officer. The Chief Executive Officer shall be
------------------------
appointed annually by the Board of Trustees, shall be a member of the Board of
Trustees and shall preside at all meetings of the Executive Committee. He shall
have authority to appoint any officers, employees or agents, other than those
provided by law, the charter or these by-laws to be elected by the Trustees, and
to prescribe their powers and duties which may include the power to appoint
subordinate employees or agents. All persons so appointed shall serve at the
pleasure of the Chief Executive Officer. He shall have such other powers and
duties as are incidental to his office and as may be prescribed by law or by the
Board of Trustees.
(d) Treasurer. The Treasurer shall have such powers and duties as may
----------
be prescribed by law, by the Chief Executive Officer or by the Board of
Trustees.
(e) Vice Presidents. Any Executive Vice President, Senior Vice
---------------
President or Vice President shall have such powers and perform such duties as
the Chief Executive Officer or the Board of Trustees may from time to time
designate.
(f) Clerk. The Clerk shall keep a record of all meetings of the
------
Corporators. If a Secretary is not elected or is absent, the Clerk shall keep a
record of the meetings of the Board of Trustees. The Clerk shall have such other
powers and duties as may be prescribed by law, by the Chief Executive Officer or
by the Board of Trustees.
(g) Secretary. The Secretary, if one is appointed, shall keep a
---------
record of all meetings of the Board of Trustees and shall have such other powers
and duties as may be prescribed by law, by the Chief Executive Officer or by the
Board of Trustees.
(h) Other Officers. Other officers shall have such powers and duties
---------------
as may be prescribed by the Chief Executive Officer or by the Board of Trustees.
Section 2. Election. The Board of Trustees shall have authority to elect
---------
all officers.
Section 3. Resignation and Removal. Any officer may resign at any time by
------------------------
giving written notice to the Chief Executive Officer or the Board of Trustees.
Unless otherwise specified in the notice, the resignation shall take effect
immediately upon receipt. Any officer elected by the Board of Trustees may be
removed at any time with or without cause by the Board of Trustees or by the
Executive Committee. Any officer appointed by the Chief Executive Officer, and
any employee or agent of the Corporation, may be removed at any time with or
without cause by the Chief Executive Officer, by the Board of Trustees or by the
Executive Committee.
Section 4. Qualification. No officer of the Corporation shall serve as a
--------------
corporator, trustee or officer of any other mutual holding company, as a
trustee, director or officer of any bank or thrift institution which is not a
subsidiary of the Corporation, or as a director or officer of any holding
company for any bank or thrift institution which is not a subsidiary of the
Corporation.
Section 5. Compensation. The compensation of all officers shall be fixed
-------------
by the Board of Trustees.
4
<PAGE>
ARTICLE VI. INDEMNIFICATION
Section 1. Definitions. For purposes of this Article: (a) "Officer" means
------------
any Trustee or officer of the Corporation who serves or has served in such
capacity and any heirs or personal representatives of such person; (b) "Non-
Officer Employee" means any person who serves or has served as an employee of
the Corporation but who is not or was not an Officer, and any heirs or personal
representatives of such person; (c) "Proceeding" means any action, suit or
proceeding, civil or criminal, brought or threatened in or before any court,
tribunal, administrative or legislative body or agency and any claim which could
be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by
a judgment, order, decree or award in a Proceeding, any amount reasonably paid
in settlement of a Proceeding and any professional fees or disbursements or
other expenses reasonably incurred in a Proceeding.
Section 2. Indemnified Parties. Except as provided in Sections 4 and 5 of
--------------------
this Article VI, each Officer shall be indemnified by the Corporation against
any and all expenses incurred by such Officer in connection with any Proceeding
in which such Officer is involved as a result of serving or having served (a) as
a Corporator, Trustee, officer or employee of the Corporation, (b) in any
capacity with respect to any employee benefit plan sponsored by the Corporation
or any wholly-owned subsidiary of the Corporation, (c) as a director, officer or
employee of any wholly-owned subsidiary of the Corporation, or (d) in any
capacity with any other corporation, organization, partnership, joint venture,
trust or other entity at the request or direction of the Corporation.
Section 3. Non-Officer Employees. Except as provided in Sections 4 and 5
----------------------
of this Article VI, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Trustees, be indemnified by the Corporation against
any and all Expenses incurred by such Non-Officer Employee in connection with
any Proceeding in which such Non-Officer Employee is involved as a result of
serving or having served (a) as an employee of the Corporation, (b) in any
capacity with respect to any employee benefit plan sponsored by the Corporation
or any wholly-owned subsidiary of the Corporation, (c) as a director, officer or
employee of any wholly-owned subsidiary of the Corporation, or (d) in any
capacity with any other corporation, organization, partnership, joint venture,
trust or other entity at the request or direction of the Corporation.
Section 4. Service at the Request or Direction of the Corporation. No
-------------------------------------------------------
indemnification shall be provided to any Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(d) or 3(d) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by a vote of the Board
of Trustees or by vote of the Executive Committee prior to the occurrence of the
event to which the indemnification relates, and (b) the Corporation maintains
insurance coverage for the type of indemnification sought. The Corporation shall
not be liable for indemnification under Section 2(d) or 3(d) above for any
amount in excess of the proceeds of insurance received with respect to such
coverage as the Corporation in its discretion may elect to carry. The
Corporation may, but shall not be required to, maintain insurance coverage with
respect to indemnification under Section 2(d) or 3(d) above. Notwithstanding any
other provision of this Section 4, but subject to Section 5 of this Article VI,
the Board of Trustees may provide an Officer or Non-Officer Employee with
indemnification under Section 2(d) or 3(d) above as to a Proceeding even if one
or both of the two conditions specified in this Section 4 have not been met and
even if the amount of the indemnification exceeds the amount of the proceeds of
any insurance which the Corporation may have elected to carry, provided that the
Board of Trustees in its discretion determines it to be in the best interests of
the Corporation to do so.
Section 5. Good Faith. No indemnification shall be provided to an Officer
-----------
or to a Non-Officer Employee with respect to a matter as to which such person
shall have been adjudicated in any Proceeding not to have acted in good faith in
the reasonable belief that the action of such person was in the best interests
of the Corporation. In the event that a Proceeding is compromised or settled so
as to impose any liability or obligation upon an Officer or Non-Officer
Employee, no indemnification shall be provided to said person with respect to a
matter if there is a determination that with respect to such matter that such
person did not act in good faith in the reasonable belief that the action of
such person was in the best interests of the Corporation. The determination
shall be made by a majority vote of those Trustees who are not involved in such
Proceeding. However, if more than half of the Trustees are involved in such
Proceeding, the determination shall be made by a majority vote of a committee of
three disinterested Trustees chosen at a regular or special meeting of the Board
of Trustees to make such determination; provided,
5
<PAGE>
however, that if there are less than three disinterested Trustees, the
determination shall be made by a committee consisting of three disinterested
Corporators, chosen at a regular or special meeting of the Board of Trustees to
make such determination.
Section 6. Prior to Final Disposition. Any indemnification provided under
---------------------------
this Article, in the case of an Officer shall include, and in the case of a Non-
Officer Employee may in the discretion of the Board of Trustees include, payment
by the Corporation of Expenses incurred in defending a Proceeding in advance of
the final disposition of such Proceeding upon receipt of an undertaking by the
Officer or Non-Officer Employee to repay such payment if such person shall be
adjudicated or determined to be not entitled to indemnification under this
Article.
Section 7. Insurance. The Corporation may, but shall not be required to,
----------
purchase and maintain insurance to protect itself and any Officer or Non-Officer
Employee against any liability of any character asserted against or incurred by
the Corporation or any such person, or arising out of any such status, whether
or not the Corporation would have the power to indemnify such person against
such liability by law or under the provisions of this Article.
Section 8. Independent Indemnification. Nothing in this Article shall
----------------------------
limit any lawful rights to indemnification existing independently of this
Article.
ARTICLE VII. CONFLICTS OF INTEREST
No contract or transaction between the Corporation and one or more of its
Trustees or officers, or between the Corporation and any other corporation,
partnership, association, or other organization of which one or more of its
directors, officers, partners, or members are members of the Board of Trustees
or officers of the Corporation, or in which one or more of the Corporation's
Trustees or officers have a financial or other interest, shall be void or
voidable solely by reason thereof, or solely because the Trustee or officer is
present at or participates in the meeting of the Board of Trustees of the
Corporation or a committee thereof which authorized the contract or transaction,
if:
(1) Any duality of interest or possible conflict of interest on the
part of any Trustee or officer of the Corporation is disclosed to the other
members of the Board or committee at a meeting at which a matter involving such
duality or conflict of interest is considered or acted upon; and
(2) Any Trustee having a duality of interest or possible conflict of
interest on any matter refrains from voting on the matter. The minutes shall
reflect that a disclosure was made and the abstention from voting.
The foregoing requirements shall not be construed as preventing a Trustee
from briefly stating his position in the matter, nor from answering pertinent
questions of other members of the Board or committee:
Each Trustee and officer shall be advised of the foregoing upon the
acceptance of his office and shall answer an annual questionnaire that requests
the disclosure of such duality of interest or possible conflict of interest.
ARTICLE VIII. MISCELLANEOUS
Section 1. Fiscal Year. Except as otherwise provided by the Board of
------------
Trustees, the fiscal year of the Corporation shall end on December 31 of each
year.
Section 2. Seal. The Board of Trustees shall have power to adopt and alter
-----
the seal of the Corporation.
Section 3. Execution of Instruments. All deeds, leases, transfers,
-------------------------
contracts, bonds, stock certificates and other certificates representing
securities, notes and other obligations and certificates to be executed by the
Corporation in the ordinary course of its business without Trustee action may be
executed on behalf of the Corporation by the Chairman of the Board, the Chief
Executive Officer, the President or any other officer or agent of the
Corporation as the Board of Trustees may authorize for such purpose.
6
<PAGE>
Section 4. Voting of Securities. Unless the Board of Trustees otherwise
---------------------
provides, the Chief Executive Officer, the President or any other officer or
agent designated by the Board of Trustees may waive notice of or act on behalf
of the Corporation or appoint another person or persons to act as proxy or
attorney in fact for the Corporation with or without discretionary power and/or
power of substitution at any meeting, or to execute any written consent in lieu
of any meeting, of the stockholders or shareholders of any other corporation or
organization any of whose securities are held by the Corporation.
Section 5. Subsidiary. For purposes of these by-laws, "subsidiary" of the
-----------
Corporation means (i) any corporation more than 50 % of whose stock of any class
or classes having by the terms thereof ordinary voting power to elect a majority
of the directors of such corporation (irrespective of whether or not at the time
stock of any class or classes of such corporation shall have or might have
voting rights by reason of the happening of any contingency) is at the time
owned by the Corporation directly or indirectly through subsidiaries and (ii)
any partnership, association, joint venture or other entity in which the
Corporation directly or indirectly through subsidiaries has more than a 50%
equity interest at the time.
ARTICLE IX. AMENDMENTS
These by-laws may be amended by a majority vote of the Corporators present
in person and voting at a duly constituted regular or special meeting of the
Corporators; provided, however, that the notice for such meeting must state that
a purpose of the meeting is to consider and act upon a proposed by-law amendment
and shall include the text of the proposed amendment or a summary thereof.
7
<PAGE>
EXHIBIT 4
<PAGE>
CHARTERED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
BROOKLINE BANCORP, INC.
BROOKLINE, MASSACHUSETTS
$.01 par value common stock--fully paid and non assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of Brookline Bancorp, Inc. (the "Corporation"), a
corporation chartered under the laws of the Commonwealth of Massachusetts.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE DEPOSITORS
INSURANCE FUND OR ANY OTHER INSURER.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
Dated:____________________
_____________________________ __________________________
TREASURER (SEAL) PRESIDENT
<PAGE>
BROOKLINE BANCORP, INC.
This Certificate and the shares of common stock represented hereby are issued
and shall be held subject to the laws of the Commonwealth of Massachusetts and
the Articles of Organization and Bylaws of the Corporation, to all of which the
holder by acceptance hereof assents. The Corporation will furnish to any
shareholder, upon written request and without charge, a copy of the Articles of
Organization and Bylaws of the Corporation.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder, upon written request and without charge, a full description
of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The Articles of Organization require the affirmative vote of the
holders of at least 80% of the voting stock of the Corporation, voting together
as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Articles of Organization.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______________Custodian_____________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _______________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
_______________________________________________________
_______________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
________________________________________________________________________________
(please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
______________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
_____________Attorney to transfer the said shares on the books of the within
named corporation with full power of substitution in the premises.
Dated, _____________________________
In the presence of Signature:
_____________________________ _______________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 5
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.]
(202) 274-2002
November 17, 1997
The Board of Trustees
Brookline Savings Bank
160 Washington Street
Brookline, Massachusetts 02147
RE: BROOKLINE BANCORP, INC.
COMMON STOCK PAR VALUE $.01 PER SHARE
-------------------------------------
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Brookline Bancorp, Inc.
(the "Company") Common Stock, par value $.01 per share (the "Common Stock"). We
have reviewed the Company's Articles of Organization, Registration Statement on
Form S-1 (the "Form S-1"), as well as applicable statutes and regulations
governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form S-1, the Common Stock, when sold, will be legally issued, fully paid and
non-assessable.
This Opinion has been prepared solely for the use of the Company in
connection with the Form S-1. We hereby consent to our firm being referenced
under the caption "Legal and Tax Matters."
Very truly yours,
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
By: /s/ Eric Luse
------------------------------------
Eric Luse
<PAGE>
EXHIBIT 8.1
<PAGE>
FORM OF FEDERAL TAX OPINION
______________, 1997
Board of Trustees
Brookline Savings Bank
Board of Directors
Brookline Bancorp, Inc.
Board of Trustees
Brookline Bancorp, M.H.C.
160 Washington Street
Brookline , Massachusetts 02147
RE: MUTUAL HOLDING COMPANY FORMATION
--------------------------------
Ladies and Gentlemen:
We have been requested as special counsel to Brookline Savings Bank (the
"Bank"), a Massachusetts chartered mutual savings bank, Brookline Bancorp,
M.H.C., a Massachusetts chartered mutual holding company (the "Holding
Company"), and Brookline Bancorp, Inc. a Massachusetts chartered stock company
(the "Stock Holding Company") to express our opinion concerning certain Federal
income tax matters relating to the Plan of Reorganization from Mutual Savings
Bank to Mutual Holding Company and Stock issuance Plan (the "Plan of
Reorganization") of the Bank, the Mutual Holding Company, a newly organized
Massachusetts chartered stock savings bank established by the Mutual Holding
Company as a subsidiary (the "Stock Bank"), and the Stock Holding Company. Upon
consummation of the merger, Stock Bank will assume the name "Brookline Savings
Bank."
In connection therewith, we have examined the Plan of Reorganization and
certain other documents of or relating to the Reorganization, some of which are
described or referred to in the Plan of Reorganization and which we deemed
necessary to examine in order to issue the opinions set forth below. Unless
otherwise defined, all terms used herein have the meanings given to such terms
in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures. We have further
assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 2
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
Board of Trustees of the Bank at a meeting duly called and held and by the
corporators of the Bank at a Meeting of Corporators duly called and held
pursuant to Massachusetts law; that the Bank will comply with the terms and
conditions of the Plan of Reorganization; and that the various representations
and warranties which are provided to us are accurate, complete, true and
correct. Accordingly, we express no opinion concerning the effect, if any, of
variations from the foregoing. We specifically express no opinion concerning
tax matters relating to the Plan of Reorganization under state and local tax
laws and under Federal income tax laws except on the basis of the documents and
assumptions described above.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"); existing and proposed treasury regulations thereunder; current
administrative rulings, notices and procedures; and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date
hereof, and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
In rendering our opinions, we have assumed that the persons and entities
identified in the Plan of Reorganization will at all times comply with the
requirements of Code Sections 368(a)(1)(A) and 368(a)(2)(D), the other
applicable state and Federal laws and the representations of the Bank. In
addition, we have assumed that the activities of the persons and entities
identified in the Plan of Reorganization will be conducted strictly in
accordance with the Plan of Reorganization. Any variations may affect the
opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the Internal Revenue Service (the
"Service") or a court.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank as described in the Affidavit of Representations of
the President of the Bank, incorporated herein by reference.
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 3
STATEMENT OF FACTS
------------------
The Bank is a Massachusetts chartered mutual savings bank headquartered in
Brookline, Massachusetts. The Bank is regulated by the Commissioner of Banks of
the Commonwealth of Massachusetts (the "Commissioner"), including the Division
of Banks and the Board of Bank Incorporation. The Bank is also regulated by the
Federal Deposit Insurance Corporation (the "FDIC"). The Bank's principal
executive office is located at 160 Washington Street, Brookline, Massachusetts
02147. The Bank has, and the Mutual Holding Company and Stock Holding Company
will have, a June 30 fiscal year end.
As a Massachusetts-chartered mutual savings bank, the Bank has no capital
stock. Instead, depositors of the Bank possess the right (i) to share in the
Bank's current earnings (which is in the nature of the right to receive interest
on deposits); and (ii) upon liquidation of the Bank, to share in any surplus
remaining after all of the Bank's liabilities have been satisfied. A
depositor's rights terminate when the depositor's account is closed.
PROPOSED TRANSACTION
--------------------
On __________, 1997, the Board of Trustees of the Bank adopted the Plan of
Reorganization. In a separate meeting of the corporators of the Bank, held on
__________, 1997 the corporators of the Bank approved the Plan of
Reorganization. For what are represented to be valid business purposes, the
Bank's Board of Trustees has decided to convert to the mutual holding company
structure pursuant to Chapter 167H of the Massachusetts General Laws Annotated.
The following steps are proposed:
(i) Corporators will organize a de novo mutual savings bank ("De Novo
Bank") and will capitalize De Novo Bank with $10,000;
(ii) De Novo Bank will reorganize as a Massachusetts chartered mutual
holding company to be named Brookline Bancorp, M.H.C. ("Mutual
Holding Company") pursuant to Massachusetts law;
(iii) The Mutual Holding Company will organize and transfer virtually all
of its assets (i.e., $10,000) to a new stock savings bank subsidiary
of Mutual Holding Company ("Stock Bank"), in exchange for 100% of
Stock Bank's common stock;
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 4
(iv) Bank will merge with and into the Stock Bank with the Stock Bank as
the surviving entity. Contemporaneously with the merger, Stock Bank
will change its name to Brookline Savings Bank.
(v) The Mutual Holding Company will organize a Delaware chartered stock
as a separate wholly-owned company subsidiary of the (the "Stock
Holding Company") Mutual Holding Company.
(vi) The Mutual Holding Company will contribute all of the shares of
common stock of the Stock Bank to the Stock Holding Company.
(vii) Contemporaneously, with the contribution set forth in "(vi)" the
Stock Holding Company will offer to sell up to 49.9% of its Common
Stock in the Subscription Offering and, if applicable, the Direct
Community Offering.
Upon the transfer of assets by the Bank to the Stock Bank and the Stock
Bank's assumption of the Bank liabilities, if any, those persons who, as of the
date of the exchange, hold depository rights with respect to the Bank will
thereafter have such rights solely with respect to the Stock Bank. Each deposit
account with the Bank at the time of the exchange will become a deposit account
in the Stock Bank in the same amount and upon the same terms and conditions,
except that the holders of each such deposit account will have liquidation
rights with respect to the Mutual Holding Company rather than the Stock Bank.
Similarly, borrowers of the Bank will become borrowers of the Stock Bank with
the same status they had with the Bank.
The principal purposes of the Reorganization are to reorganize the Bank
into a corporate structure that enables it to access capital sources not
available to mutual savings banks, and to facilitate acquisitions and the
diversification of the Holding Company's activities.
Following the Reorganization, the Stock Holding Company will have the power
to issue shares of capital stock (including common and preferred stock) to
persons other than the Mutual Holding Company. So long as the Mutual Holding
Company is in existence, however, it must own a majority of the voting stock of
the Stock Holding Company. The Stock Holding Company may issue any amount of
non-voting stock to persons other than the Mutual Holding Company.
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 5
SUMMARY OF OPINIONS
-------------------
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
1. The conversion of the De Novo Bank into the Mutual Holding Company, a
Massachusetts mutual holding company, will qualify as a tax-free
reorganization under Code Section 368(a)(1)(F).
2. Provided that the merger of the Bank into Stock Bank qualifies as a
merger under Massachusetts law, the merger of the Bank into the Stock
Bank with the Stock Bank as the survivor and the transfer of the
depositors' equity interest in the Bank to the Mutual Holding Company
in exchange for equity interests in the Mutual Holding Company
qualifies as a tax-free reorganization described in Code Sections
368(a)(1)(A) and 368(a)(2)(D). Bank, Stock Bank and Mutual Holding
Company are each "a party to the reorganization," as defined in Code
Section 368(b).
3. Bank will recognize no gain or loss upon the transfer of substantially
all its assets to Stock Bank solely in exchange for equity interests
(voting and liquidation rights) in Mutual Holding Company and Stock
Bank's assumption of its liabilities, if any. (Rev. Rul. 57-278, 1957-
1 C.B. 124).
4. Neither Stock Bank nor Mutual Holding Company will recognize gain or
loss upon the receipt by Stock Bank of substantially all of the assets
of Bank in exchange for equity interests in Mutual Holding Company and
Stock Bank's assumption of Bank's liabilities.
5. The Mutual Holding Company's basis in the stock of Stock Bank will
increase by an amount equal to Bank's net basis in the property
transferred to the Stock Bank.
6. Stock Bank's basis in the property received from Bank will be the same
as the basis of such property in the hands of Bank immediately prior
to the Reorganization. Code Section 362(b).
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 6
7. Stock Bank's holding period for the property received from Bank will
include the period during which such property was held by Bank. Code
Section 1223(2).
8. Subject to the conditions and limitations set forth in Code Sections
381, 382, 383, and 384 and the Treasury regulations promulgated
thereunder, Stock Bank will succeed to and take into account the items
of Bank described in Code Section 381(c). (Section 381(a) and Section
1.381(a)-1 of the Income Tax Regulations).
9. No gain or loss will be recognized by the depositors of Bank on the
receipt of equity interests with respect to Mutual Holding Company in
exchange for their equity interests surrendered therefor. Section
354(a)(1).
10. Each depositor's aggregate basis, if any, in the Mutual Holding
Company equity interest received in the exchange will equal the
aggregate basis, if any, of each depositor's equity interest in the
Bank. Code Section 358(a)(1).
11. The holding period of Mutual Holding Company equity interests received
by the depositors of Bank will include the period during which the
Bank equity interests surrendered in exchange therefor were held. Code
Section 1223(1).
12. The Mutual Holding Company and the minority stockholders of the Stock
Holding Company ("Minority Stockholders") will recognize no gain or
loss upon the transfer of Stock Bank stock and cash, respectively, to
the Stock Holding Company in exchange for stock of the Stock Holding
Company. Code Sections 351(a) and 357(a):
13. The Stock Holding Company will recognize no gain or loss upon its
receipt of property from the Mutual Holding Company and Minority
Stockholders in exchange for Common Stock of Stock Holding Company.
Code Section 1032(a).
14. The Mutual Holding Company will increase its basis in its shares of
Stock Holding Company Common Stock by the Mutual Holding Company's
basis in its Stock Bank stock.
* * *
<PAGE>
Brookline Savings Bank
Brookline Bancorp, Inc.
Brookline Bancorp, M.H.C.
______________, 1997
Page 7
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us.
There can be no assurance that contrary positions to the ones set forth in
our opinions may not be taken by the Service, or that a court considering the
issues would not hold contrary to such opinions.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above. This opinion is
rendered for your use only, and may not be delivered to or relied upon by any
other person or entity without our express written consent.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK
& SCHICK, A Professional Corporation
<PAGE>
EXHIBIT 8.2
<PAGE>
[LETTERHEAD OF FOLEY, HOAG, & ELIOT LLP APPEARS HERE]
,1997
BROOKLINE SAVINGS BANK
160 Washington Street
Brookline, MA 02147
Re: Mutual Holding Company Formation
Ladies and Gentlemen:
We have acted as counsel to Brookline Savings Bank (the "Bank"), a
Massachusetts chartered mutual savings bank, in connection with certain
Massachusetts state tax consequences of the transactions described in the
Brookline Savings Bank Plan of Reorganization from a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan, dated as of November ____, 1997
(the "Plan"). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Plan.
We have examined the law and such papers, including the Plan, as deemed
necessary to render this opinion. As to questions of fact material to our
opinions we have relied upon representations set forth in the Plan (including
the Exhibits), and such other documents pertaining to the transactions
contemplated by the Plan as we have deemed appropriate and necessary. In
rendering our opinion, we have relied upon the opinions of Luse Lehman Gorman
Pomerenk & Schick related to the federal tax consequences of the transactions
contemplated by the Plan (the "Federal Tax Opinions"), without undertaking to
verify the same by independent investigation.
Pursuant to the Plan, a newly-created mutual savings bank will convert to a
mutual holding company, Brookline Bancorp, M.H.C. (the "Mutual Holding
Company"). The Mutual Holding Company will then transfer all of its assets to a
newly-organized Massachusetts chartered stock savings bank (the "Stock Bank")
that is a wholly-owned subsidiary of the Mutual Holding Company in exchange for
all of the outstanding common stock of the Stock Bank.
Subsequently, the Bank will merge with and into the Stock Bank (the
"Merger"), with the Stock Bank surviving; the Bank's separate corporate
existence will cease. In the Merger, depositors of the Bank will exchange their
rights (i) to share in the Bank's current earnings
<PAGE>
BROOKLINE SAVINGS BANK
,1997
Page 2
(which is in the nature of the right to receive interest on deposits); and (ii)
upon liquidation of the Bank, to share in any surplus remaining after all of the
Bank's liabilities have been satisfied (collectively, "Equity Interests") for
Equity Interests in the Mutual Holding Company.
After the Merger, the Mutual Holding Company will contribute the stock of
the Stock Bank to a newly-organized, wholly-owned subsidiary (the "Stock Holding
Company") in exchange for common stock of the Stock HOlding Company. Finally,
the Stock Holding Company will sell 49.9 percent of its voting stock in the
Subscription Offering or in a Direct Community Offering.
In our examination we have assumed that (i) each entity that is a party to
any of the documents (the "Documents") described in the preceding paragraphs has
been duly organized under the laws of its state or country of organization, is
validly existing and in good standing under such laws, and is duly qualified and
in good standing in each jurisdiction in which it is required to be qualified to
engage in the transactions contemplated by the Documents; (ii) each such entity
has full power, authority, capacity and legal right to enter into and perform
the terms of the Documents and the transactions contemplated thereby; (iii) the
copies or originals of the Documents furnished to us are authentic (if
originals) or accurate (if copies), those that are contracts or instruments are
enforceable and effective in accordance with their terms against all parties
thereto, and all signatures are genuine; (iv) any representations made in the
Documents are, and will continue to be, true and complete, and no default exists
under any of the Documents; (v) the business and affairs of each of the entities
that is a party to any of the Documents will be conducted in accordance with the
Documents and all relevant laws; (vi) no actions will be taken, no change in any
of the Documents will occur, and no other events will occur, after the date
hereof, that would have the effect of altering the facts, Documents or
assumptions upon which this opinion is based; and (vii) the Federal Tax Opinions
have been delivered and have not been withdrawn.
The opinions rendered herein are based upon the provisions of the
Massachusetts General Laws, proposed, temporary and final regulations of the
Massachusetts Department of Revenue (the "DOR"), judicial decisions, and rulings
and administrative interpretations of the Massachusetts General Laws, as each of
the foregoing exist on the date hereof. The opinions rendered herein are not
binding on the DOR or a court of law, and no assurance can be given that
legislative or administrative action or judicial decisions that differ from the
opinions rendered below will not be forthcoming. Any such differences could be
retroactive to transactions or business operations prior to such action or
decisions.
We express no opinion as to the Massachusetts state tax consequences other
than those described below, if any, or as to any federal, local or foreign
income or other tax consequences, with respect to the transactions contemplated
by the Plan.
<PAGE>
BROOKLINE SAVINGS BANK
, 1997
Page 3
Based on the foregoing, we are of opinion, as of the date hereof and under
existing law, as follows:
1. For purposes of Massachusetts General Laws, chapter 63, sections 1, 2,
30, and 32, no gross income, gain or loss will be recognized by the Bank, the
Mutual Holding Company, the Stock Bank, or the Stock Holding Company as a result
of the transactions comtemplated by the Plan.
2. The Mutual Holding Company's basis in the stock of Stock Bank received
in the transaction will be the same as the basis of the property transferred in
exchange therefor, reduced by the sum of the liabilities assumed by the Stock
Bank or to which assets transferred are taken subject.
3. The Mutual Holding Company's holding period for the common stock of
the Stock Bank received in the transaction will include the period during which
the property exchanged was held by the Mutual Holding Company, provided that
such property was a capital asset in the hands of the Mutual Holding Company on
the date of the exchange.
4. The Stock Bank's basis in the assets received from the Bank in the
Merger will be same as the basis of such property in the hands of the Bank
immediately prior to the Merger.
5. The Stock Bank's holding period in the assets received from the Bank
in the Merger will include the period during which the assets were held by the
Bank, provided that such assets were capital assets in the hands of the Bank on
the date of the Merger.
6. The Mutual Holding Company's basis in the stock of the Stock Holding
Company received in the transaction will be the same as the basis of the
property transferred in exchange therefor, including the stock of the Stock
Bank, reduced by the sum of the liabilities assumed by the Stock Holding
Company or to which assets transferred are taken subject.
7. The Mutual Holding Company's holding period for the stock of the Stock
Holding Company received in the transaction will include the period during which
the property exchanged was held or considered to have been held by the Mutual
Holding Company, provided that such property was a capital asset in the hands of
the Mutual Holding Company on the date of the exchange.
8. No gross income, gain or loss will be recognized by the depositors of
the Bank on the receipt of Equity Interests with respect to the Mutual Holding
Company in exchange for their Equity Interests with respect to the Bank.
<PAGE>
BROOKLINE SAVINGS BANK
, 1997
Page 4
9. Each depositor's aggregate basis in the Mutual Holding Company Equity
Interest received in the Merger will equal the aggregate basis of each
depositor's Equity Interest in the Bank.
10. A depositor's holding period in a Mutual Holding Company Equity
Interest received in the Merger will include the period during which the Bank
Equity Interest surrendered in exchange therefor was held.
We are furnishing this letter to you solely for the purpose of satisfying
Section 4 of the Plan. This letter is not to be used, circulated, quoted or
otherwise referred to for any other purpose without our prior written consent.
We consent, however, to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the Prospectus.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: ______________________
A Partner
<PAGE>
EXHIBIT 8.3
<PAGE>
[LETTERHEAD OF FELDMAN FINANCIAL ADVISORS, INC APPEARS HERE]
- --------------------------------------------------------------------------------
November 17, 1997
Board of Trustees
Brookline Savings Bank
160 Washington Street
Brookline, Massachusetts 02147
Gentlemen:
It is the opinion of Feldman Financial Advisors, Inc., that the subscription
rights to be received by the eligible account holders and other eligible
subscribers of Brookline Savings Bank (the "Bank"), pursuant to the Plan of
Reorganization adopted by the Board of Trustees of the Bank, do not have any
economic value at the time of distribution or at the time the rights are
exercised in the subscription offering.
Such opinion is based on the fact that the subscription rights are acquired by
the recipients without payment therefor, are nontransferable and of short
duration, and afford the recipients the right only to purchase shares of common
stock of Brookline Bancorp, Inc., the holding company formed to acquire all of
the capital stock of the Bank, at a price equal to its estimated aggregate pro
forma market value, which will be the same price at which any unsubscribed
shares will be sold in the community offering.
Sincerely,
/s/ Feldman Financial Advisors, Inc.
FELDMAN FINANCIAL ADVISORS, INC.
<PAGE>
EXHIBIT 10.1
<PAGE>
FORM OF
BROOKLINE SAVINGS BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of _________, 1997 by and between
Brookline Savings Bank (the "Bank"), a Massachusetts-chartered stock savings
bank, with its principal administrative office at 160 Washington Street,
Brookline, Massachusetts 02147-7612 and ___________ (the "Executive"). Any
reference to "Company" herein shall mean Brookline Bancorp, Inc. the stock
holding company parent of the Bank or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to serve as
__________________________ of the Bank and the Company. During said period,
Executive also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Bank. Failure to reelect Executive as
__________________ without the consent of the Executive during the term of this
Agreement shall constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall begin
as of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary date
of this Agreement, and continuing at each anniversary date thereafter, the
Agreement shall renew for an additional year such that the remaining term shall
be three (3) years unless written notice is provided to Executive at least ten
(10) days and not more than thirty (30) days prior to any such anniversary date,
that his employment shall cease at the end of thirty-six (36) months following
such anniversary date. Prior to each notice period for non-renewal, the
disinterested members of the Board of Directors of the Bank ("Board") will
conduct a comprehensive performance evaluation and review of the Executive for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
<PAGE>
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall faithfully perform his duties hereunder
including activities and services related to the organization, operation and
management of the Bank.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $__________ per
year ("Base Salary"). Such Base Salary shall be payable biweekly. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than ___________, 199_.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase, but not decrease, Executive's Base Salary (any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement). In
addition to the Base Salary provided in this Section 3(a), the Bank shall
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, health-and-
accident plans, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate (and he shall
be entitled to a pro rata distribution under any incentive compensation or bonus
plan as to any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement (including but not limited to Rotary Club dues) and may
provide such additional compensation in such form and such amounts as the Board
may from time to time determine.
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<PAGE>
(d) Compensation and reimbursement to be paid pursuant to paragraphs (a),
(b) and (c) of this Section 3 shall be paid by the Bank and the Company,
respectively, on a pro rata basis, based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
(e) In addition to the foregoing, Executive shall be entitled to receive
fees for serving as a director of the Bank in the same amount and on the same
terms as fees are paid to other directors of the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) The provisions of this Section shall apply upon the occurrence of an
Event of Termination (as herein defined) during the Executive's term of
employment under this Agreement. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint Executive
as President and Chief Executive Officer,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above,
(C) a relocation of Executive's principal place of employment by more
than 30 miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of
this Agreement,
(D) liquidation or dissolution of the Bank or Company other than
liquidations or dissolutions that are caused by reorganizations that
do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
3
<PAGE>
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time following a Change in Control during the term
of this Agreement. For these purposes, a Change in Control of the Bank or the
Company shall mean a change in control of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Bank Holding
Company Act of 1956, as amended, and applicable rules and regulations
promulgated thereunder, as in effect at the time of the Change in Control
(collectively, the "BHCA"); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.
4
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to three (3) times the sum of (i) Base Salary and (ii) the highest rate of bonus
awarded to the Executive during the prior three years. At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to the total amount of
payments permissible under Section 280G of the Code or any
successor thereto.
then the Termination Benefits to be paid to Executive shall be so
reduced so as to be a Non-Triggering Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall mean
termination in accordance with the Bank's retirement policy or in accordance
with any retirement arrangement established with Executive's consent with
respect to him. Upon termination of Executive upon Retirement, Executive shall
be entitled to all benefits under any retirement plan of the Bank and other
plans to which Executive is a party.
In the event Executive is unable to perform his duties under this Agreement
on a full-time basis for a period of six (6) consecutive months by reason of
illness or other physical or mental disability, the Employer may terminate this
Agreement, provided that the Employer shall continue
5
<PAGE>
to be obligated to pay the Executive his Base Salary for the remaining term of
the Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institutions industry. For purposes of this paragraph, no act or failure to act
on the part of Executive shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Executive's action or omission was in the best interest of the Bank.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options granted to Executive
under any stock option plan of the Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination for Cause pursuant to Section 7 hereof, and shall not
be exercisable by Executive at any time subsequent to such Termination for
Cause.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
6
<PAGE>
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the voluntary termination
by the Executive in which case the Date of Termination shall be the date
specified in the Notice, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement,
provided such dispute is resolved within the term of this Agreement. If such
dispute is not resolved within the term of the Agreement, the Bank shall not be
obligated, upon final resolution of such dispute, to pay Executive compensation
and other payments accruing beyond the term of the Agreement. Amounts paid
under this Section shall be offset against or reduce any other amounts due under
this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a result
of which the Association is paying Executive benefits under Section 4 of this
Agreement, Executive agrees not to compete with the Bank and/or the Company for
a period of one (1) year following such
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termination in any city, town or county in which the Bank and/or the Company has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Bank and/or the Company. The parties
hereto, recognizing that irreparable injury will result to the Bank and/or the
Company, its business and property in the event of Executive's breach of this
Subsection 9(a) agree that in the event of any such breach by Executive, the
Bank and/or the Company will be entitled, in addition to any other remedies and
damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employers, employees and all
persons acting for or with Executive. Executive represents and admits that
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Bank and/or the Company, and that the enforcement of a remedy by way of
injunction will not prevent Executive from earning a livelihood. Nothing herein
will be construed as prohibiting the Bank and/or the Company from pursuing any
other remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the
8
<PAGE>
Bank are not timely paid or provided by the Bank, such amounts and benefits
shall be paid or provided by the Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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15. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Massachusetts
but only to the extent not superseded by federal law.
17. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
18. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
19. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank). If such action, suit or proceeding is brought
against Executive in his capacity as an officer or director of the Bank,
however, such indemnification shall not extend to matters as to which Executive
is finally adjudged to be liable for willful misconduct in the performance of
his duties.
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20. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to
be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: BROOKLINE SAVINGS BANK
__________________________ By: _____________________________________
Secretary Chairman of the Board
WITNESS: EXECUTIVE:
__________________________ By: _____________________________________
11
<PAGE>
EXHIBIT 10.2
<PAGE>
FORM OF
BROOKLINE SAVINGS BANK
SEVERANCE AGREEMENT
This AGREEMENT is made effective as of ____________________, 1997 by and
between Brookline Savings Bank, a stock savings bank (the "Bank"), and
_______________________ ("Executive"). Any reference to "Company" herein shall
mean Brookline Bancorp, Inc., or any successor thereto.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect his position therewith for the period
provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of _________________________ for the Bank, a position of substantial
responsibility;
NOW, THEREFORE, in consideration of the contribution and of Executive, and
upon the other terms and conditions hereinafter provided, the parties hereto
agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of [ ] ( ) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the term of this
Agreement shall be extended for a period of one year in addition to the then-
remaining term, provided that (1) the Bank has not given notice to the Employee
in writing at least 90 days prior to such anniversary that the term of this
Agreement shall not be extended further; and (2) prior to such anniversary, the
Board of Trustees of the Bank ("Board") explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL
(a) Upon the occurrence of a Change in Control of the Bank or the Company
(as herein defined) followed at any time during the term of this Agreement by
the voluntary or involuntary termination of Executive's employment, other than
for Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 30 miles from its
location immediately prior to the Change in Control.
(b) A "Change in Control" of the Bank or the Company shall mean a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Bank Holding Company Act of 1956, as amended,
and applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control (collectively, the "BHCA"); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
<PAGE>
of the Company representing 25% or more of the combined voting power of
Company's outstanding securities except for any securities purchased by the
Bank's employee stock ownership plan or trust; or (b) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution
occurs; or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the Plan
are to be exchanged for or converted into cash or property or securities not
issued by the Company; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's intentional failure
to perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.
3. TERMINATION
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of the
Executive's employment other than for Termination for Cause, the Bank shall be
obligated to pay the Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay, a sum equal to three times the average of the three preceding years' annual
base salary paid and bonuses awarded to the Executive during such years. If the
Executive has been employed by the Bank for less than one year, then the
severance pay shall be a sum equal to thirty-six times the average monthly
salary and three times the average bonuses, if any, paid to the Executive during
such period. At the election of the Executive, which election is to be made on
an annual basis during the month of January, and which election is irrevocable
for the year in which made and upon the occurrence of a Change in Control, any
payments shall be made in a lump sum or paid monthly during the remaining term
of this Agreement following the Executive's termination. In the event that no
election is made, payment to the Executive will be made on a monthly
2
<PAGE>
basis during the remaining term of this Agreement. Such payments shall not be
reduced in the event the Executive obtains other employment following
termination of employment.
(b) Upon the occurrence of a Change in Control of the Bank followed at any
time during the term of this Agreement by the Executive's voluntary or
involuntary termination of employment, other than for Termination for Cause, the
Bank shall cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance. Such coverage and payments shall cease upon expiration
of thirty-six (36) months.
(c) In the event that the Executive is receiving monthly payments pursuant
to Section 3(a) hereof, on an annual basis, thereafter, the Executive shall
elect whether the balance of the amount payable under the Agreement at that time
shall be paid in a lump sum or on a pro rata basis. Such election shall be
irrevocable for the year for which such election is made.
(d) Notwithstanding the preceding paragraphs of this Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Code or any successor thereto, and
in order to avoid such a result Termination Benefits will be reduced, if
necessary, to an amount (the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among Termination Benefits provided by the
preceding paragraphs of this Section 3 shall be determined by the Executive.
4. NOTICE OF TERMINATION
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall be
immediate). Except as set forth below in paragraph (c), in no event shall the
Date of Termination exceed 30 days from the date Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
date of termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
3
<PAGE>
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the earlier of 120
days from the date of the Notice of Termination or the date upon which the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement. Notwithstanding the foregoing, no compensation or benefits shall be
paid to the Executive in the event the Executive is Terminated for Cause. In
the event that such Termination for Cause is found to have been wrongful or such
dispute is otherwise decided in the Executive's favor, the Executive shall be
entitled to receive all compensation and benefits which accrued for up to a
period of nine months after the Termination for Cause.
5. SOURCE OF PAYMENTS
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
7. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED PROVISIONS
4
<PAGE>
(a) The Bank may terminate the Executive's employment at any time.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) (12 USC (S)1818(e)(3)) or 8(g) (12 USC (S)1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, the Bank's obligations under this contract
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 USC (S)1818(e)) or 8(g) (12 USC (S)1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 USC
(S)1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) (12 USC (S)1823(c)) of the Federal Deposit Insurance Act, as amended by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989; or (ii)
when the Bank is determined by the FDIC to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not be
affected by such action.
10. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Massachusetts, unless
preempted by Federal law as now or hereafter in effect.
5
<PAGE>
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
subject to Section 3(c) hereof, Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
13. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank if Executive is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
14. INDEMNIFICATION
The Bank shall provide the Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
the Executive (and his heirs, executors and administrators) to the fullest
extent permitted under federal law and as provided in the Bank's Charter and
Bylaws against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank). If such action, suit or proceeding is brought
against Executive in his capacity as an officer or director of the Bank,
however, such indemnification shall not extend to matters as to which Executive
is finally adjudged to be liable for willful misconduct in the performance of
his duties. No indemnifications shall be paid that would violate 12 U.S.C.
1828(k) or any regulations promulgated thereunder.
15. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
6
<PAGE>
16. SIGNATURES
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by
its duly authorized officer, and Executive has signed this Agreement, on the day
and date first above written.
ATTEST: BROOKLINE SAVINGS BANK
_________________ By: _____________________________
President
WITNESS:
_________________ By: _____________________________
Executive
<PAGE>
EXHIBIT 10.3
<PAGE>
Supplemental Retirement Income Agreement
AGREEMENT, made as of this 28th of February 1995 by and between BROOKLINE
SAVINGS BANK, a savings bank organized and existing under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Bank"), and
RICHARD P. CHAPMAN, JR. (hereinafter referred to as "Employee").
W I T N E S S E T H:
--------------------
A. Employee has been employed by the Bank in an Executive capacity for many
years and the Bank wishes to retain Employee in such capacity.
B. The Bank is willing to provide certain retirement/death/disability benefits
to Employee in addition to those that may be available to Employee under the
Bank's current retirement and pension plans (the "Current Plans").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Definitions. For purposes hereof the following terms shall have the
-----------
meanings ascribed to them below:
"Average Compensation" shall mean the average of the compensation, received
by the Employee in the 3 calendar years in the 10 calendar-year period prior to
the Employee's retirement which produces the highest rate of compensation.
<PAGE>
"Beneficiary" shall mean that person designated, in the most recent writing
submitted by Employee to the Bank (the "Beneficiary Designation"), as the
Beneficiary under this Supplemental Retirement Income Agreement. In the event
that Employee dies without having so named a person surviving him as the
Beneficiary hereunder, the Beneficiary hereunder shall be the Employee's estate.
In the event the Beneficiary survives the Employee but dies before the
expiration of the Benefit Period, those persons, if any, named as alternate
beneficiaries in the Beneficiary Designation (the "Alternates") shall thereafter
be deemed to be the Beneficiary hereunder, provided however, that if the
----------------
Alternates are deemed to be the Beneficiary hereunder but all of such Alternates
die before the expiration of the Benefit Period, the Employee's estate shall be
deemed to be the Beneficiary hereunder.
"Benefit" shall mean the Monthly Benefit or Lump-Sum Benefit, as the case
may be.
"Benefit Accruals" shall mean the aggregate accruals made by the Bank on
its books, in order to fully reflect the costs of the Normal Retirement Benefit
to be paid hereunder, based upon an assumed Retirement at age 65.
"Benefit Period" shall mean, in the case where Employee Retires prior to
death, the period commencing on the date the Employee Retires and ending on the
later to occur of (i) said Employee's death or (ii) the expiration of 240 months
from the Employee's Retirement; and, in the case where the Employee dies while
still employed by the Bank, the period commencing on the date of the Employee's
death and ending on the earlier to occur of (i) the expiration of 240 months
from the Employee's death and (ii) the date upon which Employee would have
attained (if he had survived to such date) the Life Expectancy Age.
"Board" shall mean the Board of Trustees of the Bank.
"Change of Control" shall be deemed to occur (a) if a law or regulation is
enacted, established or amended that changes the method of election of the
Bank's Trustees and/or corporators, (b) if the Bank becomes insolvent, (c) if
the Bank converts to stock form other than as a subsidiary of a successor mutual
holding company, sells a majority of its assets or enters into a transaction in
which another entity assumes a majority of the liabilities of the Bank, (d) if
the mutual holding company of the Bank converts to stock form, or (e) if a
liquidation or dissolution or merger of the Bank or the sale of all or
substantially all of the Bank's assets occurs. A "Change of Control" shall also
be deemed to occur if the Bank's Tier 1 or primary capital falls below 6%, or in
the event a mutual holding company is formed, the combined capital ratio of the
mutual holding company and the subsidiary bank falls below 6%.
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<PAGE>
"Committee" shall mean the Bond and Salary Committee of the Bank, or such
other Committee of the Bank as the Board, from time to time, may designate to
oversee and administer the terms of this Agreement.
"Compensation" shall mean the total annual compensation which is subject to
withholding of income taxes by the Bank plus any compensation for the same year
which is to be received as part of a deferred compensation plan of the Bank.
"Early Retirement Benefit" shall mean the amount (determined as of the date
of Retirement) that would completely amortize the Benefit Accruals made through
such Retirement, assuming:
(i) such amount is to be paid each month of the Benefit Period; and
(ii) the Benefit Period will last the longest possible time.
"Life Expectancy Age" shall mean the age determined by adding to the
Employee's age at death the standard life expectancy based upon mortality tables
utilized by the Savings Bank Employees Retirement Association to calculate
pension benefits of a healthy male of the Employee's age at death, determined as
of the date of Employee's death.
"Lump-Sum Benefit" shall mean a one time payment equal to the actuarial
equivalent, on the date of such payment, of the Monthly Benefits remaining
payable hereunder. In the event of a "Change of Control" of the Bank, the
Employee, or if he is then deceased, the Beneficiary, shall have an irrevocable
right to elect to receive a lump sum payment.
"Monthly Benefit" shall mean in the case of Retirement on or after the
Employee's 65th birthday, one-twelfth (1/12) of the Normal Retirement Benefit;
and in the case of Retirement prior to Employee's 65th birthday, the Early
Retirement Benefit.
"Normal Retirement Benefit" shall mean an annual sum which is equal to
seventy (70%) of Average Compensation reduced by any distribution which the
Employee, his beneficiaries or his estate are entitled to receive from the
Savings Bank Employees Retirement Association Pension Plan derived from Bank
contributions and one-half of any Social Security benefits. If a lump sum
distribution is paid to the Employee, his beneficiaries or his estate by the
Savings Bank Employees Retirement Association Pension Plan the Normal Retirement
Benefit shall be reduced by an amount equal to a life only actuarial equivalent
of
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<PAGE>
the lump sum distribution. All calculations of benefits or actuarial equivalents
in this agreement shall be made using the mortality tables and interest
assumptions utilized by the Savings Banks Employees Retirement Association
Pension Plan to calculate benefits and actuarial equivalents.
"Retirement" or "Retires" shall mean the termination (by Employee or by the
Bank) of Employee's employment with the Bank, whether voluntary or involuntary
and including termination due to the death or total disability of the Employee,
while employed by the Bank.
"Total Disability" or "Totally Disabled" shall mean Employee's becoming so
incapacitated (either physically or mentally) that he is unable to fulfill all
of his duties as an executive employee of the Bank. The determination of Total
Disability shall be made, in the case of Employee's voluntary Retirement, by a
physician mutually acceptable to the Employee and the Bank and in the case of
termination pursuant to Section 6 hereof, by the Committee in accordance with
Section 6.
2. Employment. Employee agrees to continue to serve the Bank, devoting
----------
his normal working time to the interests and activities of the Bank, in the
capacity of President or such other executive capacity as the Board from time to
time may assign to him.
3. Salary, Etc. Payments hereunder shall be supplemental and in addition
-----------
to all other payments of salary, pension amounts or profit sharing payments made
by the Bank to or for the benefit of the Employee.
4. Supplemental Income upon Retirement. (a) Except as provided in Section
-----------------------------------
6 hereof, commencing on the first day of the first month after Employee's
Retirement, and on the first day of each month thereafter until the expiration
of the Benefit Period, the Bank shall pay to Employee (or to the Beneficiary if
the Employee is not then living) an amount equal to the Monthly Benefit.
Alternatively, and at any time, in lieu of future Monthly Benefits due
hereunder, the Bank may elect to make a Lump-Sum Benefit payment to Employee or
the Beneficiary, as the case may be.
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<PAGE>
(b) The Bank reserves the right to withhold from payment of Benefits
hereunder such amount of income, payroll, and other taxes as the Bank deems
advisable.
(c) Notwithstanding any provisions hereof to the contrary, if the Employee
Retires on or after his 65th birthday: (i) the Committee shall determine the
Early Retirement Benefit as of the date of such Retirement (the "Minimum
Benefit"), and (ii) if the Minimum Benefit exceeds the Monthly Benefit
calculated hereunder, then the Monthly Benefit for all purposes hereunder shall
be increased to equal said Minimum Benefit.
5. Benefits Unsecured. All Benefits hereunder shall be paid from the
------------------
general funds of the Bank and no special or separate fund shall necessarily be
established and no other segregation of assets shall necessarily by made to
assure the payment of the Benefits. Neither the Employee nor any Beneficiary
nor their estates shall have any right title or interest whatever in or to any
investments, including any insurance policy which the Employer may take out to
aid it in meeting its obligations hereunder. To the extent that the Employee or
any Beneficiary acquires the right to receive Benefits hereunder such rights
shall be no greater than the right of an unsecured creditor of the Bank.
Notwithstanding the foregoing, nothing herein contained shall preclude the Bank
from contributing to or making Benefit payments from a Rabbi Trust.
6. Disability. In the event that, prior to the termination of the
----------
Employee's employment with the Bank, the Committee shall determine that the
Employee has become Totally Disabled, the Committee may terminate the Employee's
employment by duly adopting (by a vote of a majority of the entire Committee)
and recording in its minutes a resolution to that effect and mailing a copy
thereof to the Employee at his regular post office address. Such termination
shall be effective on the date of the adoption of such resolution or upon such
later
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<PAGE>
date as may be specified therein, but only if the Employee shall be living on
such date. Such termination shall for purposes of this Agreement be deemed a
Retirement at age 65 as of the effective date of such termination.
7. Termination. (a) Notwithstanding any provisions hereof to the
-----------
contrary, this Agreement shall terminate and be of no further force or effect in
the event that (i) the Employee is discharged by the Bank for Cause, or (ii) the
Employee breaches any of the covenants contained in Section 8 hereof (said
termination to be effective even in the event that a court should find any of
the provisions of said Section 8 to be unenforceable; it being the intention of
the parties that this Agreement shall terminate if the Employee breaches any of
the original terms of Section 8 without regard to any judicial modification
pursuant to Section 8(b) hereof).
(b) For purposes of this Agreement, a discharge shall be for Cause if the
Committee shall determine (upon the unanimous vote of the entire Committee) that
any one or more of the following has occurred:
(i) The Employee shall have committed fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Bank or against
any customer or depositor thereof, or shall have committed any such action
against any other person or entity and such action materially and adversely
reflects upon the business affairs or reputation of the Bank or upon the
Employee's ability to perform his duties hereunder; or
(ii) The Employee shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any crime
involving moral turpitude;
(iii) The Employee shall have (A) materially failed to perform or
neglected his duties as President of the Bank on a regular basis or (B)
refused to carry out the duties assigned to him by the Board in accordance
with Section 2 hereof.
-6-
<PAGE>
8. Non-Competition. Etc. (a) Employee hereby agrees that he for a period
--------------------
of 5 years from the date of Retirement will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one percent
(1%) of the total outstanding stock of a publicly held company), anywhere
in or within 75 miles of Brookline, Massachusetts, engage in the banking
business;
(ii) recruit, solicit or induce, or attempt to induce, any employee
or employees of the Bank to terminate their employment with, or otherwise
cease their relationship with, the Bank; or
(iii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the depositors, borrowers, or
customers of the Bank.
(b) If any restriction set forth in Section 8(a) is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time; range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 8 are necessary for the
protection of the business and goodwill of the Bank and are considered by
Employee to be reasonable for such purpose. Employee acknowledges, understands
and agrees that (i) the Bank operates a banking business in Brookline,
Massachusetts and its vicinity, and therefore the geographic coverage of the
restrictions contained herein are necessary for the protection of the Bank and
are reasonable and (ii) Employee's experience and capabilities are such that the
provisions of this Section 8 will not prevent Employee from earning a
livelihood.
9. Other Benefits. Nothing contained herein shall be deemed to exclude
--------------
the Employee from any supplemental compensation, bonus, pension, insurance,
-7-
<PAGE>
severance pay or other benefit (including payments under the Current Plans) to
which otherwise he might be or might become entitled as an employee of the Bank.
10. The Supplemental Retirement Income Agreement entered into by the
Employee and the Bank on December 20, 1990 shall become null and void upon
execution of this agreement by the parties.
11. Additional Provisions. (a) This Agreement is a personal agreement and
---------------------
the rights and interests hereunder (except those of the Bank) may not be sold,
transferred, assigned, pledged or hypothecated. Benefits hereunder are not
subject to alienation, anticipation or assignment by Employee or any Beneficiary
and are not subject to being attached or reached and applied by any creditor.
This Agreement shall be binding on the heirs, executors and administrators of
the Employee and on the successors and assigns of the Bank. During the
Employee's lifetime the parties hereto by mutual agreement may amend, modify or
rescind this Agreement without the consent of any other person.
(b) This Agreement is intended to be unfunded and entered into by the Bank
primarily for the purpose of providing supplemental retirement income for the
Employee as one of a select group of management or highly compensated employees
within the meaning of Section 201(2) of the Employee Retirement Income Security
Act of 1974 as amended ("ERISA"). Benefits are intended not to be taxable to
Employee under the Internal Revenue Code of 1986, as amended (the "Code") until
paid. This Agreement shall be construed and interpreted in a manner consistent
with the foregoing intentions.
(c) This Agreement shall not constitute an express or implied contract of
employment between the Bank and the Employee.
12. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof shall be settled by arbitration in the Town
of Brookline, Massachusetts in accordance with the rules then obtaining of the
-8-
<PAGE>
American Arbitration Association, and a judgment upon the award may be entered
in any court having jurisdiction thereof.
13. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts.
BROOKLINE SAVINGS BANK
BY: /s/ Franklin Wyman, Jr.
--------------------------------------
For Bond and Salary Committee
/s/ Richard P. Chapman, Jr.
--------------------------------------
Employee
-9-
<PAGE>
EXHIBIT 10.4
<PAGE>
Supplemental Retirement Income Agreement
AGREEMENT, made as of this 20th day of December, 1990 by and between
BROOKLINE SAVINGS BANK, a savings bank organized and existing under the laws of
the Commonwealth of Massachusetts (hereinafter referred to as the "Bank"), and
SUSAN M. GINNS (hereinafter referred to as "Employee"),
W I T N E S S E T H:
--------------------
A. Employee has been employed by the Bank in an Executive capacity for
many years and the Bank wishes to retain Employee in such capacity.
B. The Bank is willing to provide certain retirement/death benefits to
Employee in addition to those that may be available to Employee under the Bank's
current retirement and pension plans (the "Current Plans").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Definitions. For purposes hereof the following terms shall have the
-----------
meanings ascribed to them below:
"Beneficiary" shall mean that person designated, in the most recent writing
submitted by Employee to the Bank (the "Beneficiary Designation"), as the
beneficiary under this Supplemental Retirement Income Agreement. In the event
that Employee dies without having so named a person surviving her as the
beneficiary hereunder, the Beneficiary hereunder shall be the
<PAGE>
Employee's estate. In the event the Beneficiary survives the Employee but dies
before the expiration of the Benefit Period, those persons, if any, named as
alternate beneficiaries in the Beneficiary Designation (the "Alternates") shall
thereafter be deemed to be the Beneficiary hereunder, provided however, that if
-------- -------
the Alternates are deemed to be the Beneficiary hereunder but all of such
Alternates die before the expiration of the Benefit Period, the Employee's
estate shall be deemed to be the Beneficiary hereunder.
"Benefit" means the Monthly Benefit or Lump-Sum Benefit, as the case may
be.
"Benefit Accruals" shall mean the aggregate accruals made by the Bank on
its books, in order to fully reflect the costs of the Normal Retirement Benefit
to be paid hereunder, based upon an assumed Retirement at age 65, and upon such
mortality tables and assumed interest rates as the Committee determines to be
appropriate.
"Benefit Period" shall mean, in the case where Employee Retires prior to
death, the period commencing on the date the Employee Retires and ending on the
later to occur of (i) said Employee's death or (ii) the expiration of 180 months
from the Employee's Retirement; and, in the case where the Employee dies while
still employed by the Bank, the period commencing on the date of the Employee's
death and ending on the earlier to occur of (i) the expiration of 180 months
from the Employee's death and (ii) the date upon which Employee would have
become (if she had survived to such date) the Life Expectancy Age.
"Board" shall mean the Board of Trustees of the Bank.
"Committee" shall mean the Bond and Salary Committee of the Bank, or such
other Committee of the Bank as the Board, from time to time, may designate to
oversee and administer the terms of this Agreement
"Early Retirement Benefit" shall mean the amount (determined as of the date
of Retirement) that would completely amortize the Benefit Accruals made through
such Retirement, assuming:
(i) such amount is to be paid each month of the Benefit Period;
(ii) the Benefit Period will last the longest possible time (based upon
such mortality tables as the Committee determines to be appropriate);
(iii) that the remaining balance of such accruals earns interest at a rate
determined to be reasonable by the Committee.
-2-
<PAGE>
"Life Expectancy Age" shall mean the age determined by adding to the
Employee's age at death the standard life expectancy (based upon such mortality
tables as the Committee determines to be appropriate) of a healthy female of the
Employee's age at death, determined as of the date of Employee's death.
"Lump-Sum Benefit" means a one time payment equal to the actuarial value,
on the date of such payment, of the Monthly Benefits remaining payable
hereunder, based upon such mortality tables and interest rate assumptions as are
determined to be reasonable by an independent actuary selected by the Committee.
"Monthly Benefit" shall mean in the case of Retirement on or after the
Employee's 65th birthday, the Normal Retirement Benefit; and in the case of
Retirement prior to Employee's 65th birthday, the Early Retirement Benefit.
"Normal Retirement Benefit" shall mean $3,000.00 per month.
"Retirement" or Retires" shall mean the termination (by Employee or by the
Bank) of Employee's employment with the Bank, whether voluntary or involuntary
and including termination due to the death of the Employee, while employed by
the Bank.
"Total Disability" or "Totally Disabled" shall mean Employee's becoming so
incapacitated (either physically or mentally) that she is unable to fulfill all
of her duties as an executive employee of the Bank. The determination of Total
Disability shall be made, in the case of Employee's voluntary Retirement, by a
physician mutually acceptable to the Employee and the Bank and in the case of
termination pursuant to Section 6 hereof, by the Committee in accordance with
Section 6.
2. Employment. Employee agrees to continue to serve the Bank, devoting
----------
here normal working time to the interests and activities of the Bank, in the
capacity of Vice-President or such other capacity as the Board from time to time
may assign to her.
-3-
<PAGE>
3. Salary, Etc. Payments hereunder shall be supplemental and in addition
-----------
to all other payments of salary, pension amounts or profit sharing payments made
by the Bank to or for the benefit of the Employee.
4. Supplemental Income upon Retirement. (a) Except as provided in
-----------------------------------
Section 6 hereof, commencing on the first day of the first month after
Employee's Retirement, and on the first day of each month thereafter until the
expiration of the Benefit Period, the Bank shall pay to Employee (or to the
Beneficiary if the Employee is not then living) an amount equal to the Monthly
Benefit. Alternatively, and at any time, in lieu of future Monthly Benefits due
hereunder, the Bank may elect to make a Lump-Sum Benefit payment to Employee or
the Beneficiary, as the case may be.
(b) The Bank reserves the right to withhold from payment of Benefits
hereunder such amount of income, payroll, and other taxes as the Bank deems
advisable.
(c) Notwithstanding any provisions hereof to the contrary, if the Employee
Retires on or after he 65th birthday: (i) the Committee shall determine the
Early Retirement Benefit as of the date of such Retirement (the "Minimum
Benefit"), and (ii) if the Minimum Benefit exceeds the Monthly Benefit
calculated hereunder, then the Monthly Benefit for all purposes hereunder shall
be increased to equal said Minimum Benefit.
-4-
<PAGE>
5. Benefits Unsecured. All Benefits hereunder shall be paid from the
------------------
general assets of the Bank, shall not be funded, by trust or otherwise. Neither
the Employee nor any Beneficiary shall have a right greater than that of a
general creditor of the Bank. Nothing herein shall be deemed to create a trust
of any kind or to create any fiduciary relationship whatsoever.
6. Disability. In the event that, prior to the termination of the
----------
Employee's employment with the Bank, the Committee shall determine that the
Employee has become Totally Disabled, such Committee may terminate the
Employee's employment by duly adopting (by a vote of a majority of the entire
Committee) and recording in its minutes a resolution to that effect and mailing
a copy thereof to the Employee at her regular post office address. Such
termination shall be effective on the date of the adoption of such resolution or
upon such later date as may be specified therein, but only if the Employee shall
be living on such date. Such termination shall be deemed a Retirement hereunder
as of the effective date of such termination.
7. Termination. (a) Notwithstanding any provisions hereof to the
-----------
contrary, this Agreement shall terminate and be of no further force or effect in
the event that (i) the Employee voluntarily retires before she attains age 55;
(ii) the Employee is discharged by the Bank for Cause, or (ii) the Employee
-5-
<PAGE>
breaches any of the covenants contained in Section 8 hereof (said termination to
be effective even in the event that a court should find any of the provisions of
said Section 8 to be unenforceable; it being the intention of the parties that
this Agreement shall terminate if the Employee breaches any of the original
terms of Section 8 without regard to any judicial modification pursuant to
Section 8(b) hereof).
(b) For purposes of this Agreement, a discharge shall be for Cause if the
Committee shall determine (upon the majority vote of the entire Committee) that
any one or more of the following has occurred:
(i) The Employee shall have committed fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Bank or against
any customer or depositor thereof, or shall have committed any such action
against any other person or entity and such action materially and adversely
reflects upon the business, affairs or reputation of the Bank or upon the
Employee's ability to perform her duties hereunder; or
(ii) The Employee shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any felony or
crime involving moral turpitude;
(iii) The Employee shall have (A) materially failed to perform or
neglected her duties as Vice-President of the Bank on a regular basis or
(B) refused to carry out the duties assigned to her by the Board in
accordance with Section 2 hereof.
8. Non-Competition, Etc. (a) Employee hereby agrees that she for a
--------------------
period of 5 years from the date of Retirement will not directly or indirectly:
-6-
<PAGE>
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one percent
(1%) of the total outstanding stock of a publicly held company), anywhere
in or within 75 miles of Brookline, Massachusetts, engage in the banking
business;
(ii) recruit, solicit or induce, or attempt to induce, any employee
or employees of the Bank to terminate their employment with, or otherwise
cease their relationship with, the Bank; or
(iii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the depositors, borrowers,
customers or prospective customers of the Bank.
(b) If any restriction set forth in Section 8(a) is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities of in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 8 are necessary for the
protection of the business and goodwill of the Bank and are considered by
Employee to be reasonable for such purpose. Employee acknowledges, understands
and agrees that (i) the Bank operates a banking business in Brookline,
Massachusetts and its vicinity, and therefore the geographic coverage of the
restrictions contained herein are necessary for the protection of the Bank and
are reasonable and (ii) Employee's experience and capabilities are such that the
provisions of this Section 8 will not prevent Employee from earning a
livelihood.
<PAGE>
(d) Employee hereby agrees that she at any and all times subsequent to
Retirement will not (i) make any disparaging or uncomplimentary remarks to any
other person about the Bank or its officers, directors or employees, or (ii)
disclose to any other person or entity any information relating to the Bank or
its operations which could be deemed confidential, or proprietary, it being
specifically acknowledged that customer and borrower lists, methods of operation
and salary information shall be deemed confidential and/or proprietary, but that
the foregoing is not intended to be an exclusive list of confidential or
proprietary information.
9. Other Benefits. Nothing contained herein shall be deemed to exclude
--------------
the Employee from any supplemental compensation, bonus, pension, insurance,
severance pay or other benefit (including payments under the Current Plans) to
which otherwise she might be or might become entitled as an employee of the
Bank.
10. Additional Provisions. (a) This Agreement is a personal agreement and
---------------------
the rights and interests hereunder (except those of the Bank) may not be sold,
transferred, assigned, pledged or hypothecated. Benefits hereunder are not
subject to alienation, anticipation or assignment by Employee or any Beneficiary
and are not subject to being attached or reached and
-8-
<PAGE>
applied by any creditor. This Agreement shall be binding on the heirs,
executors and administrators of the Employee and on the successors and assigns
of the Bank. During the Employee's lifetime the parties hereto by mutual
agreement may amend, modify or rescind this Agreement without the consent of any
other person.
(b) This Agreement is intended to be unfunded and entered into by the
Bank primarily for the purpose of providing deferred compensation for Employee
as one of a select group of management or highly compensated employees within
the meaning of Section 201 (2) of the Employee Retirement Income Security Act of
1974 as amended ("ERISA"). Benefits are intended not to be taxable to Employee
under the Internal Revenue Code of 1986, as amended (the "Code") until paid.
This Agreement shall be construed and interpreted in a manner consistent with
the foregoing intentions.
(c) This Agreement shall not constitute an express or implied
contract of employment between the Bank and the Employee.
11. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof shall be settled by arbitration in the Town
of Brookline, Massachusetts in accordance with the rules then obtaining of the
American Arbitration Association, and a judgment upon the award may be entered
in any court having jurisdiction thereof.
<PAGE>
12. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts.
BROOKLINE SAVINGS BANK
By:/s/ Franklin Wyman, Jr.
-----------------------------------
/s/ Susan M. Ginns
-----------------------------------
Employee
<PAGE>
EXHIBIT 10.5
<PAGE>
Supplemental Retirement Income Agreement
AGREEMENT, made as of this 28th of FEBRUARY, 1995 by and between BROOKLINE
SAVINGS BANK, a savings bank organized and existing under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Bank"), and
CHARLES H. PECK. (hereinafter referred to as "Employee").
W I T N E S S E T H:
-------------------
A. Employee has been employed by the Bank in an Executive capacity for
many years and the Bank wishes to retain Employee in such capacity.
B. The Bank is willing to provide certain retirement/death/disability
benefits to Employee in addition to those that may be available to Employee
under the Bank's current retirement and pension plans (the "Current Plans").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Definitions. For purposes hereof the following terms shall have the
-----------
meanings ascribed to them below:
"Average Compensation" shall mean the average of the compensation, received
by the Employee in the 3 calendar years in the 10 calendar-year period prior to
the Employee's retirement which produces the highest rate of compensation.
<PAGE>
"Beneficiary" shall mean that person designated, in the most recent writing
submitted by Employee to the Bank (the "Beneficiary Designation"), as the
Beneficiary under this Supplemental Retirement Income Agreement. In the event
that Employee dies without having so named a person surviving him as the
Beneficiary hereunder, the Beneficiary hereunder shall be the Employee's estate.
In the event the Beneficiary survives the Employee but dies before the
expiration of the Benefit Period, those persons, if any, named as alternate
beneficiaries in the Beneficiary Designation (the "Alternates") shall thereafter
be deemed to be the Beneficiary hereunder, provided however, that if the
----------------
Alternates are deemed to be the Beneficiary hereunder but all of such Alternates
die before the expiration of the Benefit Period, the Employee's estate shall be
deemed to be the Beneficiary hereunder.
"Benefit" shall mean the Monthly Benefit or Lump-Sum Benefit, as the case
may be.
"Benefit Accruals" shall mean the aggregate accruals made by the Bank on
its books, in order to fully reflect the costs of the Normal Retirement Benefit
to be paid hereunder, based upon an assumed Retirement at age 65.
"Benefit Period" shall mean, in the case where Employee Retires prior to
death, the period commencing on the date the Employee Retires and ending on the
later to occur of (i) said Employee's death or (ii) the expiration of 180 months
from the Employee's Retirement; and, in the case where the Employee dies while
still employed by the Bank, the period commencing on the date of the Employee's
death and ending on the earlier to occur of (i) the expiration of 180 months
from the Employee's death and (ii) the date upon which Employee would have
attained (if he had survived to such date) the Life Expectancy Age.
"Board" shall mean the Board of Trustees of the Bank.
"Change of Control" shall be deemed to occur (a) if a law or regulation is
enacted, established or amended that changes the method of election of the
Bank's Trustees and/or corporators, (b) if the Bank becomes insolvent, (c) if
the Bank converts to stock form other than as a subsidiary of a successor mutual
holding company, sells a majority of its assets or enters into a transaction in
which another entity assumes a majority of the liabilities of the Bank, (d) if
the mutual holding company of the Bank converts to stock form, or (e) if a
liquidation or dissolution or merger of the Bank or the sale of all or
substantially all of the Bank's assets occurs. A "Change of Control" shall also
be deemed to occur if the Bank's Tier 1 or primary capital falls below 6%, or in
the event a mutual holding company is formed, the combined capital ratio of the
mutual holding company and the subsidiary bank falls below 6%.
-2-
<PAGE>
"Committee" shall mean the Bond and Salary Committee of the Bank, or such
other Committee of the Bank as the Board, from time to time, may designate to
oversee and administer the terms of this Agreement.
"Compensation" shall mean the total annual compensation which is subject
to withholding of income taxes by the Bank plus any compensation for the same
year which is to be received as part of a deferred compensation plan of the
Bank.
"Early Retirement Benefit" shall mean the amount (determined as of the date
of Retirement) that would completely amortize the Benefit Accruals made through
such Retirement, assuming:
(i) such amount is to be paid each month of the Benefit Period; and
(ii) the Benefit Period will last the longest possible time.
"Life Expectancy Age" shall mean the age determined by adding to the
Employee's age at death the standard life expectancy based upon mortality tables
utilized by the Savings Bank Employees Retirement Association to calculate
pension benefits of a healthy male of the Employee's age at death, determined as
of the date of Employee's death.
"Lump-Sum Benefit" shall mean a one time payment equal to the actuarial
equivalent, on the date of such payment, of the Monthly Benefits remaining
payable hereunder. In the event of a "Change of Control" of the Bank, the
Employee, or if he is then deceased, the Beneficiary, shall have an irrevocable
right to elect to receive a lump sum payment.
"Monthly Benefit" shall mean in the case of Retirement on or after the
Employee's 65th birthday, one-twelfth (1/12) of the Normal Retirement Benefit;
and in the case of Retirement prior to Employee's 65th birthday, the Early
Retirement Benefit.
"Normal Retirement Benefit" shall mean an annual sum which is equal to
seventy (70%) of Average Compensation reduced by any distribution which the
Employee, his beneficiaries or his estate are entitled to receive from the
Savings Bank Employees Retirement Association Pension Plan derived from Bank
contributions and one-half of any Social Security benefits. If a lump sum
distribution is paid to the Employee, his beneficiaries or his estate by the
Savings Bank Employees Retirement Association Pension Plan the Normal Retirement
Benefit shall be reduced by an amount equal to a life only actuarial equivalent
of
-3-
<PAGE>
the lump sum distribution. All calculations of benefits or actuarial
equivalents in this agreement shall be made using the mortality tables and
interest assumptions utilized by the Savings Banks Employees Retirement
Association Pension Plan to calculate benefits and actuarial equivalents.
"Retirement" or "Retires" shall mean the termination (by Employee or by the
Bank) of Employee's employment with the Bank, whether voluntary or involuntary
and including termination due to the death or total disability of the Employee,
while employed by the Bank.
"Total Disability" or "Totally Disabled" shall mean Employee's becoming so
incapacitated (either physically or mentally) that he is unable to fulfill all
of his duties as an executive employee of the Bank. The determination of Total
Disability shall be made, in the case of Employee's voluntary Retirement, by a
physician mutually acceptable to the Employee and the Bank and in the case of
termination pursuant to Section 6 hereof, by the Committee in accordance with
Section 6.
2. Employment. Employee agrees to continue to serve the Bank, devoting
----------
his normal working time to the interests and activities of the Bank, in the
capacity of Executive Vice President or such other executive capacity as the
Board from time to time may assign to him.
3. Salary, Etc. Payments hereunder shall be supplemental and in addition
-----------
to all other payments of salary, pension amounts or profit sharing payments
made by the Bank to or for the benefit of the Employee.
4. Supplemental Income upon Retirement. (a) Except as provided in Section
-----------------------------------
6 hereof, commencing on the first day of the first month after Employee's
Retirement, and on the first day of each month thereafter until the expiration
of the Benefit Period, the Bank shall pay to Employee (or to the Beneficiary if
the Employee is not then living) an amount equal to the Monthly Benefit.
Alternatively, and at any time, in lieu of future Monthly Benefits due
hereunder, the Bank may elect to make a Lump-Sum Benefit payment to Employee or
the Beneficiary, as the case may be.
-4-
<PAGE>
(b) The Bank reserves the right to withhold from payment of Benefits
hereunder such amount of income, payroll, and other taxes as the Bank deems
advisable.
(c) Notwithstanding any provisions hereof to the contrary, if the Employee
Retires on or after his 65th birthday: (i) the Committee shall determine the
Early Retirement Benefit as of the date of such Retirement (the "Minimum
Benefit"), and (ii) if the Minimum Benefit exceeds the Monthly Benefit
calculated hereunder, then the Monthly Benefit for all purposes hereunder shall
be increased to equal said Minimum Benefit.
5. Benefits Unsecured. All Benefits hereunder shall be paid from the
------------------
general funds of the Bank and no special or separate fund shall necessarily be
established and no other segregation of assets shall necessarily be made to
assure the payment of the Benefits. Neither the Employee nor any Beneficiary
nor their estates shall have any right title or interest whatever in or to any
investments, including any insurance policy which the Employer may take out to
aid it in meeting its obligations hereunder. To the extent that the Employee or
any Beneficiary acquires the right to receive Benefits hereunder such rights
shall be no greater than the right of an unsecured creditor of the Bank.
Notwithstanding the foregoing, nothing herein contained shall preclude the Bank
from contributing to or making Benefit payments from a Rabbi Trust.
6. Disability. In the event that, prior to the termination of the
----------
Employee's employment with the Bank, the Committee shall determine that the
Employee has become Totally Disabled, the Committee may terminate the Employee's
employment by duly adopting (by a vote of a majority of the entire Committee)
and recording in its minutes a resolution to that effect and mailing a copy
thereof to the Employee at his regular post office address. Such termination
shall be effective on the date of the adoption of such resolution or upon such
later
-5-
<PAGE>
date as may be specified therein, but only if the Employee shall be living on
such date. Such termination shall for purposes of this Agreement be deemed a
Retirement at age 65 as of the effective date of such termination.
7. Termination. (a) Notwithstanding any provisions hereof to the
-----------
contrary, this Agreement shall terminate and be of no further force or effect in
the event that (i) the Employee voluntarily retires before he attains age 55, or
(ii) the Employee is discharged by the Bank for Cause, or (iii) the Employee
breaches any of the covenants contained in Section 8 hereof (said termination to
be effective even in the event that a court should find any of the provisions of
said Section 8 to be unenforceable; it being the intention of the parties that
this Agreement shall terminate if the Employee breaches any of the original
terms of Section 8 without regard to any judicial modification pursuant to
Section 8(b) hereof).
(b) For purposes of this Agreement, a discharge shall be for Cause if the
Committee shall determine (upon the unanimous vote of the entire Committee) that
any one or more of the following has occurred:
(i) The Employee shall have committed fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Bank or against
any customer or depositor thereof, or shall have committed any such action
against any other person or entity and such action materially and adversely
reflects upon the business affairs or reputation of the Bank or upon the
Employee's ability to perform his duties hereunder; or
(ii) The Employee shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any crime
involving moral turpitude;
(iii) The Employee shall have (A) materially failed to perform or
neglected his duties as Executive Vice President of the Bank on a regular
basis or (B) refused to carry out the duties assigned to him by the Board
in accordance with Section 2 hereof.
-6-
<PAGE>
8. Non-Competition, Etc. (a) Employee hereby agrees that he for a
---------------------
period of 5 years from the date of Retirement will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one percent
(1%) of the total outstanding stock of a publicly held company), anywhere
in or within 75 miles of Brookline, Massachusetts, engage in the banking
business;
(ii) recruit, solicit or induce, or attempt to induce, any employee
or employees of the Bank to terminate their employment with, or otherwise
cease their relationship with, the Bank; or
(ii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the depositors, borrowers, or
customers of the Bank.
(b) If any restriction set forth in Section 8(a) is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time; range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 8 are necessary for the
protection of the business and goodwill of the Bank and are considered by
Employee to be reasonable for such purpose. Employee acknowledges, understands
and agrees that (i) the Bank operates a banking business in Brookline,
Massachusetts and its vicinity, and therefore the geographic coverage of the
restrictions contained herein are necessary for the protection of the Bank and
are reasonable and (ii) Employee's experience and capabilities are such that
the provisions of this Section 8 will not prevent Employee from earning a
livelihood.
9. Other Benefits. Nothing contained herein shall be deemed to exclude
--------------
the Employee from any supplemental compensation, bonus, pension, insurance,
-7-
<PAGE>
severance pay or other benefit (including payments under the Current Plans) to
which otherwise he might be or might become entitled as an employee of the Bank.
10. The Supplemental Retirement Income Agreement entered into by the
Employee and the Bank on December 20, 1990 shall become null and void upon
execution of this agreement by the parties.
11. Additional Provisions. (a) This Agreement is a personal agreement and
---------------------
the rights and interests hereunder (except those of the Bank) may not be sold,
transferred, assigned, pledged or hypothecated. Benefits hereunder are not
subject to alienation, anticipation or assignment by Employee or any Beneficiary
and are not subject to being attached or reached and applied by any creditor.
This Agreement shall be binding on the heirs, executors and administrators of
the Employee and on the successors and assigns of the Bank. During the
Employee's lifetime the parties hereto by mutual agreement may amend, modify or
rescind this Agreement without the consent of any other person.
(b) This Agreement is intended to be unfunded and entered into by the Bank
primarily for the purpose of providing supplemental retirement income for the
Employee as one of a select group of management or highly compensated employees
within the meaning of Section 201(2) of the Employee Retirement Income Security
Act of 1974 as amended ("ERISA"). Benefits are intended not to be taxable to
Employee under the Internal Revenue Code of 1986, as amended (the "Code") until
paid. This Agreement shall be construed and interpreted in a manner consistent
with the foregoing intentions.
(c) This Agreement shall not constitute an express or implied contract of
employment between the Bank and the Employee.
12. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof shall be settled by arbitration in the Town
of Brookline, Massachusetts in accordance with the rules then obtaining of the
-8-
<PAGE>
American Arbitration Association, and a judgement upon the award may be entered
in any court having jurisdiction thereof.
13. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts.
BROOKLINE SAVINGS BANK
By: /s/ Franklin Wyman, Jr.
-----------------------------------
FOR BOND AND SALARY COMMITTEE
/s/ Charles H. Peck
-----------------------------------
Employee
-9-
<PAGE>
EXHIBIT 10.6
<PAGE>
BROOKLINE SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective November 1, 1997)
<PAGE>
BROOKLINE SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1997, by Brookline Savings Bank, a federal stock savings bank
(the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
___________________________ By: ______________________________
Secretary President
<PAGE>
C 0 N T E N T S
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. PLAN IDENTITY................................................... -1-
-------------
1.1 NAME............................................................ -1-
----
1.2 PURPOSE......................................................... -1-
-------
1.3 EFFECTIVE DATE.................................................. -1-
--------------
1.4 FISCAL PERIOD................................................... -1-
-------------
1.5 SINGLE PLAN FOR ALL EMPLOYERS................................... -1-
-----------------------------
1.6 INTERPRETATION OF PROVISIONS.................................... -1-
----------------------------
SECTION 2. DEFINITIONS..................................................... -1-
-----------
SECTION 3. ELIGIBILITY FOR PARTICIPATION................................... -6-
-----------------------------
3.1 INITIAL ELIGIBILITY............................................. -6-
-------------------
3.2 DEFINITION OF ELIGIBILITY YEAR.................................. -7-
------------------------------
3.3 TERMINATED EMPLOYEES............................................ -7-
--------------------
3.4 CERTAIN EMPLOYEES INELIGIBLE.................................... -7-
----------------------------
3.5 PARTICIPATION AND REPARTICIPATION............................... -7-
---------------------------------
3.6 OMISSION OF ELIGIBLE EMPLOYEE................................... -7-
-----------------------------
3.7 INCLUSION OF INELIGIBLE EMPLOYEE................................ -7-
--------------------------------
SECTION 4. CONTRIBUTIONS AND CREDITS....................................... -7-
-------------------------
4.1 DISCRETIONARY CONTRIBUTIONS..................................... -7-
---------------------------
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS............................. -8-
-----------------------------------
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS............................ -8-
------------------------------------
4.4 CONDITIONS AS TO CONTRIBUTIONS.................................. -9-
------------------------------
4.5 TRANSFERS....................................................... -9-
---------
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.................... -9-
--------------------------------------------
5.1 LIMITATION ON ANNUAL ADDITIONS.................................. -9-
------------------------------
5.2 COORDINATED LIMITATION WITH OTHER PLANS......................... -10-
---------------------------------------
5.3 EFFECT OF LIMITATIONS........................................... -11-
---------------------
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS.......................... -11-
--------------------------------------
SECTION 6. TRUST FUND AND ITS INVESTMENT................................... -12-
------------------------------
6.1 CREATION OF TRUST FUND.......................................... -12-
----------------------
6.2 STOCK FUND AND INVESTMENT FUND.................................. -12-
------------------------------
6.3 ACQUISITION OF STOCK............................................ -12-
--------------------
6.4 PARTICIPANTS' OPTION TO DIVERSIFY............................... -13-
---------------------------------
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK............................ -14-
------------------------------------
7.1 VOTING AND TENDERING OF STOCK................................... -14-
-----------------------------
7.2 DIVIDENDS ON STOCK.............................................. -14-
------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 8. ADJUSTMENTS TO ACCOUNTS......................................... -15-
-----------------------
8.1 ADJUSTMENTS FOR TRANSACTIONS.................................... -15-
----------------------------
8.2 VALUATION OF INVESTMENT FUND.................................... -15-
----------------------------
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE........................... -15-
-------------------------------------
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.............................. -15-
----------------------------------
9.3 FULL VESTING UPON CERTAIN EVENTS................................ -17-
--------------------------------
9.4 FULL VESTING UPON PLAN TERMINATION.............................. -17-
----------------------------------
9.5 FORFEITURE, REPAYMENT, AND RESTORAL............................. -18-
-----------------------------------
9.6 ACCOUNTING FOR FORFEITURES...................................... -18-
--------------------------
9.7 VESTING AND NONFORFEITABILITY................................... -18-
-----------------------------
SECTION 10. PAYMENT OF BENEFITS............................................. -18-
-------------------
10.1 BENEFITS FOR PARTICIPANTS....................................... -18-
-------------------------
10.2 TIME FOR DISTRIBUTION........................................... -19-
---------------------
10.3 MARITAL STATUS.................................................. -20-
--------------
10.4 DELAY IN BENEFIT DETERMINATION.................................. -20-
------------------------------
10.5 ACCOUNTING FOR BENEFIT PAYMENTS................................. -20-
-------------------------------
10.6 OPTIONS TO RECEIVE AND SELL STOCK............................... -20-
---------------------------------
10.7 RESTRICTIONS ON DISPOSITION OF STOCK............................ -21-
------------------------------------
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS. -21-
---------------------------------------------------------------
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION........................ -22-
----------------------------------------
10.10 IN SERVICE DISTRIBUTION OF ROLL-OVER ACCOUNT.................... -22-
--------------------------------------------
10.11 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION............ -22-
----------------------------------------------------
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS............ -23-
----------------------------------------------------
11.1 CLAIM FOR BENEFITS.............................................. -23-
------------------
11.2 NOTIFICATION BY COMMITTEE....................................... -23-
-------------------------
11.3 CLAIMS REVIEW PROCEDURE......................................... -23-
-----------------------
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS................................. -23-
-------------------------------
12.1 AUTHORITY OF COMMITTEE.......................................... -23-
----------------------
12.2 IDENTITY OF COMMITTEE........................................... -24-
---------------------
12.3 DUTIES OF COMMITTEE............................................. -24-
-------------------
12.4 VALUATION OF STOCK.............................................. -24-
------------------
12.5 COMPLIANCE WITH ERISA........................................... -24-
---------------------
12.6 ACTION BY COMMITTEE............................................. -24-
-------------------
12.7 EXECUTION OF DOCUMENTS.......................................... -25-
----------------------
12.8 ADOPTION OF RULES............................................... -25-
-----------------
12.9 RESPONSIBILITIES TO PARTICIPANTS................................ -25-
--------------------------------
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY....................... -25-
-----------------------------------------
12.11 INDEMNIFICATION BY EMPLOYERS.................................... -25-
----------------------------
12.12 NONPARTICIPATION BY INTERESTED MEMBER........................... -25-
-------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN................. -25-
-----------------------------------------------
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS............................. -25-
-----------------------------------
13.2 ADOPTION OF PLAN BY SUCCESSOR................................... -25-
-----------------------------
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION.......................... -26-
--------------------------------------
13.4 RIGHT TO AMEND OR TERMINATE..................................... -26-
---------------------------
SECTION 14. MISCELLANEOUS PROVISIONS........................................ -26-
------------------------
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS............................... -26-
---------------------------------
14.2 NONASSIGNABILITY OF BENEFITS.................................... -27-
----------------------------
14.3 LIMIT OF EMPLOYER LIABILITY..................................... -27-
---------------------------
14.4 TREATMENT OF EXPENSES........................................... -27-
---------------------
14.5 NUMBER AND GENDER............................................... -27-
-----------------
14.6 NONDIVERSION OF ASSETS.......................................... -27-
----------------------
14.7 SEPARABILITY OF PROVISIONS...................................... -27-
--------------------------
14.8 SERVICE OF PROCESS.............................................. -27-
------------------
14.9 GOVERNING STATE LAW............................................. -27-
-------------------
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY............. -27-
---------------------------------------------------
14.11 UNCLAIMED ACCOUNTS.............................................. -27-
------------------
14.12 QUALIFIED DOMESTIC RELATIONS ORDER.............................. -28-
----------------------------------
SECTION 15. TOP-HEAVY PROVISIONS............................................ -28-
--------------------
15.1 TOP-HEAVY PLAN.................................................. -29-
--------------
15.2 SUPER TOP-HEAVY PLAN............................................ -29-
--------------------
15.3 DEFINITIONS..................................................... -29-
-----------
15.4 TOP-HEAVY RULES OF APPLICATION.................................. -30-
------------------------------
15.5 TOP-HEAVY RATIO................................................. -31-
---------------
15.6 MINIMUM CONTRIBUTIONS........................................... -32-
---------------------
15.7 MINIMUM VESTING................................................. -33-
---------------
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN.................. -33-
----------------------------------------------
</TABLE>
(iii)
<PAGE>
BROOKLINE SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
-------------
1.1 NAME. The name of this Plan is "Brookline Savings Bank Employee Stock
----
Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is November 1, 1997.
--------------
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a January
-------------
1 to December 31 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a single
-----------------------------
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and the
----------------------------
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied
in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
SECTION 2. DEFINITIONS.
-----------
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"BANK" means Brookline Savings Bank and any entity which succeeds to the
business of Brookline Savings Bank and adopts this Plan as its own pursuant to
Section 14.2.
<PAGE>
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"BREAK IN SERVICE" means any Plan Year in which an Employee has 500 or
fewer Hours of Service. Solely for this purpose, an Employee shall be
considered employed for his normal hours of paid employment during a Recognized
Absence (said Employee shall not be credited with more than 501 Hours of Service
to avoid a Break in Service), unless he does not resume his Service at the end
of the Recognized Absence. Further, if an Employee is absent for any period
beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"COMPANY" means Brookline Bancorp, Inc., the stock holding company of Bank.
"DISABILITY" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, which disability is expected
to be permanent or of long and indefinite duration. However, this term shall
not include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act or attempt,
service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's attainment
of age 55 and the completion of ten years of Service for an Employer. If the
Participant separates from Service before satisfying the age requirement, but
has satisfied the Service requirement, the Participant will be entitled to elect
early retirement upon satisfaction of the age requirement.
"EFFECTIVE DATE" means November 1, 1997.
"EMPLOYEE" means any individual who is or has been employed or self-
employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement
-2-
<PAGE>
between an Employer and the leasing organization, has performed services for the
Employer and any related persons (within the meaning of Section 414(n)(6) of the
Code) on a substantially full-time basis for more than one year, if such
services are performed under the primary direction or control of the Employer.
However, such a "leased employee" shall not be considered an Employee if (i) he
participates in a money purchase pension plan sponsored by the leasing
organization which provides for immediate participation, immediate full vesting,
and an annual contribution of at least 10 percent of the Employee's Total
Compensation, and (ii) leased employees do not constitute more than 20 percent
of the Employer's total work force (including leased employees, but excluding
Highly Paid Employees and any other employees who have not performed services
for the Employer on a substantially full-time basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each May 1 and
November 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-
406, as amended).
"415 COMPENSATION"
(a) Shall mean wages, as defined in Code Section 3401(a) for purposes
of income tax withholding at the source.
(b) For Plan Years beginning after December 31, 1997, any elective
deferral as defined in Code Section 402(g)(3) (any Employer
contributions made on behalf of a Participant to the extent not
includible in gross income and any Employer contributions to
purchase an annuity contract under Code Section 403(b) under a
salary reduction agreement) and any amount which is contributed
or deferred by the Employer at the election of the Participant
and which is not includible in gross income of the Participant by
reason of Code Section 125 (Cafeteria Plan) shall also be
included in the definition of 415 Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-
section, the $160,000 limit shall be referred to as
the"applicable limit" for the Plan Year in question. The $160,000
limit shall be adjusted for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Code, effective for
the Plan Year which begins within the applicable calendar year.
For purposes of the applicable limit, 415 Compensation shall be
prorated over short Plan Years.
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had 415
Compensation exceeding $80,000 and was among the most highly compensated one-
fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
-3-
<PAGE>
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period which an Employee performs no duties. No more
than 501 Hours of Service will be credited under this paragraph for any
single continuous period (whether or not such period occurs in a single
computation period). Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability insurance
laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties. The same Hours of Service will not be credited both under
paragraph (a) or (b) as the case may be, and under this paragraph (c).
These hours will be credited to the employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However, an
Employee shall be credited only for his normal working hours during a paid
absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
-4-
<PAGE>
"INVESTMENT FUND" means that portion of the Trust Fund consisting of assets
other than Stock. Notwithstanding the above, assets from the Investment Fund may
be used to purchase Stock in the open market or otherwise, or used to pay on the
Stock Obligation, and shares so purchased will be allocated to a Participant's
Stock Fund.
"NORMAL RETIREMENT" means retirement on or after a Participant's 65th
birthday.
"NORMAL RETIREMENT DATE" means the date on which a Participant attains age
65.
"PARTICIPANT" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"PLAN YEAR" Each period of 12 consecutive months beginning on November 1
and ending on October 31.
"RECOGNIZED ABSENCE" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Sec. 2021).
"ROLL OVER ACCOUNT" means the separate account established to hold a
Participant's roll-over contributions and direct transfers.
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, (ii) for a period after 1979 in which the other
entity is a member of an affiliated service group within the meaning of Section
414(m) of the Code, and a member of the affiliated service group is an Employer,
or (iii) all employers aggregated with the Employer under Section 414(o) of the
Code (but not until the Proposed Regulations under Section 414(o) become
effective). Notwithstanding any provision of this Plan to the contrary, credit
for Service with respect to qualified miliary service shall be provided in
accordance with Section 414(u) of the Internal Revenue Code.
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former spouse shall be treated
as the Spouse or surviving Spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
-5-
<PAGE>
"STOCK" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined in Treasury
Regulations (S) 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"TRUST" OR "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a co-
mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Article II of the Trust
Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting of
the Plan's holding of Stock which have been acquired in exchange for one or more
Stock obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2
"VALUATION DATE" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
"VESTING YEAR" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the Entry
-------------------
Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
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(b) the Employee's 21st birthday. However, if an Employee is not in
active Service with an Employer on the date he would otherwise first enter
the Plan, his entry shall be deferred until the next day he is in Service.
3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
------------------------------
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of Service,
and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January 1 after that first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any interest or rights
--------------------
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in the
----------------------------
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee who
is employed by the Employer pursuant to an agreement between the Employer and a
leasing organization shall be eligible to participate in the Plan.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of the
---------------------------------
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after 5 consecutive one year Breaks in Service with
a vested Account balance in the Plan shall re-enter the Plan as of the date of
his return to Service with an Employer.
3.6 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee who
-----------------------------
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any person
--------------------------------
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to the ineligible person
shall constitute a forfeiture for the Plan Year in which the discovery is made.
SECTION 4. CONTRIBUTIONS AND CREDITS.
-------------------------
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to time
---------------------------
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The
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Employer's contributions and available forfeitures for a Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of Cash Compensation earned while a
Participant in the Plan. Notwithstanding any other provision of the Plan to the
contrary, contributions and benefits will be provided in accordance with Section
414(u) of the Code, relating to veteran's reemployment rights.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
-----------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii)
the sum of (i) above, and the remaining principal and interest payments required
(or projected to be required on the basis of the interest rate in effect at the
end of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this Plan,
------------------------------------
the following terms have the meanings specified:
"ACTIVE PARTICIPANT" means a Participant who has satisfied the eligibility
requirements under Section 3 and who has at least 1000 Hours of Service during
the current Plan Year. However, a Participant shall not qualify as an Active
Participant unless (i) he is in active Service with an Employer as of the last
day of the Plan Year, or (ii) he is on a Recognized Absence as of that date, or
(iii) his Service terminated during the Plan Year by reason of Disability,
death, Early or Normal Retirement.
"CASH COMPENSATION" means a Participant's 415 Compensation as defined in
Section 2 of the Plan, and shall also include amounts contributed under a salary
reduction agreement pursuant to Section 401(k) or Section 125 of the Code.
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In the event a Plan Year is a period of less than 12 months for any reason,
then Cash Compensation for the short period shall not exceed the pro rata
portion of this limit created by multiplying a fraction which is the number of
months in the short period divided by twelve times the annual compensation
limit.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in all
------------------------------
events be subject to the limitations set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be
reduced to take account of any adverse investment experience within the Trust
Fund in order that the balance credited to each Participant's Account is not
less that it would have been if the contribution had never been made.
4.5 TRANSFERS. This Plan shall accept direct and indirect transfers,
---------
including roll-over contributions from other tax-qualified plans, provided,
however, that this Plan shall not accept any direct or indirect transfers from
any other retirement plan that is tax-qualified under Section 401(a) of the Code
and which is subject to the survivor annuity requirements of section 401(a)(11)
and section 417 of the Code.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
--------------------------------------------
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein to
------------------------------
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the total
contributions for a Plan Year to the Accounts of Highly Paid Employees,
then allocation of such amount shall be adjusted so that such excess will
not occur.
5.1-2 After adjustment, if any, required by the preceding paragraph,
the annual additions during any Plan Year to any Participant's Account
under this and any other defined contribution plans maintained by the
Employer or an affiliate (within the purview of Section 414(b), (c) and (m)
and Section 415(h) of the Code, which affiliate shall be deemed the
Employer for this purpose) shall not exceed the lesser of $30,000 or "25
percent of the Participant's Total Compensation for such limitation year."
In the event that annual additions exceed the aforesaid limitations, they
shall be reduced in the following priority:
(i) If the Participant is covered by the Plan at the end of the
Plan Year, any excess amount at the end of the Plan Year that cannot be
allocated to the Participant's Account shall be used to reduce the Employer
contribution for such Participant in the next limitation year and any
succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of the
Plan Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Employer
contributions for all remaining Participants in the next limitation year
and each succeeding limitation year if necessary.
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<PAGE>
(iii) If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of investment
gains and losses. All amounts held in suspense accounts must be allocated
to Participant's Accounts before any contributions may be made to the Plan
for the limitation year.
(iv) If a suspense account exists at the time of Plan termination,
amounts held in the suspense account that cannot be allocated shall revert
to the Employer.
5.1-3 For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (i)
Employer contributions, (ii) Employee contributions, if any, and (iii)
forfeitures. Annual additions to a defined contribution plan also include
amounts allocated, after March 31, 1984, to an individual medical account,
as defined in Section 415(l)(2) of the Internal Revenue Code, which is part
of a pension or annuity plan maintained by the Employer, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Section 419A(d) of the Internal
Revenue Code, maintained by the Employer. For these purposes, annual
additions to a defined contribution plan shall not include the allocation
of the excess amounts remaining in the Unallocated Stock Fund subsequent to
a sale of stock from such fund in accordance with a transaction described
in Section 8.1 of the Plan. The $30,000 limitations referred to shall, for
each limitation year ending after 1988, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the
Employer contributions to the Plan for a year which are deductible under
Section 404(a)(9) of the Code are allocated to Highly Paid Employees
(within the meaning of Section 414(q) of the Internal Revenue Code), the
limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were acquired
with the proceeds of a loan described in Section 404(a)(9)(A) of the Code),
or
(ii) Employer contributions to the Plan which are deductible under
Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined in
Section 3(34) of ERISA, the limitation on annual additions provided in this
Section shall be applied to annual additions in the aggregate to this Plan
and to such other plans. Reduction of annual additions, where required,
shall be accomplished first by reductions under such other plan pursuant to
the directions of the named fiduciary for administration of such other
plans or under priorities, if any, established under the terms of such
other plans and then by allocating any remaining excess for this Plan in
the manner and priority set out above with respect to this Plan."
5.1-6 A limitation year shall mean each 12 consecutive month period
beginning each November 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the limitation
---------------------------------------
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year,
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if a Participant has ever participated in one or more defined benefit plans
maintained by an Employer or an affiliate, then the accrued benefit shall be
limited so that the sum of his defined plan fraction and his defined
contribution plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his Accounts through the current year, and (ii)
the denominator of which is the sum of the lesser of the following amounts
-A- and -B- determined for the current limitation year and each prior
limitation year of Service with an Employer: -A- is 1.25 times the dollar
limit in effect for the year under Section 415(c)(1)(A) of the Code, or 1.0
times such dollar limitation if the Plan is top-heavy, and -B- is 35
percent of the Participant's 415 Compensation for such year. Further, if
the Participant participated in any related defined contribution plan in
any years beginning before 1976, any-excess of the sum of the actual annual
additions to the Participant's Accounts for those years over the maximum
annual additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to the
extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average 415 Compensation
during his highest-paid three consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action may
---------------------
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations
--------------------------------------
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
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Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
-----------------------------
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
----------------------
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
------------------------------
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its
--------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the
term "guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A "non-
exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
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6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock, in the last case, however, subject to the
further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of
Plan assets transferred in satisfaction of the Stock Obligation must not
exceed the amount of the default. If the lender is a disqualified person
within the meaning of Section 4975 of the Code, a Stock Obligation must
provide for a transfer of Plan assets upon default only upon and to the
extent of the failure of the Plan to meet the payment schedule of said
Stock Obligation. For purposes of this paragraph, the making of a
guarantee does not make a person a lender."
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for a
---------------------------------
procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years
in the qualified election period, the Participant may elect to diversify an
amount which does not exceed 25% of the number of shares allocated to his
Account since the inception of the Plan, less all shares with respect to which
an election under this Section has already been made. For the last year of the
qualified election period, the Participant may elect to have up to 50 percent of
the value of his Account committed to other investments, less all shares with
respect to which an election under this Section has already been made. The term
"qualified election period" shall mean the six (6) Plan Year period beginning
with the first Plan Year in which a Participant has both attained age 55 and
completed 10 years of participation in the Plan. A Participant's election to
diversify his Account may be made within each year of the qualified election
period and shall continue for the 90-day period immediately following the last
day of each year in the qualified election period. Once a Participant makes
such election, the Plan must complete diversification in accordance with such
election within 90 days after the end of the period during which the election
could be made for the Plan Year. In the discretion of the Committee, the Plan
may satisfy the diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to
the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
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6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
------------------------------------
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote all
-----------------------------
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be for
the exclusive benefit of the Participants and Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account
are used to repay the Stock Obligation, Stock with a fair market value equal to
the dividends so used must be allocated to such Participant's Account in lieu of
the dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund
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<PAGE>
Accounts (pro rata based on the Participant's Account balance in relation to all
Participants' Account balances) and shall be applied as soon as practicable to
payments of principal and interest under the Stock Obligation incurred with the
purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
-----------------------
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant to
----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account.
Any benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the Trustee
----------------------------
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
-------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
----------------------------------
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in his
----------------------------
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
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Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a "Vesting
----------------------------
Year" means generally a calendar year in which an Employee has at least 1,000
Hours of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
employers as provided in the definition of "Service". Notwithstanding the
above, an Employee who was employed by the Bank in mutual form, shall receive
credit for vesting purposes for each continuous period of employment with the
mutual Bank, from each November 1 through October 31, in which such Employee
completed 1,000 Hours of Service, not to exceed 4 years of credit for vesting
purpose (such years shall also be referred to as "Vesting Years"). However, a
Participant's Vesting Years shall be computed subject to the following
conditions and qualifications:
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined without
regard to any Service after such five consecutive Breaks in Service.
Further, if a Participant has five (5) consecutive Breaks in Service before
his interest in his Account has become vested to some extent, pre-Break
years of Service shall not be required to be taken into account for
purposes of determining his post-Break vested percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive 1-
year Breaks in Service, the Participant's pre-break Service will count in
vesting of the Employer-derived post-break accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the accrued
benefit attributable to Employer contributions at the time of separation
from Service, or
(ii) upon returning to Service the number of consecutive 1-year
Breaks in Service is less than the number of years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any Participant
with three (3) or more Vesting Years may, by filing a written request with
the Employer, elect to have his vested percentage computed under the
vesting schedule in effect prior to the amendment. The election period
must begin not later
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than the later of sixty (60) days after the amendment is adopted, the
amendment becomes effective, or the Participant is issued written notice of
the amendment by the Employer or the Committee.
9.3 FULL VESTING UPON CERTAIN EVENTS.
--------------------------------
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service is
terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully
vest in the event of a "Change in Control" of the Bank, or the Company. For
these purposes, "Change in Control" shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1a of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act'); or (ii) results in a
Change in Control of the Bank or the Company within the meaning of the Bank
Holding Company Act of 1956, as amended, and applicable rules and regulations
promulgated thereunder as in effect at the time of the Change in Control
(collectively, the BHCA"); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "Person' (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company representing 25% or more
of the Bank's or the Company's outstanding securities except for any securities
of the Bank purchased by the Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided, however, that this sub-section (b) shall not apply
if the Incumbent Board is replaced by the appointment by a Federal banking
agency of a conservator or receiver for the Bank and, provided further that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company; or (d) a
proxy statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Company shall be distributed and the requisite
number of proxies approving such plan of reorganization, merger or consolidation
of the Company or Bank are received and voted in favor of such transactions; or
(e) a tender offer is made for 25% or more of the outstanding securities of the
Bank or Company and shareholders owning beneficially or of record 25% or more of
the outstanding securities of the Bank or Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered shares have
been accepted by the tender offeror.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
----------------------------------
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
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<PAGE>
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
-----------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs a one (1)
year Break In Service. If a Participant's Service terminates prior to having
any portion of his Account become vested, such Participant shall be deemed to
have a received a distribution of his vested interest as of the Valuation Date
next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's Account
--------------------------
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
-----------------------------
Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
-------------------
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends
-------------------------
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
payment in a lump sum, in accordance with Section 10.2.
If the balance credited to his Account exceeds $5,000, the Participant's
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee, subject to the provisions of Section 10.11 hereof.
10.2 TIME FOR DISTRIBUTION.
---------------------
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of the Plan
Year following the Participant's termination of Service for any reason, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from Service by
reason of Normal Retirement, Disability, or death; or
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<PAGE>
(ii) which is the fifth Plan Year following the year in
which the Participant resigns or is dismissed, unless he is
reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the 60th
day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect
to a 5-percent owner (as defined in Code Section 416), distribution of a
Participant's Account shall commence (whether or not he remains in the employ of
the Employer) not later than the April 1 of the calendar year next following the
calendar year in which the Participant attains age 70- 1/2, and (2) with
respect to all other Participants, payment of a Participant's benefit will
commence not later than April 1 of the calendar year following the calendar year
in which the Participant attains age 70-1/2, or, if later, the year in which the
Participant retires. A Participant's benefit from that portion of his Account
committed to the Investment Fund shall be calculated on the basis of the most
recent Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his
death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's Beneficiary
is his surviving Spouse, distributions may commence on the date on
which the Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the they
commence.
(ii) If the Participant dies after distribution has
commenced pursuant to Section 10.1.2 but before his entire interest
in the Plan has been distributed to him, then the remaining portion
of that interest shall, in accordance with Section 401(a)(9) of the
Code, be distributed at least as rapidly as under the method of
distribution being used under Section 10.1.2 at the date of his
death.
(iii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected otherwise the
Committee shall cause the balance in his Account to be paid to his
Spouse. No election by a married Participant of a different
Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which (i) must acknowledge the effect of
the election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant
without the Spouse's further consent, or that it may be changed
without such consent, and (iii) must be witnessed by the Committee,
its representative, or a notary public. (This requirement shall not
apply if the Participant establishes to the Committee's satisfaction
that the Spouse may not be located.)
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<PAGE>
10.3 MARITAL STATUS. The Committee shall from time to time take whatever
--------------
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be charged
-------------------------------
to the Participant's Account as of the first day of the Valuation Period in
which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually all
---------------------------------
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of Stock to
make the required distribution. In all other cases, the Participant's vested
interest in the Stock Fund shall be distributed in shares of Stock, and his
vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. Similarly,
the put option shall not apply with respect to the portion of a Participant's
Account which the Employee elected to have reinvested under Code Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed
by the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a lump
sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as the
case may be, may elect to pay for the Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five years from the
day after the put right is exercised, with adequate security and interest at a
reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
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<PAGE>
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
---------------------------------------------------------------
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
----------------------------------------
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9.1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
10.9.2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover
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<PAGE>
distribution to the surviving Spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
10.9.3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
10.9.4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 414(p).
10.10 IN SERVICE DISTRIBUTION OF ROLL-OVER ACCOUNT. Upon the written
--------------------------------------------
election of a Participant delivered to the Committee, all or any portion of the
amounts held in the Participant's Roll-over Account, shall be distributed to the
Participant at any time within 30 days or as soon thereafter as is reasonably
practicable.
10.11 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
----------------------------------------------------
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable,
clearly informs the Participant that the Participant has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect
a distribution (and, if applicable, a particular option),
and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
----------------------------------------------------
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
-------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
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<PAGE>
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
-------------------------------
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or
---------------------
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may
-------------------
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the Plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock
-23-
<PAGE>
ownership plan, be invested primarily in Stock. Subject to the direction of the
Board as to the application of Employer contributions to Stock Obligations, and
subject to the provisions of Sections 6.4 and 10.6 as to Participants' rights
under certain circumstances to have their Accounts invested in Stock or in
assets other than Stock, the Committee shall determine in its sole discretion
the extent to which assets of the Trust shall be used to repay Stock
Obligations, to purchase Stock, or to invest in other assets to be selected by
the Trustee or an investment manager. No provision of the Plan relating to the
allocation or vesting of any interests in the Stock Fund or the Investment Fund
shall restrict the Committee from changing any holdings of the Trust, whether
the changes involve an increase or a decrease in the Stock or other assets
credited to Participants' Accounts. In determining the proper extent of the
Trust's investment in Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents to pay their
reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
------------------
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of
each Valuation Date, and on any other date as of which the Plan purchases or
sells such Stock. The Committee shall use generally accepted methods of valuing
stock of similar corporations for purposes of arm's length business and
investment transactions, and in this connection the Committee shall obtain, and
shall be protected in relying upon, the valuation of such Stock as determined by
an independent appraiser experienced in preparing valuations of similar
businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
---------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be governed
-------------------
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
----------------------
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
-----------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
--------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee finds at
-----------------------------------------
any time that an individual qualifying for benefits under this Plan is a minor
or is incompetent, the Committee may direct
-24-
<PAGE>
the benefits to be paid, in the case of a minor, to his parents, his legal
guardian, or a custodian for him under the Uniform Gifts to Minors Act, or, in
the case of an incompetent, to his spouse, or his legal guardian, the payments
to be used for the individual's benefit. The Committee and the Trustee shall not
be obligated to inquire as to the actual use of the funds by the person
receiving them under this Section 12.10, and any such payment shall completely
discharge the obligations of the Plan, the Trustee, the Committee, and the
Employers to the extent of the payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the Committee
-------------------------------------
who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
-----------------------------------------------
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the Bank,
-----------------------------------
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer shall
-----------------------------
be reorganized by way of merger, consolidation, transfer of assets or otherwise,
so that an entity other than an Employer shall succeed to all or substantially
all of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
--------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a)
either as originally adopted or as amended, each Employer's contributions to the
Trust under this Plan (including any earnings thereon) shall be returned to it
and this Plan shall be terminated. In the
-25-
<PAGE>
event that this Plan is amended after its initial qualification and the Plan as
amended is held by the Internal Revenue Service not to qualify under Section
401(a), the amendment may be modified retroactively to the earliest date
permitted by U.S. Treasury Regulations in order to secure approval of the
amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this Plan
---------------------------
as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be
any transfer of assets to a successor plan or merger or consolidation with
another plan unless, in the event of the termination of the successor plan or
the surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a benefit
equal to or greater than the benefit he would have been entitled to if the plan
in which he was previously a participant or beneficiary had terminated
immediately prior to such transfer, merger, or consolidation. Following a
termination of this Plan by the Bank, the Trustee shall continue to administer
the Trust and pay benefits in accordance with the Plan as amended from time to
time and the Committee's instructions.
SECTION 14. MISCELLANEOUS PROVISIONS.
------------------------
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
---------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.12 hereof.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
---------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and
---------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
-26-
<PAGE>
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
-----------------
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
--------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the
------------------
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance
-------------------
with the laws of the State of Massachusetts to the extent those laws are
applicable under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
---------------------------------------------------
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall
------------------
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are
unknown to the Trustees, the Plan will forfeit the benefit, provided that
the benefit is subject to a claim for reinstatement if the Participant or
Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply
----------------------------------
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former Spouse of
a Participant shall be treated as the Spouse or surviving Spouse for all
purposes under the Plan.
-27-
<PAGE>
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order
(or modification thereof) is determined to be a qualified domestic relations
order, the Employer or the Plan Committee shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto. If within
eighteen (18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
SECTION 15. TOP-HEAVY PROVISIONS.
--------------------
15.1 TOP-HEAVY PLAN. For any Plan Year beginning after December 31,
--------------
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 SUPER TOP-HEAVY PLAN For any Plan Year beginning after December 31,
--------------------
1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent
(90%) and this Plan is not part of any required aggregation group or permissive
aggregation group.
-28-
<PAGE>
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 DEFINITIONS.
-----------
In making this determination, the Committee shall use the following definitions
and principles:
15.3.1 The "Determination Date", with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with respect to
each subsequent Plan Year, means the last day of the preceding Plan Year.
If any other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3.2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having 415 Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose annual compensation exceeds $150,000. For purposes of
determining whether an Employee is a Key Employee, annual compensation
means compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employee pursuant to a salary
reduction agreement which are excludable from the Employee's gross income
under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or Section
403(b) of the Code. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.3.3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for the
Plan Year has received compensation from an Employer and who has never been
a Key Employee, and the Beneficiary of any such Employee.
15.3.4 A "required aggregation group" includes (a) each qualified
Plan of the Employer in which at least one Key Employee participates in the
Plan Year containing the Determination Date and any of the four (4)
preceding Plan Years, and (b) any other qualified Plan of the Employer
which enables a Plan described in (a) to meet the requirements of Code
Sections 401(a)(4) and 410. For purposes of the preceding sentence, a
qualified Plan of the Employer includes a terminated Plan maintained by the
Employer within the five (5) year period ending on the Determination Date.
In the case of a required aggregation group, each Plan in the group will be
considered a top-heavy Plan if the required aggregation group is a top-
heavy group. No Plan in the required aggregation group will be considered
a top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m) or
(o) (but only after the Code Section 414(o) regulations become effective)
are considered a single Employer.
-29-
<PAGE>
15.3.5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation
group will be considered a top-heavy Plan if the permissive aggregation
group is top-heavy.
15.4 TOP-HEAVY RULES OF APPLICATION.
------------------------------
For purposes of determining the value of Account balances and the
present value of accrued benefits the following provisions shall apply:
15.4.1 The value of Account balances and the present value of
accrued benefits will be determined as of the most recent Valuation Date
that falls within or ends with the twelve (12) month period ending on the
Determination Date.
15.4.2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
Account balances is counted only once each year.
15.4.3 The Account balances and accrued benefits of a Participant
who is not presently a Key Employee but who was a Key Employee in a Plan
Year beginning on or after January 1, 1984 will be disregarded.
15.4.4 Employer contributions attributable to a salary reduction or
similar arrangement will be taken into account.
15.4.5 When aggregating Plans, the value of Account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4.6 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether the Plan is top-
heavy. Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution under
this paragraph.
15.4.7 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
15.4.8 Accrued benefits and Account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
-30-
<PAGE>
15.4.9 The present value of the accrued benefits or the amount of
the Account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If a rollover was received by
this Plan after December 31, 1983, the rollover or transfer voluntarily
initiated by the Employee was received prior to January 1, 1984, then the
rollover or transfer shall be considered as part of the accrued benefit by
the Plan receiving such rollover or transfer. If this Plan transfers or
rolls over funds to another Plan in a transaction voluntarily initiated by
the Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining Account balances or the present
value of accrued benefits. A transfer incident to a merger or consolidation
of two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
15.5 TOP-HEAVY RATIO.
---------------
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
---------------------
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's 415 Compensation shall
include amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's 415 Compensation
for that year.
-31-
<PAGE>
15.7 MINIMUM VESTING. If a Participant's vested interest in his Account
---------------
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 2 years 0%
2 20%
3 40%
4 60%
5 80%
6 100%
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event this
----------------------------------------------
Plan becomes top-heavy and a conflict arises between the top-heavy provisions
herein set forth and the remaining provisions set forth in this Plan, the top-
heavy provisions shall control.
-32-
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Brookline Bancorp, Inc.
following the Reorganization:
Name State of Incorporation
---- ----------------------
Brookline Savings Bank Massachusetts
|
BBS Investment Corporation Massachusetts
160 Associates, Inc. Massachusetts
Brookline Preferred Capital Corporation Massachusetts
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 8-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> AUG-31-1997 DEC-31-1996
<CASH> 8,021 6,465
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 850 4,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 128,525 117,372
<INVESTMENTS-CARRYING> 49,801 41,620
<INVESTMENTS-MARKET> 49,946 41,695
<LOANS> 485,515 485,515
<ALLOWANCE> 12,443 12,326
<TOTAL-ASSETS> 680,316 666,988
<DEPOSITS> 481,467 484,016
<SHORT-TERM> 61,815 60,565
<LIABILITIES-OTHER> 11,664 8,460
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 125,370 113,947
<TOTAL-LIABILITIES-AND-EQUITY> 680,316 666,988
<INTEREST-LOAN> 29,516 41,608
<INTEREST-INVEST> 6,769 9,768
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 36,285 51,376
<INTEREST-DEPOSIT> 14,463 21,775
<INTEREST-EXPENSE> 17,204 25,458
<INTEREST-INCOME-NET> 19,081 25,918
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 74 464
<EXPENSE-OTHER> 5,738 7,713
<INCOME-PRETAX> 14,006 19,688
<INCOME-PRE-EXTRAORDINARY> 9,126 11,937
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,126 11,937
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 4.06 4.00
<LOANS-NON> 1,412 1,337
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 2,288 5,438
<LOANS-PROBLEM> 2,173 6,552
<ALLOWANCE-OPEN> 12,326 12,326
<CHARGE-OFFS> 6 166
<RECOVERIES> 123 166
<ALLOWANCE-CLOSE> 12,443 12,326
<ALLOWANCE-DOMESTIC> 6,717 6,929
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 5,726 5,397
</TABLE>
<PAGE>
EXHIBIT 23.2
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 13, 1997 accompanying the
consolidated financial statements of Brookline Savings Bank and Subsidiaries
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned report in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
Boston, Massachusetts
November 17, 1997
<PAGE>
EXHIBIT 23.3
<PAGE>
[LETTERHEAD OF FELDMAN FINANCIAL ADVISORS, INC. APPEARS HERE]
November 17, 1997
Board of Trustees
Brookline Savings Bank
160 Washington Street
Brookline, Massachusetts 02147
Gentlemen:
We hereby consent to the use of our name and summary of our valuation opinion,
as referenced in the Application for Approval of Reorganization (the
"Application") filed by Brookline Savings Bank (the "Bank") with the
Massachusetts Division of Banks and the Federal Deposit Insurance Corporation,
regarding the estimated aggregate pro forma market value of the Bank in
connection with its reorganization from mutual to stock form and simultaneous
offering for sale of a minority ownership interest of shares of common stock by
Brookline Bancorp, Inc. (the "Holding Company").
We also consent to reference in the Application the summary of our opinion as to
the value of subscription rights granted by the Bank. We further consent to the
use of our name and summary opinions as noted above in the Registration
Statement and Prospectus filed by the Holding Company with the Securities and
Exchange Commission.
Sincerely,
/s/ Feldman Financial Advisors, Inc.
FELDMAN FINANCIAL ADVISORS, INC.
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF FELDMAN FINANCIAL ADVISORS, INC. APPEARS HERE]
================================================================================
Brookline Savings Bank
Brookline, Massachusetts
Conversion Valuation Appraisal Report
Valued as of November 7, 1997
Prepared By
Feldman Financial Advisors, Inc.
Washington, D.C.
================================================================================
<PAGE>
[LETTERHEAD OF FELDMAN FINANCIAL ADVISORS, INC. APPEARS HERE]
November 7, 1997
Board of Trustees
Brookline Savings Bank
160 Washington Street
Brookline, Massachusetts 02147
Gentlemen:
At your request, we have completed and hereby provide an independent
appraisal of the aggregate estimated pro forma market value of Brookline Savings
Bank ("Brookline Savings" or the "Bank") in connection with its mutual holding
company reorganization (the "Reorganization"). The transaction structure will
include the formation of a Massachusetts-chartered stock savings bank as the
successor to the Bank in its mutual form, and concurrent formation of Brookline
Bancorp, Inc. (the "Stock Company") as a majority-owned subsidiary of Brookline
Bancorp, MHC (the "Mutual Company"). The Stock Company will offer shares of its
common stock for sale to eligible depositors and to the Bank's and Stock
Company's employee stock benefit plans in a Subscription Offering. Shares not
subscribed for in the Subscription Offering will be offered for sale to certain
members of the general public in a Community Offering.
This appraisal report is being furnished pursuant to the filing of
regulatory applications for the Reorganization by the Bank with the
Massachusetts Division of Banks and the Federal Deposit Insurance Corporation.
Feldman Financial Advisors, Inc. ("Feldman Financial") is a financial consulting
and economic research firm that specializes in financial valuations and analyses
of business enterprises and securities in the thrift, banking, and mortgage
industries. The background of Feldman Financial is presented in Exhibit I.
In preparing our appraisal, we conducted an analysis of the Bank that
included discussions with the Bank's management, the Bank's independent
auditors, Grant Thornton, LLP, the Bank's offering manager, Ryan, Beck & Co.,
and the Bank's Reorganization counsel, Luse Lehman Gorman Pomerenk & Schick,
P.C. In addition, where appropriate, we considered information based on other
available published sources that we believe are reliable; however, we cannot
guarantee the accuracy and completeness of such information.
We also reviewed, among other factors, the economy in the Bank's primary
market area and compared the Bank's financial condition and operating
performance with that of selected publicly traded financial institutions. We
reviewed conditions in the securities markets in general and in the market for
thrift institution common stocks in particular.
Our appraisal is based on the Bank's representation that the information
contained in the regulatory applications and additional evidence furnished to us
by the Bank and its independent auditors are truthful, accurate, and complete.
We did not independently verify the financial statements and other information
provided by the Bank and its independent auditors, nor did we independently
value the assets or liabilities of the Bank. The valuation considers the Bank
only as a going concern and should not be considered as an indication of the
liquidation value of the Bank.
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FELDMAN FINANCIAL ADVISORS, INC.
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Board of Trustees
Brookline Savings Bank
November 7, 1997
Page Two
It is our opinion that, as of November 7, 1997, the aggregate estimated pro
forma market value of the Bank was within the valuation range of $187,000,000 to
$253,000,000 with a midpoint of $220,000,000. The valuation range was based
upon a 15 percent decrease from the midpoint to determine the minimum and a 15
percent increase to establish the maximum. Assuming an additional 15 percent
increase above the maximum value results in an adjusted maximum of $290,950,000.
The Board of Trustees has determined to offer for sale in the
Reorganization a minority ownership interest equal to 47% of all the common
stock to be issued and outstanding. Therefore, the total amount of common stock
to be sold in the Reorganization will be equal to $87,890,000 at the minimum
valuation, $103,400,000 at the midpoint valuation, $118,910,000 at the maximum
valuation, and $136,746,500 at the adjusted maximum.
Our valuation is not intended, and must not be construed, to be a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the Reorganization. Moreover, because the valuation is necessarily
based upon estimates and projections of a number of matters, all of which are
subject to change from time to time, no assurance can be given that persons who
purchase shares of stock in the Reorganization will thereafter be able to sell
such shares at prices related to the foregoing estimate of the Bank's pro forma
market value. Feldman Financial is not a seller of securities within the
meaning of any federal or state securities laws and any report prepared by
Feldman Financial shall not be used as an offer or solicitation with respect to
the purchase or sale of any securities.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Bank's operating performance, financial condition, or management policies, and
current conditions in the securities markets for thrift institution common
stocks. Should any such new developments or changes be material, in our
opinion, to the valuation of the Bank, appropriate adjustments to the estimated
pro forma market value will be made. The reasons for any such adjustments will
be explained in detail at that time.
Respectfully,
Feldman Financial Advisors, Inc.
By: /s/ Trent R. Feldman
----------------------------------------
Trent R. Feldman
President
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
TAB PAGE
- --- ----
<S> <C> <C>
INTRODUCTION ......................................................... 1
I. Chapter One - BUSINESS OF BROOKLINE SAVINGS BANK
General............................................................... 4
Financial Condition .................................................. 11
Income and Expense Trends ............................................ 21
Asset and Liability Management ....................................... 28
Asset Quality ........................................................ 31
Properties............................................................ 36
Subsidiaries.......................................................... 37
Market Area .......................................................... 38
Summary .............................................................. 44
II. Chapter Two - COMPARISONS WITH PUBLICLY HELD COMPANIES
General .............................................................. 45
Selection Criteria ................................................... 46
Recent Financial Comparisons ......................................... 51
III. Chapter Three - MARKET VALUE ADJUSTMENTS
Earnings Prospects ................................................... 64
Market Area .......................................................... 65
Management ........................................................... 66
Dividend Policy ...................................................... 66
Liquidity of the Issue ............................................... 67
Subscription Interest ................................................ 67
Stock Market Conditions .............................................. 68
Recent Acquisition Activity .......................................... 73
New Issue Discount ................................................... 75
Mutual Holding Company Issues......................................... 77
Adjustments Conclusion ............................................... 79
Valuation Approach ................................................... 79
Valuation Conclusion ................................................. 81
IV. Appendix - EXHIBITS
I Background of Feldman Financial Advisors, Inc.............. I-1
II-1 Statement of Financial Condition........................... II-1
II-2 Statement of Income........................................ II-2
II-3 Loan Portfolio Composition................................. II-3
II-4 Net Lending Activity....................................... II-4
II-5 Investment Portfolio Composition........................... II-5
II-6 Deposit Account Distribution............................... II-6
II-7 Borrowed Funds Activity.................................... II-7
II-8 Office Facilities.......................................... II-8
III Financial and Market Data for All Public Thrifts........... III-1
IV-1 Pro Forma Conversion Assumptions........................... IV-1
IV-2 Pro Forma Valuation Range: Full Conversion................ IV-2
IV-3 Pro Forma Valuation Range: MHC Offering................... IV-3
IV-4 Comparative Valuation Ratios............................... IV-4
IV-5 Pro Forma Full Conversion Analysis at Maximum Value........ IV-5
</TABLE>
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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<TABLE>
<CAPTION>
LIST OF TABLES
TAB PAGE
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<S> <C> <C>
I. Chapter One - BUSINESS OF BROOKLINE SAVINGS BANK
Table 1 - Selected Financial Condition Data ........................................... 11
Table 2 - Relative Balance Sheet Concentrations ....................................... 12
Table 3 - Income Statement Summary..................................................... 23
Table 4 - Income Statement Ratios...................................................... 24
Table 5 - Yield and Cost Summary ...................................................... 27
Table 6 - Interest Rate Sensitivity Schedule........................................... 30
Table 7 - Non-performing Asset Summary ................................................ 34
Table 8 - Allowance for Loan Losses Summary ........................................... 35
Table 9 - Key Demographic Indicators................................................... 41
Table 10 - Deposit Market Share Analysis for the Town of Brookline...................... 42
Table 11 - Deposit Market Share Analysis for the Boston MSA............................. 43
II. Chapter Two - COMPARISONS WITH PUBLICLY HELD COMPANIES
Table 12 - Comparative Group Operating Summary........................................... 50
Table 13 - Key Financial Comparisons..................................................... 53
Table 14 - General Financial Performance Ratios.......................................... 58
Table 15 - Income and Expense Analysis................................................... 59
Table 16 - Yield-Cost Structure and Growth Rates......................................... 60
Table 17 - Balance Sheet Composition..................................................... 61
Table 18 - Capital Ratios, Asset Quality, and Loan Composition........................... 62
III. Chapter Three - MARKET VALUE ADJUSTMENTS
Table 19 - Comparative Stock Market Performance.......................................... 71
Table 20 - Selected Interest Rate Benchmarks............................................. 72
Table 21 - Recent Massachusetts Acquisition Activity..................................... 74
Table 22 - Recent Summary of Standard Thrift Conversions ................................ 76
Table 23 - Comparative Valuation Analysis ............................................... 82
</TABLE>
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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INTRODUCTION
As requested, Feldman Financial Advisors, Inc. ("Feldman Financial") has
prepared an independent appraisal of the aggregate estimated pro forma market
value of Brookline Savings Bank ("Brookline Savings" or the "Bank") in
connection with its mutual holding company reorganization (the
"Reorganization"). The transaction structure will include the formation of a
Massachusetts-chartered stock savings bank as the successor to the Bank in its
mutual form, and concurrent formation of Brookline Bancorp, Inc. (the "Stock
Company") as a majority-owned subsidiary of Brookline Bancorp, MHC (the "Mutual
Company"). The Stock Company will offer shares of its common stock for sale to
eligible depositors and to the Bank's and Stock Company's employee stock benefit
plans in a Subscription Offering. Shares not subscribed for in the Subscription
Offering will be offered for sale to certain members of the general public in a
Community Offering.
The Bank will organize the Mutual Company as a Massachusetts-chartered
mutual holding company, which will own at least 51% of the common shares of the
Stock Company for so long as the Mutual Company remain in existence. The Bank
will be a wholly-owned subsidiary of the Stock Company. The Stock Company
expects to sell in the Stock Offering a minority ownership interest equal to 47%
of its common stock. The remaining issued and outstanding shares of the Stock
Company will be owned by the Mutual Company.
In the course of preparing this appraisal report, we reviewed and discussed
with the Bank's management, and with the Bank's independent auditors, Grant
Thornton LLP, the audited financial statements of the Bank's operations for the
years ended December 31, 1995 and 1996 and unaudited financial statements for
the eight months ended August 31, 1997. We
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FELDMAN FINANCIAL ADVISORS, INC.
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also discussed matters related to the Reorganization with the Bank's legal
counsel, Luse Lehman Gorman Pomerenk & Schick, P.C., and with the Bank's
offering manager, Ryan, Beck & Co. We also reviewed and discussed with
management other financial matters of the Bank.
Where appropriate, we considered information based upon other available
public sources, which we believe to be reliable; however, we cannot guarantee
the accuracy or completeness of such information. We visited the Bank's primary
market area and examined the prevailing economic conditions. We also examined
the competitive environment within which the Bank operates and assessed the
Bank's relative strengths and weaknesses.
We examined and compared the Bank's financial performance with selected
segments of the thrift industry and selected publicly traded thrifts and banks.
We reviewed conditions in the securities markets in general and the market for
thrift institution common stocks in particular. We included in our analysis an
examination of the potential effects of the Reorganization on the Bank's
operating characteristics and financial performance as they relate to the
estimated pro forma market value of the Bank.
In preparing our valuation, we have relied upon and assumed the accuracy
and completeness of financial and statistical information provided by the Bank
and its independent auditors. We did not independently verify the financial
statements and other information provided by the Bank and its independent
auditors, nor did we independently value the assets or liabilities of the Bank.
The valuation considers the Bank only as a going concern and should not be
considered as an indication of the liquidation value of the Bank.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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Our valuation is not intended, and must not be construed, to be a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the Reorganization. Moreover, because such valuation is necessarily
based on estimates and projections of a number of matters, all of which are
subject to change from time to time, no assurance can be given that persons who
purchase shares of common stock in the Reorganization will thereafter be able to
sell such shares at prices related to the foregoing valuation of the pro forma
market value thereof. Feldman Financial is not a seller of securities within the
meaning of any federal and state securities laws and any report prepared by
Feldman Financial shall not be used as an offer or solicitation with respect to
the purchase or sale of any securities.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Bank's financial performance or management policies, and current conditions in
the securities market for thrift institution common stocks. Should any such
developments or changes be material, in our opinion, to the Reorganization
valuation of the Bank, appropriate adjustments to the estimated pro forma market
value will be made. The reasons for any such adjustments will be explained in
detail at that time.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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I. BUSINESS OF BROOKLINE SAVINGS BANK
General
Brookline Savings was organized in 1871 as a Massachusetts-chartered mutual
savings bank. The Bank conducts business from its home office in Brookline,
Massachusetts and its four other offices located in the Town of Brookline. The
Bank is subject to regulation by the Massachusetts Division of Banks and the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposit
accounts up to applicable limits through the Bank Insurance Fund. The Bank's
deposit accounts are insured by the Massachusetts Deposit Insurance Fund ("DIF")
in excess of the maximum FDIC insurance. The Bank is a member of the Federal
Home Loan Bank ("FHLB") of Boston. As of August 31, 1997, Brookline Savings had
total assets of $680.3 million, total deposits of $481.5 million, and total
equity of $125.4 million or 18.43% of total assets.
Brookline Savings emphasizes the origination of multi-family and commercial
real estate mortgage loans, which constituted 71.6% of gross loans at August 31,
1997. The Bank also offers traditional deposit and single-family residential
mortgage loan products and, to a lesser extent, construction and development
loans, home equity loans, and other consumer loans. The Bank also participates
in short-term commercial loans to national companies and organizations that are
originated and serviced primarily by money-center banks. Of the Bank's total
loan portfolio at August 31, 1997, 42.9% consisted of loans secured by multi-
family residential properties, 28.7% were secured by commercial real estate,
13.1% consisted of loans secured by one-to-four family residential properties,
and 9.0% consisted of commercial
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FELDMAN FINANCIAL ADVISORS, INC.
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loans or participations participations in commercial loans. The Bank also
invests in securities and other short-term investments. At August 31, 1997,
investment securities and short-term investments amounted to $189.3 million or
27.8% of the Bank's assets.
The Bank operates five full-service banking offices in the Town of
Brookline, an urban/suburban community adjacent to the City of Boston. The
majority of the Bank's deposits are gathered from the general public in
Brookline and surrounding communities. The Bank's primary lending area extends
to the greater Boston metropolitan area and eastern Massachusetts. Since a
significant concentration of Brookline Savings' assets are secured by commercial
and multi-family properties located in its primary lending territory, the asset
quality of the Bank is highly dependent upon the business and real estate market
conditions in the local economy. As the Boston economy improved from the
downturn of the early 1990's, the Bank's ratio of non-performing assets to total
assets decreased from 2.07% at December 31, 1992 to 0.50% at August 31, 1997.
Brookline Savings has reported consistently high levels of profitability
over the past five years. The Bank's strong earnings results can be attributed
to a high level of capital, emphasis on loans that generally carry higher
yields, controlled operating expenses, and solid asset quality. The Bank's high
level of capital provides it with a significant interest-free source of funding
that strengthens its net interest margin potential. The Bank's lending niche in
commercial real estate and multi-family loans provide the Bank with enhanced
yield opportunities versus single-family residential loans or investment
securities. The Bank's emphasis on efficiency and basic banking operations has
resulted in steadfastly low expense ratios. Finally, the Bank believes that its
conservatively administered loan portfolio and
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FELDMAN FINANCIAL ADVISORS, INC.
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experienced track record in its lending niche has helped it to maintain non-
performing assets at low levels.
The Bank's historical success is related to its ability to tailor loan
pricing on the basis of underlying credit risks and market conditions and to
operate efficiently. The Bank believes that its basic management philosophy
aimed at simplicity of operations is a key to achieving efficiency and well-
focused business goals. For many years, the Bank has emphasized commercial real
estate and multi-family mortgage lending. The Bank has developed considerable
expertise with regard to income property lending and views this area as
important to generating profitable growth in an environment in which small to
mid-sized financial institutions must develop business niches in order to
succeed.
In recent years, the Bank has also developed expertise in originating
commercial loans to condominium associations for the purpose of funding capital
improvements. Another important part of the Bank's business is owner-occupied
residential real estate lending. Brookline Savings funds its lending and
investment activity primarily with deposits generated in the local market area
through its branch office network. The Bank also utilizes FHLB borrowings to
supplement deposits as a source of funds and to provide a source of funds with
maturities that match the fixed-rate periods offered on certain commercial real
estate loans.
The basic operating strategy of Brookline Savings is focused on the
following goals:
. Continue to build and strengthen the Bank's core business of commercial
real estate and multi-family mortgage lending.
. Strengthen, expand, and refine the Bank's sources of funds.
. Continue to improve the Bank's financial management and its ability to
produce higher than average operating results.
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FELDMAN FINANCIAL ADVISORS, INC.
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. Continue to cultivate the Bank's effectiveness through management
development and the introduction of improved systems and procedures.
. Maintain the Bank's commitment to its community by remaining active and
increasing its participation in various community programs, and
providing funds to meet community credit and economic development needs.
Brookline Savings generated impressive returns on average assets of 1.59%,
1.91%, and 1.84% over the three-year period from 1994 to 1996. For the eight
months ended August 31, 1997, the Bank reported an annualized return on average
assets of 2.03%. As a result of its consistently high earnings returns that
were accompanied by controlled asset growth, the Bank's ratio of total equity to
assets was elevated from 12.19% at December 31, 1992 to 18.43% at August 31,
1997. Included in the Bank's equity at August 31, 1997 was $11.0 million of net
unrealized gain on securities available for sale, net of taxes. This component
measured 8.7% of the Bank's total equity at such date.
The Bank seeks to generate future earnings growth through continued
emphasis on income property lending, as market conditions permit, in addition to
increased single-family residential lending. Management intends to monitor
economic conditions in the Bank's market area and adjust the mix of its lending
activities in response to changing conditions in order to maintain sound asset
quality and profitability. Management believes opportunities for growth exist
in its market area and plans to manage growth to ensure compliance with
regulatory capital requirements and to achieve overall strategic objectives,
without unduly increasing the risk profile of the balance sheet. Given the
Bank's targeted lending niche, loan demand and market conditions require the
Bank to actively seek loan business beyond its retail banking market in
Brookline in order to meet its financial and strategic objectives.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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The Board of Trustees of Brookline Savings has determined that the
Reorganization is in the best interest of the Bank and its customers, and has
discerned several business purposes for effecting the proposed Reorganization.
The Reorganization will structure the Bank in the stock form, which is used by
commercial banks, most major business corporations, and an increasing majority
of savings institutions. Formation of the stock company will permit the Bank to
issue common stock, which is a source of capital not available to mutual
institutions.
At the same time, the Bank's mutual form of ownership will be preserved in
the mutual holding company ("MHC") structure, which will permit the Mutual
Company to control at least a majority of the common stock issued in the
Reorganization. The MHC structure will enable the Bank to raise significantly
less capital than the extraordinary amount of funds that otherwise would result
from a full conversion in today's stock market. The Reorganization will not
foreclose the opportunity for the resulting Mutual Company to convert from
mutual to stock form in the future. Additionally, the middle-tier Stock Company
allows greater flexibility to structure mergers and acquisitions, diversify
business operations, and to repurchase shares of common stock, thereby affording
the MHC structure some of the advantages that were previously available only to
thrifts that opted for fully-converted stock companies.
The Stock Company will offer for sale 47% of its common shares in the Stock
Offering. The sale of common stock will provide the Bank with new equity
capital to support future growth and expanded operations. Management believes
that the sale of common stock in selected proportions and at appropriate
intervals facilitates the orderly and manageable expansion of the Bank's capital
base. The ability to issue common stock also will enable the
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FELDMAN FINANCIAL ADVISORS, INC.
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Bank to establish stock benefit plans for management and employees, thereby
improving the Bank's capacity to attract and retain qualified personnel. The
additional capital, along with the holding company organizational structure,
will help to facilitate expansion through mergers and acquisitions.
The increased capital resulting from the Stock Offering will enable the
Bank to take advantage of additional lending opportunities within its market
area. Based on the Bank's expanded capital base, the Bank will be able to
increase its lending limits and borrower concentrations without jeopardizing
credit risk management. The Bank will be better able to accommodate the growing
financing needs of its larger, more successful real estate customers. In recent
years, there have been instances when the Bank had to forego attractive lending
opportunities because of the size of particular loans or had to sell part of
larger loans to other financial institutions.
The Bank may also explore other means of expanding loan originations
through securitizations, loan participations, and joint ventures. In addition,
adjacent geographic markets may be considered for new business development
opportunities consistent with the Bank's current lines of business. The Bank
intends to implement any such growth and expansion plans with the disciplined
and deliberate approach it has traditionally followed.
The remainder of Chapter I examines in more detail the trends addressed in
this section, including the impact of changes in the Bank's economic and
competitive environment, and recent management initiatives. The discussion is
supplemented by the exhibits in the Appendix. Exhibit II-1 summarizes the
Bank's statements of financial condition at fiscal year-ends December 31, 1995
and 1996 and as of August 31, 1997. Exhibit II-2 presents the
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FELDMAN FINANCIAL ADVISORS, INC.
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Bank's statements of income for the fiscal years ended December 31, 1994 to
1996, and for the eight months ended August 31, 1996 and 1997.
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FELDMAN FINANCIAL ADVISORS, INC.
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Financial Condition
Table 1 presents selected data concerning Brookline Savings' financial
position as of the year-end periods December 31, 1992 through 1996 and as of
August 31, 1997. Table 2 displays relative balance sheet concentrations for the
Bank over the same period.
Table 1
Selected Financial Condition Data
As of December 31, 1992 to 1996 and August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
===========================================================================================
December 31,
August 31, -----------------------------------------
1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets 680,316 666,988 632,788 607,737 550,025 543,156
Total Loans 485,515 480,683 448,631 422,036 378,045 378,413
Debt Securities 154,700 138,627 152,033 156,711 151,131 140,948
Marketable Equity Securities 23,626 20,365 19,074 13,301 3,790 3,973
Total Deposits 481,467 484,016 474,215 471,811 444,848 444,507
Borrowed Funds 61,815 60,565 49,665 43,265 27,000 23,700
Total Equity 125,370 113,947 100,583 85,722 72,522 66,221
- ----------------------------- -------- ------- ------- ------- ------- -------
Allowance for Loan Losses 12,443 12,326 12,326 12,274 12,745 11,775
Non-performing Loans 1,412 1,337 748 1,284 3,360 4,768
Non-performing Assets 3,414 3,026 2,470 3,089 6,938 11,269
===========================================================================================
</TABLE>
Source: Brookline Savings, preliminary prospectus.
Asset Composition
- -----------------
The Bank's asset base expanded at a compound annual growth rate of 4.5%
between December 31, 1992 and August 31, 1997. Total assets increased by $137.2
million over this nearly five-year period, primarily as a result of the
expanding loan portfolio. The Bank's growth was internally generated without
augmentation from mergers or acquisitions of other company operations. The
ratio of total loans to assets increased slightly from 69.7% at year-end 1992 to
71.4% at August 31, 1997.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 2
Relative Balance Sheet Concentrations
As of December 31, 1992 to 1996 and August 31, 1997
(Percent of Total Assets)
<TABLE>
<CAPTION>
======================================================================================
December 31,
August 31, ----------------------------------------
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Investment Securities 26.2 23.8 27.0 28.0 28.2 26.7
Total Loans 71.4 72.1 70.9 69.4 68.7 69.7
Allowance for Loan Losses (1.8) (1.8) (1.9) (2.0) (2.3) (2.2)
Other Assets 4.2 5.9 4.0 4.6 5.4 5.8
----- ----- ----- ----- ----- -----
Total Assets 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
Liabilities and Equity
- ----------------------
Total Deposits 70.8 72.5 74.9 77.6 80.9 81.8
Borrowed Funds 9.1 9.1 7.9 7.1 4.9 4.4
Other Liabilities 1.7 1.3 1.3 1.2 1.0 1.6
Total Equity 18.4 17.1 15.9 14.1 13.2 12.2
----- ----- ----- ----- ----- -----
Total Liabs. And Equity 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
=====================================================================================
</TABLE>
Source: Brookline Savings, preliminary prospectus; Feldman Financial
calculations.
The Bank's concentration of assets invested in loans has remained stable in
recent years, ranging from 70% to 72%. In comparison, the aggregate ratio for
all FDIC-insured savings institutions was positioned lower between 65% to 67%.
The Bank's loan portfolio is predominantly secured by real estate properties.
As displayed in Exhibit II-3, the Bank's gross loan portfolio at August 31, 1997
totaled $498.6 million, of which 42.9% ($214.1 million) were multi-family loans,
28.7% ($143.2 million) were commercial real estate loans, and 13.1% ($36.5
million) were one-to-four family residential mortgage loans.
Between year-end 1995 and August 31, 1997, the Bank's gross loan portfolio
expanded by $38.4 million. Over this period, multi-family loans increased by
$20.3 million and commercial real estate loans increased by $17.8 million.
While the market in these lending
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FELDMAN FINANCIAL ADVISORS, INC.
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areas was strong throughout this time period, the competition for such business
was also active. Many borrowers took advantage of the increased competition to
refinance their properties. Thus, the Bank's increased origination activity was
counterbalanced to some extent by increased prepayment activity. Exhibit II-4
summarizes the Bank's net lending activity during recent periods.
The most significant segment of the Bank's lending activity involves the
origination of loans secured by multi-family income properties. The loans are
generally secured by 5-to-100 unit apartment buildings located in the Bank's
primary lending area. The Bank attempts to achieve a minimum 50% composition of
all income property loans in the multi-family category. Typically, the Bank
originates multi-family loans with maturities from five to ten years and
amortization periods of twenty to twenty-five years. These loans are generally
priced by the Bank on a variable prime rate basis with the borrower's option to
accept a fixed rate for the first few years (most frequently two to five years).
The multi-family loan may be converted to a fixed-rate loan at the borrower's
option for two to five years, provided the fixed-rate period does not exceed the
original term of the loan. Occasionally, the Bank will fund loans originated or
converted to fixed-rate loans through fixed-rate borrowings from the FHLB with
maturities matching that of the loans originated. Multi-family loan
originations totaled $29.4 million for the eight months ended August 31, 1997
and $36.5 million, $25.6 million, and $42.2 million for 1996, 1995, and 1994,
respectively.
Many of the Bank's income property borrowers have done business with
Brookline Savings for many years and have more than one loan outstanding. It is
the Bank's current policy that the aggregate amount of loans outstanding to any
one borrower or related entities
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FELDMAN FINANCIAL ADVISORS, INC.
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may not exceed 10% of the Bank's unimpaired surplus (retained earnings exclusive
of net unrealized gains or losses on securities available for sale). At August
31, 1997, the largest borrower had aggregate loans outstanding of $8.0 million,
or 7.0% of unimpaired surplus. Including this borrower, there were 12 borrowers
each with aggregate loans outstanding at August 31, 1997 in excess of $5.0
million, the cumulative total of which was $79.0 million or 15.8% of gross
loans.
Loans secured by apartment buildings and other multi-family residential
properties generally involve larger principal amounts and a greater degree of
risk than one-to-four family residential mortgage loans. Because payments of
loans secured by multi-family properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy.
Another major segment of the Bank's loan portfolio involves commercial real
estate lending for business purposes or a combination of residential and retail
purposes. The Bank generally originates loans that are secured by business
purpose properties such as office buildings and industrial warehouse and
distribution facilities, along with retail purpose properties that include
shopping plazas. The Bank's underwriting policies and procedures for
originating commercial real estate mortgage loans are similar to those followed
for originating multi-family mortgage loans. Commercial real estate loan
originations totaled $17.7 million for the eight months ended August 31, 1997,
and $34.2 million, $18.4 million, and $20.1 million for 1996, 1995, and 1994,
respectively.
- 14 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Generally, the Bank considers loans secured by commercial real estate
properties to involve greater risk than multi-family mortgage loans since they
are even more dependent on the ability of the borrowers to profitably manage a
business and are more susceptible to adverse conditions in the real estate
market and economy. As a result, to offset the greater risk, the Bank may
require a somewhat higher debt service coverage ratio and, in certain instances,
a higher interest rate on commercial real estate loans than for multi-family
mortgage loans.
Occasionally, the Bank originates large multi-family and commercial real
estate mortgage loans and sells a participation in such loans to other financial
institutions. This enables the Bank to accommodate customers seeking larger
loans without taking on credit risks beyond loan policy guidelines. The sales
are made on a non-recourse basis and the Bank retains the servicing of loans
sold on a participation basis. Sales of loans on a participation basis amounted
to $1.2 million for the eight months ended August 31, 1997 and $6.0 million,
$3.0 million, and $3.8 million for 1996, 1995, and 1994, respectively.
The Bank provides funding for construction and development projects
involving residential and commercial properties within its primary lending area.
These loans may be used for the construction or rehabilitation of properties.
The Bank customarily disburses loan proceeds in increments as construction
progresses as determined by property inspections. At August 31, 1997, total
construction and development loans amounted to $7.8 million or 1.6% of gross
loans. Construction and development loan originations totaled $7.2 million for
the eight months ended August 31, 1997 and $9.9 million, $10.6 million, and $3.8
million for 1996, 1995, and 1994, respectively.
- 15 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Brookline Savings currently offers both fixed-rate and adjustable-rate
mortgage loans secured by one-to-four family residences located in its primary
lending area, with maturities up to 30 years. Residential mortgage loan
originations are generally obtained by the Bank's commissioned loan originator
through relationships established with local real estate brokers and by
personnel at the Bank's branch offices. The Bank does not originate fixed-rate
one-to-four family, owner-occupied loans for its own portfolio, but offers such
loans through third-party conduit lenders that typically are mortgage company
subsidiaries of other financial institutions. One-to-four family residential
mortgage loan originations totaled $6.2 million for the eight months ended
August 31, 1997 and $6.5 million, $5.8 million, and $7.7 million for 1996, 1995,
and 1994, respectively. The Bank also purchases adjustable-rate one-to-four
family residential mortgage loans primarily secured by residential properties in
its lending area. Such loan purchases totaled $7.2 million for the eight months
ended August 31, 1997, and $5.0 million, $2.4 million and none for the 1996,
1995, and 1994, respectively.
The Bank's commercial loan portfolio totaled $44.9 million or 9.0% of gross
loans at August 31, 1997. Of that amount, $36.5 million represented purchases
of a portion of loans to national companies and organizations primarily
originated and serviced by money-center banks. The Bank only purchases
participations in loans to companies with commercial paper rating by nationally
recognized rating agencies that generally meet the Bank's policy guidelines.
These loan participations mature between one day and three months and are viewed
by the Bank as alternative short-term investments. The remainder of the Bank's
commercial loan portfolio represented loans originated by the Bank, including
$6.2 million relating to loans made to condominium associations for the purpose
of funding capital improvements. The Bank offers consumer loans as a
convenience to its customers. Generally,
- 16 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
these consumer loans are secured by collateral. At August 31, 1997, consumer
loans totaled $1.3 million or 0.3% of the Bank's gross loans.
Exhibit II-5 displays the composition of the Bank's investment portfolio.
Investment securities totaled $181.8 million or 26.7% of total assets at August
31, 1997, consisting primarily of U.S. Government and Agency obligations ($77.7
million), corporate obligations ($74.4 million), and marketable common and
preferred equity securities ($23.6 million). Investment in mortgage-backed
securities was insignificant at that date ($2.6 million) and has declined
steadily over the past few years.
The Bank views its investment portfolio as an alternative interest-earning
asset vehicle into which to deploy excess funds during periods of weak loan
demand or perceived higher risks. The investment portfolio provides asset
diversification and the opportunity to achieve capital appreciation through
long-term investment in equity securities. The Bank's current investment
strategy has emphasized the purchase of U.S. Government and Agency obligations
and corporate debt obligations generally maturing within two years. Brookline
Savings has seldom used hedging instruments and had no outstanding contracts
involving such instruments at August 31, 1997.
At August 31, 1997, the Bank's marketable equity securities portfolio
totaled $23.6 million, comprising $15.5 million in common stocks and $8.1
million in preferred stocks. The net unrealized gain on securities classified
as available for sale at August 31, 1997 was $17.6 million, with $17.5 million
of that amount attributable to marketable equity securities. Of the $13.0
million in net unrealized gains on common stocks, $10.6 million related to the
Bank's investment in eight national and regional money-center banks and $1.5
million in three electric
- 17 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
utility companies. The Bank also had a $4.5 million unrealized gain on its
investment in senior preferred stock of the Federal Home Loan Mortgage
Corporation.
Liability Composition
- ---------------------
Deposits, repayments and prepayments of loans, proceeds from sales of loans
and securities, proceeds from maturing securities, and cash flows from
operations are the primary sources of the Bank's funds for use in lending,
borrowing, and other general purposes. The Bank's deposits at August 31, 1997
totaled $481.5 million, representing 86.8% of total liabilities. The Bank's
deposit accounts consist of transaction accounts (non-interest-bearing checking
accounts and interest-bearing NOW accounts, savings accounts, and money market
savings accounts) and certificate of deposit accounts. Exhibit II-6 presents a
summary of the Bank's average deposit balances in recent periods.
Transaction accounts amounted to $220.1 million or 45.7% of the Bank's
total deposits at August 31, 1997. Certificate of deposit accounts amounted to
$261.4 million or 54.3% of deposits at that date. The proportion of
certificates of deposit has increased in recent years due to depositor emphasis
on higher-yielding certificate accounts as opposed to certain transaction
accounts. Of the Bank's $261.4 million of certificate accounts, $209.8 million
or 80.3% were scheduled to mature within one year. The Bank had outstanding
$41.8 million in certificate accounts with balances of $100,000 or more. These
jumbo certificates constituted 16.0% of total certificate accounts and 8.7% of
total deposits.
The Bank's deposit base increased at a compound annual rate of 1.7% between
December 31, 1992 and August 31, 1997. Excluding interest credited on deposit
accounts, Brookline Savings experienced net deposit outflows of $17.0 million
for the eight months
- 18 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
ended August 31, 1997 and $13.1 million and $18.3 million for 1996 and 1995,
respectively. During the past few years, the strength of the stock market has
affected deposit flows as some customers have opted to place their funds in
instruments such as mutual funds rather in deposit products perceived to have
less attractive returns. The Bank obtains deposits predominantly from the areas
in which its branch offices are located. Brookline Savings relies mainly on
competitive pricing of its deposit products, customer service, and long-standing
relationships with customers to attract and retain deposits.
The Bank utilizes borrowed funds from the FHLB primarily in connection with
its management of the interest rate sensitivity of its assets and liabilities.
As of August 31, 1997, the Bank had outstanding FHLB advances of $61.8 million,
measuring 11.1% of total liabilities. The advances are collateralized primarily
by certain of the Bank's mortgage loans and secondarily by the Bank's investment
in the stock of the FHLB. As shown in Exhibit II-7, the Bank's utilization of
FHLB borrowings has increased in recent years as the average balance outstanding
increased to $63.0 million for the eight months ended August 31, 1997, as
compared to $55.5 million, $46.2 million and $32.9 million for 1996, 1995, and
1994, respectively.
Equity Capital
- --------------
The Bank's equity capital amounted to $125.4 million or 18.43% of total
assets at August 31, 1997. As a result of the Bank's steady profitability, the
Bank's equity has increased significantly from $66.2 million or 12.19% of total
assets at December 31, 1992. For regulatory purposes at August 31, 1997, the
Bank's Tier 1 leverage capital ratio measured 16.95%, its Tier 1 risk-based
capital ratio was 20.99%, and its total risk-based capital ratio
- 19 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
was 22.25%. The Bank not only met its minimum regulatory capital requirements
but also far surpassed the levels necessary to qualify for the designation of
well capitalized.
- 20 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Income and Expense Trends
Table 3 displays the main components of the Bank's earnings performance
from 1994 to 1996 and the eight months ended August 31, 1996 and 1997. Table 4
displays the components of income and expense as a percent of average assets for
the corresponding periods. Table 5 displays weighted average yields and costs
for recent periods.
The Bank's return on average assets measured 2.03% for the eight months
ended August 31, 1997 and 1.84%, 1.91%, and 1.59% for 1996, 1995, and 1994,
respectively. The Bank's return on average equity measured 11.46% for the eight
months ended August 31, 1997 and 11.15%, 12.62%, and 11.34% for 1996, 1995, and
1994, respectively.
Earnings Results for Eight Month Ended August 31, 1997
- ------------------------------------------------------
The Bank's earnings increased by 11.4% from $8.2 million for the first
eight months of 1996 to $9.1 million for the comparable period in 1997. The
increase in earnings was attributable to a $2.2 million increase in net interest
income, offset in part by a $931,000 increase in non-interest expense and a
$390,000 decrease in net gains on sales of securities.
In relation to average assets, net interest income increased from 3.90% to
4.20%. The increase was due primarily to growth in average interest-earning
assets and receipt of $908,000 in interest from a borrower whose loans were on
non-accrual and which related to interest earned in periods prior to 1997. The
Bank's net interest spread was relatively unchanged from 3.09% for the eight
months ended August 31, 1997, as compared to 3.08% for the comparable period in
1996.
- 21 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank did not provide for loan losses in the eight-month periods ended
August 31, 1997 and 1996 based on continuation of favorable trends in the
various factors considered by management in evaluating the adequacy of the
Bank's allowance for loan losses. The Bank has not charged its provision for
loan losses since 1993.
Non-interest operating income declined by $242,000 over the comparable
eight-month periods. Lower fees and charges contributed to the decline
primarily as a result of less fees from loan prepayments and late payments. The
ratio of non-interest income to average assets declined from 0.20% to 0.13% on
an annualized basis. In contrast, the aggregate of all FDIC-insured savings
institutions reported an annualized ratio of 0.71% of non-interest income to
average assets for the first half of 1997.
Non-interest expense increased by 19.4% from $4.8 million for the eight
months ended August 31, 1996 to $5.7 million for the recent eight-month period.
The corresponding expense ratio increased to 1.27% from 1.12%, but remained at a
relatively low level. The aggregate of all FDIC-insured savings institutions
reported an annualized ratio of 2.17% of non-interest expense to average assets
for the first half of 1997.
The Bank's compensation and benefit costs accounted for $526,000 of the
$931,000 increase in operating expenses between the comparable periods. The
higher level of compensation and benefits was attributable to several factors:
the addition of a chief financial officer and another commercial loan officer,
increased use of temporary personnel from an outside agency because of personnel
turnover, increased accruals for supplemental executive retirement costs and
bonuses, a one-time charge for compensation-related costs pertaining to the
creation of a real estate investment trust, increased personnel benefit costs,
and increased
- 22 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 3
Income Statement Summary
For the Years Ended December 31, 1994 to 1996
And the Eight Months Ended August 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
=========================================================================================
Eight Months Year Ended
Ended August 31, December 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $36,119 $33,563 $51,019 $48,920 $39,943
Total interest expense 17,204 16,859 25,458 23,938 17,761
------- ------- ------- ------- -------
Net interest income 18,915 16,704 25,561 24,982 22,182
Provision for loan losses -- -- -- -- (477)
------- ------- ------- ------- -------
Net int. income after prov. 18,915 16,704 25,561 24,982 22,182
Non-interest operating income 597 839 1,077 768 816
Gains on sales of securities, net 74 464 464 877 4
Real estate income (expense) 158 186 299 (40) (741)
------- ------- ------- ------- -------
Total non-interest income 829 1,489 1,840 1,605 79
Compensation and benefits 3,500 2,974 4,513 4,395 4,017
Occupancy 473 409 627 579 591
Equipment and data processing 720 606 892 882 878
Deposit insurance premiums 47 7 11 561 1,023
Other expense 998 811 1,670 1,033 1,187
------- ------- ------- ------- -------
Total non-interest expense 5,738 4,807 7,713 7,450 7,696
Income before taxes 14,006 13,386 19,688 19,137 15,042
Income tax provision 4,880 5,191 7,751 7,409 5,942
------- ------- ------- ------- -------
Net income $ 9,126 $ 8,195 $11,937 $11,728 $ 9,100
======= ======= ======= ======= =======
=========================================================================================
</TABLE>
Source: Brookline Savings, preliminary prospectus.
- 23 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 4
Income Statement Ratios
For the Years Ended December 31, 1994 to 1996
And the Eight Months Ended August 31, 1996 and 1997
(Percent of Average Assets)
<TABLE>
<CAPTION>
================================================================================
Annualized
Eight Months Year Ended
Ended August 31, December 31,
------------------- ------------------------
1997 1996 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income 8.02 7.84 7.86 7.96 6.96
Total interest expense 3.82 3.94 3.92 3.89 4.17
---- ---- ---- ----- -----
Net interest income 4.20 3.90 3.94 4.07 2.79
Provision for loan losses -- -- -- -- (0.08)
---- ---- ---- ----- -----
Net int. income after prov. 4.20 3.90 3.94 4.07 2.87
Non-interest operating income 0.13 0.20 0.16 0.13 0.14
Gains on sales of securities, net 0.02 0.11 0.07 0.14 0.00
Real estate income (expense) 0.03 0.04 0.05 (0.01) (0.13)
---- ---- ---- ----- -----
Total non-interest income 0.18 0.35 0.28 0.26 0.01
Compensation and benefits 0.78 0.69 0.69 0.72 0.70
Occupancy 0.10 0.10 0.10 0.09 0.10
Equipment and data processing 0.16 0.14 0.14 0.14 0.15
Deposit insurance premiums 0.01 0.00 0.00 0.09 0.18
Other expense 0.22 0.19 0.26 0.17 0.21
---- ---- ---- ----- -----
Total non-interest expense 1.27 1.12 1.19 1.21 1.34
Income before taxes 3.11 3.12 3.03 3.11 2.62
Income tax provision 1.08 1.21 1.19 1.20 1.03
---- ---- ---- ----- -----
Net income 2.03 1.91 1.84 1.91 1.59
==== ==== ==== ===== =====
================================================================================
</TABLE>
Source: Brookline Savings, preliminary prospectus; Feldman Financial
calculations.
- 24 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
personnel training in connection with conversion to a new computer system.
Equipment and data processing expenses increased by $114,000 as a result of the
Bank's computer conversion. An increase of $187,000 in other operating expense
was attributable primarily to additional professional fees.
The Bank's income tax expense declined moderately from $5.2 million to $4.9
million, although earnings before income taxes increased from $13.4 million to
$14.0 million. The Bank's effective tax rate decreased from 38.8% in the 1996
period to 34.8% in the 1997 period. The lower effective tax rate resulted from
creation of a real estate investment trust and continued utilization of a
securities investment subsidiary to reduce state income taxes.
Earnings Results for 1996 versus 1995
- -------------------------------------
The Bank's earnings advanced slightly by 1.8% from $11.7 million in 1995 to
$11.9 million in 1996. The increase in net income was attributable to a
$579,000 increase in net interest income and a $235,000 increase in non-interest
income, offset in part by a $263,000 increase in non-interest expense.
The Bank's average interest-earning assets increased by $37.5 million or
6.2% in 1996. However, this expansion of balance sheet earnings potential was
countered somewhat by a decline in the Bank's net interest rate spread from
3.37% to 3.10%. The Bank's average yield on interest-earning assets decreased
from 8.09% to 7.94%, primarily as a result of the impact of the declining prime
interest rate on the Bank's large proportion of loans linked to prime. The
Bank's cost of funds rose from 4.72% to 4.84%, chiefly due to the increased
utilization of higher-costing certificates of deposit and FHLB borrowings as
incremental sources of funds.
- 25 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Total non-interest income increased by 14.6% from $1.6 million to $1.8
million. Non-interest operating income (excluding gains on sales along with
income or losses on real estate) increased by $309,000, mainly due to increased
prepayment fees caused by loan payments and refinancings along with the receipt
of funds from a settlement involving a loan-related dispute. Sales of marketable
equity securities generated net gains of $464,000 in 1996, as compared to
$877,000 in 1995. Other real estate owned activity contributed income of
$299,000 in 1996, compared to a loss of $40,000 in 1995. During 1996, the Bank
generated $149,000 from sales of properties and $150,000 from the rental of
properties exceeding related expenses.
The Bank's total non-interest expense increased by 3.5% from $7.5 million
in 1995 to $7.7 million in 1996. In relation to average assets, the Bank's non-
interest expense ratio declined from 1.21% to 1.19%. Deposit insurance premiums
declined by $550,000 in 1996 as a result of the reduction in FDIC premium rates.
Excluding deposit insurance premiums, the Bank' non-interest expense increased
by $813,000 in 1996. This increase was attributable chiefly to additional costs
in the other expense category as a result of professional fees, expenses
incurred with the computer system conversion, and higher marketing expenses.
The Bank's earnings before income taxes increased from $19.1 million in
1995 to $19.7 million in 1996. Principally as a result of the lower net
interest margin, the Bank's pre-tax return on average assets declined moderately
from 3.11% in 1995 to 3.03% in 1996. The Bank's effective tax rate increased
slightly from 38.7% in 1995 to 39.4% in 1996 because the prior year included the
utilization by the Bank of capital loss carryforwards to reduce part of the tax
due on gains from sales of equity securities.
- 26 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 5
Yield and Cost Summary
For the Years Ended December 31, 1995 and 1996 and
And the Eight Months Ended August 31, 1996 and 1997
<TABLE>
<CAPTION>
================================================================================
Eight Mos. Ended Year Ended
As of August 31, December 31,
Aug. 31, ----------------- --------------
1997 1997 1996 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Weighted Average Yields
- -----------------------
Short-term investments 5.47% 5.40% 5.23% 5.25% 5.77%
Debt securities 6.02 6.01 6.05 6.01 5.79
Equity securities (1) 4.72 4.78 5.33 5.25 6.04
Mortgage loans (2) 8.91 9.00 9.04 9.10 9.27
Commercial participation loans 5.69 5.63 5.56 5.56 6.06
Other commercial loans 9.64 9.64 9.22 9.10 10.33
Consumer loans 10.37 10.55 11.60 12.20 10.91
----- ----- ----- ----- -----
Total interest-earning assets 7.88 7.90 7.92 7.94 8.09
Weighted Average Costs
- ----------------------
NOW accounts 1.75 1.72 1.73 1.73 1.73
Savings accounts 2.50 2.47 2.44 2.46 2.43
Money market savings accounts 3.81 3.85 3.85 3.85 3.74
Certificates of deposit 5.64 5.56 5.66 5.63 5.58
----- ----- ----- ----- -----
Total deposits 4.62 4.58 4.64 4.62 4.54
Borrowed funds 6.44 6.52 6.64 6.64 6.56
----- ----- ----- ----- -----
Total interest-bearing
liabilities 4.83 4.81 4.84 4.84 4.72
Net interest rate spread (3) 3.05 3.09 3.08 3.10 3.37
Net interest margin (4) N.A. 4.06 3.96 4.00 4.15
===============================================================================
</TABLE>
(1) Includes tax exempt income on a tax equivalent basis.
(2) Excludes effect of $908,000 in interest income for the eight months ended
August 31, 1997 that was collected from a borrower whose loans were on
non-accrual.
(3) Average yield on interest-earning assets less average cost of interest-
bearing liabilities.
(4) Net interest income (tax equivalent basis) divided by average interest-
earning assets.
Source: Brookline Savings, preliminary prospectus.
- 27 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Asset and Liability Management
The Bank's principal financial objective is to sustain long-term
profitability while reducing its exposure to fluctuating interest rates.
Brookline Savings has sought to reduce exposure of its earnings to market
interest rates by managing the mismatch between asset and liability rates,
maturities and repricings. The focus of the Bank's asset/liability management
is to evaluate the overall interest rate risk included in certain balance sheet
accounts, determine the level of appropriate risk given the Bank's business
strategies, operating environment, liquidity requirements, capitalization, and
performance objectives, and manage the risk consistent with the approved
guidelines of the Board of Trustees.
The Bank's interest rate risk policy states that an immediate and parallel
shift in interest rates of 200 basis points (both upward and downward) should
not negatively impact the future twelve month projection of net interest income
by more than 15%, nor negatively impact the projected net market value of
interest-earning assets and interest-bearing liabilities by an amount greater
than 10% of the Bank's equity.
The Bank seeks to manage interest rate risk with the continued objective of
balancing the contrasting strategies of minimizing exposure to interest rate
sensitivity versus maximizing net interest margins. In order to manage interest
rate risk consistent with performance objectives, the Bank emphasizes the
origination and retention of adjustable-rate loans. The growth of the Bank's
income property loan portfolio has resulted in a significant balance of loans
tied to the prime interest rate. The Bank often will partially fund loans
originated or converted to fixed-rate loans through fixed-rate FHLB borrowings
with maturity periods that approximate the fixed-rate terms of the loans
originated. The Bank does not originate
- 28 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
residential fixed-rate mortgage loans for its portfolio, but instead offers such
loans through conduit lenders. While the Bank initiates the underwriting of such
fixed-rate residential mortgage loans, the conduit lender completes the
underwriting process and commits to fund and service these loans.
As an overall asset/liability management tool, the Bank uses its investment
portfolio to expand the proportion of shorter-term and variable-rate assets on
its balance sheet. The Bank's investment portfolio provides consistent cash
flow allowing for the systematic adjustment of investment allocations and
objectives as economic and market conditions change. The Bank has continued to
emphasize investment in debt securities with relatively short maturities. As of
August 31, 1997, the weighted average life to maturity of the Bank's $104.9
million of debt securities classified as available for sale was eleven months
and of the $49.8 million of debt securities classified as held to maturity was
two years. The classification of a significant portion of the Bank's investment
portfolio as available for sale provides the Bank with additional flexibility in
liquidity management.
Table 6 sets forth the amounts of interest-earning assets and interest-
bearing liabilities outstanding at August 31, 1997, which are anticipated by the
Bank, based upon certain assumptions, to reprice or mature in each of the future
time periods shown. This interest rate sensitivity or gap table depicts that
the Bank had a cumulative one-year interest sensitivity gap of negative $63.7
million, measuring negative 9.81% of total interest-earning assets and negative
9.36% of total assets at August 31, 1997. As previously noted, the large
proportion of adjustable-rate income property loans has elevated significantly
the interest rate sensitivity of the Bank's interest-earning asset base.
- 29 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 6
Interest Rate Sensitivity Schedule
As of August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
=========================================================================================
Estimated Repricing Period
-----------------------------------------
1 Year 1-3 3-5 Over 5
or Less Years Years Years Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning Assets
-----------------------
Real estate mortgage loans (1) $251,958 $138,821 $ 42,261 $ 8,152 $441,192
Commercial participation loans 36,500 -- -- -- 36,500
Other loans 5,694 1,454 151 34 7,693
Debt and equity securities (2) 75,553 79,243 218 1,068 156,082
Short-term investments 7,495 -- -- -- 7,495
-------- -------- -------- -------- --------
Total $377,560 $219,518 $ 42,630 $ 9,254 $648,962
======== ======== ======== ======== ========
Percent of Total Assets 55.5% 32.3% 6.2% 1.4%
Cumulative Percent 55.5% 87.8% 94.0% 95.4%
Interest-bearing Liabilities
----------------------------
Certificates of deposit $209,801 $ 43,503 $ 8,079 $ -- $261,383
Other interest-bearing deposits 209,967 -- -- -- 209,967
Borrowed funds 21,450 25,015 15,350 -- 61,815
-------- -------- -------- -------- --------
Total $441,218 $ 68,518 $ 23,429 $ -- $533,165
======== ======== ======== ======== ========
Percent of Total Assets 64.9% 10.0% 3.5% 0.0%
Cumulative Percent 64.9% 74.9% 78.4% 78.4%
Interest Sensitivity Gap $(63,658) $151,000 $ 19,201 $ 9,254
Cumulative Gap (63,658) 87,342 106,543 115,797
Cumulative Gap to Total Assets (9.4)% 12.8% 15.7% 17.0%
==========================================================================================
</TABLE>
(1) Excludes allowance for loan losses, non-performing loans, and net
adjustments.
(2) Excludes marketable and restricted equity securities.
Source: Brookline Savings, preliminary prospectus; Feldman Financial
calculations.
- 30 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Asset Quality
The Bank has achieved significant improvement in asset quality since the
early 1990's. Management believes the Bank's improved asset quality is primarily
attributable to a better economic environment, utilization of comprehensive loan
underwriting policies, application of a risk rating methodology, systematic loan
reviews, active monitoring of loan concentrations, conservative collateralizaton
practices, and consistent and forceful collection and workout efforts.
During the late 1980's and early 1990's, a regional recession caused a
significant decline in employment and real estate values, ultimately resulting
in the failure of many financial institutions in Massachusetts and New England.
The Bank experienced increased levels of non-performing assets but not to the
extent of many of its ill-fated competitors, especially those with less seasoned
experience in the income property lending market. The greater Boston and New
England economies have improved since then and generally have been stable in
recent years. However, the Boston economy still exhibits vulnerability to
cyclical downturns due to a heavy presence of financial services and high
technology industries.
In order to effectively monitor problem loans, the Bank has established a
standing committee of the Board of Trustees known as the Watch Committee. The
Watch Committee is charged with the responsibility of meeting at least quarterly
to review any problem loans identified by management and to determine
appropriate courses of action. The Watch Committee, in conjunction with
management of the Bank, also monitors the adequacy of the Bank's allowance for
loan losses. Such evaluation includes an assessment of the overall risks
- 31 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
inherent in the loan portfolio, consideration of economic and real estate market
conditions, and a review of all loans where full collectability many not be
reasonably assured.
The Bank's ratio of non-performing assets to total assets decreased from
2.07% at December 31, 1992 to 0.39% at December 31, 1995. Total non-performing
assets declined from $11.3 million to $2.5 million over the same period. The
Bank's non-performing asset ratio has increased moderately from year-end 1995 to
0.50% at August 31, 1997 as the balance of non-performing assets expanded by
$944,000. Non-performing assets at August 31, 1997 consisted of $1.4 million in
non-accrual loans and $2.0 million of other real estate owned ("OREO"). At this
date, the OREO comprised two industrial properties carried at $1.9 million and
residential condominium units carried at $320,000, net of related valuation
allowances amounting to $186,000.
The Bank's allowance for loan losses totaled $12.4 million at August 31,
1997. The balance of loan loss allowance has not changed materially over the
past three years. The allowance measured 881.2% of total non-performing loans
and 2.56% of total loans at August 31, 1997. The Bank has not made any
provisions for loan losses since 1993. Total loan charge-offs have been
insignificant in the years following 1993.
Pursuant to its internal asset quality rating system, the Bank had
designated as of August 31, 1997 outstanding loans of $3.9 million as
substandard and $2.2 million as special mention. The substandard loans include
two loans to one borrower totaling $2.3 million that are secured by office
buildings and have had interest rates at a below market rate since 1994. Loan
payments are current and the estimated market value of the underlying collateral
exceeds the loan balances. Also included in substandard loans are two other
loans totaling $1.4 million
- 32 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
that are secured by an office building and a building comprised of retail space
and apartments. Payments on one of the loans is past due, but both the loans are
considered by the Bank to be adequately collateralized. Special mention loans
include a $1.9 million loan secured by an office building. The loan is
considered adequately collateralized and payments are current.
- 33 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 7
Non-performing Asset Summary
As of December 31, 1995 and 1996 and August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
August 31, ------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Non-accrual loans:
One- to four-family residential $ 657 $ 428 $ 736
Multi-family mortgage 94 253 --
Commercial real estate 526 646 --
Construction and development -- 6 6
Home equity 133 -- --
Consumer 2 4 6
------ ------ ------
Total non-performing loans 1,412 1,337 748
Other real estate owned, net 2,002 1,689 1,722
------ ------ ------
Total non-performing assets $3,414 $3,026 $2,470
====== ====== ======
Non-performing loans as a %
of total loans 0.29% 0.28% 0.17%
Non-performing assets as a %
of total assets 0.50% 0.45% 0.39%
</TABLE>
Source: Brookline Savings, preliminary prospectus
- 34 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 8
Allowance for Loan Losses Summary
For the Years Ended December 31, 1995 and 1996
and the Eight Months Ended August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Eight Mos. Year Ended
Ended December 31,
August 31, ---------------------
1997 1996 1995
-------- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $12,326 $12,326 $12,274
Provision for loan losses -- -- --
Recoveries:
Multi-family 18 140 271
Commercial real estate -- -- 6
Construction and development 103 21 --
Consumer loans 2 5 15
------- ------- -------
Total recoveries 123 166 292
Charge-offs:
Commercial real estate -- (151) (237)
Consumer loans (6) (15) (3)
------- ------- -------
Total charge-offs (6) (166) (240)
Net recoveries 117 -- 52
------- ------- -------
Balance at end of period $12,443 $12,326 $12,326
======= ======= =======
Allowance as a % of total loans 2.56% 2.56% 2.75%
Allowance as a % of
non-performing loans 881.23% 921.91% 1,647.86%
</TABLE>
Source: Brookline Savings, preliminary prospectus
- 35 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Properties
The Bank conducts its business through five full-service banking offices
located in the Town of Brookline, Massachusetts. The Bank also utilizes an
operations center located in Brookline. Exhibit II-8 provides a general summary
of the Bank's offices. The Bank leases all of its office facilities, with the
exception of its main office which is owned by the Bank. The net book value of
the Bank's premises and equipment at August 31, 1997 totaled $1.4 million or
0.2% of total assets.
Brookline Savings operates an automated teller machine at each branch
location. The Bank expects to continue its ongoing analysis to determine the
efficiency and effectiveness of its branches in delivering services and products
to the local community. The Bank's branch network generally comprises modest
but efficient office facilities with favorable locational convenience. The Bank
currently has no plans to add additional branch facilities, but will monitor
feasible expansion opportunities.
In 1996, the Bank completed a major conversion of its computer systems to a
new data processor. The new systems provide the Bank with an enhanced ability
to customize services and products to its requirements and goals. The Bank
believes that its current office facilities and information systems are adequate
to meet the present and immediately foreseeable needs of the Bank.
- 36 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Subsidiaries
The Bank operates three subsidiaries for various investment purposes. BBS
Investment Corporation ("BBS") is a wholly-owned subsidiary of the Bank which
was established in 1986 as a Massachusetts security corporation for the purpose
of buying, selling, and holding investment securities on its own behalf and not
as a broker. The income earned on BBS's investment securities is subject to a
significantly lower rate of state tax than assessed on income earned on
investment securities maintained at the Bank operating level.
160 Associates, Inc. ("Associates") is a wholly-owned subsidiary
established in 1980 that engaged in marketing services at insignificant levels
of activity through 1996. In January 1997, Associates' articles of organization
were restated to allow it, among other things, to acquire and hold stock in any
subsidiary engaged in business that qualifies as a real estate investment trust.
The amount of capital that Associates invests in such activity cannot exceed
$200 million. At August 31, 1997, its investment in such activity amounted to
$180.3 million.
Brookline Preferred Capital Corporation ("BPCC") was established in January
1997 to engage in real estate business activities (including the acquisition and
holding of securities and mortgage loans) that enable it to be taxed as a real
estate investment trust for federal and state tax purposes. At August 31, 1997,
BPCC had total assets of $190.7 million, of which $179.5 million were mortgage
loans originated and acquired from the Bank. BPCC is a 99.9% owned subsidiary
of Associates.
- 37 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Market Area
The Bank's five offices are located in the Town of Brookline, an
urban/suburban community of approximately 52,000 residents. Brookline
represents a geographic area of just over six square miles and is surrounded on
three sides by the city of Boston. Its close proximity to Boston, combined with
its residential character and long tradition of excellent public schools,
continually attracts families to Brookline.
Brookline town is characterized by an unusual mix of single-family
residences, multi-family properties and large estates. The community places a
high value on the preservation of historic buildings, neighborhoods and green
spaces. There are no major manufacturing industries in Brookline, with services
and trade comprising the largest sector of the labor force. The town's major
employers include the local municipal government, Harvard Community Health Plan,
Newbury College, IDX and Northeast Security.
The majority of the Bank's deposits are gathered from the general public in
Brookline and surrounding communities. The Bank's lending area is concentrated
primarily in the greater Boston metropolitan area and eastern Massachusetts.
The Boston metropolitan area benefits from the presence of numerous institutions
of higher learning, medical care and research centers, and the corporate
headquarters of several significant mutual fund investment companies. Eastern
Massachusetts also has many high technology companies employing personnel with
specialized skills. These factors affect the demand for multi-family
apartments, office buildings, shopping centers, industrial warehouses, and other
commercial properties.
- 38 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 8 displays selected demographic data for the United States, the state
of Massachusetts, the Boston Metropolitan Statistical Area ("MSA") and the Town
of Brookline. Total population growth in Brookline is expected to continue a
declining trend over the next five years. However, income levels in Brookline
are projected to remain at above-average levels. The 1996 average household
income of $76,993 in Brookline was 28% above the Boston MSA average of $60,370,
43% ahead of the state average of $53,769 and 58% above the national average of
$48,762. Population and income growth in the Boston MSA is largely expected to
follow statewide trends.
Tables 9 and 10 show deposit concentrations in 1996 within the Town of
Brookline and the Boston MSA. Brookline Savings ranked as the deposit leader in
the local town with a commanding 41.8% market share. The Bank also operates the
largest number of branches in Brookline with its five-office network. The
deposit market share analysis for the Boston MSA indicates that the Bank ranked
20th among 190 financial institutions. The three large commercial bank holding
companies (BankBoston Corporation, Fleet Financial Group and State Street
Corporation) maintained almost half of the deposits in the greater Boston
metropolitan area. A wave of industry consolidation in Massachusetts during
recent years has included the absorption of Shawmut, BayBanks, Boston Bancorp
and Multibank Financial.
In summary, the Bank's market area is characterized by very high income
levels and a stable population and economic base. The region represents an
attractive market that can be served by a community financial institution such
as Brookline Savings. However, competition for originating loans and attracting
deposits is intense and expected to escalate as merging financial institutions
seek to leverage combined resources and to advance their competitive
- 39 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
positions. In addition, non-depository competitors have significantly penetrated
the traditional customer base of thrifts and banks as a result of the sustained
performance of the stock market.
- 40 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 9
Key Demographic Indicators
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
United State of Boston Town of
States Mass. MSA Brookline
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Population, 1996 264,992,224 6,044,263 3,240,708 52,252
Projected change, 1996-2001 4.89 0.31 0.28 (2.94)
Estimated change, 1990-1996 6.55 0.46 0.43 (4.51)
0-14 age group (%) 21.61 19.47 18.45 14.01
15-34 age group (%) 28.61 29.24 29.96 31.49
35-54 age group (%) 28.25 28.82 29.33 31.41
55+ age group (%) 21.54 22.47 22.27 23.09
- ------------------------------------------------------------------------------------------------------------------------
Average Household Income, 1996 $48,762 $53,769 $60,370 $76,993
Median Household Income, 1996 36,625 41,859 46,444 50,980
Per Capita Income, 1996 18,415 20,596 23,433 35,227
- ------------------------------------------------------------------------------------------------------------------------
Total Households, 1996 98,935,240 2,284,971 1,241,001 23,576
Projected change, 1996-2001 5.41 0.94 0.90 (2.09)
Estimated change, 1990-1996 7.60 1.68 1.70 (3.21)
- ------------------------------------------------------------------------------------------------------------------------
Total Household Income, 1996 ($mil.) $4,824,280 $122,861 $74,919 $1,815
Projected change, 1996-2001 20.65 13.87 15.55 12.87
Estimated change, 1990-1996 26.66 18.12 20.64 19.14
Household Income Distribution:
$0 - 24K income range (%) 34.02 29.88 26.19 21.54
$25 - 49K income range (%) 31.50 29.28 27.58 24.32
$50K+ income range (%) 34.49 40.84 46.23 54.14
- ------------------------------------------------------------------------------------------------------------------------
Unemployment Rate
1997 - month of July 5.4% 4.3% 3.4% n.a.
1996 - yearly average 5.0% 3.9% n.a. n.a.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 41 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 10
Deposit Market Share Analysis: Town of Brookline
Based on Deposits at June 30 and Adjusted for Recent Transactions
<TABLE>
<CAPTION>
1996 Market Share of 1995 1995-96
Total Share of Top Total Growth
Inst. No. of Deposits Town Institution Deposits Rate
Type Offices ($000s) (%) (%) ($000s) (%)
---- ------- -------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
1 Brookline Savings Bank S.B. 5 $484,619 41.80 100.00 $470,729 2.95
- ----------------------------------------------------------------------------------------------------------------------------
2 BankBoston Corporation Bank 2 280,113 24.16 0.89 262,419 6.74
3 Fleet Financial Group Bank 3 175,006 15.09 0.27 122,267 43.13
4 Bay State Federal S.B. Thrift 1 85,652 7.39 45.39 81,954 4.51
5 Citizens Financial Group S.B. 1 51,948 4.48 0.40 50,810 2.24
6 UST Corporation Bank 2 42,978 3.71 1.43 42,962 0.04
7 Brookline Co-operative Bank S.B. 1 39,171 3.38 100.00 36,902 6.15
- ------ ---- ------ ----
Total (7 institutions) -- 15 $1,159,487 100.00 -- $1,068,043 8.56
== ========== ====== ========== ====
</TABLE>
- 42 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 11
Deposit Market Share Analysis: Boston MSA
Based on Deposits at June 30 and Adjusted for Recent Transactions
<TABLE>
<CAPTION>
1996 Market Share of 1995 1995-96
Total Share of Top Total Growth
Inst. No. of Deposits MSA Institution Deposits Rate
Type Offices ($000s) (%) (%) ($000s) (%)
---- ------- ------ -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BankBoston Corporation Bank 290 $21,636,298 25.71 68.37 $21,724,732 (0.41)
Fleet Financial Group Bank 169 12,570,763 14.94 19.17 11,291,837 11.33
State Street Corporation Bank 6 7,531,683 8.95 100.00 7,715,441 (2.38)
Citizens Financial Group Bank 78 4,127,927 4.91 31.56 4,028,013 2.48
UST Corporation Bank 66 2,995,674 3.56 100.00 2,915,888 2.74
Mellon Bank Corporation Bank 1 2,524,610 3.00 9.02 2,685,381 (5.99)
Eastern Bank Corporation Bank 30 1,812,963 2.15 100.00 1,566,883 15.71
Middlesex Savings Bank S.B. 15 1,191,310 1.42 100.00 1,060,875 12.30
Peoples Heritage Financial Thrift 28 1,072,825 1.27 23.63 1,012,517 5.96
Cambridge Savings Bank S.B. 10 881,485 1.05 100.00 881,800 (0.04)
Independent Bank Corporation Bank 32 836,548 0.99 98.43 821,785 1.80
Massbank Corporation S.B. 15 815,046 0.97 100.00 782,241 4.19
Medford Savings Bank S.B. 16 805,174 0.96 100.00 795,180 1.26
Andover Bancorp S.B. 11 785,176 0.93 100.00 754,956 4.00
PNC Bank Corporation Bank 1 700,599 0.83 1.57 642,618 9.02
First Essex Bancorp Bank 13 677,743 0.81 100.00 661,944 2.39
Affiliated Community Bancorp S.B. 11 622,231 0.74 100.00 569,970 9.17
Salem Five Cents S.B. S.B. 9 602,075 0.72 100.00 606,736 (0.77)
BostonFed Bancorp Thrift 10 539,040 0.64 100.00 525,427 2.59
- ----------------------------------------------------------------------------------------------------------------------------------
Brookline Savings Bank S.B. 5 484,619 0.58 100.00 470,729 2.95
- ----------------------------------------------------------------------------------------------------------------------------------
Investors Financial Services Corp. Bank 1 474,393 0.56 100.00 134,893 251.68
Dedham Institution for Savings S.B. 9 460,854 0.55 100.00 419,819 9.77
Century Bancorp Bank 15 455,828 0.54 100.00 398,038 14.52
CambridgePort Bank S.B. 7 452,766 0.54 100.00 423,693 6.86
Somerset Savings Bank S.B. 6 446,349 0.53 100.00 431,656 3.40
Other 165 institutions -- 480 18,646,975 22.16 -- 17,443,742 6.90
--- ---------- ----- ---------- ----
Total (190 institutions) -- 1,334 $84,150,954 100.00 -- $80,766,794 4.19
===== ========== ====== =========== ====
</TABLE>
- 43 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Summary
Brookline Savings has carved out a profitable niche as a community savings
bank specializing in income property lending. The Bank's lending expertise,
efficient operations, and strong capital base have contributed to an impressive
record of profitability. At the same time, the Bank remains cognizant of the
cyclical nature of the commercial real estate market as well as the inherent
risk of increased competition related to structural changes in the lending
business and aggressive competitor pricing. New competitors with less seasoned
underwriting practices are discovering the profit potential of income property
lending. Also, a more active secondary market for securitized commercial loans
has developed, with the result that the Bank has encountered greater competition
for commercial loan originations from non-portfolio commercial real estate
lenders. Given that the overwhelming proportion of the Bank's asset base
remains invested in income property loans, it is important that the Bank
continuously monitor the risk exposure of its balance sheet. The strong base of
capital plus reserves serves as an important buffer toward such risk management.
The Bank' retail banking franchise in concentrated in the Brookline area.
The Bank's long-standing presence in the local community provides it with a
loyal customer base and a saturated degree of market penetration. However,
customers seeking a full range of competitive products and services may not be
adequately contented with the Bank's limited offerings as compared to other
competitors. As the Bank seeks to manage both sides of the balance sheet,
assets and liabilities, it may face increased pressure to improve and expand its
retail banking franchise. Such action could generate a cost-effective source of
funds, but would also require additional cost investments.
- 44 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
II. COMPARISONS WITH PUBLICLY HELD COMPANIES
General
The comparative market approach provides a sound basis for determining
estimates of going-concern valuations where a regular and active market exists
for the stocks of peer institutions. The comparative market approach was
utilized in determining the estimated aggregate pro forma market value of
Brookline Savings because: (i) reliable market and financial data are readily
available for comparable institutions; (ii) the comparative market method is
required by the applicable regulatory guidelines; and (iii) other alternative
valuation methods (such as income capitalization, liquidation analysis, or
discounted cash flow) are unlikely to produce a valuation relevant to the future
trading patterns of the related equity interest. The generally employed
valuation method in initial public offerings, where possible, is the comparative
market approach, which also can be relied upon to determine pro forma market
value in an initial thrift stock offering.
The comparative market approach derives valuation benchmarks from the
trading patterns of selected peer institutions which due to certain factors,
such as financial performance and operating strategies, enable the appraiser to
estimate the potential value of the subject institution in a stock conversion
offering. The pricing and trading history of recent initial public offerings of
thrifts are also examined to provide any evidence of the new issue discount
which must be considered. In Chapter II, our valuation analysis focuses on the
selection and comparison of Brookline Savings with a comparable group of
publicly held thrifts and banks (the "Comparative Group"). Chapter III will
detail any additional discounts or premiums that we believe are appropriate to
the Bank's pro forma conversion valuation.
- 45 -
<PAGE>
FELDMAN FINANCIAL ADVISORS
- --------------------------
Selection Criteria
Selected market price and financial performance data for thrifts listed on
the New York and American Stock Exchanges and those thrifts traded on the over-
the-counter markets listed on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") are shown in Exhibit III. Several
criteria were used to select the individual members of the Comparative Group
from the overall universe of publicly held thrifts and banks.
. Operating characteristics - An institution's operating characteristics
-------------------------
are the most important factors because they affect investors' expected
rates of return on a company's stock under various business/economic
scenarios, and they influence the market's general perception of the
quality and attractiveness of a given company. Operating
characteristics, which may vary in importance during the business
cycle, include financial variables such as profitability, balance sheet
growth, capitalization, asset quality, and other factors such as lines
of business and management strategies.
. Degree of marketability and liquidity - Marketability of a stock
-------------------------------------
reflects the relative ease and promptness with which a security may be
sold when desired, at a representative current price, without material
concession in price merely because of the necessity of sale.
Marketability also connotes the existence of buying interest as well as
selling interest and is usually indicated by trading volumes and the
spread between the bid and asked price for a security. Liquidity of the
stock issue refers to the organized market exchange process whereby the
security can be converted into cash. We attempted to limit our
selection to companies that have access to a regular trading market. We
eliminated from the comparative group companies with market prices that
were materially influenced by publicly announced or widely rumored
acquisitions. However, the expectation of continued industry
consolidation is currently embedded in thrift and bank stock
valuations.
. Geographic Location - The region of the country where a company
-------------------
operates is also of importance in selecting the comparative group. The
operating environment for savings institutions varies from region to
region with respect to business and economic environments, real estate
market conditions, speculative takeover activity, and investment
climates. Economic and investor climates can also vary greatly within a
region, particularly due to takeover activity.
- 46 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank's diversified lending operations represent a sharp contrast to the
lending profile of a traditional thrift institution. The balance sheet of
Brookline Savings is concentrated heavily in income property loans (commercial
real estate and multi-family mortgages). In addition, the Bank's relatively
high earnings level places it in the upper echelons of solidly profitable
thrifts. The Bank's above-average net margin is bolstered by its strong capital
base and is accompanied by a very low operating expense ratio. In determining
the Comparative Group composition, we focused on the Bank's above-average levels
of earnings and capital as well as its diversified real estate lending
activities. As with any composition of a group of comparable companies, the
identification process was broadened sufficiently to assemble a meaningful
number of candidates. Specifically, we initiated a search for companies by
applying the selection criteria identified below. Companies that met a majority
of the following parameters were considered for inclusion in the Comparative
Group:
. Asset size - total assets ranging between $500 million and $1.5
----------
billion.
. Capital level - regulatory capital ratios that would generally
-------------
qualify for well capitalized designation.
. Profitability - return on average assets ("ROAA") approximating
-------------
1.00% or greater.
. Balance sheet composition - level of loans to assets greater than
-------------------------
50% and accompanied by modest concentration of non-earning assets
with reliance upon deposits as chief funding source.
. Loan concentration - significant concentration of commercial
------------------
real estate and multi-family mortgage loans.
. Asset quality - ratio of non-performing assets to total assets
-------------
less than 1.50%.
. Geographic location - additional consideration given to companies
-------------------
located in the state of Massachusetts.
- 47 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Our search for comparable publicly held thrifts initially targeted strongly
capitalized, highly profitable thrifts with significant income property lending
activities. Very few public thrifts exhibited all of these distinct operating
and financial characteristics. Many that did were much smaller than Brookline
Savings. However, one public thrift exhibited comparable financial ratios in
all such criteria and was selected for the Comparative Group. JSB Financial
Inc., which is headquartered in Lynbrook, New York, had a 22.85% equity to
assets ratio, a 1.80% ROAA, and 87.0% of its loan portfolio in non-residential
mortgages.
Although such exceptionally capitalized public thrifts of comparable size
were not present in Massachusetts, a handful of solidly profitable thrifts with
consequential proportions of non-residential mortgage loans were included in the
Comparative Group. These six public thrifts exhibited an average equity to
assets ratio of 8.08%, an average 1.15% ROAA, and an average of 27.9% of its
loans comprising non-residential mortgages. In comparison to the aggregate
thrift industry, this sub-group of Massachusetts thrifts exhibited above-average
profitability and greater concentrations of non-residential mortgages.
Expanding the search for comparable public thrifts beyond the borders of
Massachusetts led us to focus on high earnings performers with solid capital
levels, low expense ratios, and diversified lending activities. Including JSB
Financial, a total of six other thrifts were selected for the Comparable Group.
These six institutions were distinguished by very high net interest margins, an
average equity to assets ratio of 13.61%, an average 1.37% ROAA, and an average
of 56.8% of its loans concentrated in non-residential mortgages. All of these
indicators surpassed that of the aggregate thrift industry operating
performance.
- 48 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Because of the Bank's distinctly high earnings levels and concentrated
lending niche, we elected to expand our search for comparable institutions to
include the consideration of publicly held banks. While most of these banks did
not have exceptionally high capital levels similar to Brookline Savings, they
did have another important source of interest-free funds in the form of non-
interest-bearing deposits. The balance of net interest-earning assets
(interest-earning assets less interest-bearing liabilities) at each of the
selected banks exceeded the corresponding balance at Brookline Savings. Three
of the banks included in the Comparative Group were based in Massachusetts, one
from New York, and one from Pennsylvania. Another important comparable
institution, First National Bank of Anchorage, is based in Alaska. First
National Bank had an equity to assets ratio of 25.47%, an ROAA of 2.34%, and a
proportion of non-residential mortgages to total loans amounting to 44.9%.
As a result of applying the aforementioned criteria and analyzing the
screening results, the selection process has produced a reliable representation
of publicly traded thrifts and banks with operations comparable to those of
Brookline Savings. A general overview of the eighteen members selected for the
Comparative Group is presented in Table 12. The Comparative Group is further
sub-divided into three groups each with six companies: (i) Massachusetts Thrift
Group; (ii) Other Thrift Group; and (iii) Commercial Bank Group. The asset
sizes of the Comparative Group companies range from $518 million at Horizon
Financial Corp. to $1.5 billion at JSB Financial, with an overall average size
of $982 million. While some differences inevitably exist between the Bank and
the individual companies, we believe that the chosen Comparative Group on the
whole provides a meaningful basis of comparison for valuation purposes.
- 49 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 12
Comparative Group Operating Summary
As of the Latest Period Ended June 30, 1997
<TABLE>
<CAPTION>
Total Equity/
No. of Assets Assets
Company City State Offices ($000s) (%)
------- ---- ----- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Brookline Savings Bank (1) Brookline MA 5 680,316 18.43
Massachusetts Thrift Group
- --------------------------
Affiliated Community Bancorp Waltham MA 12 1,090,431 9.78
Andover Bancorp Inc. Andover MA 12 1,250,943 8.06
First Essex Bancorp Inc. Andover MA 15 1,245,415 6.97
Medford Savings Bank Medford MA 16 1,072,557 8.99
MetroWest Bank Framingham MA 12 566,517 7.45
SIS Bancorp Inc. Springfield MA 25 1,434,545 7.20
Other Thrift Group
- ------------------
American Bank of Connecticut Waterbury CT 15 605,857 8.29
Dime Community Bancorp Inc. Brooklyn NY 15 1,315,026 14.52
Horizon Financial Corp. Bellingham WA 12 518,661 15.60
ITLA Capital Corp. La Jolla CA 6 850,201 10.99
JSB Financial Inc. Lynbrook NY 13 1,531,115 22.85
Security First Corp. Mayfield Hts. OH 14 653,226 9.42
Commercial Bank Group
- ---------------------
Cape Cod Bank and Trust Co. Hyannis MA 26 910,343 7.79
Century Bancorp Inc. Medford MA 15 571,193 8.79
First National Bank of Anchorage Anchorage AK 28 1,431,767 25.47
Hudson Chartered Bancorp Inc. Lagrangeville NY 21 729,047 9.02
Independent Bank Corp. Rockland MA 32 1,260,751 6.82
Keystone Heritage Group Inc. Lebanon PA 24 634,112 10.31
</TABLE>
(1) As of August 31, 1997.
- 50 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Recent Financial Comparisons
Table 13 summarizes certain key financial comparisons between Brookline
Savings and the comparative group. Tables 14 through 18 contain the detailed
financial comparisons of the Bank with the individual Comparative Group
companies based on measures of profitability, income and expense components,
yield-cost structure, capital levels, credit risk, balance sheet composition,
and growth rates. Comparative financial data for the Comparative Group
companies were utilized as of or for the last twelve months ("LTM") ended June
30, 1997. For Brookline Savings, such financial data was examined for the LTM
ended August 31, 1997.
Brookline Savings' ROAA was 1.91% as compared to the Comparative Group's
average ROAA of 1.34%. The Bank's 1.90% core ROAA (excluding gains on sale and
other non-recurring items) also exceeded the Comparative Group's average core
ROAA of 1.31%. In contrast to the Comparative Group, the Bank's profitability
was bolstered by a higher level of net interest income, no provision for loan
losses, and a lower operating expense ratio. Among the members of the
Comparative Group, only First National Bank of Anchorage exhibited a higher
level of profitability with an ROAA of 2.34%. Other Comparative Group companies
reporting a very high ROAA included JSB Financial at 1.80%, Keystone Heritage
Group at 1.68%, and Horizon Financial Corp. at 1.56%.
The Bank's net interest income of 4.12% relative to average assets was
positioned ahead of the Comparative Group's average of 3.97%. As discussed in
Chapter I, the Bank's high level of net interest income is attributable to its
significant concentration of higher yielding loans, overall high proportion of
loans to assets, and its strong capital base. The
- 51 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Bank's level of net interest income exceeded that of most of the thrifts in the
Comparative Group, but trailed that of the commercial banks included in the
Comparative Group. The net interest margins of the banks were supported by high
yielding loans and low costs of funds related to substantial concentrations of
non-interest-bearing accounts and low costing checking accounts.
The Bank's net interest rate spread measured 3.22% over the observed
period, measuring below the Comparative Group's average of 3.47%. The Bank's
cost of funds at 4.70% exceeded the Comparative Group's average of 4.41%. The
Bank's higher cost of funds reflected its increased reliance on certificate
accounts and borrowed funds as funding sources. Many of the thrifts in the
Comparative Group still had notable concentrations of passbook savings accounts
which restrained their overall costs of funds, while the commercial banks were
able to rely upon checking accounts to limit their funding costs. The Bank's
yield on interest-earning assets measured 7.92%, slightly exceeding the
Comparative Group's average of 7.88%. The Bank's interest-earning asset yield
surpassed the Massachusetts Thrift Group's average of 7.63%, approximated the
Other Thrift Group's average of 7.90%, and trailed the Commercial Bank Group's
average of 8.11%.
The Bank's net interest-earning asset balance averaged 17.13% of total
assets and was positioned above the Comparative Group's average of 15.42%. This
advantage primarily reflected the Bank's higher capital level. The Bank's
18.43% ratio of equity to assets easily surpassed the Comparative Group's
average equity ratio of 11.02%. Only First National Bank and JSB Financial
exhibited higher equity ratios at 25.47% and 22.85%, respectively. Several
other Comparative Group members exhibited equity ratios above 10.00%. The
Commercial
- 52 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 13
Key Financial Comparisons
Brookline Savings Bank and the Comparative Group
As of the Latest Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Brookline Comparative
Savings Group
Bank(1) Average
------------ -----------
<S> <C> <C>
Profitability
- -------------
LTM Return on Average Assets 1.91 % 1.34 %
Core Return on Average Assets 1.90 1.31
LTM Return on Average Equity 10.91 13.06
Core Return on Average Equity 10.86 12.77
Income and Expense (% of avg. assets)
- --------------------------------------
Total Interest Income 7.95 7.56
Total Interest Expense 3.83 3.59
Net Interest Income 4.12 3.97
Provision for Loan Losses 0.00 0.17
Other Operating Income 0.12 0.60
Net Gains and Non-recurring Income 0.01 0.08
General and Administrative Expense 1.28 2.47
Real Estate Expense (Income) (0.04) 0.02
Non-recurring Expense 0.00 0.05
Pre-tax Core Earnings 3.00 1.91
Yield-Cost Data
- ---------------
Yield on Earning Assets 7.92 7.88
Cost of Funds 4.70 4.41
----- -----
Net Interest Spread 3.22 3.47
Asset Utilization (% of avg. assets)
- --------------------------------------
Avg. Interest-earning Assets 98.58 94.74
Avg. Interest-bearing Liabilities 81.45 79.32
----- -----
Net Interest-earning Assets 17.13 15.42
</TABLE>
- 53 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 13 (continued)
Key Financial Comparisons
Brookline Savings Bank and the Comparative Group
As of the Latest Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Brookline Comparative
Savings Group
Bank(1) Average
------------ -----------
<S> <C> <C>
Balance Sheet Composition (% of assets)
- -------------------------
Cash and Securities 29.01 % 34.17 %
Loans Receivable, net 69.54 62.55
Real Estate 0.29 0.15
Intangible Assets 0.00 0.26
Other Assets 1.16 2.87
Total Deposits 70.77 75.06
Borrowed Funds 9.09 12.61
Other Liabilities 1.71 1.31
Total Equity 18.43 11.02
Loan Portfolio (% of total loans)
- --------------
Residential Mortgage Loans 20.51 43.23
Other Real Estate Mortgage Loans 70.22 42.38
Non-mortgage Loans 9.27 14.39
Growth Rates
- ------------
Total Assets 4.31 11.80
Total Loans 3.47 13.68
Total Deposits 0.54 9.71
Regulatory Capital Ratios
- -------------------------
Tier 1 Leverage Capital 16.95 10.32
Tier 1 Risk-based Capital 20.99 16.86
Total Risk-based Capital 22.25 17.94
Credit Risk Ratios
- ------------------
Non-performing Loans / Total Loans 0.29 0.93
Non-performing Assets / Total Assets 0.50 0.71
Reserves / Non-performing Assets 364.47 160.96
Reserves / Total Loans 2.56 1.46
</TABLE>
(1) As of the twelve months ended August 31, 1997
- 54 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Bank group displayed an average 22.35% net balance on interest-earning assets,
reflecting the favorable impact of meaningful levels of non-interest-bearing
deposits.
The Bank's non-interest operating income totaled 0.12% in relation to
average assets, trailing the Comparative Group's average of 0.60%. The twelve
thrifts in the Comparative Group displayed an average non-interest operating
income ratio of 0.34%, while the six banks demonstrated a higher average of
1.13%. The Bank's ratio of non-interest income was lower than each of the
levels generated by the Comparative Group companies. Brookline Savings has not
developed a broad offering of fee-producing products and services beyond its
lending activities and traditional deposit operations. The Bank's production of
gains on sale was insignificant during this recent period, although such revenue
source has been more consequential in prior years. The Bank's level of gains
and other non-recurring income amounted to 0.01% of average assets as compared
to the Comparative Group's average of 0.08%.
As discussed in Chapter I, the Bank has not charged its provision for loan
losses in recent years. The Comparative Group exhibited varying levels of
provisions, with an overall average of 0.17% relative to average assets. The
Bank and the Comparative Group on the whole maintained low levels of non-
performing assets, with Brookline Savings at 0.50% of assets and the Comparative
Group averaging 0.71%. Brookline Savings maintained a comparatively higher
level of loan loss reserves. The Bank's reserve level measured 364.5% of non-
performing assets versus the Comparative Group's average of 161.0%. Relative to
total loans, the Bank's reserve level of 2.56% exceeded the Comparative Group's
average of 1.46%.
- 55 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank's operating expenses have been targeted by management as a
critical linchpin toward sustaining a high level of profitability. The Bank's
1.28% ratio of operating expense was lower than that of all members of the
Comparative Group, which included Horizon Financial at 1.47%, Affiliated
Community Bancorp at 1.66%, and Andover Bancorp at 1.76%. In comparison, the
aggregate thrift industry's expense ratio has hovered slightly above 2.00%. The
thrifts in the Comparative Group averaged 2.00%, while the commercial banks
averaged a higher ratio of 3.41%. Commercial banks have traditionally exhibited
higher expense ratios than thrifts because of their more extensive retail
operations that typically comprise more fee-generating services and greater
transaction account activity.
The Bank's balance sheet composition reflected many similarities with that
of the Comparative Group companies. Total net loans amounted to 69.5% of assets
at Brookline Savings, slightly above the Comparative Group's average
concentration of 62.6%. Companies exhibiting loan concentrations above that of
the Bank included Security First Corp. (89.4%), ITLA Capital Corp. (81.7%),
Horizon Financial Corp. (78.1%), MetroWest Bank (76.3%), and Andover Bancorp
(70.2%). The Bank's holdings of cash and investment securities amounted to
29.01% of total assets, slightly below the Comparative Group's average of
34.17%.
The Bank's 20.51% proportion of one-to-four family residential mortgages to
total loans was closer to the Commercial Bank Group's average of 27.02% than the
overall Comparative Group's average of 43.23%. While the companies in the Other
Thrift Group had a majority of their loans concentrated in non-residential
mortgage loans, the Massachusetts Thrift Group had the bulk of their loans in
the residential category. Brookline Savings
- 56 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
exhibited a 70.22% concentration of its loan portfolio in the non-residential
mortgage loan segment. Several members of the Comparative Group also exhibited a
majority of loans in the non-residential mortgage category, including ITLA
Capital Corp. (98.05%), JSB Financial (87.03%), Dime Community Bancorp at
(61.16%), and Security First Corp. (50.27%). The Commercial Bank Group also
exhibited substantial concentrations in the non-mortgage loan segment comprising
commercial business loans and consumer loans.
The Bank's growth rates trailed the Comparative Group's averages in each
category of assets, loans, and deposits. The Bank's asset growth rate of 4.31%
over the past twelve months was below the Comparative Group's average of 11.80%.
Several of the Comparative Group companies have completed acquisitions which
enhanced their respective growth rates. The Bank's recent growth has been
internally generated with a high emphasis on selective origination of assets at
attractive yields and with prudent credit risk considerations. The Bank's
deposit growth of 0.54% was significantly behind the Comparative Group's average
of 9.71%. The Bank has increased its utilization of borrowings as a funding
source in recent periods.
In summary, the Bank's earnings performance was superior to that of the
Comparative Group. Its strong capital base provides a substantial source of
interest-free funds, similar to that of a commercial bank with significant
balances of checking accounts. However, no operating expenses are necessary to
service and support equity capital as opposed to checking accounts with the
attendant branch and back-office operations. The Bank's capital base provides
an important buffer against its high concentration of riskier commercial real
estate and multi-family loans, as compared to the traditional thrift profile of
emphasizing single-family residential mortgages.
- 57 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 14
General Financial Performance Ratios
As of or for the Latest Twelve Months Ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
Total Tang. Total
Total Total Equity/ Equity/ NPAs/
Assets Deposits Assets Assets Assets
($mil.) ($mil.) (%) (%) (%)
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Brookline Savings Bank (8/31/97) 680,316 481,467 18.43 18.43 0.50
Comparative Group Average 981,762 720,817 11.02 10.79 0.71
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 1,110,068 772,498 8.08 7.83 0.62
- ----------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 1,090,431 676,447 9.78 9.73 0.39
Andover Bancorp Inc. 1,250,943 920,191 8.06 8.06 1.01
First Essex Bancorp Inc. 1,245,415 728,943 6.97 6.11 0.56
Medford Savings Bank 1,072,557 824,611 8.99 8.43 0.37
MetroWest Bank 566,517 469,389 7.45 7.45 0.91
SIS Bancorp Inc. 1,434,545 1,015,404 7.20 7.20 0.47
- ----------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 912,348 687,683 13.61 13.24 0.90
- ----------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 605,857 447,601 8.29 7.98 1.81
Dime Community Bancorp Inc. 1,315,026 963,395 14.52 12.76 0.73
Horizon Financial Corp. 518,661 428,471 15.60 15.60 0.00
ITLA Capital Corp. 850,201 689,021 10.99 10.95 1.47
JSB Financial Inc. 1,531,115 1,132,634 22.85 22.85 1.08
Security First Corp. 653,226 464,976 9.42 9.28 0.28
- ----------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 922,869 702,271 11.37 11.29 0.62
- ----------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 910,343 678,528 7.79 7.79 0.66
Century Bancorp Inc. 571,193 456,782 8.79 8.61 0.97
First National Bank of Anchorage 1,431,767 920,034 25.47 25.47 0.49
Hudson Chartered Bancorp Inc. 729,047 657,514 9.02 8.99 0.81
Independent Bank Corp. 1,260,751 958,011 6.82 6.62 0.53
Keystone Heritage Group Inc. 634,112 542,757 10.31 10.26 0.28
<CAPTION>
Net
Interest LTM LTM Core Core
Margin ROAA ROAE ROAA ROAE
(%) (%) (%) (%) (%)
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Brookline Savings Bank (8/31/97) 4.23 1.91 10.91 1.90 10.86
Comparative Group Average 4.22 1.34 13.06 1.31 12.77
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 3.52 1.15 14.35 1.14 14.20
- -------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 3.36 0.96 9.78 1.10 11.14
Andover Bancorp Inc. 3.18 1.10 13.91 1.13 14.33
First Essex Bancorp Inc. 3.31 0.98 13.28 0.85 11.63
Medford Savings Bank 3.33 1.08 12.09 1.01 11.31
MetroWest Bank 4.07 1.38 17.90 1.37 17.82
SIS Bancorp Inc. 3.84 1.39 19.13 1.38 18.99
- -------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 4.15 1.37 10.58 1.37 10.65
- -------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 3.44 1.28 15.10 1.10 12.98
Dime Community Bancorp Inc. 4.07 1.00 5.94 1.04 6.20
Horizon Financial Corp. 3.63 1.56 9.99 1.54 9.82
ITLA Capital Corp. 4.97 1.48 12.72 1.48 12.72
JSB Financial Inc. 4.72 1.80 8.20 1.70 7.77
Security First Corp. 4.04 1.07 11.51 1.34 14.39
- -------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 5.01 1.49 14.27 1.42 13.46
- -------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 4.60 1.40 17.29 1.22 15.14
Century Bancorp Inc. 4.92 1.08 12.62 1.06 12.38
First National Bank of Anchorage 6.08 2.34 9.54 2.34 9.54
Hudson Chartered Bancorp Inc. 5.02 1.27 13.94 1.21 13.29
Independent Bank Corp. 4.66 1.18 15.91 1.18 15.91
Keystone Heritage Group Inc. 4.75 1.68 16.30 1.50 14.51
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
- 58 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 15
Income and Expense Analysis
For the Latest Twelve Months Ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
As a Percent of Average Assets
-----------------------------------------------------------------------------------
Net Other Gains &
Interest Interest Interest Oper. Non-rec.
Income Expense Income Income Income
------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Brookline Savings Bank (8/31/97) 7.95 3.83 4.12 0.12 0.01
Comparative Group Average 7.56 3.60 3.97 0.60 0.08
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 7.32 3.95 3.37 0.40 0.06
- -------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 7.47 4.19 3.28 0.16 0.00
Andover Bancorp Inc. 7.25 4.18 3.07 0.43 0.27
First Essex Bancorp Inc. 7.57 4.38 3.19 0.27 0.08
Medford Savings Bank 6.93 3.73 3.20 0.27 (0.00)
MetroWest Bank 7.60 3.73 3.86 0.43 (0.01)
SIS Bancorp Inc. 7.12 3.50 3.63 0.84 0.04
- -------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 7.89 3.90 3.99 0.28 0.06
- -------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 7.23 3.94 3.29 0.55 0.15
Dime Community Bancorp Inc. 7.24 3.38 3.86 0.25 0.17
Horizon Financial Corp. 7.73 4.16 3.56 0.27 0.03
ITLA Capital Corp. 9.87 4.96 4.91 0.14 0.03
JSB Financial Inc. 7.05 2.60 4.44 0.22 0.00
Security First Corp. 8.22 4.33 3.89 0.26 0.00
- -------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 7.48 2.94 4.54 1.13 0.13
- -------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 7.48 3.25 4.23 1.70 0.30
Century Bancorp Inc. 7.22 2.84 4.38 0.80 0.03
First National Bank of Anchorage 7.54 2.10 5.44 1.41 0.00
Hudson Chartered Bancorp Inc. 7.31 2.87 4.44 0.86 0.10
Independent Bank Corp. 7.56 3.20 4.35 1.15 0.00
Keystone Heritage Group Inc. 7.78 3.38 4.40 0.86 0.32
<CAPTION>
As a Percent of Average Assets
-----------------------------------------------------------------------------------
Loan Real Pre-tax
Loss Operating Estate Non-rec. Core
Prov. Expense Expense Expense Earnings
----- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Brookline Savings Bank (8/31/97) 0.00 1.28 (0.04) 0.00 3.00
Comparative Group Average 0.17 2.47 0.02 0.05 1.91
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 0.17 2.13 0.05 0.04 1.42
- -------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 0.08 1.66 (0.01) 0.21 1.72
Andover Bancorp Inc. 0.20 1.76 0.10 0.00 1.44
First Essex Bancorp Inc. 0.16 2.10 0.07 0.00 1.12
Medford Savings Bank 0.02 1.77 (0.01) 0.00 1.68
MetroWest Bank 0.37 2.51 0.13 0.00 1.29
SIS Bancorp Inc. 0.17 2.98 0.01 0.03 1.30
- -------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 0.21 1.87 0.01 0.10 2.18
- -------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 0.30 1.80 0.12 0.00 1.61
Dime Community Bancorp Inc. 0.34 2.03 0.05 0.17 1.68
Horizon Financial Corp. 0.03 1.47 0.00 0.00 2.32
ITLA Capital Corp. 0.51 2.05 0.01 0.00 2.48
JSB Financial Inc. 0.04 1.82 (0.11) 0.00 2.91
Security First Corp. 0.05 2.06 (0.02) 0.41 2.05
- -------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 0.14 3.41 0.01 0.01 2.12
- -------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 0.00 3.96 0.00 0.00 1.68
Century Bancorp Inc. 0.16 3.27 (0.01) 0.00 1.88
First National Bank of Anchorage 0.10 3.57 0.00 0.00 3.19
Hudson Chartered Bancorp Inc. 0.40 3.06 0.03 0.01 2.15
Independent Bank Corp. 0.19 3.49 0.02 0.00 2.01
Keystone Heritage Group Inc. 0.00 3.11 0.01 0.03 1.83
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
- 59 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 16
Yield-Cost Structure and Growth Rates
For the Latest Twelve Months Ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
Avg. Int. Avg. Int Net Yield on Cost of
Earning Bearing Earning Interest Interest Net Asset Loan Deposit
Assets/ Liabs./ Assets/ Earning Bearing Interest Growth Growth Growth
Assets/ Assets Assets/ Assets Liabs. Spread Rate Rate Rate
------- ------ ------- ------- ------- ------ ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brookline Savings Bank (8/31/97) 98.58 81.45 17.13 7.92 4.70 3.22 4.31 3.47 0.54
Comparative Group Average 94.74 79.32 15.42 7.88 4.41 3.47 11.80 13.68 9.71
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 95.97 85.87 10.10 7.63 4.60 3.03 17.88 16.66 15.51
- ------------------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 97.54 85.48 12.06 7.66 4.90 2.76 10.83 14.64 8.87
Andover Bancorp Inc. 96.38 86.11 10.27 7.52 4.85 2.67 6.56 8.32 17.90
First Essex Bancorp Inc. 96.37 86.72 9.65 7.85 5.05 2.80 47.75 35.78 43.47
Medford Savings Bank 96.13 87.01 9.11 7.21 4.29 2.92 7.96 5.14 2.41
MetroWest Bank 95.00 86.90 8.10 8.00 4.30 3.70 15.59 24.45 10.89
SIS Bancorp Inc. 94.40 82.98 11.43 7.55 4.21 3.34 18.57 11.62 9.50
- -----------------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 96.02 82.21 13.81 7.90 4.44 3.46 6.48 13.93 6.36
- -----------------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 95.68 87.54 8.14 7.56 4.50 3.06 13.96 3.51 16.77
Dime Community Bancorp Inc. 94.78 79.43 15.35 7.64 4.25 3.39 (4.14) 28.48 1.40
Horizon Financial Corp. 98.03 82.47 15.56 7.88 5.05 2.83 5.10 1.14 5.49
ITLA Capital Corp. 97.35 81.52 15.84 8.30 4.42 3.88 12.64 26.85 5.53
JSB Financial Inc. 96.23 89.27 6.96 8.54 4.85 3.69 10.98 8.68 11.69
Security First Corp. 94.04 73.02 21.01 7.49 3.57 3.92 0.33 14.91 (2.73)
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 92.24 69.89 22.35 8.11 4.19 3.92 11.04 10.44 7.25
- -----------------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 92.74 70.32 22.42 8.07 4.62 3.45 21.50 15.91 10.93
Century Bancorp Inc. 89.71 71.86 17.85 8.05 3.95 4.10 7.37 10.09 1.60
First National Bank of Anchorage 89.58 53.38 36.19 8.42 3.93 4.49 1.32 7.14 1.77
Hudson Chartered Bancorp Inc. 92.32 70.38 21.94 7.92 4.08 3.84 6.34 6.60 6.32
Independent Bank Corp. 94.03 76.02 18.01 8.03 4.21 3.82 20.43 15.69 12.75
Keystone Heritage Group Inc. 95.06 77.38 17.68 8.18 4.37 3.81 9.29 7.20 10.13
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
- 60 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 17
Balance Sheet Composition
As of the Latest Twelve Months Ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
As a Percent of Total Assets
------------------------------------------------------------------
Cash & Net Real Intang. Other
Securities Loans Estate Assets Assets
---------- ----- ------ ------ ------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brookline Savings Bank (8/31/97) 29.01 69.54 0.29 0.00 1.16
Comparative Group Average 34.17 62.55 0.15 0.26 2.87
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 36.15 60.56 0.11 0.26 2.92
- --------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 35.63 62.12 0.00 0.06 2.20
Andover Bancorp Inc. 27.09 70.23 0.11 0.00 2.56
First Essex Bancorp Inc. 38.41 56.95 0.12 0.92 3.60
Medford Savings Bank 43.92 52.71 0.01 0.61 2.75
MetroWest Bank 20.78 76.33 0.22 0.00 2.67
SIS Bancorp Inc. 51.04 45.02 0.20 0.00 3.73
- --------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 26.61 70.49 0.29 0.42 2.18
- --------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 38.28 59.09 0.28 0.33 2.02
Dime Community Bancorp Inc. 39.18 56.26 0.13 2.01 2.42
Horizon Financial Corp. 19.70 78.07 0.00 0.00 2.22
ITLA Capital Corp. 15.83 81.67 0.57 0.05 1.89
JSB Financial Inc. 38.58 58.49 0.75 0.00 2.18
Security First Corp. 8.09 89.37 0.03 0.15 2.36
- --------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 39.75 56.60 0.05 0.08 3.51
- --------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 42.95 53.89 0.07 0.00 3.09
Century Bancorp Inc. 42.36 53.97 0.01 0.20 3.46
First National Bank of Anchorage 52.27 42.46 0.05 0.00 5.22
Hudson Chartered Bancorp Inc. 33.72 62.25 0.13 0.04 3.86
Independent Bank Corp. 37.90 59.31 0.03 0.22 2.55
Keystone Heritage Group Inc. 29.32 67.75 0.03 0.05 2.86
<CAPTION>
As a Percent of Total Assets
-------------------------------------------------------------------
Total Borrowed Other Total Total
Deposits Funds Liabs. Liabs. Equity
-------- -------- ------ ------ ------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brookline Savings Bank (8/31/97) 70.77 9.09 1.71 81.57 18.43
Comparative Group Average 75.06 12.61 1.31 88.98 11.02
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 70.77 19.99 1.16 91.92 8.08
- --------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 62.03 27.39 0.80 90.22 9.78
Andover Bancorp Inc. 73.56 17.68 0.70 91.94 8.06
First Essex Bancorp Inc. 58.53 32.88 1.61 93.03 6.97
Medford Savings Bank 76.88 13.64 0.49 91.01 8.99
MetroWest Bank 82.86 8.79 0.90 92.55 7.45
SIS Bancorp Inc. 70.78 19.54 2.48 92.80 7.20
- --------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 75.99 8.92 1.47 86.39 13.61
- --------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 73.88 17.31 0.52 91.71 8.29
Dime Community Bancorp Inc. 73.26 10.61 1.61 85.48 14.52
Horizon Financial Corp. 82.61 0.00 1.79 84.40 15.60
ITLA Capital Corp. 81.04 7.23 0.73 89.01 10.99
JSB Financial Inc. 73.97 0.00 3.17 77.15 22.85
Security First Corp. 71.18 18.39 1.01 90.58 9.42
- --------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 78.42 8.93 1.28 88.63 11.37
- --------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 74.54 17.08 0.59 92.21 7.79
Century Bancorp Inc. 79.97 9.96 1.28 91.21 8.79
First National Bank of Anchorage 64.26 9.58 0.69 74.53 25.47
Hudson Chartered Bancorp Inc. 90.19 0.25 0.54 90.98 9.02
Independent Bank Corp. 75.99 13.82 3.37 93.18 6.82
Keystone Heritage Group Inc. 85.59 2.87 1.23 89.69 10.31
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
- 61 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 18
Capital Ratios, Asset Quality, and Loan Composition
As of the Latest Twelve Months Ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
Tier 1 Tier 1 Total
Capital/ Capital/ Capital/ Total Total Resid. Other Nonmtg.
Total RiskAdj. RiskAdj. NPLs/ NPAs/ Resrvs./ Resrvs./ Mtgs./ Mtgs./ Loans/
Assets Assets Assets Loans Assets NPAs Loans Loans Loans Loans
------- ------- ------- ------ ------- ----- ------ ------ ------ -----
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brookline Savings Bank (8/31/97) 16.95 20.99 22.25 0.29 0.50 364.47 2.56 20.51 70.22 9.27
Comparative Group Average 10.32 16.86 17.94 0.93 0.71 160.96 1.46 43.23 42.38 14.39
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. 7.88 13.08 14.31 0.81 0.62 164.19 1.54 62.31 27.87 9.81
- ------------------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 9.92 17.93 19.18 0.63 0.39 191.75 1.20 67.34 30.66 1.99
Andover Bancorp Inc. 8.20 13.76 15.01 1.26 1.01 99.08 1.41 77.59 18.98 3.43
First Essex Bancorp Inc. 6.11 10.44 11.70 0.77 0.56 146.94 1.43 48.26 20.39 31.36
Medford Savings Bank 8.54 14.89 16.03 0.68 0.37 176.45 1.22 71.69 23.19 5.11
MetroWest Bank 7.51 9.57 10.82 0.62 0.91 126.64 1.48 51.11 44.34 4.56
SIS Bancorp Inc. 6.99 11.88 13.13 0.90 0.47 244.29 2.48 57.88 29.69 12.44
- ------------------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. 11.57 18.34 19.11 1.11 0.90 110.49 1.12 40.35 56.81 2.84
- ------------------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut NA NA NA 2.56 1.81 48.13 1.45 65.15 30.25 4.60
Dime Community Bancorp Inc. 9.87 18.73 19.99 1.05 0.73 112.22 1.43 37.95 61.16 0.89
Horizon Financial Corp. 15.38 29.44 30.39 0.00 0.00 NM 0.84 85.57 14.10 0.34
ITLA Capital Corp. 10.60 12.20 13.40 1.09 1.47 84.20 1.50 1.59 98.05 0.36
JSB Financial Inc. 14.08 20.97 20.37 1.62 1.08 33.98 0.62 9.41 87.03 3.56
Security First Corp. 7.92 10.34 11.40 0.31 0.28 273.91 0.85 42.45 50.27 7.28
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. 11.72 19.40 20.61 0.88 0.62 199.80 1.72 27.02 42.45 30.53
- ------------------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 7.91 12.18 13.44 1.02 0.66 185.10 2.20 26.90 46.55 26.55
Century Bancorp Inc. 8.68 15.34 16.59 1.69 0.97 80.04 1.42 34.23 48.11 17.66
First National Bank of Anchorage 24.88 49.16 50.02 0.67 0.49 88.23 1.03 23.32 44.87 31.81
Hudson Chartered Bancorp Inc. 8.84 13.00 14.26 0.96 0.81 159.36 2.04 30.13 35.28 34.59
Independent Bank Corp. 9.66 13.32 14.60 0.74 0.53 188.88 1.65 29.30 33.36 37.34
Keystone Heritage Group Inc. 10.32 13.39 14.72 0.22 0.28 497.19 1.99 18.24 46.53 35.23
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
-62-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
III. MARKET VALUE ADJUSTMENTS
This concluding chapter of the appraisal identifies certain additional
adjustments to Brookline Savings' estimated pro forma market value relative to
the Comparative Group selected in Chapter II. Adjustments are also necessary to
reflect the equity market's likely reception of a new thrift stock offering
under current conditions. The adjustments discussed in this chapter are made
from the viewpoints of potential investors, which include depositors holding
subscription rights exercisable in the Subscription Offering and unrelated
parties who may purchase stock in the Community Offering. It is assumed that
these potential investors are aware of all relevant and necessary facts as they
would pertain to the value of the Bank relative to other publicly held financial
institutions and relative to alternative investments.
In determining the aggregate pro forma market value of the Bank pursuant to
its Reorganization, we have assumed that the Bank would be valued initially
based on a full standard conversion, and subsequently with the mutual holding
company structure in place based on a sale of a 47% minority ownership interest.
Our appraised value is predicated on a continuation of the current operating
environment for the Bank and thrift institutions in general. Changes in the
Bank's operating performance along with changes in the local and national
economy, the stock market, interest rates, the regulatory environment, and other
external factors may occur from time to time, often with great unpredictability,
which could impact materially the value of the Bank or thrift stocks in general.
Therefore, the valuation range provided herein is subject to a more current re-
evaluation prior to the actual completion of the Stock Offering.
- 63 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
In addition to the comparative operating fundamentals discussed in Chapter
II, it is important to address additional market value adjustments based on
certain financial and other criteria, which include, among other factors:
(1) Earnings Prospects
(2) Market Area
(3) Management
(4) Dividend Capacity
(5) Liquidity
(6) Subscription Interest
(7) Stock Market Conditions
(8) New Issue Discount
(9) Mutual Holding Company Issues
Earnings Prospects
- ------------------
Earnings prospects are dependent upon the sensitivity of asset yields and
liability costs to changes in market interest rates, the credit quality of
assets, the stability of non-interest components of income and expense, and the
ability to leverage the balance sheet. Each of the foregoing is an important
factor to investors in assessing earnings prospects. The Bank's earnings
structure is predicated on managing higher risk, higher yielding loans at
profitable spreads over its cost of funds and operating expenses. The Bank has
demonstrated a very successful track record in implementing this business
strategy in the current economic environment. Given its asset composition, the
Bank is adeptly focused on risk management through maintaining strong capital
levels, flexible liquidity, solid credit reserves, highly efficient operations,
and conservative underwriting practices.
The challenges facing the Bank's profitability are threefold: (i) maintain
and advance competitive advantages in originating income property loans; (ii)
preserve its financial strength in the face of such riskier lending activity;
and (iii) guard against liberalized lending standards
- 64 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
in good times and an economic downturn in bad times. On the whole, we believe
that the Bank's earnings face a greater vulnerability to economic conditions
than the average thrift due to its lending specialization in the commercial real
estate and multi-family mortgage markets. Also, the larger dollar-balances of
individual loans in the income property category present an additional risk of
concentration. The Bank's post-Reorganization capital level will be additionally
fortified to help the Bank manage these business risks. However, while the
Bank's return on assets should be enhanced in the near term through the re-
investment of net capital proceeds, Brookline Savings will be challenged to
generate competitive returns on equity.
The Bank's success in producing considerable returns in recent years
indicates that its well-focused goals have been beneficial. While we believe it
is a daunting challenge for any financial institution to sustain such a high
level of profitability, the Bank has developed an effective business model that
emphasizes higher yields and lower costs. Although economic conditions in the
Bank's market area are anticipated to remain stable, an unexpected business
downturn or dramatic interest rate increases could suppress the Bank's ability
to expand its lending niche, disrupt asset quality, and strain earnings.
However, we believe that the Bank's expected capital levels and low cost
operating profile are mitigating factors. Therefore, we believe that no
additional adjustment is warranted.
Market Area
- -----------
The members of the Comparative Group are located primarily in Massachusetts
and other states in the Northeast. All of the Comparative Group companies have
a significant base of real estate mortgage lending. The Bank's primary market
area is characterized by a stable population base with above-average income
levels. We do not believe that, on the whole, the
- 65 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
market area conditions of the Comparative Group are materially different from
those facing the Bank. Accordingly, we believe that no adjustment is warranted
for market area.
Management
- ----------
Management's principal challenge is to generate profitable results, monitor
credit risks, and control operating costs while the Bank competes in an
increasingly competitive financial services environment. Brookline Savings'
management has demonstrated its effectiveness in implementing specialized
lending strategies and maintains a favorable image within the local community,
which constitutes an important factor in cultivating depositor and borrower
relationships. Accordingly, we believe that the Bank has sufficient managerial
resources in place to implement its operating goals and that no additional
adjustment is necessary.
Dividend Capacity
- -----------------
Upon completion of the Stock Offering, the Stock Company intends to pay
cash dividends consistent with industry payout ratios and current dividend
yields. Actual payment of dividends will depend upon a number of factors,
including the amount of the net proceeds retained by the Stock Company, capital
requirements, regulatory limitations, and operating results. All but one of the
eighteen companies in the Comparative Group currently pay regular dividends.
Furthermore, payment of cash dividends has become commonplace among publicly
owned thrifts with relatively high capital levels. There is no reason to
believe that the Bank, with its current earnings outlook and capital position,
would not have the capacity to support dividend payments comparable to those of
the Comparative Group. Accordingly, we do not believe an additional adjustment
is warranted for this factor.
- 66 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Liquidity of the Issue
- ----------------------
Following the completion of the Stock Offering, the Stock Company
anticipates that its common stock will be listed on the Nasdaq National Market.
Fourteen of the Comparative Group companies are traded on the Nasdaq National
Market, while the remainder are listed on other stock exchanges. With the
increased number of market makers and institutional investors following thrift
stocks, even small thrift stock conversions are able to develop a regulator
trading market for their stock issues. Given the expected market capitalization
of the Stock Company, it is reasonable to expect that an active and liquid
trading market should develop for its stock issue. Additionally, the existence
of active buyers and sellers trading thrift equity securities in the current
stock environment has limited the impact of illiquidity on thrift market
valuations overall. Therefore, given these overall consideration, we believe
that there is no need to apply a discount to reflect the possible lack of stock
liquidity.
Subscription Interest
- ---------------------
In recent years, initial public offerings of thrift stocks have attracted a
great deal of investor interest. During 1996, increased pro forma valuations
and more restrained aftermarket performance did little to deter investors from
actively participating in thrift stock conversions. Almost two-thirds of the
conversions in 1996 were oversubscribed by depositors alone with no shares
remaining for community offerings. Contributing to this huge demand is the
growing scarcity factor of mutual candidates for thrift stock conversions. The
annual number of conversion offerings and aggregate amount of gross proceeds
have both declined over past years.
- 67 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The visibility of thrift conversions moved to the forefront once again in
late 1996 and early 1997 with the conversion of Roslyn Savings Bank, which
received orders totaling approximately $1.7 billion for an offering that was
ultimately valued at $424 million. Conversion activity has continued at a brisk
pace in 1997 on the heels of a record-setting stock market. Notwithstanding the
demand for thrift stocks in initial offerings, a strong subscription does not
always indicate that the valuation range should be increased or the offering
should be priced in the upper end of the valuation range. Many conversion
investors do not routinely purchase in the after-market, particularly at higher
stock prices or involving stock issues with limited liquidity. As such, absent
actual results of the Bank's Subscription Offering, we do not believe any
adjustment is warranted at this time.
Stock Market Conditions
- -----------------------
Table 19 graphically displays the performance of the SNL Thrift Index of
all publicly traded thrifts as compared to the Standard & Poor's 500-Stock Index
("S&P 500") over the past two years. The SNL Thrift Index substantially
outperformed the S&P 500 during this period, advancing by 99.8% since year-end
1995 through month-end October 1997 as compared to the broader market index up
48.5%.
Table 20 graphically depicts selected interest rate levels over the past
three years. General market interest rates declined throughout 1995 and
propelled the stock market to new heights. Interest rates turned upward during
the first half of 1996, responding to concerns about inflationary pressures.
Thrift stocks, which had significantly outperformed the overall market in 1995,
trailed the broader market through mid-year of 1996. However, as interest rates
declined modestly and stabilized during the second half of 1996, thrift stocks
regained
- 68 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
momentum and were sparked additionally by another wave of mergers and
acquisitions. Resolution of the SAIF recapitalization appeared to break a logjam
that resulted in the announcements of a number of acquisitions of relatively
large thrifts.
Speculation about higher rates and the sustainability of thrift stock
valuations stalled the rally in early 1997. The market sell-off was prompted in
part as reaction to suggestions from the Federal Reserve Chairman that the stock
market was overheated and that the central bank might raise rates to head off
inflation. However, a flurry of bank and thrift merger activity during mid-1997
pumped further speculative fervor into thrift stocks. Also, general interest
levels remained stable over the past several months.
On October 27, 1997, investors sold off stocks in a frenzy as turmoil in
global securities markets spilled over into the U.S. market. The Dow Jones
Industrial Average dropped 554 points or 7.2%, representing the largest one-day
point decline in its history. Market observers generally attributed the slide to
fallout from recent disorder in global markets, especially in Asia, where
investors fear that economic troubles will hurt profits of American companies
with overseas interests. Many analysts also felt that valuation levels for U.S.
stocks had been bid up and were due for correction. The SNL Thrift Index fell
by 5.2% on this day, trailing the decline of the broader S&P 500 at 6.9%.
Spurred by unprecedented trading volume, domestic stocks rebounded firmly in
subsequent days as investors pointed to the firm underpinning of the U.S.
economy.
By November 7, 1997, the S&P 500 and the SNL Thrift Index had almost
recovered fully backed to their pre-correction levels. On a year-to-date basis,
the SNL Thrift Index was still up 56.1%, as compared to the S&P 500 at 25.2%.
The SNL MHC Index has advanced
- 69 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
ahead of other thrift indices, registering a 99.1% increase through November 7,
1997. Notwithstanding the spillover effect of merger activity, many stock
analysts believe that the financial sector is headed for more sluggishness as
valuation multiples continue to enter ground-breaking territory, but operating
fundamentals remain strong enough to avert a major correction independent of the
overall market.
- 70 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 19
Comparative Stock Market Performance
Month-end Index Data, Year-end 1995 =100
[LINE GRAPH APPEARS HERE]
<TABLE>
Dec-95 Feb-96 Apr-96 Jun-96 Aug-96 Oct-96 Dec-96 Feb-97 Apr-97 Jun-97 Aug-97 Oct-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
All Public Thrifts
S&P 500 [PLOT POINTS ^ TO COME ^]
All Thrift MHCs
</TABLE>
- 71 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 20
Selected Interest Rate Benchmarks
Month-end Indicators
[LINE GRAPH APPEARS HERE]
(%)
<TABLE>
<CAPTION>
Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Rate
FNMA Mixed Mtg. [PLOT POINTS ^ TO COME ^]
1-Yr. Treasury
</TABLE>
- 72 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Recent Acquisition Activity
- ---------------------------
Acquisition speculation is one factor impacting the prices of newly
converted thrifts in the after-market. Table 21 summarizes recent acquisition
activity involving thrifts and banks based in Massachusetts. Overall
acquisition premiums for Massachusetts financial institutions have been similar
to the ratios reported nationwide. During 1996 and 1997 year-to-date, there
were 15 acquisitions involving Massachusetts banks and thrifts. Most of the
acquisition activity involved in-state combinations. The most prominent
acquisition was the purchase of Walden Bancorp, a $1.1 billion-asset thrift, by
UST Corp.
The state's financial institution marketplace comprises a large number of
middle-tier banks and thrifts. Larger institutions, such as Shawmut, Baybanks,
and Multibank Financial, were absorbed in recent years by the state's market
leaders, including BankBoston Corporation and Fleet Financial Group. Because of
the relatively large number of stockholder-owned thrifts, consolidation activity
is expected to continue in Massachusetts. We believe that while acquisition
premiums are a significant factor to consider in determining the Bank's
estimated pro forma market value, such speculative behavior is reflected to some
degree in the general trading valuation levels of thrift stocks.
- 73 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 21
Summary of Recent Massachusetts Acquisition Activity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Seller Financial Data
--------------------------------------
Total TanEq./ YTD YTD
Bank/ Assets Assets ROAA ROAE Date
Buyer St. Seller St. Thrift ($M) (%) (%) (%) Anncd. Status
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All Massachusetts Acquisitions -- 1997 Average 149 9.91 0.99 10.88
All Massachusetts Acquisitions -- 1996 Average 387 8.78 0.90 9.85
Eastern Bank Corp MA Emerald Isle Bancorp MA T 444 6.99 0.88 12.59 10/23/97 P
Ben Franklin Bncp MA Foxboro National Bank MA B 74 8.21 1.34 16.05 09/04/97 P
South Weymouth SB MA Weymouth SB MA T 174 8.24 0.62 7.73 05/28/97 P
BankBoston Corp. MA Pacific National Corp MA B 102 10.72 1.69 16.62 05/27/97 P
City Savings Bank MA Lee National Banc MA B 62 9.04 0.66 7.53 03/11/97 P
MASSBANK Corporation MA Glendale Co-op Bank MA T 37 16.23 0.75 4.73 02/26/97 C
Citizens Fin'l Group RI Grove Bank MA T 599 6.49 0.91 14.35 11/04/96 C
Bay State FSB MA Union FS&LA MA T 39 7.45 (0.16) (2.23) 11/01/96 C
BostonFed Bancorp MA Broadway Capital Corp MA B 121 13.29 1.62 12.45 09/23/96 C
Berkshire Cnty SB MA Great Barrington SB MA T 274 13.93 1.49 10.26 09/10/96 C
UST Corp MA Walden Bancorp, Inc. MA T 1,052 8.07 1.14 12.18 08/30/96 C
Grove Bank MA Greater Boston Bank MA T 150 7.76 0.37 4.72 08/27/96 C
Peoples Heritage Fin ME Family Bancorp MA T 887 7.14 0.95 12.22 05/31/96 C
Weetamoe Bancorp MA Fairbank, Inc. MA B 63 8.04 1.22 15.72 04/05/96 C
CFX Corporation NH Safety Fund Corp. MA B 293 6.81 0.60 8.99 01/05/96 C
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Acquisition Ratios
---------------------------------------------
Offer Price/ Price/ Price/ Dep.
Bank/ Value Book TanBk. EPS Prem.
Buyer St. Seller St. Thrift ($M) (%) (%) (x) (%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
All Massachusetts Acquisitions -- 1997 Average 26.3 194.6 194.6 19.8 11.0
All Massachusetts Acquisitions -- 1996 Average 65.3 173.5 180.3 14.8 8.1
Eastern Bank Corp MA Emerald Isle Bancorp MA T 76.7 239.5 239.5 21.0 14.7
Ben Franklin Bncp MA Foxboro National Bank MA B 13.6 224.8 224.8 18.6 13.0
South Weymouth SB MA Weymouth SB MA T NA NA NA NA NA
BankBoston Corp. MA Pacific National Corp MA B 24.4 222.3 222.3 14.0 15.2
City Savings Bank MA Lee National Banc MA B 9.5 170.7 170.7 20.7 8.2
MASSBANK Corporation MA Glendale Co-op Bank MA T 7.2 115.5 115.5 24.6 4.2
Citizens Fin'l Group RI Grove Bank MA T 91.8 NA NA NA NA
Bay State FSB MA Union FS&LA MA T NA NA NA NA NA
BostonFed Bancorp MA Broadway Capital Corp MA B 22.0 136.5 136.5 12.2 5.6
Berkshire Cnty SB MA Great Barrington SB MA T NA NA NA NA NA
UST Corp MA Walden Bancorp, Inc. MA T 165.9 168.9 196.2 16.2 11.4
Grove Bank MA Greater Boston Bank MA T 18.0 138.6 138.6 9.3 5.2
Peoples Heritage Fin ME Family Bancorp MA T 107.1 147.8 161.5 12.8 7.1
Weetamoe Bancorp MA Fairbank, Inc. MA B 8.6 232.0 232.0 11.7 9.5
CFX Corporation NH Safety Fund Corp. MA B 44.0 217.3 217.3 27.0 10.0
</TABLE>
- 74 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
New Issue Discount
- ------------------
A "new issue" discount that reflects investor concerns and investment risks
inherent in all initial stock offerings is a factor to be considered in
valuations of initial thrift stock offerings. The magnitude of the new issue
discount typically expands during periods of declining thrift stock prices as
investors require larger inducements, and narrows during strong market
conditions.
The thrift conversion market continues to respond to the after-market
performance of recent offerings. Table 22 presents a summary of publicly traded
thrifts that have completed standard conversions since July 1, 1996. The after-
market performance of thrift conversions was more subdued through the first half
of 1996, similar to the thrift stock market overall. As the thrift market
regained momentum during the second half of 1996 and first half of 1997,
aftermarket performance improved even as pro forma valuations were increased.
Recently, the thrift conversion market has proven to be resilient with the
typical offering selling out in the subscription phase and being priced at or
near the adjusted maximum of the valuation range. With valuations increasing to
reflect the strength of recent offerings, it is uncertain when the market will
reach its tolerance for higher valuations accompanied by the prospect of
companies generating lackluster returns on equity. The average price/book ratio
for the twenty-four publicly traded conversions completed thus far in 1997 was
70.8%.
In the after-market, full conversions have been trading upward to and above
90% of book value. To price a new offering at 90% of pro forma book value,
because of the mathematics of the calculation, would require dramatic increases
in capital and produce very marginal returns on equity. This would likely
produce price declines in the after-market.
- 75 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 22
Recent Thrift Conversion Activity
Summary of 1997 Offerings Year-to-Date
<TABLE>
<CAPTION>
====================================================================================================================================
Pro Forma Ratios
Gross Expense/ -----------------------
Total Offering Gross Price/ Price/
IPO Assets Proceeds Proceeds Book Earnings
Company St. Exchange Date ($M) ($M) (%) (%) (x)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average -- Full Conversion Offerings 198 40.9 4.3 70.8 21.7
Average -- MHC Offerings 133 8.6 5.3 102.6 24.9
Average -- 2nd Stage Offerings 348 30.3 NA NA NA
First SecurityFed Financial IL NASDAQ 10/31/97 260 64.1 1.5 73.4 21.3
Oregon Trail Financial Corp. OR NASDAQ 10/06/97 204 46.9 2.3 76.6 18.5
Roebling Savings Bank (MHC) NJ OTC-BB 10/02/97 34 2.0 7.7 102.0 26.3
SHS Bancorp Inc. PA NASDAQ 10/01/97 82 8.2 5.6 70.7 13.9
Ohio State Financial Services OH NASDAQ 09/29/97 34 6.3 5.4 63.3 17.0
Citizens Bancorp Inc. IN OTC-BB 09/18/97 45 10.6 4.6 73.5 18.4
WSB Holding Co. PA OTC-BB 08/29/97 33 3.3 8.5 71.4 NA
Bayonne Bancshares Inc. (2nd stage) NJ NASDAQ 08/22/97 602 48.7 NA NA NA
Peoples Home Savings Bk (MHC) PA NASDAQ 07/10/97 202 12.4 4.7 106.2 30.1
FirstSpartan Financial Corp. SC NASDAQ 07/09/97 376 88.6 1.6 73.0 26.0
GSB Financial Corp. NY NASDAQ 07/09/97 96 22.5 4.1 73.4 23.2
FirstBank Corp. ID NASDAQ 07/02/97 133 19.8 3.5 71.9 19.2
Community First Banking Co. GA NASDAQ 07/01/97 353 48.3 2.9 72.7 36.1
Montgomery Financial Corp. (2nd stage) IN NASDAQ 07/01/97 94 11.9 NA NA NA
Security Bancorp, Inc. TN OTC-BB 06/30/97 44 4.4 6.9 72.9 18.1
Sistersville Bancorp Inc. WV OTC-BB 06/26/97 26 6.6 6.8 65.4 26.7
SFB Bancorp Inc. TN OTC-BB 05/30/97 47 7.7 5.2 69.6 17.7
Rocky Ford Financial Inc. CO Pink Sheet 05/22/97 20 4.2 8.3 68.8 17.7
HCB Bancshares Inc. AR NASDAQ 05/07/97 171 26.5 2.8 72.0 29.0
Peoples-Sidney Financial Corp. OH NASDAQ 04/28/97 87 17.9 3.2 71.2 11.5
First Carnegie Deposit (MHC) PA NASDAQ 04/04/97 136 10.4 3.9 98.8 NM
Pulaski Savings Bank (MHC) NJ NASDAQ 04/03/97 159 9.5 5.0 103.2 18.2
Hemlock Federal Financial Corp IL NASDAQ 04/02/97 147 20.8 3.1 71.6 37.5
GS Financial Corp. LA NASDAQ 04/01/97 87 34.4 2.4 63.8 38.7
Market Financial Corp. OH NASDAQ 03/27/97 46 13.4 3.5 71.1 26.2
Vermilion Bancorp Inc. IL OTC-BB 03/26/97 35 4.0 7.2 71.4 NA
Empire Federal Bancorp Inc. MT NASDAQ 01/27/97 87 25.9 2.4 68.1 21.5
FirstFed America Bancorp Inc. MA AMSE 01/15/97 724 87.1 2.4 72.0 13.6
Roslyn Bancorp Inc. NY NASDAQ 01/13/97 1,597 423.7 2.2 72.0 9.3
Advance Financial Bancorp WV NASDAQ 01/02/97 92 10.8 4.5 71.1 16.8
<CAPTION>
====================================================================================================================================
Current 1st Day 1st Day YTD
IPO Stock Price/ Price Price
IPO Price Price Book Change Change
Company St. Exchange Date ($) ($) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average -- Full Conversion Offerings NA NA 102.1 44.1 64.4
Average -- MHC Offerings NA NA 137.6 34.1 84.4
Average -- 2nd Stage Offerings NA NA NA 14.4 25.6
First SecurityFed Financial IL NASDAQ 10/31/97 10.00 15.19 110.6 50.6 51.9
Oregon Trail Financial Corp. OR NASDAQ 10/06/97 10.00 16.13 128.4 67.5 61.3
Roebling Savings Bank (MHC) NJ OTC-BB 10/02/97 10.00 17.75 168.3 65.0 77.5
SHS Bancorp Inc. PA NASDAQ 10/01/97 10.00 15.75 104.3 47.5 57.5
Ohio State Financial Services OH NASDAQ 09/29/97 10.00 15.25 98.2 55.0 52.5
Citizens Bancorp Inc. IN OTC-BB 09/18/97 10.00 14.31 102.9 40.0 43.1
WSB Holding Co. PA OTC-BB 08/29/97 10.00 14.37 96.4 35.0 43.7
Bayonne Bancshares Inc. (2nd stage) NJ NASDAQ 08/22/97 10.00 12.63 NA 17.5 26.3
Peoples Home Savings Bk (MHC) PA NASDAQ 07/10/97 10.00 18.38 148.7 40.0 83.8
FirstSpartan Financial Corp. SC NASDAQ 07/09/97 20.00 37.94 133.9 83.4 89.7
GSB Financial Corp. NY NASDAQ 07/09/97 10.00 15.75 107.4 46.3 57.5
FirstBank Corp. ID NASDAQ 07/02/97 10.00 17.00 113.7 58.1 70.0
Community First Banking Co. GA NASDAQ 07/01/97 20.00 37.50 115.9 59.4 87.5
Montgomery Financial Corp. (2nd stage) IN NASDAQ 07/01/97 10.00 12.50 NA 11.3 25.0
Security Bancorp, Inc. TN OTC-BB 06/30/97 10.00 15.81 105.6 45.0 58.1
Sistersville Bancorp Inc. WV OTC-BB 06/26/97 10.00 15.13 89.9 37.5 51.3
SFB Bancorp Inc. TN OTC-BB 05/30/97 10.00 14.50 96.1 38.1 45.0
Rocky Ford Financial Inc. CO Pink Sheet 05/22/97 10.00 14.25 128.7 87.1 42.5
HCB Bancshares Inc. AR NASDAQ 05/07/97 10.00 13.50 90.8 26.3 35.0
Peoples-Sidney Financial Corp. OH NASDAQ 04/28/97 10.00 18.00 89.5 25.6 80.0
First Carnegie Deposit (MHC) PA NASDAQ 04/04/97 10.00 18.63 114.8 16.3 86.3
Pulaski Savings Bank (MHC) NJ NASDAQ 04/03/97 10.00 19.00 118.6 15.0 90.0
Hemlock Federal Financial Corp IL NASDAQ 04/02/97 10.00 17.13 92.2 28.8 71.3
GS Financial Corp. LA NASDAQ 04/01/97 10.00 17.56 85.3 33.8 75.6
Market Financial Corp. OH NASDAQ 03/27/97 10.00 15.13 91.9 29.4 51.3
Vermilion Bancorp Inc. IL OTC-BB 03/26/97 10.00 13.50 88.3 23.8 35.0
Empire Federal Bancorp Inc. MT NASDAQ 01/27/97 10.00 17.00 90.2 32.5 70.0
FirstFed America Bancorp Inc. MA AMSE 01/15/97 10.00 20.56 98.1 36.3 105.6
Roslyn Bancorp Inc. NY NASDAQ 01/13/97 10.00 22.06 108.0 50.0 120.6
Advance Financial Bancorp WV NASDAQ 01/02/97 10.00 17.75 91.5 28.8 77.5
</TABLE>
- 76 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Accordingly, thrift conversions continue to be priced at discounts to publicly
traded companies. This is due to the relatively high pro forma equity ratios,
expected low returns on equity, and the uncertainty regarding the ability of an
institution to leverage the balance sheet. These are especially relevant issues
to the Bank given its already high level of capital.
Investors are aware that at pro forma price/book ratios approaching the
current trading range of a majority of public thrifts, price/earnings ratios of
converting thrifts would be excessive, returns on equity very low, and capital
levels dramatically high. Standard thrift conversions are being discounted by
30% to 40% relative to the overall market based upon price/book measures and at
lesser discounts based upon the price/earnings ratios.
Mutual Holding Company Issues
- -----------------------------
Market evidence indicates that minority ownership interests are discounted
to majority ownership interests, which convey the ability to effect changes,
influence business policies, and transfer control. In the thrift MHC ownership
structure, public shareholders hold an aggregate minority ownership interest
that is subordinate to the MHC. However, the governing board of the MHC is
quite often similar to that managing the subsidiary bank. Furthermore, the
public shareholders in a fully converted thrift offering also assume a minority
ownership role since there are limitations on the purchase and accumulation of
stock interests.
The most significant impediment that the MHC poses is the ability to avert
a sale of control by acquisition. Until recent, the trading activity of other
publicly held MHCs indicated that this inability to be acquired suppressed the
comparative market valuation of MHCs versus fully converted thrift stock issues.
However, the anticipation of second-stage conversion announcements, the strong
advancements posted by MHCs in general, and a growing cadre of
- 77 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
research analysts advancing the investment attributes of MHC from prior
trading levels have combined to propel MHC stock price performance in 1997. On
a fully converted basis, we have determined that thrift MHCs are trading at
comparable price/earnings ratios to overall thrift stock norm, but at discounts
on a price/book basis. This discount is not so much a qualitative abstraction
but rather a recognition that the resulting high pro forma capital ratios have a
restraining impact on the price/book measure.
MHCs also have been typically characterized by reduced liquidity from the
full conversion valuations and higher dividend expectations. However, because
of the increased market valuations of thrift stocks in general and the
relatively low yields being earned on the increased thrift stock prices, these
characteristics are less important today than in prior periods. Furthermore,
given the size of the Bank's expected Stock Offering and its trading market, the
issue of liquidity does not loom pivotal.
Many MHCs have completed full second-stage conversions within a relatively
short time frame. As previously noted, the imminent expectation of second-stage
offerings has resulted in speculative upward price movements of current MHCs.
The proposed MHC regulations under Massachusetts state banking law, as
distributed in October 1997 by the Commissioner of Banks, call for a restriction
on full second-stage conversions by an MHC for a period of three years following
the initial stock issuance. Such regulations, if implemented, would effectively
disallow the Stock Company from pursuing a second-stage conversion during this
interval, while other MHCs would not be inhibited by such a time constraint. We
believe that investors would keenly note this differentiation, which could
impact the resulting after-market performance separately from the Bank's
operating fundamentals and general stock
- 78 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
market conditions. Therefore, we believe that a downward adjustment is warranted
for this factor.
Adjustments Conclusion
- ----------------------
Individual discounts and premiums are not necessarily additive and may, to
some extent, offset or overlay each other. Currently, conversions are generally
priced at substantial discounts to peer institutions relative to price/book
ratios, but at lesser discounts to the comparable institutions' price/earnings
ratios. It is the role of the appraiser to balance the relative dynamics of
price/book and price/earnings discounts and premiums. We believe that relative
to the Comparative Group, the Bank's pro forma valuation measures should be
discounted on the basis of certain MHC issues as well as for the new issue
discount encountered by heavily capitalized companies on a price/book basis.
Valuation Approach
- ------------------
Table 23 displays the market price and valuation data of the Comparative
Group as of November 7 1997. Table 23 also includes the Bank's pro forma
valuation ratios on a full conversion and MHC offering basis. Exhibit IV
displays the pro forma conversion assumptions and calculations utilized in
analyzing the Bank's valuation ratios.
Investors continue to make decisions to purchase thrift conversion stocks
and more seasoned thrift issues based primarily upon consideration of
price/earnings ratio comparisons and secondarily, price/book valuations. As
evidenced by the trading valuation ratios of such highly capitalized and
superior earning Comparative Group members such as JSB Financial, First National
Bank of Anchorage, and Horizon Financial, certain strong performing
- 79 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
institutions demonstrate valuation discounts because of their exceptionally high
financial ratios. Utilizing a discount of approximately 26% to the corresponding
Comparative Group average, the Bank's resulting pro forma price/earnings at the
midpoint is 11.8x, reflecting a maximum price/earnings ratio of 13.0x and an
adjusted maximum of 14.3x. At the adjusted maximum valuation level, where most
thrift offerings are being closed in the current market environment, the Bank's
price/earnings ratio is positioned at an 11% discount to the Comparative Group's
average price earnings ratio of 16.0x. We believe that this is an appropriate
discount given the high level of earnings performance evidenced by the Bank and
attendant challenge it faces in generating competitive returns on equity.
The Bank's resulting pro forma price/book ratio of 71.1% at the maximum
represents a significant discount to the Comparative Group's average price/book
ratio of 191.5%. However this disparity is distorted by the differing levels of
capital. On a full conversion basis, the Bank's equity to assets ratio would
measure 39.08% at the maximum valuation and 41.32% at the adjusted maximum.
Among the Comparative Group companies, only JSB Financial and First National
Bank exhibit comparably high ratios of 23.21% and 25.47%, respectively. The
trading price/book ratios of these highly capitalized companies are
substantially discounted to market norms, measuring 134.9% for JSB Financial and
127.5% for First National Bank.
In contrast to the Comparative Group aggregates, the Bank's higher
price/assets ratio was largely related to its high capital level under the full
conversion scenario. The Bank's price/assets ratios of 27.78% at the maximum
and 30.76% at the adjusted maximum valuation surpassed the Comparative Group's
average price/assets ratio of 19.36%. However, the
- 80 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Bank's pro forma price/assets ratio is discounted to that evidenced by JSB
Financial (31.31%) and First National Bank (32.48%).
Valuation Conclusion
- --------------------
It is our opinion that, as of November 7, 1997, the aggregate estimated pro
forma market value of the Bank was within the valuation range of $187,000,000 to
$253,000,000 with a midpoint of $220,000,000. The valuation range was based
upon a 15 percent decrease from the midpoint to determine the minimum and a 15
percent increase to establish the maximum. Assuming an additional 15 percent
increase above the maximum value results in an adjusted maximum of $290,950,000.
Exhibit IV displays the conversion calculations and assumptions utilized in
determining the Bank's estimated pro forma market value on a full conversion
basis and on the MHC Reorganization basis. The Board of Trustees has determined
to offer for sale in the Reorganization a minority ownership interest equal to
47% of all the common stock to be issued and outstanding. Therefore, the total
amount of common stock to be sold in the Reorganization will be equal to
$87,890,000 at the minimum valuation, $103,400,000 at the midpoint valuation,
$118,910,000 at the maximum valuation, and $136,746,500 at the adjusted maximum.
- 81 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
================================================================================
Table 23
Comparative Market Valuation Analysis
Market Price Data as of November 7, 1997
================================================================================
<TABLE>
<CAPTION>
Current Total Price/ Price/ Price/ Price/ Price/
Stock Market LTM Core Book Tang. Total
Price Value EPS EPS Value Book Assets
($) ($M) (x) (x) (%) (%) (%)
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Brookline Savings Bank
- ---------------------------------------------------------------------------------------------------------------------------------
MHC Offering -- Pro Forma Minimum 10.00 87.9 12.38 12.42 91.7 91.7 24.64
MHC Offering -- Pro Forma Midpoint 10.00 103.4 13.94 13.99 100.8 100.8 28.45
MHC Offering -- Pro Forma Maximum 10.00 118.9 15.62 15.67 108.8 108.8 32.13
MHC Offering -- Pro Forma Adj. Max. 10.00 136.7 17.45 17.50 116.9 116.9 36.19
- ---------------------------------------------------------------------------------------------------------------------------------
Full Conversion -- Pro Forma Minimum 10.00 187.0 10.50 10.53 63.3 63.3 22.00
Full Conversion -- Pro Forma Midpoint 10.00 220.0 11.82 11.85 67.6 67.6 24.99
Full Conversion -- Pro Forma Maximum 10.00 253.0 13.03 13.06 71.1 71.1 27.78
Full Conversion -- Pro Forma Adj. Max. 10.00 291.0 14.30 14.34 74.4 74.4 30.76
- ---------------------------------------------------------------------------------------------------------------------------------
All Public Thrift Average NA 246.5 17.60 17.99 157.4 164.2 18.61
All MHC Thrift Average NA 246.5 23.62 23.11 257.3 265.6 29.49
Comparative Group Average NA 198.5 15.98 16.92 191.5 196.2 19.36
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Thrift Group Avg. NA 165.0 15.38 16.08 185.6 191.4 15.08
- ---------------------------------------------------------------------------------------------------------------------------------
Affiliated Community Bancorp 28.75 186.7 16.52 16.52 166.4 167.3 16.54
Andover Bancorp Inc. 38.75 199.5 15.56 15.95 191.8 191.8 15.58
First Essex Bancorp Inc. 19.50 146.8 14.13 16.67 163.9 187.3 12.13
Medford Savings Bank 34.63 157.2 14.49 15.60 157.7 168.3 14.21
MetroWest Bank 8.00 111.7 15.09 15.09 255.6 255.6 19.06
SIS Bancorp Inc. 33.75 188.4 16.46 16.63 178.2 178.2 12.96
- ---------------------------------------------------------------------------------------------------------------------------------
Other Thrift Group Avg. NA 212.8 16.22 17.26 167.3 173.1 21.53
- ---------------------------------------------------------------------------------------------------------------------------------
American Bank of Connecticut 46.00 106.4 14.42 17.10 198.1 205.5 17.45
Dime Community Bancorp Inc. 22.00 277.7 20.56 21.78 148.6 172.4 20.05
Horizon Financial Corp. 17.00 126.4 15.32 15.60 152.2 152.2 23.80
ITLA Capital Corp. 19.63 154.0 13.17 13.17 159.3 159.9 17.08
JSB Financial Inc. 48.44 479.5 17.00 19.07 134.9 134.9 31.31
Security First Corp. 17.50 132.9 16.83 16.83 210.6 213.9 19.51
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Bank Group Avg. NA 217.6 16.35 17.43 221.7 224.2 21.46
- ---------------------------------------------------------------------------------------------------------------------------------
Cape Cod Bank and Trust Co. 38.00 172.2 14.39 16.45 236.0 236.0 17.55
Century Bancorp Inc. 17.13 98.9 16.47 16.79 197.1 201.7 10.45
First National Bank of Anchorage 2,325.00 465.0 13.83 14.48 127.5 127.5 32.48
Hudson Chartered Bancorp Inc. 21.88 154.0 17.50 18.54 225.3 226.2 21.30
Independent Bank Corp. 15.13 221.6 16.62 16.62 248.4 255.9 16.45
Keystone Heritage Group Inc. 49.00 193.6 19.29 21.68 296.3 297.7 30.54
Tang- Current
Equity/ Dividend
Assets Yield
(%) (%)
------ --------
<S> <C> <C>
Brookline Savings Bank
- ----------------------------------------------------------------
MHC Offering -- Pro Forma Minimum 26.88 NA
MHC Offering -- Pro Forma Midpoint 28.23 NA
MHC Offering -- Pro Forma Maximum 29.53 NA
MHC Offering -- Pro Forma Adj. Max. 30.97 NA
- ----------------------------------------------------------------
Full Conversion -- Pro Forma Minimum 34.72 NA
Full Conversion -- Pro Forma Midpoint 36.97 NA
Full Conversion -- Pro Forma Maximum 39.08 NA
Full Conversion -- Pro Forma Adj. Max. 41.32 NA
- ----------------------------------------------------------------
All Public Thrift Average 11.82 1.56
All MHC Thrift Average 11.49 1.89
Comparative Group Average 11.02 1.96
- ----------------------------------------------------------------
Massachusetts Thrift Group Avg. 8.19 1.92
- ----------------------------------------------------------------
Affiliated Community Bancorp 9.76 2.09
Andover Bancorp Inc. 8.12 1.76
First Essex Bancorp Inc. 7.40 2.46
Medford Savings Bank 9.02 2.08
MetroWest Bank 7.47 1.50
SIS Bancorp Inc. 7.36 1.66
- ----------------------------------------------------------------
Other Thrift Group Avg. 13.52 1.92
- ----------------------------------------------------------------
American Bank of Connecticut 8.81 3.13
Dime Community Bancorp Inc. 13.49 1.09
Horizon Financial Corp. 15.64 2.59
ITLA Capital Corp. 10.72 0.00
JSB Financial Inc. 23.21 2.89
Security First Corp. 9.26 1.83
- ----------------------------------------------------------------
Commercial Bank Group Avg. 11.35 2.04
- ----------------------------------------------------------------
Cape Cod Bank and Trust Co. 7.44 2.21
Century Bancorp Inc. 8.79 1.17
First National Bank of Anchorage 25.47 2.15
Hudson Chartered Bancorp Inc. 9.45 2.32
Independent Bank Corp. 6.62 2.38
Keystone Heritage Group Inc. 10.31 2.04
</TABLE>
Source: Brookline Savings Bank; SNL Securities; Feldman Financial
- 82 -
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit I
Background of Feldman Financial Advisors, Inc.
Overview of Firm
- ----------------
Feldman Financial Advisors provides consulting and advisory services to
financial institutions and mortgage companies in the areas of corporate
valuations, mergers and acquisitions, strategic planning, branch sales and
purchases, developing and implementing regulatory business and capital plans,
enhancing franchise value, portfolio analysis and restructuring, evaluating bank
management, regulatory analysis, and expert witness testimony and analysis. Our
principals have been involved in the stock conversion process since 1982 and
have valued more than 350 converting institutions.
Feldman Financial Advisors was incorporated in February 1996 by a group of
consultants who were previously associated with Kaplan Associates. Each of the
principals at Feldman Financial Advisors has more than 10 years experience in
consulting and all were officers of their prior firm. Our principals
collectively have worked with more than 1,000 banks, thrifts and mortgage
companies nationwide. The firm's office is located in Washington, D.C.
Background of Principals
- ------------------------
Trent Feldman is the President of the firm. Trent is a nationally recognized
expert in valuing financial institutions, providing strategic advice to
financial institutions, and advising on mergers and acquisitions for banks and
thrifts of all sizes. Trent was with Kaplan Associates for 14 years and was one
of three founding principals at that firm. Trent also has worked in the
Chairman's Office of the Federal Home Loan Bank Board, the Federal Savings and
Loan Insurance Corporation, and with the California state legislature. Trent
holds Bachelors and Masters degrees from the University of California at Los
Angeles.
Peter Williams specializes in merger and acquisition analysis, corporate
valuations, strategic business plans and retail branch analysis. Peter was with
Kaplan Associates for 13 years. Peter also served as a Corporate Planning
Analyst with the Wilmington Trust Company in Delaware. Peter holds a BA in
Economics from Yale University and an MBA in Finance from George Washington
University.
Michael Green is an expert in mergers and acquisition analysis, financial
institution valuations, and business plans. During Mike's 10 years at Kaplan
Associates, his experience also included mark-to-market analysis, goodwill
valuations and core deposit studies. Mike holds a BS in Finance and Economics
from Rutgers College.
Linda Farrell is nationally known for her expertise in branch purchases and
sales, and she specializes in small bank mergers and acquisitions, retail
banking analysis, business plans and management reviews. Linda was with Kaplan
Associates for 12 years. Linda also was a Senior Vice President of Retail
Banking at Western Savings in Salt Lake City and a consultant with both Arthur
Young & Company and Richard T. Pratt Associates. Linda holds a BA in English
from Oklahoma State University and an MBA from the University of Utah.
I-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-1
Statement of Financial Condition
As of December 31, 1995 and 1996 and August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 31, December 31,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 8,021 $ 6,465 $ 5,980
Short-term investments 7,495 19,870 5,698
Securities available for sale 128,525 117,372 81,765
Securities held to maturity 49,801 41,620 89,342
Restricted equity securities 3,519 3,481 2,868
Loans 485,515 480,683 448,631
Allowance for loan losses (12,443) (12,326) (12,326)
-------- -------- --------
Net loans 473,072 468,357 436,305
-------- -------- --------
Accrued interest receivable 5,923 5,106 5,593
Bank premises and equipment, net 1,354 1,442 1,122
Other real estate owned, net 2,002 1,689 1,722
Deferred income tax asset, net -- 875 1,676
Other assets 604 711 717
-------- -------- --------
TOTAL ASSETS $680,316 $666,988 $632,788
======== ======== ========
LIABILITIES AND RETAINED EARNINGS
- ---------------------------------
Deposits $481,467 $484,016 $474,215
Borrowed funds 61,815 60,565 49,665
Mortgagors' escrow deposits 2,348 2,777 2,374
Income taxes payable 3,825 1,399 1,997
Deferred income tax liability, net 554 -- --
Accrued expenses and other liabilities 4,937 4,284 3,954
-------- -------- --------
TOTAL LIABILITIES $554,946 $553,041 $532,205
-------- -------- --------
Retained earnings:
Retained earnings 114,413 105,287 93,350
Net unrealized gain on securities
available for sale, net of taxes 10,957 8,660 7,233
-------- -------- --------
TOTAL RETAINED EARNINGS 125,370 113,947 100,583
-------- -------- --------
TOTAL LIABILITIES AND
RETAINED EARNINGS $680,316 $666,988 $632,788
======== ======== ========
</TABLE>
II-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-2
Statement of Income
For the Years Ended December 31, 1994 to 1996
And the Eight Months Ended August 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Eight Months Year Ended
Ended August 31, December 31,
-------------------- ------------------------------
1997 1996 1996 1995 1994
-------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $36,119 $33,563 $51,019 $48,920 $39,943
Total interest expense 17,204 16,859 25,458 23,938 17,761
------- ------- ------- ------- -------
Net interest income 18,915 16,704 25,561 24,982 22,182
Provision for loan losses -- -- -- -- (477)
------- ------- ------- ------- -------
Net int. income after prov. 18,915 16,704 25,561 24,982 22,182
Non-interest operating income 597 839 1,077 768 816
Gains on sales of securities, net 74 464 464 877 4
Real estate income (expense) 158 186 299 (40) (741)
------- ------- ------- ------- -------
Total non-interest income 829 1,489 1,840 1,605 79
Compensation and benefits 3,500 2,974 4,513 4,395 4,017
Occupancy 473 409 627 579 591
Equipment and data processing 720 606 892 882 878
Deposit insurance premiums 47 7 11 561 1,023
Other expense 998 811 1,670 1,033 1,187
------- ------- ------- ------- -------
Total non-interest expense 5,738 4,807 7,713 7,450 7,696
Income before taxes 14,006 13,386 19,688 19,137 15,042
Income tax provision 4,880 5,191 7,751 7,409 5,942
------- ------- ------- ------- -------
Net income $ 9,126 $ 8,195 $11,937 $11,728 $ 9,100
======= ======= ======= ======= =======
</TABLE>
II-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-3
Loan Portfolio Composition
At December 31, 1995 and 1996 and August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
At December 31,
At August 31, -------------------------------------------
1997 1996 1995
---------------------- -------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans
- --------------
One-to-four family $ 65,226 13.08% $ 57,725 11.68% $ 56,814 12.34%
Multi-family 214,062 42.93 200,368 40.54 193,812 42.11
Commercial real estate 143,187 28.72 139,430 28.21 125,363 27.24
Construction & development 7,849 1.57 7,261 1.47 10,288 2.24
Home equity 5,359 1.08 6,398 1.29 7,420 1.61
Second 16,706 3.35 19,872 5.02 17,680 3.84
-------- ------ -------- ------ -------- ------
Total mortgage loans 452,389 90.73 431,054 87.21 411,377 89.38
-------- ------ -------- ------ -------- ------
Commercial loans
- ----------------
Participations 36,500 7.32 52,950 10.71 43,100 9.36
Other 8,384 1.68 9,221 1.87 4,584 1.00
-------- ------ -------- ------ -------- ------
Total commercial loans 44,884 9.00 62,171 12.58 47,684 10.36
-------- ------ -------- ------ -------- ------
Consumer loans 1,336 0.27 1,023 0.21 1,192 0.26
-------- ------ -------- ------ -------- ------
Gross loans 498,609 100.00% 494,248 100.00% 460,253 100.00%
====== ====== ======
Less:
Unadvanced funds on loans (11,812) (11,950) (9,879)
Deferred loan origination fees (1,272) (1,326) (1,012)
Unearned discounts (10) (289) (731)
-------- -------- --------
Total loans $485,515 $480,683 $448,631
======== ======== ========
</TABLE>
II-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-4
Net Lending Activity
For the Years Ended December 31, 1995 and 1996
and Eight Months Ended August 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Eight Months
Ended Year Ended
August 31, December 31,
---------- ------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans outstanding at beginning of period $ 494,248 $ 460,253 $ 460,253 $ 431,692
--------- --------- --------- ---------
Loans originated
- ----------------
Mortgage loans: 6,207 4,863 6,463 5,758
One-to-four family 29,449 21,519 36,452 25,599
Multi-family 17,737 23,724 34,214 18,399
Commercial real estate 7,186 9,850 9,850 10,638
Construction and development 3,034 3,366 4,995 6,322
Home equity 1,400 2,150 2,200 1,765
--------- --------- --------- ---------
Second mortgage 65,013 65,472 94,174 68,481
Total mortgage loans 1,466 4,254 5,728 2,395
Commercial loans 190 304 453 154
--------- --------- --------- ---------
Consumer loans 66,669 70,030 100,355 71,030
--------- --------- --------- ---------
Total loans originated
Purchases of one-to-four family 7,246 3,425 5,028 2,381
mortgage loans --------- --------- --------- ---------
Commercial loan participations:
Purchases 834,418 1,029,905 1,423,850 603,700
Repayments (850,868) (1,009,255) (1,414,000) (597,000)
--------- --------- --------- ---------
Net increase (decrease) in
commercial loan participations (16,450) 20,650 9,850 6,700
--------- --------- --------- ---------
Less:
Principal repayments 51,615 51,869 74,011 48,215
Participations sold 1,198 3,965 5,965 3,000
Transfers to other real estate owned 285 526 1,096 95
Principal charged-off 6 94 166 240
--------- --------- --------- ---------
Loans outstanding at end of period $ 498,609 $ 497,904 $ 494,248 $ 460,253
========= ========= ========= =========
</TABLE>
II-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-5
Investment Portfolio Composition
At December 31, 1995 and 1996
and August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
At August 31, At December 31,
------------------------------------------------
1997 1996 1995
--------------------- ----------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Debt securities
- ---------------
U.S. Government and
Agency obligations $ 77,706 42.73% $ 70,055 43.12% $ 71,848 41.30%
Corporate obligations 74,434 40.93 65,808 40.50 77,035 44.28
Mortgage-backed securities 2,560 1.41 2,764 1.70 3,150 1.81
-------- ------ -------- ------ -------- ------
Total debt securities 154,700 85.07 138,627 85.32 152,033 87.39
Marketable equity securities 23,626 12.99 20,365 12.54 19,074 10.96
Restricted equity securities 3,519 1.94 3,481 2.14 2,868 1.65
-------- ------ -------- ------ -------- ------
Total securities $181,845 100.00% $162,473 100.00% $173,975 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
II-5
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-6
Deposit Account Distribution
For the Year Ended December 31, 1995 and 1996
and Eight Months Ended August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Eight Months Ended Year Ended December 31,
----------------------------------------------------
August 31, 1997 1996 1995
------------------------ --------------------------- ----------------------
Percent Percent Percent
of Total of Total of Total
Average Average Average Average Average Average
Balance Deposits Balance Deposits Balance Deposits
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 37,606 7.74% $ 37,095 7.69% $ 35,787 7.60%
Savings accounts 15,327 3.16 17,302 3.59 20,460 4.35
Money market savings accounts 158,618 32.67 154,541 32.03 151,334 32.16
Non-interest-bearing checking
accts. 11,955 2.46 11,472 2.38 10,050 2.13
------- ------ -------- ------ -------- ------
Total transaction deposit
accounts 223,506 46.03 220,410 45.69 217,631 46.24
------- ------ -------- ------ -------- ------
Certificate of deposit
accounts:
Six months or less 67,982 14.00 67,402 13.97 68,921 14.64
Over six through 12 months 108,730 22.40 107,064 22.19 93,925 19.96
Over 12 months through 24
months 28,579 5.89 32,298 6.70 35,184 7.48
Over 24 months 56,718 11.68 55,243 11.45 54,955 11.68
------- ------ -------- ------ -------- ------
Total certificate of
deposit accounts 262,009 53.97 262,007 54.31 252,985 53.76
------- ------ -------- ------ -------- ------
Total average deposits $485,515 100.00% $482,417 100.00% $470,616 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
II-6
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-7
Borrowed Funds Activity
Year Ended December 31, 1994, 1995 and 1996
and Eight Months Ended August 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Eight Months Ended Year Ended
August 31, December 31,
--------------------- -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Advances from the FHLB
- ----------------------
Average balance outstanding $63,019 $52,645 $55,497 $46,172 $32,904
Maximum amount outstanding at any
month end during the period 65,315 58,665 62,665 50,665 43,265
Balance outstanding at end of period 61,815 58,665 60,565 49,665 43,265
Weighted average interest rate
during the period 6.52% 6.64% 6.64% 6.56% 5.85%
Weighted average interest rate
at end of period 6.44% 6.55% 6.49% 6.52% 6.32%
</TABLE>
II-7
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-8
Office Facilities
As of August 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net Book Value
of Property or
Original Year Leasehold
Leased or Leased or Year of Lease Improvements at
Location Owned Acquired Expiration August 31, 1997
- ------------------------- ------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Corporate/Main Office
- ---------------------
160 Washington Street Owned 1921 Not Applicable $151
Brookline, MA 02147
Operations Center
- -----------------
24 Webster Place Leased 1986 2001 165
Brookline, MA 02147
Other Branch Offices
- --------------------
Coolidge Corner Office
1330-1340 Beacon Street Leased 1977 2001 204
Brookline, MA 02147
South Brookline Office
1018 West Roxbury Parkway Leased 1952 2006 158
Brookline, MA 02147
Longwood Office
1014 Beacon Street Leased 1956 2008 1
Brookline, MA 02147
Washington Square Office
1661 Beacon Street Leased 1975 2001 27
Brookline, MA 02147
</TABLE>
II-8
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Abington Bancorp Inc. ABBK MA 502 0.76 11.05 35.50 65.3
Acadiana Bancshares Inc. ANA LA 267 0.92 5.35 23.25 63.3
Access Anytime Bancorp Inc. AABC NM 105 (0.13) (2.38) 9.44 11.5
Advance Financial Bancorp AFBC WV 105 0.84 7.02 17.75 19.3
Affiliated Community Bancorp AFCB MA 1,129 1.08 11.05 28.75 186.7
AFSALA Bancorp Inc. AFED NY 159 NA NA 18.75 27.3
Ahmanson & Company (H.F.) AHM CA 46,799 0.73 14.58 61.06 5,765.0
ALBANK Financial Corp. ALBK NY 3,717 1.04 11.33 42.50 547.1
Albion Banc Corp. ALBC NY 69 0.37 4.03 29.25 7.3
Alliance Bancorp Inc. ABCL IL 1,371 0.84 9.35 26.31 211.0
Alliance Bncorp of New England ANE CT 242 0.76 10.93 17.13 27.9
AMB Financial Corp. AMFC IN 103 0.73 4.46 16.38 15.8
Ambanc Holding Co. AHCI NY 485 (0.61) (4.47) 16.75 69.9
Ameriana Bancorp ASBI IN 393 0.82 7.51 20.25 65.4
American Bank of Connecticut BKC CT 610 1.10 13.05 46.00 106.4
AmTrust Capital Corp. ATSB IN 70 0.23 2.27 14.00 7.4
Anchor BanCorp Wisconsin ABCW WI 1,955 0.93 14.53 29.50 267.1
Andover Bancorp Inc. ANDB MA 1,281 1.03 12.93 38.75 199.5
ASB Financial Corp. ASBP OH 112 0.91 5.53 13.38 22.7
Astoria Financial Corp. ASFC NY 7,904 0.77 9.80 55.50 1,147.0
Avondale Financial Corp. AVND IL 597 (1.94) (20.35) 16.00 55.9
Bancorp Connecticut Inc. BKCT CT 424 1.24 12.04 37.25 94.7
Bank Plus Corp. BPLS CA 3,920 0.30 6.26 12.00 232.1
Bank United Corp. BNKU TX 11,967 0.54 10.48 43.00 1,358.6
Bank West Financial Corp. BWFC MI 156 0.58 3.50 21.88 38.4
BankAtlantic Bancorp Inc. BANC FL 2,845 0.54 9.56 13.63 303.5
BankUnited Financial Corp. BKUNA FL 1,807 0.58 8.04 13.00 115.3
Bay View Capital Corp. BVCC CA 3,162 0.62 10.07 30.63 380.4
Bayonne Bancshares Inc. FSNJ NJ 602 0.27 3.33 12.38 111.3
Bedford Bancshares Inc. BFSB VA 135 1.28 8.90 27.00 30.9
Big Foot Financial Corp. BFFC IL 212 NA NA 18.38 46.2
BostonFed Bancorp Inc. BFD MA 961 0.66 6.87 20.56 116.2
Broadway Financial Corp. BYFC CA 122 0.30 2.60 12.88 10.8
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Abington Bancorp Inc. ABBK MA 16.82 18.78 182.7 201.6 13.02 1.13
Acadiana Bancshares Inc. ANA LA NA NA 136.9 136.9 23.78 1.55
Access Anytime Bancorp Inc. AABC NM NM NM 147.5 147.5 10.97 0.00
Advance Financial Bancorp AFBC WV NA NA 119.4 119.4 18.41 1.80
Affiliated Community Bancorp AFCB MA 16.52 16.52 166.4 167.3 16.54 2.09
AFSALA Bancorp Inc. AFED NY NA NA 117.8 117.8 17.14 0.85
Ahmanson & Company (H.F.) AHM CA 17.65 20.56 302.7 356.3 12.32 1.44
ALBANK Financial Corp. ALBK NY 15.98 16.10 159.2 180.8 14.72 1.69
Albion Banc Corp. ALBC NY 108.33 30.15 122.1 122.1 10.66 1.09
Alliance Bancorp Inc. ABCL IL 22.68 20.40 163.4 165.4 15.39 1.67
Alliance Bncorp of New England ANE CT 14.89 15.86 156.4 160.2 11.52 1.17
AMB Financial Corp. AMFC IN 16.38 23.39 109.5 109.5 15.27 1.71
Ambanc Holding Co. AHCI NY NM NM 117.2 117.2 15.17 1.19
Ameriana Bancorp ASBI IN 18.08 20.05 148.6 148.7 16.65 3.16
American Bank of Connecticut BKC CT 14.42 17.10 198.1 205.5 17.45 3.13
AmTrust Capital Corp. ATSB IN 25.00 41.18 96.8 97.8 10.58 1.43
Anchor BanCorp Wisconsin ABCW WI 14.90 15.95 213.5 217.2 13.66 1.09
Andover Bancorp Inc. ANDB MA 15.56 15.95 191.8 191.8 15.58 1.76
ASB Financial Corp. ASBP OH 18.84 19.96 129.9 129.9 20.22 2.99
Astoria Financial Corp. ASFC NY 19.20 20.33 188.1 222.4 14.51 1.08
Avondale Financial Corp. AVND IL NM NM 121.4 121.4 9.37 0.00
Bancorp Connecticut Inc. BKCT CT 18.00 19.61 207.9 207.9 22.35 2.69
Bank Plus Corp. BPLS CA 17.65 21.05 131.0 131.3 5.92 0.00
Bank United Corp. BNKU TX 17.77 22.87 227.0 232.3 11.35 1.30
Bank West Financial Corp. BWFC MI 42.07 46.54 169.8 169.8 24.64 1.46
BankAtlantic Bancorp Inc. BANC FL 14.34 26.72 193.8 233.7 10.67 0.97
BankUnited Financial Corp. BKUNA FL 48.15 22.81 171.3 211.4 6.38 0.00
Bay View Capital Corp. BVCC CA 23.20 20.83 206.8 247.6 12.03 1.05
Bayonne Bancshares Inc. FSNJ NJ NA NA NA NA NA 1.37
Bedford Bancshares Inc. BFSB VA 22.31 17.31 152.1 152.1 22.77 2.07
Big Foot Financial Corp. BFFC IL NA NA 128.1 128.1 21.75 0.00
BostonFed Bancorp Inc. BFD MA 18.20 19.96 133.3 138.0 12.09 1.36
Broadway Financial Corp. BYFC CA NM 31.40 87.9 87.9 8.80 1.55
</TABLE>
III-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
==================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Calumet Bancorp Inc. CBCI IL 488 1.41 8.96 50.75 107.1
Camco Financial Corp. CAFI OH 490 0.89 9.59 23.13 74.3
Cameron Financial Corp CMRN MO 208 1.32 5.51 19.25 49.3
Capital Savings Bancorp Inc. CAPS MO 242 0.94 10.77 18.25 34.5
Carolina Fincorp Inc. CFNC NC 112 1.01 5.48 17.13 31.7
Carver Bancorp Inc. CNY NY 416 0.18 2.08 13.00 30.1
Cascade Financial Corp. CASB WA 368 0.52 8.50 14.00 47.4
Catskill Financial Corp. CATB NY 290 1.37 5.11 17.50 81.5
CBES Bancorp Inc. CBES MO 107 1.13 6.28 20.75 21.3
CCF Holding Company CCFH GA 101 0.07 0.44 21.00 17.2
CENIT Bancorp Inc. CNIT VA 702 0.78 10.96 66.25 109.6
Central Co-operative Bank CEBK MA 344 0.88 8.75 24.75 48.6
Century Bancorp Inc. CENB NC 101 1.52 6.77 81.00 33.0
CFSB Bancorp Inc. CFSB MI 860 1.14 14.86 31.13 158.3
CFX Corp. CFX NH 2,821 0.95 11.09 25.44 609.9
Charter Financial Inc. CBSB IL 393 1.16 7.78 21.38 88.7
Charter One Financial COFI OH 15,197 1.24 18.34 57.88 2,868.5
Chester Valley Bancorp Inc. CVAL PA 322 0.93 10.83 26.00 56.9
CitFed Bancorp Inc. CTZN OH 3,295 0.87 13.46 51.88 449.0
Citizens First Financial Corp. CBK IL 278 0.54 3.70 18.00 46.5
CKF Bancorp Inc. CKFB KY 61 1.33 5.37 18.00 16.7
Classic Bancshares Inc. CLAS KY 131 0.72 4.64 15.00 19.6
CNS Bancorp Inc. CNSB MO 98 0.77 3.10 17.88 29.6
Coastal Bancorp Inc. CBSA TX 2,930 0.40 11.94 29.75 148.5
Coastal Financial Corp. CFCP SC 494 1.05 16.81 25.00 116.2
Commercial Federal Corp. CFB NE 7,207 0.94 15.97 47.56 1,026.5
Commonwealth Bancorp Inc. CMSB PA 2,278 0.58 5.76 18.13 294.4
Community Federal Bancorp CFTP MS 216 1.45 4.71 17.00 78.7
Community Financial Corp. CFFC VA 175 1.28 9.23 22.25 28.4
Community First Banking Co. CFBC GA 451 NA NA 38.13 84.7
Community Investors Bancorp CIBI OH 94 0.97 8.37 15.75 14.4
Cooperative Bankshares Inc. COOP NC 360 0.63 8.21 17.50 52.2
Crazy Woman Creek Bancorp CRZY WY 54 1.30 4.54 15.06 14.4
<CAPTION>
=================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Calumet Bancorp Inc. CBCI IL 16.75 17.09 135.3 135.3 21.94 0.00
Camco Financial Corp. CAFI OH 21.82 17.26 158.6 171.9 15.17 2.25
Cameron Financial Corp CMRN MO 24.37 19.25 112.1 112.1 24.30 1.46
Capital Savings Bancorp Inc. CAPS MO 15.34 15.73 153.8 153.8 14.25 1.32
Carolina Fincorp Inc. CFNC NC NA NA 124.6 124.6 28.44 1.40
Carver Bancorp Inc. CNY NY NM 39.39 86.2 89.7 7.24 0.00
Cascade Financial Corp. CASB WA 33.33 22.22 159.5 159.5 9.78 0.00
Catskill Financial Corp. CATB NY 21.34 21.88 113.6 113.6 28.14 1.60
CBES Bancorp Inc. CBES MO 16.21 17.89 117.9 117.9 19.94 1.93
CCF Holding Company CCFH GA NM NM 146.2 146.2 17.09 2.62
CENIT Bancorp Inc. CNIT VA 20.08 20.57 213.6 233.3 15.62 1.51
Central Co-operative Bank CEBK MA 16.95 16.84 142.2 159.0 14.12 1.29
Century Bancorp Inc. CENB NC NA NA 108.9 108.9 32.78 2.47
CFSB Bancorp Inc. CFSB MI 16.64 17.79 238.9 238.9 18.41 2.19
CFX Corp. CFX NH 23.55 19.57 248.2 257.5 21.62 3.46
Charter Financial Inc. CBSB IL 20.55 20.17 155.9 176.2 22.55 1.50
Charter One Financial COFI OH 16.03 16.40 267.6 291.3 18.88 1.73
Chester Valley Bancorp Inc. CVAL PA 19.12 20.16 201.7 201.7 17.66 1.61
CitFed Bancorp Inc. CTZN OH 18.07 18.07 217.2 239.1 13.63 0.69
Citizens First Financial Corp. CBK IL 31.03 34.62 110.4 110.4 16.73 0.00
CKF Bancorp Inc. CKFB KY 14.75 20.00 106.1 106.1 27.39 2.78
Classic Bancshares Inc. CLAS KY 27.27 20.55 100.9 119.3 15.00 1.87
CNS Bancorp Inc. CNSB MO 66.20 36.48 120.5 120.5 30.05 1.34
Coastal Bancorp Inc. CBSA TX 12.66 13.16 147.8 175.8 5.07 1.61
Coastal Financial Corp. CFCP SC 21.01 24.27 358.7 358.7 23.51 1.44
Commercial Federal Corp. CFB NE 15.96 15.91 231.0 258.1 14.24 0.59
Commonwealth Bancorp Inc. CMSB PA 17.95 23.24 139.2 178.6 12.92 1.55
Community Federal Bancorp CFTP MS 24.29 24.29 126.9 126.9 36.44 1.77
Community Financial Corp. CFFC VA 16.86 13.17 118.0 118.0 16.18 2.52
Community First Banking Co. CFBC GA NA NA NA NA NA 1.57
Community Investors Bancorp CIBI OH 15.00 15.00 130.3 130.3 15.30 2.03
Cooperative Bankshares Inc. COOP NC 25.36 25.36 188.8 188.8 14.52 0.00
Crazy Woman Creek Bancorp CRZY WY 26.43 21.52 102.6 102.6 26.50 2.66
</TABLE>
III-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CSB Financial Group Inc. CSBF IL 49 0.51 1.99 12.44 11.7
D & N Financial Corp. DNFC MI 1,754 0.83 14.74 25.00 206.1
Delphos Citizens Bancorp Inc. DCBI OH 108 1.61 8.03 17.50 34.3
Dime Bancorp Inc. DME NY 19,414 0.66 12.47 24.13 2,448.5
Dime Community Bancorp Inc. DIME NY 1,385 1.04 6.55 22.00 277.7
Dime Financial Corp. DIBK CT 922 1.90 23.53 31.50 162.6
Downey Financial Corp. DSL CA 5,854 0.70 9.57 26.88 719.0
Eagle BancGroup Inc. EGLB IL 172 0.24 1.99 18.75 22.5
Eagle Bancshares EBSI GA 848 0.76 8.78 18.50 104.7
Eagle Financial Corp. EGFC CT 2,097 0.49 6.80 51.75 326.9
East Texas Financial Services ETFS TX 113 0.63 3.38 19.38 19.9
Elmira Savings Bank (The) ESBK NY 228 0.35 5.53 30.75 21.7
Emerald Financial Corp. EMLD OH 603 0.97 12.70 18.50 93.8
Emerald Isle Bancorp Inc. EIRE MA 444 0.92 13.23 31.75 71.4
Empire Federal Bancorp Inc. EFBC MT 109 NA NA 16.63 43.1
Enterprise Federal Bancorp EFBI OH 276 0.78 6.10 26.25 52.1
Equitable Federal Savings Bank EQSB MD 308 0.73 14.49 42.00 25.3
Essex Bancorp Inc. ESX VA 190 (0.05) (0.60) 5.31 5.6
Falmouth Bancorp Inc. FCB MA 94 0.80 3.26 19.88 28.9
FCB Financial Corp. FCBF WI 526 1.06 6.32 27.75 107.7
Fed One Bancorp FOBC WV 358 0.94 8.26 24.25 57.6
FFBS BanCorp Inc. FFBS MS 131 1.47 7.51 23.25 36.2
FFD Financial Corp. FFDF OH 88 0.93 3.77 18.75 27.1
FFLC Bancorp Inc. FFLC FL 383 0.94 6.42 35.00 80.5
FFVA Financial Corp. FFFC VA 567 1.35 9.97 33.38 150.9
FFW Corp. FFWC IN 181 1.03 10.34 33.50 24.0
FFY Financial Corp. FFYF OH 611 1.26 8.58 29.75 122.6
Fidelity Bancorp Inc. FBCI IL 498 0.81 7.81 23.75 66.4
Fidelity Bancorp Inc. FSBI PA 363 0.83 11.94 24.00 37.2
Fidelity Federal Bancorp FFED IN 235 0.73 13.74 9.75 27.2
Fidelity Financial of Ohio FFOH OH 529 0.94 7.07 14.88 83.0
Financial Bancorp Inc. FIBC NY 297 0.98 10.16 24.13 41.3
First Bancorp FBCV IN 261 0.36 4.40 35.88 24.8
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CSB Financial Group Inc. CSBF IL 73.16 46.07 95.8 101.4 23.98 0.00
D & N Financial Corp. DNFC MI 15.43 16.67 223.6 225.8 11.75 0.80
Delphos Citizens Bancorp Inc. DCBI OH NA NA 119.5 119.5 31.81 0.00
Dime Bancorp Inc. DME NY 19.46 19.77 232.4 244.2 12.61 0.66
Dime Community Bancorp Inc. DIME NY 20.56 21.78 148.6 172.4 20.05 1.09
Dime Financial Corp. DIBK CT 10.68 10.94 216.6 223.1 17.65 1.40
Downey Financial Corp. DSL CA 18.16 19.06 172.2 174.4 12.28 1.19
Eagle BancGroup Inc. EGLB IL 41.67 55.15 110.1 110.1 13.05 0.00
Eagle Bancshares EBSI GA 29.37 17.96 148.6 148.6 12.34 3.24
Eagle Financial Corp. EGFC CT 47.92 35.69 225.9 283.9 15.59 1.93
East Texas Financial Services ETFS TX 49.68 27.68 97.0 97.0 17.63 1.03
Elmira Savings Bank (The) ESBK NY 26.97 27.70 148.4 154.8 9.53 2.08
Emerald Financial Corp. EMLD OH 15.55 16.67 199.4 202.4 15.55 1.30
Emerald Isle Bancorp Inc. EIRE MA 20.22 19.13 230.4 230.4 16.11 0.88
Empire Federal Bancorp Inc. EFBC MT NA NA 106.2 106.2 39.70 1.81
Enterprise Federal Bancorp EFBI OH 21.52 25.74 163.3 163.4 18.91 3.81
Equitable Federal Savings Bank EQSB MD 20.39 12.73 162.8 162.8 8.21 0.00
Essex Bancorp Inc. ESX VA NM NM NM NM 2.95 0.00
Falmouth Bancorp Inc. FCB MA 38.22 39.75 129.1 129.1 30.79 1.01
FCB Financial Corp. FCBF WI 30.83 23.32 147.6 147.6 21.48 2.88
Fed One Bancorp FOBC WV 18.10 18.23 139.0 145.4 16.09 2.56
FFBS BanCorp Inc. FFBS MS 23.97 18.90 137.0 137.0 27.69 2.15
FFD Financial Corp. FFDF OH 17.52 30.74 127.0 127.0 31.00 1.60
FFLC Bancorp Inc. FFLC FL 23.18 24.65 153.0 153.0 21.00 1.37
FFVA Financial Corp. FFFC VA 20.48 21.26 187.1 190.9 26.60 1.44
FFW Corp. FFWC IN 13.62 13.90 136.0 149.8 13.20 2.15
FFY Financial Corp. FFYF OH 16.08 16.35 146.6 146.6 20.07 2.69
Fidelity Bancorp Inc. FBCI IL 17.21 17.21 127.3 127.6 13.33 1.35
Fidelity Bancorp Inc. FSBI PA 22.64 14.37 151.6 151.6 10.24 1.50
Fidelity Federal Bancorp FFED IN 13.93 14.34 189.3 189.3 11.56 4.10
Fidelity Financial of Ohio FFOH OH 19.07 16.71 120.5 136.0 15.70 1.88
Financial Bancorp Inc. FIBC NY 16.08 15.17 153.6 154.3 13.89 1.66
First Bancorp FBCV IN 13.19 26.00 109.9 112.1 9.51 1.12
</TABLE>
III-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LMT LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
First Bancshares Inc. FBSI MO 163 1.08 7.68 25.25 27.6
First Bell Bancorp Inc. FBBC PA 681 1.09 9.27 17.25 112.3
First Bergen Bancorp FBER NJ 285 0.77 4.94 18.38 52.6
First Citizens Corp. FSTC GA 339 1.90 19.95 38.50 70.8
First Coastal Corp. FCME ME 149 3.97 44.99 12.91 17.5
First Colorado Bancorp Inc. FFBA CO 1,513 1.20 8.96 20.44 336.9
First Defiance Financial FDEF OH 574 1.01 4.70 15.38 137.7
First Essex Bancorp Inc. FESX MA 1,210 0.77 10.65 19.50 146.8
First Federal Bancorp Inc. FFBZ OH 201 0.96 12.66 19.25 30.3
First Federal Bancorporation BDJI MN 111 0.63 5.48 25.75 17.6
First Federal Bancshares of AR FFBH AR 535 1.06 6.61 21.00 102.8
First Federal Capital Corp. FTFC WI 1,560 0.90 13.94 26.13 239.4
First Federal Financial Corp. FFKY KY 383 1.62 11.85 21.50 89.4
First Federal of East Hartford FFES CT 987 0.60 9.47 36.25 97.2
First Financial Bancorp Inc. FFBI IL 85 0.41 5.11 19.25 8.0
First Financial Holdings Inc. FFCH SC 1,713 0.85 13.85 40.75 259.5
First Franklin Corporation FFHS OH 231 0.65 7.31 24.00 28.6
First Georgia Holding Inc. FGHC GA 156 0.78 9.53 8.38 25.6
First Home Bancorp Inc. FSPG NJ 522 0.97 14.79 22.75 61.6
First Independence Corp. FFSL KS 111 0.69 6.20 15.00 14.9
First Indiana Corporation FISB IN 1,547 0.95 9.90 24.50 258.8
First Keystone Financial FKFS PA 321 0.78 10.49 32.00 39.3
First Lancaster Bancshares FLKY KY 43 1.40 4.04 16.00 15.3
First Liberty Financial Corp. FLFC GA 1,289 0.94 12.81 27.50 212.6
First Midwest Financial Inc. CASH IA 375 0.93 8.12 19.69 53.8
First Mutual Bancorp Inc. FMBD IL 402 0.28 1.95 20.00 70.1
First Mutual Savings Bank FMSB WA 451 1.00 15.00 18.13 73.7
First Northern Capital Corp. FNGB WI 657 0.89 7.88 13.50 119.3
First Palm Beach Bancorp Inc. FFPB FL 1,808 0.48 7.19 39.63 200.0
First Savings Bancorp Inc. SOPN NC 295 1.76 7.28 24.00 88.5
First SB of Washington Bancorp FWWB WA 1,074 1.16 7.58 23.63 247.9
First SecurityFed Financial FSFF IL 258 1.16 9.67 15.13 96.9
First Shenango Bancorp Inc. SHEN PA 401 1.17 10.46 34.00 70.4
<CAPTION>
=================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Bancshares Inc. FBSI MO 14.85 16.40 121.8 121.8 16.95 0.79
First Bell Bancorp Inc. FBBC PA 14.87 15.27 156.5 156.5 16.49 2.32
First Bergen Bancorp FBER NJ 25.17 25.17 135.4 135.4 18.49 1.09
First Citizens Corp. FSTC GA 13.65 13.75 214.0 275.2 20.83 1.14
First Coastal Corp. FCME ME 2.87 2.98 121.1 121.1 11.81 0.00
First Colorado Bancorp Inc. FFBA CO 18.41 18.41 170.3 172.6 22.27 2.35
First Defiance Financial FDEF OH 25.63 25.63 121.9 121.9 23.97 2.08
First Essex Bancorp Inc. FESX MA 14.13 16.67 163.9 187.3 12.13 2.46
First Federal Bancorp Inc. FFBZ OH 24.06 18.16 218.5 218.8 15.03 1.25
First Federal Bancorporation BDJI MN 44.40 23.62 146.2 146.2 15.89 0.00
First Federal Bancshares of AR FFBH AR 24.14 18.42 128.4 128.4 19.21 1.14
First Federal Capital Corp. FTFC WI 15.74 18.93 228.0 241.9 15.35 1.84
First Federal Financial Corp. FFKY KY 14.73 14.93 170.6 180.8 23.37 2.61
First Federal of East Hartford FFES CT 19.39 17.10 148.6 148.6 9.85 1.66
First Financial Bancorp Inc. FFBI IL NM 21.63 109.3 109.3 9.46 0.00
First Financial Holdings Inc. FFCH SC 18.27 18.78 247.7 247.7 15.15 2.06
First Franklin Corporation FFHS OH 23.53 19.83 137.2 138.0 12.37 1.67
First Georgia Holding Inc. FGHC GA 27.92 22.64 198.9 217.0 16.35 0.64
First Home Bancorp Inc. FSPG NJ 14.04 12.85 177.0 180.0 11.79 1.76
First Independence Corp. FFSL KS 33.33 21.13 129.3 129.3 13.49 1.67
First Indiana Corporation FISB IN 15.51 18.70 173.5 175.6 16.72 1.96
First Keystone Financial FKFS PA 22.22 15.69 167.6 167.6 12.25 0.63
First Lancaster Bancshares FLKY KY NA NA 108.8 108.8 35.83 3.13
First Liberty Financial Corp. FLFC GA 20.99 17.97 223.6 248.0 16.48 1.46
First Midwest Financial Inc. CASH IA 20.51 14.27 126.0 142.3 14.36 1.83
First Mutual Bancorp Inc. FMBD IL 58.82 64.52 119.3 156.5 17.43 1.60
First Mutual Savings Bank FMSB WA 17.77 18.13 240.7 240.7 16.34 0.74
First Northern Capital Corp. FNGB WI 21.09 21.77 163.8 163.8 18.17 2.37
First Palm Beach Bancorp Inc. FFPB FL 21.42 25.56 177.0 181.2 11.06 1.51
First Savings Bancorp Inc. SOPN NC 19.51 19.51 130.2 130.2 29.96 3.67
First SB of Washington Bancorp FWWB WA 22.72 20.54 150.7 163.2 23.13 1.19
First SecurityFed Financial FSFF IL NA NA NA NA NA 0.00
First Shenango Bancorp Inc. SHEN PA 15.25 15.32 150.8 150.8 17.52 1.77
</TABLE>
III-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
FirstBank Corp. FBNW ID 154 NA NA 17.00 33.7
FirstFed America Bancorp Inc. FAB MA 1,036 0.47 4.89 20.38 177.4
FirstFed Bancorp Inc. FFDB AL 177 0.94 9.54 22.00 25.3
FirstFed Financial Corp. FED CA 4,105 0.56 11.68 36.63 387.7
FirstSpartan Financial Corp. FSPT SC 482 NA NA 38.00 168.4
FLAG Financial Corp. FLAG GA 222 0.12 1.30 17.75 36.2
Flagstar Bancorp Inc. FLGS MI 1,596 NA NA 18.50 252.9
Flushing Financial Corp. FFIC NY 960 0.97 6.05 21.75 173.6
FMS Financial Corp. FMCO NJ 555 1.02 15.76 30.00 71.6
Fort Bend Holding Corp. FBHC TX 319 0.51 8.12 20.00 33.1
Fort Thomas Financial Corp. FTSB KY 97 0.81 4.47 14.00 19.9
Frankfort First Bancorp Inc. FKKY KY 133 0.63 2.74 9.63 31.6
FSF Financial Corp. FFHH MN 388 0.84 6.96 19.25 57.9
Fulton Bancorp Inc. FTNB MO 101 1.00 4.94 20.00 34.4
GA Financial Inc. GAF PA 802 1.07 6.10 19.06 152.0
GFSB Bancorp Inc. GUPB NM 94 0.95 5.44 20.00 15.0
Glacier Bancorp Inc. GBCI MT 574 1.54 16.10 22.00 150.0
Glenway Financial Corp. GFCO OH 287 0.71 7.49 31.25 35.6
Golden State Bancorp Inc. GSB CA 16,432 0.74 11.69 33.75 1,702.9
Golden West Financial GDW CA 39,228 0.86 13.68 87.38 4,960.3
Great American Bancorp GTPS IL 140 0.59 2.65 19.38 32.9
Great Southern Bancorp Inc. GSBC MO 708 1.54 17.00 21.13 170.7
Green Street Financial Corp. GSFC NC 175 1.66 4.72 18.50 79.5
GreenPoint Financial Corp. GPT NY 13,094 1.05 10.01 68.50 2,933.6
GS Financial Corp. GSLA LA 131 1.31 3.48 17.75 61.0
GSB Financial Corp. GOSB NY 155 NA NA 15.38 34.6
Hallmark Capital Corp. HALL WI 418 0.63 8.94 29.38 42.4
Harbor Federal Bancorp Inc. HRBF MD 217 0.71 5.50 21.50 36.4
Hardin Bancorp Inc. HFSA MO 117 0.75 5.55 18.00 15.5
Harleysville Savings Bank HARL PA 345 1.04 16.17 30.13 50.1
Harrington Financial Group HFGI IN 521 0.36 7.49 13.25 43.2
Harrodsburg First Fin Bancorp HFFB KY 109 1.35 4.99 16.75 33.9
Harvest Home Financial Corp. HHFC OH 88 0.57 4.44 13.75 12.6
<CAPTION>
==================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FirstBank Corp. FBNW ID NA NA NA NA NA 1.65
FirstFed America Bancorp Inc. FAB MA NA NA 130.4 130.4 17.12 0.00
FirstFed Bancorp Inc. FFDB AL 25.58 16.67 151.9 166.7 14.31 2.27
FirstFed Financial Corp. FED CA 17.03 17.03 183.0 184.9 9.44 0.00
FirstSpartan Financial Corp. FSPT SC NA NA 130.3 130.3 34.90 1.58
FLAG Financial Corp. FLAG GA NM 136.54 170.0 170.0 16.29 1.92
Flagstar Bancorp Inc. FLGS MI NA NA 219.2 229.5 15.84 0.00
Flushing Financial Corp. FFIC NY 20.52 20.33 127.3 132.6 18.08 1.10
FMS Financial Corp. FMCO NJ 19.74 13.51 196.9 200.4 12.91 0.93
Fort Bend Holding Corp. FBHC TX 21.05 27.40 168.4 180.3 10.37 1.00
Fort Thomas Financial Corp. FTSB KY 43.75 28.00 134.6 134.6 21.59 1.79
Frankfort First Bancorp Inc. FKKY KY NM 37.02 140.7 140.7 23.69 3.74
FSF Financial Corp. FFHH MN 18.16 18.33 118.5 118.5 14.93 2.60
Fulton Bancorp Inc. FTNB MO NA NA 136.2 136.2 34.19 1.00
GA Financial Inc. GAF PA 19.86 20.28 129.5 130.8 18.94 2.52
GFSB Bancorp Inc. GUPB NM 25.97 20.83 114.9 114.9 17.07 2.00
Glacier Bancorp Inc. GBCI MT 18.03 17.60 261.6 268.3 26.13 2.18
Glenway Financial Corp. GFCO OH 29.48 17.66 130.8 132.6 12.41 2.56
Golden State Bancorp Inc. GSB CA 24.64 20.45 208.9 233.4 10.36 0.00
Golden West Financial GDW CA 14.83 15.06 192.6 192.6 12.64 0.50
Great American Bancorp GTPS IL 49.68 45.06 105.1 105.1 23.56 2.07
Great Southern Bancorp Inc. GSBC MO 19.20 16.90 283.6 283.6 24.19 2.08
Green Street Financial Corp. GSFC NC 31.36 25.69 125.6 125.6 45.54 2.38
GreenPoint Financial Corp. GPT NY 19.24 19.97 203.6 379.7 22.40 0.00
GS Financial Corp. GSLA LA NA NA 108.0 108.0 46.56 1.58
GSB Financial Corp. GOSB NY NA NA NA NA NA 0.00
Hallmark Capital Corp. HALL WI 16.23 16.50 138.8 138.8 10.13 0.00
Harbor Federal Bancorp Inc. HRBF MD 22.87 22.87 128.4 128.4 16.76 2.23
Hardin Bancorp Inc. HFSA MO 18.75 19.78 114.3 114.3 13.18 2.67
Harleysville Savings Bank HARL PA 14.99 14.99 218.9 218.9 14.50 1.46
Harrington Financial Group HFGI IN 19.49 24.09 171.2 171.2 8.28 0.91
Harrodsburg First Fin Bancorp HFFB KY 28.39 22.33 106.8 106.8 31.13 2.39
Harvest Home Financial Corp. HHFC OH 52.88 25.94 121.6 121.6 14.36 3.20
</TABLE>
III-5
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Haven Bancorp Inc. HAVN NY 1,833 0.69 11.45 41.88 183.7
Hawthorne Financial Corp. HTHR CA 891 1.04 18.85 17.75 54.8
Haywood Bancshares Inc. HBS NC 150 1.15 7.72 20.56 25.7
HCB Bancshares Inc. HCBB AR 200 0.09 1.18 13.38 35.4
Hemlock Federal Financial Corp HMLK IL 162 0.80 5.32 17.00 35.3
HF Bancorp Inc. HEMT CA 1,050 0.18 2.17 15.50 97.4
HF Financial Corp. HFFC SD 575 0.94 10.13 25.50 76.1
HFNC Financial Corp. HFNC NC 867 1.05 4.55 14.06 241.8
Highland Federal Bank FSB HBNK CA 516 0.86 11.72 32.50 74.8
Hingham Instit. for Savings HIFS MA 216 1.25 12.96 28.50 37.2
HMN Financial Inc. HMNF MN 569 0.85 5.81 25.25 106.4
Home Bancorp HBFW IN 335 0.89 6.29 24.00 60.6
Home Bancorp of Elgin Inc. HBEI IL 343 0.80 2.90 17.25 118.3
Home Building Bancorp HBBI IN 42 0.76 5.65 21.63 6.7
Home City Financial Corp. HCFC OH 70 1.20 13.70 16.63 15.0
Home Federal Bancorp HOMF IN 694 1.21 14.44 37.13 126.3
Home Financial Bancorp HWEN IN 43 0.83 4.21 16.75 7.8
Home Port Bancorp Inc. HPBC MA 201 1.67 15.64 23.00 42.4
Horizon Financial Corp. HRZB WA 531 1.54 9.95 17.00 126.4
Horizon Financial Svcs Corp. HZFS IA 88 0.66 6.37 23.00 9.8
IBS Financial Corp. IBSF NJ 733 0.85 4.54 15.88 174.9
Independence Federal Svgs Bank IFSB DC 258 0.27 4.09 14.25 18.3
Industrial Bancorp Inc. INBI OH 354 1.44 7.92 17.50 90.5
InterWest Bancorp Inc. IWBK WA 2,047 0.98 14.90 37.63 302.9
Ipswich Savings Bank IPSW MA 203 0.97 16.37 11.75 28.0
ISB Financial Corp. ISBF LA 947 0.85 6.26 24.50 169.1
ITLA Capital Corp. ITLA CA 902 1.46 13.05 19.63 154.0
Jacksonville Bancorp Inc. JXVL TX 226 1.33 8.42 18.88 46.1
Jefferson Savings Bancorp JSBA MO 1,292 0.77 9.84 42.50 212.8
Joachim Bancorp Inc. JOAC MO 35 0.76 2.59 15.00 10.8
JSB Financial Inc. JSB NY 1,531 1.72 7.68 48.44 479.5
Kankakee Bancorp Inc. KNK IL 340 0.87 8.11 31.75 45.3
Kentucky First Bancorp Inc. KYF KY 88 1.14 6.60 13.63 17.8
<CAPTION>
==================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Haven Bancorp Inc. HAVN NY 16.55 16.49 167.0 167.6 10.02 1.43
Hawthorne Financial Corp. HTHR CA 13.45 14.20 126.7 126.7 6.15 0.00
Haywood Bancshares Inc. HBS NC 23.10 16.45 122.7 127.3 17.09 2.72
HCB Bancshares Inc. HCBB AR NA NA 93.7 97.4 17.66 0.00
Hemlock Federal Financial Corp HMLK IL NA NA 112.9 112.9 21.80 1.41
HF Bancorp Inc. HEMT CA NM 51.67 116.9 NA 9.27 0.00
HF Financial Corp. HFFC SD 13.64 14.83 140.0 140.0 13.23 1.65
HFNC Financial Corp. HFNC NC 20.99 24.25 148.3 148.3 27.89 1.99
Highland Federal Bank FSB HBNK CA 13.77 17.96 189.0 189.0 14.49 0.00
Hingham Instit. for Savings HIFS MA 14.39 14.39 177.0 177.0 17.18 1.68
HMN Financial Inc. HMNF MN 17.91 21.04 125.7 125.7 18.70 0.00
Home Bancorp HBFW IN 31.58 20.51 136.2 136.2 18.10 0.83
Home Bancorp of Elgin Inc. HBEI IL 37.50 39.20 125.3 125.3 34.53 2.32
Home Building Bancorp HBBI IN 18.80 19.14 105.9 105.9 16.14 1.39
Home City Financial Corp. HCFC OH NA NA 110.8 110.8 22.63 1.93
Home Federal Bancorp HOMF IN 14.73 16.28 210.2 216.6 18.19 1.35
Home Financial Bancorp HWEN IN NA NA 109.3 109.3 18.50 1.19
Home Port Bancorp Inc. HPBC MA 13.07 13.14 197.4 197.4 21.08 3.48
Horizon Financial Corp. HRZB WA 15.32 15.60 152.2 152.2 23.80 2.59
Horizon Financial Svcs Corp. HZFS IA 14.84 18.11 112.0 112.0 11.15 1.57
IBS Financial Corp. IBSF NJ 46.69 26.91 137.0 137.0 23.84 2.52
Independence Federal Svgs Bank IFSB DC 21.59 25.91 102.6 116.0 7.06 1.54
Industrial Bancorp Inc. INBI OH 17.33 18.23 148.8 148.8 25.56 3.20
InterWest Bancorp Inc. IWBK WA 15.17 17.26 233.3 237.5 14.80 1.70
Ipswich Savings Bank IPSW MA 13.99 17.28 245.8 245.8 13.80 1.02
ISB Financial Corp. ISBF LA 29.88 21.88 139.1 163.6 17.85 2.04
ITLA Capital Corp. ITLA CA 13.17 13.17 159.3 NA 17.08 0.00
Jacksonville Bancorp Inc. JXVL TX 24.51 8.28 139.3 139.3 20.78 2.65
Jefferson Savings Bancorp JSBA MO 45.21 19.86 177.4 228.6 16.46 0.94
Joachim Bancorp Inc. JOAC MO 68.18 40.54 110.1 110.1 31.02 3.33
JSB Financial Inc. JSB NY 17.00 19.07 134.9 134.9 31.31 2.89
Kankakee Bancorp Inc. KNK IL 15.56 15.80 116.5 123.6 13.31 1.51
Kentucky First Bancorp Inc. KYF KY 17.03 17.25 120.7 120.7 20.15 3.67
</TABLE>
III-6
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
==================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Klamath First Bancorp KFBI OR 980 1.04 5.75 21.13 211.6
KS Bancorp Inc. KSAV NC 110 1.20 8.77 22.00 19.5
KSB Bancorp Inc. KSBK ME 146 1.08 15.21 15.00 18.6
Lakeview Financial LVSB NJ 506 0.93 9.48 25.50 115.0
Landmark Bancshares Inc. LARK KS 228 1.04 7.02 23.50 40.2
Laurel Capital Group Inc. LARL PA 210 1.41 13.60 26.50 38.3
Lawrence Savings Bank LSBX MA 353 1.74 20.08 13.94 59.7
Lexington B&L Financial Corp. LXMO MO 59 1.32 4.46 16.94 19.3
Life Financial Corp. LFCO CA 294 NA NA 17.75 116.1
Little Falls Bancorp Inc. LFBI NJ 300 0.47 3.43 18.63 48.6
Logansport Financial Corp. LOGN IN 86 1.47 7.54 15.75 19.9
London Financial Corporation LONF OH 38 0.99 4.77 20.13 10.3
Long Island Bancorp Inc. LISB NY 5,931 0.73 7.93 44.13 1,060.0
LSB Financial Corp. LSBI IN 200 0.69 7.65 25.00 22.9
MAF Bancorp Inc. MAFB IL 3,371 1.15 14.72 32.75 499.4
Marion Capital Holdings MARN IN 173 1.67 7.28 26.75 47.5
Market Financial Corp. MRKF OH 57 NA NA 15.13 20.2
Maryland Federal Bancorp MFSL MD 1,175 0.92 11.03 46.50 150.4
MASSBANK Corp. MASB MA 933 1.03 9.90 45.00 160.2
Mayflower Co-operative Bank MFLR MA 126 0.92 9.53 26.25 23.4
MBLA Financial Corp. MBLF MO 224 0.85 6.63 25.75 32.6
Mechanics Savings Bank MECH CT 831 1.79 17.84 25.75 136.3
Medford Savings Bank MDBK MA 1,106 1.00 11.19 34.63 157.2
Meritrust Federal SB MERI LA 233 1.15 14.61 49.25 38.1
Metropolitan Financial Corp. METF OH 866 0.60 15.21 26.00 91.7
MetroWest Bank MWBX MA 586 1.37 18.02 8.00 111.7
MFB Corp. MFBC IN 256 0.83 5.62 23.25 38.4
Mid-Coast Bancorp Inc. MCBN ME 61 0.72 8.25 28.38 6.6
Mid-Iowa Financial Corp. MIFC IA 126 1.16 12.58 10.38 17.4
Midwest Bancshares Inc. MWBI IA 150 0.77 11.05 52.75 17.9
Midwest Federal Financial MWFD WI 207 1.09 12.59 25.25 41.1
Milton Federal Financial Corp. MFFC OH 210 0.65 4.52 15.00 34.6
Mississippi View Holding Co. MIVI MN 69 1.05 5.95 17.63 13.1
<CAPTION>
===================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Klamath First Bancorp KFBI OR 24.01 24.01 135.1 NA 21.59 1.52
KS Bancorp Inc. KSAV NC 16.67 16.79 133.8 133.9 17.72 2.73
KSB Bancorp Inc. KSBK ME 13.04 11.81 177.3 187.5 12.73 0.53
Lakeview Financial LVSB NJ 21.25 29.31 186.0 217.0 22.73 0.49
Landmark Bancshares Inc. LARK KS 22.17 18.36 127.8 127.8 17.62 1.70
Laurel Capital Group Inc. LARL PA 13.52 14.02 174.3 174.3 18.25 1.96
Lawrence Savings Bank LSBX MA 10.17 10.17 177.8 177.8 16.92 0.00
Lexington B&L Financial Corp. LXMO MO 29.72 22.29 115.0 115.0 32.55 1.77
Life Financial Corp. LFCO CA NA NA 234.8 234.8 39.48 0.00
Little Falls Bancorp Inc. LFBI NJ 60.08 35.14 128.4 139.0 17.04 1.07
Logansport Financial Corp. LOGN IN 17.50 16.76 122.5 122.5 23.14 2.54
London Financial Corporation LONF OH 38.70 26.14 137.8 137.8 27.11 1.19
Long Island Bancorp Inc. LISB NY 21.21 24.93 194.0 195.9 17.87 1.36
LSB Financial Corp. LSBI IN 14.97 17.01 123.5 123.5 11.44 1.36
MAF Bancorp Inc. MAFB IL 14.00 14.06 190.2 216.5 14.82 0.86
Marion Capital Holdings MARN IN 20.58 17.26 121.1 121.1 27.29 3.29
Market Financial Corp. MRKF OH NA NA 102.0 102.0 35.71 1.85
Maryland Federal Bancorp MFSL MD 20.22 14.13 150.8 NA 12.80 1.81
MASSBANK Corp. MASB MA 16.67 17.72 159.3 161.7 17.18 2.13
Mayflower Co-operative Bank MFLR MA 18.88 21.17 192.0 195.3 18.60 2.59
MBLA Financial Corp. MBLF MO 19.22 18.80 115.2 115.2 14.58 1.55
Mechanics Savings Bank MECH CT 9.61 9.61 157.7 157.7 16.41 0.00
Medford Savings Bank MDBK MA 14.49 15.60 157.7 168.3 14.21 2.08
Meritrust Federal SB MERI LA 15.15 15.15 197.9 197.9 16.34 1.42
Metropolitan Financial Corp. METF OH 17.69 18.84 262.6 287.9 10.59 0.00
MetroWest Bank MWBX MA 15.09 15.09 255.6 255.6 19.06 1.50
MFB Corp. MFBC IN 20.39 20.39 114.5 114.5 15.00 1.38
Mid-Coast Bancorp Inc. MCBN ME 14.63 15.42 125.3 125.3 10.75 1.83
Mid-Iowa Financial Corp. MIFC IA 14.82 NA 148.2 148.4 13.86 0.77
Midwest Bancshares Inc. MWBI IA 15.79 17.94 172.7 172.7 11.94 1.37
Midwest Federal Financial MWFD WI 19.42 20.36 225.3 233.6 19.85 1.35
Milton Federal Financial Corp. MFFC OH 23.81 26.79 121.9 121.9 16.47 4.00
Mississippi View Holding Co. MIVI MN 18.36 18.55 108.1 108.1 19.03 0.91
</TABLE>
III-7
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Mitchell Bancorp Inc. MBSP NC 35 1.63 3.79 17.75 16.5
Monterey Bay Bancorp Inc. MBBC CA 413 0.46 3.90 19.00 61.6
Montgomery Financial Corp. MONT IN 103 0.63 6.39 12.50 20.7
MSB Bancorp Inc. MBB NY 814 0.51 5.98 28.50 81.1
MSB Financial Inc. MSBF MI 77 1.44 8.08 18.00 22.2
Mutual Savings Bank FSB MSBK MI 654 0.02 0.35 13.50 57.8
New Hampshire Thrift Bncshrs NHTB NH 315 0.61 8.22 21.25 43.9
NewMil Bancorp Inc. NMSB CT 317 0.82 7.93 12.50 47.9
North American Savings Bank NASB MO 737 1.20 16.21 55.25 123.6
North Bancshares Inc. NBSI IL 122 0.56 3.86 27.00 25.8
North Central Bancshares Inc. FFFD IA 215 1.83 7.57 18.50 60.3
Northeast Bancorp NBN ME 262 0.58 7.40 27.25 35.2
Northeast Indiana Bancorp NEIB IN 190 1.20 7.78 20.50 36.1
Northwest Equity Corp. NWEQ WI 97 0.99 8.40 18.00 15.1
NS&L Bancorp Inc. NSLB MO 60 0.77 3.72 18.75 13.3
NSS Bancorp Inc. NSSY CT 664 0.31 3.97 36.25 87.4
Nutmeg Federal S&LA NTMG CT 102 0.40 6.36 12.00 8.9
Ocean Financial Corp. OCFC NJ 1,448 0.98 5.20 37.00 302.5
Ocwen Financial Corp. OCN FL 3,069 1.74 19.54 51.63 1,561.8
Ohio State Financial Services OSFS OH 34 NA NA 15.25 9.7
OHSL Financial Corp. OHSL OH 235 0.88 7.86 27.50 34.0
Oregon Trail Financial Corp. OTFC OR 203 1.08 11.67 15.88 74.5
Ottawa Financial Corp. OFCP MI 867 0.79 8.88 27.75 148.6
Pamrapo Bancorp Inc. PBCI NJ 372 1.33 9.61 25.00 71.1
Park Bancorp Inc. PFED IL 176 1.10 5.10 18.13 44.1
Parkvale Financial Corporation PVSA PA 1,005 1.08 14.93 28.00 143.0
Peekskill Financial Corp. PEEK NY 183 1.29 4.71 17.25 55.1
PennFed Financial Services Inc PFSB NJ 1,364 0.82 10.97 30.50 147.1
PennFirst Bancorp Inc. PWBC PA 817 0.66 8.86 18.00 95.6
Pennwood Bancorp Inc. PWBK PA 50 1.12 5.73 19.00 11.0
Peoples-Sidney Financial Corp. PSFC OH 103 0.91 7.17 17.63 31.5
Peoples Bancorp PFDC IN 288 1.46 9.55 35.00 79.6
People's Bancshares Inc. PBKB MA 586 0.53 9.27 19.00 61.7
<CAPTION>
===================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mitchell Bancorp Inc. MBSP NC 28.63 28.63 115.6 115.6 47.77 2.25
Monterey Bay Bancorp Inc. MBBC CA 63.33 33.93 122.9 133.3 14.92 0.63
Montgomery Financial Corp. MONT IN NA NA NA NA NA 1.76
MSB Bancorp Inc. MBB NY 73.08 26.39 134.8 274.6 9.96 2.11
MSB Financial Inc. MSBF MI 20.22 20.93 174.3 174.3 28.83 1.56
Mutual Savings Bank FSB MSBK MI 90.00 NM 138.8 138.8 8.83 0.00
New Hampshire Thrift Bncshrs NHTB NH 40.87 25.60 180.4 211.9 13.80 2.35
NewMil Bancorp Inc. NMSB CT 19.53 20.83 148.5 148.5 15.10 2.56
North American Savings Bank NASB MO 13.64 14.46 217.8 225.3 16.72 1.45
North Bancshares Inc. NBSI IL 36.00 40.30 158.5 158.5 21.27 1.78
North Central Bancshares Inc. FFFD IA 16.09 16.09 122.3 122.3 28.02 1.35
Northeast Bancorp NBN ME 28.39 30.62 194.1 221.5 13.27 1.17
Northeast Indiana Bancorp NEIB IN 16.67 16.67 132.2 132.2 18.99 1.66
Northwest Equity Corp. NWEQ WI 14.52 15.00 123.9 123.9 15.57 2.89
NS&L Bancorp Inc. NSLB MO 42.61 31.25 113.6 113.6 22.22 2.67
NSS Bancorp Inc. NSSY CT 15.63 53.31 168.3 173.9 13.16 1.10
Nutmeg Federal S&LA NTMG CT 54.55 35.29 155.4 155.4 8.65 1.67
Ocean Financial Corp. OCFC NJ NA NA 135.3 135.3 21.99 2.16
Ocwen Financial Corp. OCN FL 17.50 30.91 373.6 383.5 50.88 0.00
Ohio State Financial Services OSFS OH NA NA NA NA NA 0.00
OHSL Financial Corp. OHSL OH 16.77 17.30 128.4 128.4 14.47 3.20
Oregon Trail Financial Corp. OTFC OR NA NA NA NA NA 0.00
Ottawa Financial Corp. OFCP MI 22.56 23.13 196.1 242.8 17.13 1.31
Pamrapo Bancorp Inc. PBCI NJ 15.24 15.43 148.0 149.1 19.11 4.00
Park Bancorp Inc. PFED IL NA NA 111.4 111.4 25.10 0.00
Parkvale Financial Corporation PVSA PA 14.00 14.00 184.2 185.4 14.22 1.86
Peekskill Financial Corp. PEEK NY 30.80 23.31 117.3 117.3 30.17 2.09
PennFed Financial Services Inc PFSB NJ 14.06 14.06 136.0 160.6 10.78 0.92
PennFirst Bancorp Inc. PWBC PA 25.35 17.65 144.7 154.8 11.69 2.00
Pennwood Bancorp Inc. PWBK PA NA NA 126.3 126.3 22.03 1.68
Peoples-Sidney Financial Corp. PSFC OH NA NA 122.4 122.4 30.51 1.59
Peoples Bancorp PFDC IN 25.36 18.82 182.0 182.0 27.68 1.83
People's Bancshares Inc. PBKB MA 14.96 23.75 204.1 212.1 11.66 2.32
</TABLE>
III-8
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Peoples Financial Corp. PFFC OH 86 0.90 3.54 14.50 21.3
Peoples Heritage Finl Group PHBK ME 6,056 1.30 16.37 39.63 1,088.7
Permanent Bancorp Inc. PERM IN 433 0.62 6.52 25.13 52.8
Perpetual Midwest Financial PMFI IA 402 0.32 3.78 25.75 48.2
Perry County Financial Corp. PCBC MO 81 1.07 5.72 24.00 19.9
PFF Bancorp Inc. PFFB CA 2,615 0.46 4.33 19.13 342.4
Piedmont Bancorp Inc. PDB NC 127 0.57 3.19 10.88 29.9
Pittsburgh Home Financial Corp PHFC PA 273 0.76 6.02 18.88 37.2
Potters Financial Corp. PTRS OH 123 0.96 10.74 31.50 15.2
Prestige Bancorp Inc. PRBC PA 138 0.62 5.11 18.00 16.5
Progress Financial Corp. PFNC PA 437 0.71 13.62 14.50 58.2
Progressive Bank Inc. PSBK NY 885 0.94 11.17 33.38 127.8
Provident Financial Holdings PROV CA 641 0.36 2.55 19.63 94.9
PS Financial Inc. PSFI IL 83 NA NA 16.63 34.5
Pulse Bancorp PULS NJ 526 1.10 14.06 25.25 77.8
PVF Capital Corp. PVFC OH 373 1.33 19.39 19.63 50.8
QCF Bancorp Inc. QCFB MN 157 1.60 8.60 27.00 37.4
Quaker City Bancorp Inc. QCBC CA 847 0.69 7.79 20.38 95.2
Queens County Bancorp Inc. QCSB NY 1,541 1.55 11.55 35.50 536.4
Raritan Bancorp Inc. RARB NJ 407 1.02 13.07 28.63 67.9
RedFed Bancorp Inc. REDF CA 967 1.01 12.25 19.63 140.9
Reliance Bancorp Inc. RELY NY 2,035 0.84 10.22 33.13 288.6
Reliance Bancshares Inc. RELI WI 47 1.29 2.52 8.50 21.0
River Valley Bancorp RIVR IN 140 NA NA 17.50 20.8
Riverview Bancorp Inc. RVSB WA 282 1.23 11.07 13.75 84.3
Roslyn Bancorp Inc. RSLN NY 3,474 1.17 6.79 21.88 954.7
S. Carolina Community Bancshrs SCCB SC 47 1.20 4.49 22.50 15.7
Sandwich Bancorp Inc. SWCB MA 512 0.95 11.87 40.00 76.8
Scotland Bancorp Inc SSB NC 69 1.71 4.69 10.75 20.6
Security First Corp. SFSL OH 681 1.37 14.73 17.50 132.9
Security First Network Bank SFNB GA 79 (28.75) (69.85) 8.25 78.1
SFS Bancorp Inc. SFED NY 174 0.69 5.45 22.13 27.2
SGV Bancorp Inc. SGVB CA 409 0.31 3.98 17.75 41.6
<CAPTION>
==================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peoples Financial Corp. PFFC OH NA NA 91.9 91.9 25.00 3.45
Peoples Heritage Finl Group PHBK ME 15.54 15.54 241.3 282.6 17.98 2.12
Permanent Bancorp Inc. PERM IN 38.65 21.29 127.3 129.2 11.66 1.59
Perpetual Midwest Financial PMFI IA 31.40 39.02 141.2 141.2 12.01 1.17
Perry County Financial Corp. PCBC MO 25.00 17.78 127.6 127.6 24.50 1.67
PFF Bancorp Inc. PFFB CA 28.98 28.54 130.2 131.5 13.09 0.00
Piedmont Bancorp Inc. PDB NC NM 41.83 143.9 143.9 23.64 3.68
Pittsburgh Home Financial Corp PHFC PA 18.15 20.30 129.0 130.4 13.60 1.27
Potters Financial Corp. PTRS OH 13.46 13.76 140.5 140.5 12.38 1.27
Prestige Bancorp Inc. PRBC PA 19.78 19.78 106.6 106.6 11.95 0.67
Progress Financial Corp. PFNC PA 16.86 21.32 247.9 277.8 13.31 0.83
Progressive Bank Inc. PSBK NY 15.17 15.45 165.4 183.6 14.44 2.04
Provident Financial Holdings PROV CA 20.44 42.66 111.1 111.1 14.81 0.00
PS Financial Inc. PSFI IL NA NA 113.4 113.4 43.89 2.89
Pulse Bancorp PULS NJ 14.03 14.03 180.0 180.0 14.79 2.77
PVF Capital Corp. PVFC OH 14.76 11.54 190.9 190.9 13.44 0.00
QCF Bancorp Inc. QCFB MN 17.20 14.06 140.4 140.4 24.57 0.00
Quaker City Bancorp Inc. QCBC CA 16.98 17.56 132.9 132.9 11.24 0.00
Queens County Bancorp Inc. QCSB NY 25.00 25.36 267.7 267.7 34.80 2.25
Raritan Bancorp Inc. RARB NJ 18.59 18.83 226.5 229.9 16.67 1.68
RedFed Bancorp Inc. REDF CA 15.58 15.70 175.1 NA 14.56 0.00
Reliance Bancorp Inc. RELY NY 17.34 18.40 171.7 233.8 14.18 1.93
Reliance Bancshares Inc. RELI WI 32.69 34.00 92.6 92.6 44.71 0.00
River Valley Bancorp RIVR IN NA NA 119.7 121.5 14.83 0.91
Riverview Bancorp Inc. RVSB WA NM NA 143.8 149.3 29.85 0.00
Roslyn Bancorp Inc. RSLN NY NA NA 155.8 156.6 27.48 1.10
S. Carolina Community Bancshrs SCCB SC 36.29 28.13 131.6 131.6 33.79 2.67
Sandwich Bancorp Inc. SWCB MA 16.95 17.24 189.0 196.7 15.00 3.50
Scotland Bancorp Inc SSB NC 18.86 15.36 79.9 79.9 29.61 2.79
Security First Corp. SFSL OH 16.83 16.83 210.6 213.9 19.51 1.83
Security First Network Bank SFNB GA NM NM 273.2 277.8 90.46 0.00
SFS Bancorp Inc. SFED NY 22.35 22.35 125.4 125.4 15.64 1.27
SGV Bancorp Inc. SGVB CA 26.10 32.87 136.8 138.9 10.17 0.00
</TABLE>
III-9
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
==================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
SHS Bancorp Inc. SHSB PA 83 NA NA 15.75 12.9
SIS Bancorp Inc. SISB MA 1,453 0.82 11.33 33.75 188.4
Skaneateles Bancorp Inc. SKAN NY 248 0.68 9.99 31.00 29.6
Sobieski Bancorp Inc. SOBI IN 84 0.57 3.56 19.50 15.2
Somerset Savings Bank SOSA MA 520 0.99 16.47 5.19 86.4
South Street Financial Corp. SSFC NC 242 1.14 5.59 17.63 79.3
Southern Banc Co. SRN AL 106 0.47 2.77 16.88 20.8
Southern Community Bancshares SCBS AL 70 0.90 5.16 18.00 20.5
Southern Missouri Bancorp Inc. SMBC MO 160 0.95 5.92 18.25 29.9
SouthFirst Bancshares Inc. SZB AL 97 0.17 1.24 18.50 15.7
Southwest Bancshares SWBI IL 375 1.02 9.55 25.50 67.8
Sovereign Bancorp Inc. SVRN PA 14,601 0.61 11.89 19.00 2,143.9
St. Francis Capital Corp. STFR WI 1,662 0.74 8.94 39.00 204.3
St. Paul Bancorp Inc. SPBC IL 4,548 1.07 12.11 23.00 785.1
StateFed Financial Corporation SFFC IA 86 1.37 7.36 27.00 21.2
Statewide Financial Corp. SFIN NJ 673 0.90 9.33 21.63 101.9
Sterling Financial Corp. STSA WA 1,871 0.54 9.50 22.00 166.5
Stone Street Bancorp Inc. SSM NC 106 1.71 4.84 19.25 36.5
SuburbFed Financial Corp. SFSB IL 433 0.54 8.28 32.50 41.0
Tappan Zee Financial Inc. TPNZ NY 125 0.84 4.76 20.50 30.5
Teche Holding Co. TSH LA 406 0.96 6.97 21.13 72.6
Texarkana First Financial Corp FTF AR 171 1.73 10.43 25.50 45.7
TF Financial Corporation THRD PA 625 0.67 6.02 23.38 95.6
Three Rivers Financial Corp. THR MI 95 0.84 6.61 19.50 16.1
TR Financial Corp. ROSE NY 3,692 0.87 14.14 31.75 558.6
Tri-County Bancorp Inc. TRIC WY 88 1.07 7.26 28.25 16.5
Twin City Bancorp TWIN TN 107 0.72 5.59 14.25 18.1
United Federal Savings Bank UFRM NC 286 0.57 7.55 11.50 35.4
United Financial Corp. UBMT MT 106 1.39 5.99 25.50 31.2
USABancshares, Inc. USAB PA 48 0.55 4.05 8.38 6.2
Virginia Beach Fed. Financial VABF VA 605 0.49 7.24 16.38 81.5
Warren Bancorp Inc. WRNB MA 364 1.76 17.57 20.25 76.9
Washington Federal Inc. WFSL WA 5,720 1.85 15.62 31.50 1,496.5
<CAPTION>
==================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHS Bancorp Inc. SHSB PA NA NA NA NA NA 0.00
SIS Bancorp Inc. SISB MA 16.46 16.63 178.2 178.2 12.96 1.66
Skaneateles Bancorp Inc. SKAN NY 17.42 18.02 170.8 175.8 11.96 1.29
Sobieski Bancorp Inc. SOBI IN 29.55 31.97 113.0 113.0 18.04 1.64
Somerset Savings Bank SOSA MA 16.74 17.29 251.8 251.8 16.60 0.00
South Street Financial Corp. SSFC NC NA NA 120.0 120.0 32.78 2.27
Southern Banc Co. SRN AL 40.18 40.18 114.5 NA 19.56 2.07
Southern Community Bancshares SCBS AL NA NA 136.5 136.5 29.09 1.67
Southern Missouri Bancorp Inc. SMBC MO 27.65 19.01 112.9 112.9 18.58 2.74
SouthFirst Bancshares Inc. SZB AL NM 97.37 115.2 115.2 16.12 2.70
Southwest Bancshares SWBI IL 17.71 18.21 159.3 159.3 18.07 2.98
Sovereign Bancorp Inc. SVRN PA 28.36 19.59 259.2 317.2 14.68 0.42
St. Francis Capital Corp. STFR WI 15.18 18.31 157.4 177.7 12.29 1.23
St. Paul Bancorp Inc. SPBC IL 17.04 16.91 192.0 192.5 17.26 1.74
StateFed Financial Corporation SFFC IA 22.50 18.62 138.9 138.9 24.70 1.48
Statewide Financial Corp. SFIN NJ 26.05 15.78 155.6 155.9 15.13 2.04
Sterling Financial Corp. STSA WA 18.03 19.82 169.5 185.2 8.90 0.00
Stone Street Bancorp Inc. SSM NC 22.92 19.06 119.3 119.3 34.43 2.34
SuburbFed Financial Corp. SFSB IL 15.93 19.46 143.0 143.5 9.49 0.99
Tappan Zee Financial Inc. TPNZ NY 28.47 28.87 142.8 142.8 24.48 1.37
Teche Holding Co. TSH LA 25.45 18.37 136.0 136.0 17.88 2.37
Texarkana First Financial Corp FTF AR 18.61 15.27 169.7 169.7 26.64 2.20
TF Financial Corporation THRD PA 19.16 21.85 121.7 137.8 15.28 1.71
Three Rivers Financial Corp. THR MI 30.00 20.53 125.4 125.9 16.88 2.05
TR Financial Corp. ROSE NY 16.98 18.90 227.8 227.8 15.13 2.02
Tri-County Bancorp Inc. TRIC WY 18.71 18.34 122.1 122.1 18.70 2.12
Twin City Bancorp TWIN TN 19.79 23.75 131.1 131.1 16.96 2.81
United Federal Savings Bank UFRM NC 18.25 23.00 168.6 168.6 12.37 2.09
United Financial Corp. UBMT MT 27.42 21.07 126.9 126.9 29.54 3.84
USABancshares, Inc. USAB PA 31.02 33.50 130.1 132.5 12.73 0.00
Virginia Beach Fed. Financial VABF VA 21.83 26.84 188.2 188.2 13.47 1.22
Warren Bancorp Inc. WRNB MA 10.38 12.82 198.5 198.5 21.12 2.57
Washington Federal Inc. WFSL WA 14.25 14.32 208.5 227.1 26.16 2.92
</TABLE>
III-10
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Washington Mutual Inc. WAMU WA 95,607 0.68 11.92 66.44 17,086.3
Washington Savings Bank, FSB WSB MD 268 0.62 7.14 7.63 33.2
Wayne Bancorp Inc. WYNE NJ 267 0.86 6.01 21.75 43.8
Webster Financial Corp. WBST CT 6,811 0.73 13.84 63.06 854.8
Wells Financial Corp. WEFC MN 205 1.04 7.37 18.25 35.8
Westco Bancorp WCBI IL 309 1.41 9.19 26.50 65.6
Westcorp WES CA 3,757 (0.01) (0.11) 17.88 469.3
WesterFed Financial Corp. WSTR MT 999 0.76 6.60 23.50 131.1
Western Ohio Financial Corp. WOFC OH 396 0.45 3.17 26.50 62.4
Westwood Homestead Fin. Corp. WEHO OH 143 1.09 3.50 16.25 45.2
WHG Bancshares Corp. WHGB MD 100 0.85 3.72 15.75 23.0
Wilshire Financial Services WFSG OR 1,196 (0.36) (5.62) 30.00 227.1
Winton Financial Corp. WFI OH 325 0.86 12.06 20.00 39.7
Wood Bancorp Inc. FFWD OH 167 1.29 10.20 18.50 39.2
WSFS Financial Corp. WSFS DE 1,496 1.13 20.39 18.13 225.5
WVS Financial Corp. WVFC PA 295 1.32 10.71 33.38 58.3
Yonkers Financial Corporation YFCB NY 313 1.07 6.79 18.50 55.9
York Financial Corp. YFED PA 1,156 0.80 9.70 27.00 190.2
Average 1,476 0.82 8.21 NA 232.9
Median 330 0.90 7.80 NA 56.4
<CAPTION>
====================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Washington Mutual Inc. WAMU WA 125.35 28.39 327.6 353.6 17.87 1.69
Washington Savings Bank, FSB WSB MD 31.77 22.43 147.8 147.8 12.38 1.31
Wayne Bancorp Inc. WYNE NJ 20.14 20.14 131.9 131.9 16.39 0.92
Webster Financial Corp. WBST CT 29.61 19.17 235.1 273.0 12.55 1.27
Wells Financial Corp. WEFC MN 16.59 16.74 122.8 122.8 17.46 2.63
Westco Bancorp WCBI IL 15.59 16.56 136.5 136.5 21.21 2.26
Westcorp WES CA 13.54 NM 137.5 137.8 12.49 2.24
WesterFed Financial Corp. WSTR MT 18.65 19.42 123.5 153.1 13.12 1.96
Western Ohio Financial Corp. WOFC OH 46.49 34.42 113.3 121.6 15.63 3.77
Westwood Homestead Fin. Corp. WEHO OH 32.50 29.55 114.4 114.4 31.65 1.72
WHG Bancshares Corp. WHGB MD 45.00 27.16 111.2 111.2 22.97 2.03
Wilshire Financial Services WFSG OR NA NA 329.3 329.3 18.99 0.00
Winton Financial Corp. WFI OH 12.35 14.93 170.7 174.1 12.24 2.30
Wood Bancorp Inc. FFWD OH 18.32 19.89 189.4 189.4 23.54 2.16
WSFS Financial Corp. WSFS DE 14.27 14.38 272.2 274.2 15.08 0.00
WVS Financial Corp. WVFC PA 19.75 15.89 177.3 177.3 19.79 3.60
Yonkers Financial Corporation YFCB NY 18.14 17.96 127.3 127.3 17.86 1.30
York Financial Corp. YFED PA 17.65 20.77 185.8 185.8 16.46 2.22
Average 17.60 17.99 157.4 164.2 18.61 1.56
Median 17.38 18.00 143.8 148.4 16.65 1.58
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-11
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III (continued)
Market Valuation and Financial Data for All Public Thrifts
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Mutual Holding Companies
- ------------------------
Community Savings Bnkshrs (MHC) CMSV FL 709 0.74 6.46 35.00 178.3
Fidelity Bankshares Inc. (MHC) FFFL FL 999 0.59 6.47 28.25 191.3
First Carnegie Deposit (MHC) SKBO PA 147 NA NA 18.63 42.8
First Fed SB of Siouxland (MHC) FFSX IA 457 0.71 8.61 32.75 92.8
First Savings Bank (MHC) FSLA NJ 1,045 0.93 9.99 38.00 304.3
Greater Delaware Valley (MHC) GDVS PA 249 0.93 7.95 31.25 102.3
Guaranty Federal SB (MHC) GFED MO 199 0.90 6.39 23.88 74.6
Harbor Florida Bancorp (MHC) HARB FL 1,131 1.20 14.58 62.75 312.1
Harris Financial Inc. (MHC) HARS PA 2,110 0.77 9.21 56.00 630.6
Jacksonville Savings Bk (MHC) JXSB IL 163 0.54 4.91 26.50 33.7
Leeds Federal Savings Bk (MHC) LFED MD 287 1.17 7.25 31.88 110.1
Northwest Savings Bank (MHC) NWSB PA 2,101 0.96 9.84 30.25 707.1
Oswego City Savings Bk (MHC) PBHC NY 193 0.95 8.27 27.50 52.7
Peoples Bancorp Inc. (MHC) TSBS NJ 639 0.90 5.26 35.50 320.8
People's Bank (MHC) PBCT CT 7,731 0.74 8.90 33.81 2,066.9
Peoples Home Savings Bk (MHC) PHSB PA 206 NA NA 18.50 51.1
Perpetual Bank (MHC) PERT SC 256 1.11 9.03 52.25 78.6
Pocahontas FS&LA (MHC) PFSL AR 379 0.69 11.23 35.00 57.1
Pulaski Bank, Svgs Bank (MHC) PULB MO 180 0.92 7.16 29.50 61.8
Pulaski Savings Bank (MHC) PLSK NJ 179 0.62 6.82 19.00 39.3
SB of the Finger Lakes (MHC) SBFL NY 228 0.24 2.51 29.25 52.2
Wayne Svgs Commty Bank (MHC) WAYN OH 250 0.69 7.41 29.00 65.4
Webster City Federal SB (MHC) WCFB IA 95 1.41 6.11 21.00 44.1
Average 867 0.84 7.83 NA 246.5
Median 256 0.90 7.41 NA 78.6
<CAPTION>
===============================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mutual Holding Companies
- ------------------------
Community Savings Bnkshrs (MHC) CMSV FL 32.41 35.35 215.8 215.8 25.14 2.57
Fidelity Bankshares Inc. (MHC) FFFL FL 56.50 35.31 228.6 230.2 19.14 3.19
First Carnegie Deposit (MHC) SKBO PA NA NA 177.0 177.0 29.12 1.61
First Fed SB of Siouxland (MHC) FFSX IA 27.52 28.23 232.6 234.4 20.31 1.47
First Savings Bank (MHC) FSLA NJ 33.93 32.48 306.7 337.5 29.13 1.26
Greater Delaware Valley (MHC) GDVS PA 45.96 45.96 353.1 353.1 41.10 1.15
Guaranty Federal SB (MHC) GFED MO 64.53 43.41 271.3 271.3 37.40 1.84
Harbor Florida Bancorp (MHC) HARB FL 23.59 23.77 322.5 332.9 27.59 2.23
Harris Financial Inc. (MHC) HARS PA 35.90 43.41 364.4 412.1 29.88 1.18
Jacksonville Savings Bk (MHC) JXSB IL 77.94 41.41 197.5 197.5 20.72 1.51
Leeds Federal Savings Bk (MHC) LFED MD 46.20 33.55 235.6 235.6 38.37 2.38
Northwest Savings Bank (MHC) NWSB PA 36.01 36.45 349.3 369.8 33.66 1.06
Oswego City Savings Bk (MHC) PBHC NY 25.70 28.65 228.8 272.3 27.31 1.02
Peoples Bancorp Inc. (MHC) TSBS NJ 40.80 58.20 296.8 329.9 50.21 0.99
People's Bank (MHC) PBCT CT 23.65 36.36 296.4 296.6 26.73 2.25
Peoples Home Savings Bk (MHC) PHSB PA NA NA 181.0 181.0 24.74 0.00
Perpetual Bank (MHC) PERT SC 44.28 32.45 259.4 259.4 30.68 2.68
Pocahontas FS&LA (MHC) PFSL AR 25.74 22.44 237.1 237.1 15.09 2.57
Pulaski Bank, Svgs Bank (MHC) PULB MO 50.86 37.82 262.7 262.7 34.27 3.73
Pulaski Savings Bank (MHC) PLSK NJ NA NA 183.4 183.4 21.97 1.58
SB of the Finger Lakes (MHC) SBFL NY 66.48 100.86 245.4 245.4 22.90 1.37
Wayne Svgs Commty Bank (MHC) WAYN OH 35.80 38.16 274.1 274.1 26.14 2.14
Webster City Federal SB (MHC) WCFB IA 42.86 NA 199.2 199.2 46.57 3.81
Average 23.62 23.11 257.3 265.6 29.49 1.89
Median 23.62 23.11 245.4 259.4 27.59 1.61
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-12
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- -------------------------------
<TABLE>
<CAPTION>
Exhibit III
Market Valuation and Financial Data for All Public Thrifts
==================================================================================================================================
LTM LTM Stock Total
Total Core Core Price Market
Assets ROAA ROAE 11/7/97 Value
Company Ticker St. ($M) (%) (%) ($) ($M)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Thrifts Under Acquisition
- -------------------------
Advantage Bancorp Inc. AADV WI 1,037 0.94 10.23 58.75 190.1
America First Financial Fund AFFFZ CA 2,251 2.01 24.79 45.00 270.5
American National Bancorp ANBK MD 505 0.65 6.68 20.25 73.2
Branford Savings Bank BSBC CT 183 1.11 11.92 5.25 34.4
CENFED Financial Corp. CENF CA 2,305 0.57 11.14 39.88 237.6
Coast Savings Financial CSA CA 9,040 0.66 13.38 60.38 1,125.6
First Southeast Financial Corp FSFC SC 350 1.05 10.32 15.69 68.8
Gateway Bancorp Inc. GWBC KY 64 1.12 4.37 19.06 20.5
GFS Bancorp Inc. GFSB IA 94 1.27 11.03 17.00 16.8
Great Financial Corp. GTFN KY 2,894 0.77 8.01 44.25 611.7
HomeCorp Inc. HMCI IL 327 0.41 6.43 23.25 39.7
Indiana Community Bank SB INCB IN 94 0.53 4.24 20.44 18.8
Life Bancorp Inc. LIFB VA 1,486 0.86 8.10 30.06 296.1
Marshalltown Financial Corp. MFCX IA 125 0.63 4.02 17.13 24.2
Mid Continent Bancshares Inc. MCBS KS 409 1.17 11.06 39.63 77.6
ML Bancorp Inc. MLBC PA 2,070 0.68 9.23 28.63 323.3
New York Bancorp Inc. NYB NY 3,244 1.49 28.61 34.63 738.2
Norwich Financial Corp. NSSB CT 701 1.07 9.54 29.44 159.9
Palfed Inc. PALM SC 669 0.67 8.22 25.00 132.5
Poughkeepsie Financial Corp. PKPS NY 884 0.54 6.44 9.88 124.4
Sho-Me Financial Corp. SMFC MO 345 1.24 12.97 45.00 67.5
Virginia First Financial Corp. VFFC VA 858 0.56 6.84 24.38 141.6
Westwood Financial Corporation WWFC NJ 111 0.85 8.78 27.88 18.0
Average 1,306 0.91 10.28 NA 209.2
Median 669 0.85 9.23 NA 124.4
=================================================================================================================================
Price/ Price/ Price/ Price/ Price/
LTM Core Book Tang. Total Div.
EPS EPS Value Book Assets Yield
Company Ticker St. (x) (x) (%) (%) (%) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thrifts Under Acquisition
- -------------------------
Advantage Bancorp Inc. AADV WI 19.01 21.13 192.0 NA 18.32 0.68
America First Financial Fund AFFFZ CA 7.39 7.34 153.0 154.6 12.02 3.56
American National Bancorp ANBK MD 53.29 23.28 154.8 154.8 14.48 0.59
Branford Savings Bank BSBC CT 18.10 18.10 195.2 195.2 18.83 1.52
CENFED Financial Corp. CENF CA 16.48 18.29 185.4 185.6 10.31 0.90
Coast Savings Financial CSA CA 21.49 20.13 239.5 242.3 12.45 0.00
First Southeast Financial Corp FSFC SC 19.37 19.37 191.3 191.3 19.67 1.53
Gateway Bancorp Inc. GWBC KY 37.38 NA 118.8 118.8 32.13 2.10
GFS Bancorp Inc. GFSB IA 15.18 15.18 154.4 154.4 17.78 1.53
Great Financial Corp. GTFN KY 20.30 27.48 209.9 218.7 21.14 1.36
HomeCorp Inc. HMCI IL 25.27 31.42 177.9 177.9 12.15 0.00
Indiana Community Bank SB INCB IN 107.57 39.30 165.2 165.2 20.11 1.76
Life Bancorp Inc. LIFB VA 21.78 23.30 185.9 191.2 19.92 1.60
Marshalltown Financial Corp. MFCX IA 30.04 31.71 119.2 119.2 19.26 0.00
Mid Continent Bancshares Inc. MCBS KS 21.08 18.69 198.8 198.8 18.99 1.01
ML Bancorp Inc. MLBC PA 22.72 25.33 209.3 213.0 15.61 1.40
New York Bancorp Inc. NYB NY 15.39 16.97 436.6 436.6 22.75 1.73
Norwich Financial Corp. NSSB CT 20.59 22.47 195.6 215.5 22.82 1.90
Palfed Inc. PALM SC 52.08 30.12 232.8 232.8 19.82 0.48
Poughkeepsie Financial Corp. PKPS NY 28.21 28.21 167.1 167.1 14.07 1.01
Sho-Me Financial Corp. SMFC MO 16.79 17.65 198.9 198.9 19.56 0.00
Virginia First Financial Corp. VFFC VA 28.02 32.50 213.1 220.6 16.50 0.41
Westwood Financial Corporation WWFC NJ 35.74 20.96 176.9 198.5 16.15 0.72
Average 18.26 18.78 194.4 197.8 18.04 1.12
Median 19.19 19.03 191.3 193.2 18.83 1.01
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-13
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- -------------------------------
Exhibit IV-1
Pro Forma Conversion Assumptions
1. The total amount of the net conversion proceeds was fully invested at the
beginning of the applicable period
2. The net conversion proceeds are invested to yield a return of 5.56%, which
represents the one-year U.S. Treasury bill yield as of August 31, 1997. The
effective income tax rate was assumed to be 37.0%, resulting in an after-
tax yield of 3.50%.
3. It is assumed that 4.0% of the shares offered in a full conversion would be
purchased by the Bank's Employee Stock Ownership Plan ("ESOP"). For the MHC
conversion valuation, it is assumed that the ESOP purchases 4.0% of the
amount sold in the initial offering. Pro forma adjustments have been made
to earnings and equity to reflect the impact of the ESOP. The annual ESOP
expense is estimated based on a 7-year debt amortization period. No
reinvestment is assumed on proceeds used to fund the ESOP.
4. It is assumed that 4.0% of the shares offered in a full conversion would be
purchased in the open market by the Bank's Stock Plans. For the MHC
conversion valuation, it is assumed that the Stock Plans acquires, through
open market purchases, 4.0% of the amount sold in the initial offering. Pro
forma adjustments have been made to earnings and equity to reflect the
impact of the MRP. The annual MRP expense is estimated based on a 5-year
vesting period. No reinvestment is assumed on proceeds used to fund the
MRP.
5. Conversion expenses are estimated at $2,200,000 for both the full
conversion valuation and MHC conversion valuation.
6. The number of shares outstanding for purposes of calculating earnings per
share is adjusted to reflect the shares assumed to held by the ESOP not
committed to be released within the first year following the conversion.
7. No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion.
IV-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-2
Pro Forma Valuation Range: Full Conversion
As of August 31, 1997
(In $000s, except share data)
<TABLE>
<CAPTION>
Pro Forma Market Capitalization $187,000 $220,000 $253,000 $290,950
Amount Sold to Public 100.0% 100.0% 100.0% 100.0%
----------------------------------------------------------------------
Minimum Midpoint Maximum Adj. Max
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 18,700,000 22,000,000 25,300,000 29,095,000
Shares sold 18,700,000 22,000,000 25,300,000 29,095,000
Offering price $10.00 $10.00 $10.00 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Gross proceeds 187,000 220,000 253,000 290,950
Less: estimated expenses (2,200) (2,200) (2,200) (2,200)
------- ------- ------- -------
Net offering proceeds 184,800 217,800 250,800 288,750
Less: ESOP purchase (7,480) (8,800) (10,120) (11,638)
Less: Stock Plans purchase (7,480) (8,800) (10,120) (11,638)
------- ------- -------- --------
Net investable proceeds 169,840 200,200 230,560 265,474
- -----------------------------------------------------------------------------------------------------------------------
Net income:
LTM ended August 31, 1997 12,868 12,868 12,868 12,868
Pro forma income on net proceeds 5,944 7,007 8,070 9,292
Pro forma ESOP adjustment (673) (792) (911) (1,047)
Pro forma Stock Plans adjustment (942) (1,109) (1,275) (1,466)
----- ------- ------- -------
Pro forma net income 17,197 17,974 18,752 19,647
------- ------- ------- ------
Pro forma net income per share $0.95 $0.85 $0.77 $0.70
- -----------------------------------------------------------------------------------------------------------------------
Core net income:
LTM ended August 31, 1997 12,820 12,820 12,820 12,820
Pro forma income on net proceeds 5,944 7,007 8,070 9,292
Pro forma ESOP adjustment (673) (792) (911) (1,047)
Pro forma Stock Plans adjustment (942) (1,109) (1,275) (1,466)
----- ------- ------- -------
Pro forma core net income 17,149 17,926 18,704 19,599
------- ------- ------- ------
Pro forma core income per share $0.95 $0.84 $0.77 $0.70
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Total equity at August 31, 1997 125,370 125,370 125,370 125,370
Net proceeds 184,800 217,800 250,800 288,750
Less: ESOP purchase (7,480) (8,800) (10,120) (11,638)
Less: Stock Plans purchase (7,480) (8,800) (10,120) (11,638)
------- ------- -------- --------
Pro forma stockholders' equity 295,210 325,570 355,930 390,844
-------- -------- -------- -------
Pro forma book value per share $15.79 $14.80 $14.07 $13.43
- -----------------------------------------------------------------------------------------------------------------------
Total assets:
Total assets at August 31, 1997 680,316 680,316 680,316 680,316
Net proceeds 184,800 217,800 250,800 288,750
Less: ESOP purchase (7,480) (8,800) (10,120) (11,638)
Less: Stock Plans purchase (7,480) (8,800) (10,120) (11,638)
------- ------- -------- --------
Pro forma total assets 850,156 880,516 910,876 945,790
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-3
Pro Forma Valuation Range: MHC Offering
As of August 31, 1997
(In $000s, except share data)
<TABLE>
<CAPTION>
Pro Forma Market Capitalization $187,000 $220,000 $253,000 $290,950
Amount Sold to Public 47.0% 47.0% 47.0% 47.0%
----------------------------------------------------------------------
Minimum Midpoint Maximum Adj. Max
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 18,700,000 22,000,000 25,300,000 29,095,000
Shares sold 8,789,000 10,340,000 11,891,000 13,674,650
Offering price $10.00 $10.00 $10.00 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Gross proceeds 87,890 103,400 118,910 136,747
Less: estimated expenses (2,200) (2,200) (2,200) (2,200)
------- ------- ------- -------
Net offering proceeds 85,690 101,200 116,710 134,547
Less: ESOP purchase (3,516) (4,136) (4,756) (5,470)
Less: Stock Plans purchase (3,516) (4,136) (4,756) (5,470)
------- ------- ------- -------
Net investable proceeds 78,658 92,928 107,198 123,607
- -----------------------------------------------------------------------------------------------------------------------
Net income:
LTM ended August 31, 1997 12,868 12,868 12,868 12,868
Pro forma income on net proceeds 2,753 3,252 3,752 4,326
Pro forma ESOP adjustment (316) (248) (285) (328)
Pro forma Stock Plans adjustment (443) (347) (400) (459)
----- ----- ----- -----
Pro forma net income 14,862 15,525 15,935 16,407
------- ------- ------- ------
Pro forma net income $0.81 $0.72 $0.64 $0.57
- -----------------------------------------------------------------------------------------------------------------------
Core net income:
LTM ended August 31, 1997 12,820 12,820 12,820 12,820
Pro forma income on net proceeds 2,753 3,252 3,752 4,326
Pro forma ESOP adjustment (316) (248) (285) (328)
Pro forma Stock Plans adjustment (443) (347) (400) (459)
----- ----- ----- -----
Pro forma core net income 14,814 15,477 15,887 16,359
------- ------- ------- ------
Pro forma core income per share $0.81 $0.72 $0.64 $0.57
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Equity at August 31, 1997 125,370 125,370 125,370 125,370
Net proceeds 85,690 101,200 116,710 134,547
Less: ESOP purchase (3,516) (4,136) (4,756) (5,470)
Less: Stock Plans purchase (3,516) (4,136) (4,756) (5,470)
------- ------- ------- -------
Pro forma stockholders' equity 204,028 218,298 232,568 248,977
-------- -------- -------- -------
Pro forma book value per share $10.91 $9.92 $9.19 $8.56
- -----------------------------------------------------------------------------------------------------------------------
Total assets:
Total assets at August 31, 1997 680,316 680,316 680,316 680,316
Net proceeds 85,690 101,200 116,710 134,547
Less: ESOP purchase (3,516) (4,136) (4,756) (5,470)
Less: Stock Plans purchase (3,516) (4,136) (4,756) (5,470)
------- ------- ------- -------
Pro forma total assets 758,974 773,244 787,514 803,923
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-4
Comparative Valuation Ratios -- Full Conversion Valuation
Market Price Data as of November 7, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nationwide Massachusetts
Comparative Public Thrift Public Thrift
Brookline Group Aggregate(1) Aggregate(2)
Valuation Savings ---------------- ---------------- ---------------
Ratio Symbol Bank Mean Median Mean Median Mean Median
------ ------ ----- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price/LTM EPS (3) P/E
----------
Adj. Maximum (x) 14.3 16.0 16.0 17.6 17.4 15.5 16.0
Maximum 13.0
Midpoint 11.8
Minimum 10.5
----------
Price/Core EPS (3) P/E
----------
Adj. Maximum (x) 14.3 16.9 16.6 18.0 18.0 16.8 16.8
Maximum 13.1
Midpoint 11.9
Minimum 10.5
----------
Price/Book Value P/B
----------
Adj. Maximum (%) 74.4 191.5 185.0 157.4 143.8 184.3 180.5
Maximum 71.1
Midpoint 67.6
Minimum 63.3
----------
Price/Tangible Book P/B
----------
Adj. Maximum (%) 74.4 196.2 189.6 164.2 148.4 188.7 189.6
Maximum 71.1
Midpoint 67.6
Minimum 63.3
----------
Price/Total Assets P/A
----------
Adj. Maximum (%) 30.76 19.36 17.50 18.61 16.65 16.49 16.33
Maximum 27.78
Midpoint 24.99
Minimum 22.00
----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 348 publicly-traded, non-MHC, non-acquired thrifts nationwide.
(2) Includes 23 publicly-traded, non-MHC, non-acquired thrifts based in
Massachusetts.
(3) Price/earnings ratios exclude values greater than 25.
IV-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-5
Pro Forma Full Conversion Analysis at Maximum Value
Brookline Savings Bank
Financial Data as of August 31, 1997
<TABLE>
<CAPTION>
Valuation Parameters Symbol Data
- -------------------- ------ -----------------
<S> <C> <C>
Net income -- LTM Y $ 12,868,000
Core income -- LTM Y 12,820,000
Net worth B 125,370,000
Tangible net worth B 125,370,000
Total assets A 680,316,000
Expenses in conversion X 2,200,000
Other proceeds not reinvested O 20,240,000
ESOP purchase E 4.0% 10,120,000
ESOP expense (pre-tax) F 14.3% 1,445,714
MRP purchase M 4.0% 10,120,000
MRP expense (pre-tax) N 20.0% 2,024,000
Re-investment rate (after-tax) R 3.50%
Tax rate T 37.00%
Shares for EPS S 96.57%
<CAPTION>
Pro Forma Valuation Ratios at Maximum Value
- -------------------------------------------
Price / LTM earnings P/E 13.03x
Price / core earnings P/E 13.06x
Price / book value P/B 71.08%
Price / tangible book P/B 71.08%
Price / assets P/A 27.78%
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Calculation at Maximum Value Based on
- -------------------------------------- --------
<S> <C> <C>
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $253,024,115 [LTM earnings]
-----------------------------------
1 - (P/E / S) * R
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $252,897,681 [Core earnings]
-----------------------------------
1 - (P/E / S) * R
V = P/B * (B - X - E - M) = $252,982,863 [Book value]
---------------------
1 - P/B
V = P/B * (B - X - E - M) = $252,982,863 [Tangible book]
---------------------
1 - P/B
V = P/A * (B - X - E - M) = $253,057,259 [Total assets]
---------------------
1 - P/A
</TABLE>
Pro Forma Valuation Range
- -------------------------
Minimum = $220,000,000 x 0.85 = $187,000,000
Midpoint = $220,000,000 x 1.00 = $220,000,000
Maximum = $220,000,000 x 1.15 = $253,000,000
Adj. Max. = $253,000,000 x 1.15 = $290,950,000
IV-5
<PAGE>
EXHIBIT 99.3
<PAGE>
November 15, 1997
Dear Corporator:
On behalf of the Board of Trustees and management of Brookline Savings Bank
(the "Bank"), we cordially invite you to a Special Meeting of Corporators on
November 24, 1997 for the purpose of voting on the Bank's Plan of Reorganization
from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan
(the "Plan"). The Board of Trustees of the Bank believes that the Plan is in
the best interests of the Bank, and urges you to vote FOR the proposal. For a
---
discussion of the reasons why the Board of Trustees recommends that you vote FOR
---
the proposal, please refer to the enclosed Information Statement.
Pursuant to the Plan, the Bank will reorganize into a two-tier mutual
holding company structure (the "Reorganization") whereby the Bank will
establish: (i) a Massachusetts-chartered stock savings bank (the "Stock Bank")
that will succeed to all of the rights and obligations of the Bank; (ii) a mid-
tier Massachusetts stock holding company (the "Holding Company") which will own
100% of the common stock of the Bank; and (iii) a Massachusetts-chartered mutual
holding company (the "MHC") which will own at least 51% of the common stock of
the Holding Company. Concurrently with the Reorganization, the Holding Company
intends to offer for sale up to 49% of its common stock on a priority basis to
qualifying depositors, an employee stock ownership plan of the Bank, and
employees, officers and trustees of the Bank, with any remaining shares offered
to the public in a direct community offering (the "Stock Offering"). However,
as discussed in the Information Statement, the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Commissioner") has not yet issued final
rules regarding stock issuances by a stock holding company subsidiary of a
mutual holding company. Accordingly, the Board of Trustees intends to call a
separate Special Meeting of Corporators to vote on that portion of the Plan
concerning the Stock Offering by the Holding Company, which meeting is expected
to occur in January 1998, following the promulgation of final rules by the
Commissioner.
The Reorganization will not affect any deposit accounts or borrower
relationships that persons may have with the Bank. As part of the Plan, all
deposit accounts in the Bank will become deposit accounts in the Stock Bank and
will continue to be insured by the Federal Deposit Insurance Corporation and the
Massachusetts Depositors Insurance Fund. All loans of the Bank will become
loans held by the Stock Bank, and will retain the same status after the
Reorganization as they had prior to the Reorganization.
The primary purpose of the Reorganization is to create a stock institution,
which is the form of ownership used by all commercial banks and an increasing
number of savings institutions, and which will enable the Bank to compete and
expand more effectively in the financial services marketplace. The
Reorganization also will provide the Bank with the flexibility to pursue new
business opportunities through the Holding Company in ways that cannot be
achieved by the Bank in its current mutual form of organization. Finally,
subject to applicable regulatory approvals, the Reorganization will permit the
Holding Company to issue capital stock in the Stock Offering, which is a source
of capital not available to mutual savings banks. At the same time, the Bank's
mutual form of ownership will be preserved in the MHC, which will always own the
majority of the Holding Company's outstanding stock so long as the MHC remains
in existence.
THE ATTACHED INFORMATION MATERIALS CONTAIN A MORE DETAILED ANALYSIS OF THE
MATTERS DISCUSSED BRIEFLY IN THIS LETTER, AND WE URGE YOU TO READ THE
INFORMATION MATERIALS CAREFULLY. YOUR BOARD OF TRUSTEES URGES YOU TO ATTEND THE
SPECIAL MEETING AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PLAN. YOUR
---
VOTE IS VERY IMPORTANT.
Sincerely,
/s/ Richard P. Chapman, Jr.
Richard P. Chapman, Jr.
President and Chief Executive Officer
<PAGE>
BROOKLINE SAVINGS BANK
160 WASHINGTON STREET
BROOKLINE, MASSACHUSETTS 02147
(617) 730-3500
NOTICE OF SPECIAL MEETING OF CORPORATORS
TO BE HELD ON NOVEMBER 24, 1997
A special meeting of corporators (the "Special Meeting") of Brookline
Savings Bank (the "Bank"), will be held at the main office of the Bank, 160
Washington Street, Brookline, Massachusetts, on November 24, 1997, at 5:00 p.m.,
Massachusetts time.
Information Materials for the Special Meeting are provided herewith.
The Special Meeting is for the purpose of considering and acting upon:
1. The approval of a Plan of Reorganization from a Mutual Savings Bank to
a Mutual Holding Company and Stock Issuance Plan (the "Plan"), and all
actions necessary or incident thereto, whereby the Bank will
reorganize into a mutual holding company structure by establishing:
(i) a Massachusetts-chartered stock savings bank (the "Stock Bank")
that will succeed to all of the rights and obligations of the Bank;
(ii) a mid-tier Massachusetts stock holding company (the "Holding
Company") that will own 100% of the common stock of the Stock Bank;
and (iii) a Massachusetts-chartered mutual holding company (the "MHC")
that will own at least 51% of the common stock of the Holding Company.
2. Such other matters as may come properly before the Special Meeting or
any adjournments thereof.
Any action may be taken on the foregoing proposal at the Special Meeting on
the date specified above or on any date or dates to which, by original or later
adjournment, the Special Meeting may be adjourned. The corporators who will be
entitled to vote at the Special Meeting will be those corporators of the Bank as
of November 6, 1997 (the "Voting Record Date").
Your Board of Trustees urges you to attend the Special Meeting and
unanimously recommends that you vote FOR approval of the Plan. Your vote is
---
very important.
BY ORDER OF THE BOARD OF TRUSTEES
/s/ George C. Caner, Jr.
George C. Caner, Jr., Clerk
Brookline Savings Bank
Brookline, Massachusetts
November 15, 1997
<PAGE>
INFORMATION STATEMENT OF
BROOKLINE SAVINGS BANK
160 WASHINGTON STREET
BROOKLINE, MASSACHUSETTS 02147
SPECIAL MEETING OF CORPORATORS
TO BE HELD ON
NOVEMBER 24, 1997
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
On October 8, 1997, the Board of Trustees of Brookline Savings Bank (the
"Bank") unanimously adopted a Plan of Reorganization from a Mutual Savings Bank
to a Mutual Holding Company and Stock Issuance Plan (the "Plan") pursuant to
which the Bank will establish: (i) a Massachusetts-chartered stock savings bank
(the "Stock Bank") that will succeed to all of the rights and obligations of the
Bank; (ii) a mid-tier stock holding company (the "Holding Company") that will
own 100% of the common stock of the Bank; and (iii) a Massachusetts-chartered
mutual holding company (the "MHC") that will own at least 51% of the common
stock of the Holding Company. The Bank will take the following steps to form
the Stock Bank, the Holding Company and the MHC: (i) the Bank will charter a
Massachusetts de novo mutual savings bank ("De Novo"), which will reorganize
into the MHC and will form the Stock Bank as a wholly-owned subsidiary, with all
of the assets and liabilities of De Novo to be transferred to the Stock Bank;
(ii) the Bank will merge with and into the Stock Bank with the Stock Bank as the
resulting entity; and (iii) the MHC will organize the Holding Company and will
contribute all of the common stock of the Stock Bank to the Holding Company.
The formation of the MHC, the Holding Company and the Stock Bank, and all
transactions incident thereto are referred to herein as the "Reorganization."
The issuance of stock by the Holding Company in a subscription and community
offering to depositors and others is referred to herein as the "Stock Offering."
This Information Statement is being furnished to corporators of the Bank in
connection with a Special Meeting of Corporators to be held on November 24,
1997. At the Special Meeting, corporators of the Bank are being asked to
consider and vote only on those portions of the Plan pursuant to which the Bank
will complete the Reorganization, including the formation of the MHC, the
Holding Company and the Stock Bank. Sections 10 through 31 of the Plan, which
provide for the sale by the Holding Company of up to 49% of its common stock in
the Stock Offering, are referred to herein as the "Stock Issuance Plan." Since
the Commissioner of Banks of the Commonwealth of Massachusetts (the
"Commissioner") has not yet issued final rules governing stock issuances by mid-
tier stock holding company subsidiaries of mutual holding companies, the
corporators will not be voting upon the Stock Issuance Plan until final rules of
the Commissioner are promulgated (which is expected to occur by December 1997).
The Board of Trustees anticipates calling a separate Special Meeting of
Corporators to vote on the Stock Issuance Plan following the filing of final
rules by the Commissioner, and the corporators will receive an additional
information statement regarding the Stock Issuance Plan at that time. In the
event the Stock Issuance Plan is not approved by the corporators, the Board of
Trustees in its sole discretion and without further action by the corporators or
the Commissioner, may determine not to proceed with the Reorganization. For
purposes of this Information Statement, references to the Plan refer to that
portion of the Plan relating to the Reorganization only, unless the context
otherwise indicates.
Under regulations of the Commissioner, the Plan must be approved by a vote
of the majority of the corporators and a majority of "independent corporators"
of the Bank, and all the corporators must be provided this Information Statement
prior to voting on the Plan.
<PAGE>
- --------------------------------------------------------------------------------
VOTE REQUIRED FOR APPROVAL
- --------------------------------------------------------------------------------
All corporators of the Bank on the Voting Record Date will be entitled to
cast one vote on the Plan. A majority of the corporators and a majority of
"independent corporators" (who must constitute not less than 60% of all
corporators), is required to approve the Plan. For these purposes, an
"independent corporator" means a corporator who is not an employee, officer,
trustee, or a significant borrower of the Bank. According to the Bank's
analysis of its records, as of the Voting Record Date, there were 61 corporators
of the Bank, of whom 40 were "independent corporators." A quorum at the
Special Meeting shall consist of at least 16 corporators.
THE BOARD OF TRUSTEES OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PLAN.
- --------------------------------------------------------------------------------
REGULATORY APPROVALS
- --------------------------------------------------------------------------------
The Reorganization is subject to the following regulatory approvals or
notices of non-objections:
(1) Board of Governors of the Federal Reserve System (the "FRB") approval
of the direct or indirect ownership of the Bank by the Holding Company
and the MHC.
(2) Federal Deposit Insurance Corporation ("FDIC"): (i) issuance of a
notice of non-objection with respect to the Reorganization and Stock
Offering; (ii) approval of the merger portion of the Reorganization;
(iii) approval of the Bank's request for a waiver of a depositor vote
on the Reorganization, which depositor vote is required by FDIC
regulations but not authorized under Massachusetts law; and (iv)
approval of the Bank's application for federal insurance of the
deposit accounts of the Stock Bank and for deposit insurance of De
Novo.
(3) Commissioner approval of De Novo's application to form a mutual
holding company and of the Bank's merger into the Stock Bank, and
approval by the Massachusetts Board of Bank Incorporation (the "BBI")
of the Bank's application to form the Stock Bank and De Novo to
facilitate the Reorganization.
(4) Massachusetts Depositors Insurance Fund (the "DIF") approval for the
continuation of insurance of deposit accounts in excess of FDIC
coverage.
The Bank anticipates final Commissioner, FRB, FDIC, BBI and DIF action on
such applications subsequent to the Special Meeting.
REGULATORY APPROVAL OR NON-OBJECTION TO THE PLAN AND TO THE REORGANIZATION DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE REGULATORY
AUTHORITIES.
2
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION AND OPERATING DATA
- --------------------------------------------------------------------------------
The following tables set forth certain information concerning the financial
position and operating results of the Bank (including consolidated data from
operations of subsidiaries) at the dates or for the periods indicated.
<TABLE>
<CAPTION>
AT AUGUST 31, AT DECEMBER 31,
----------------------------------------------------
1997/(1)/ 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets............................................. $ 680,316 $666,988 $632,788 $607,737 $550,025 $543,156
Loans (2)................................................ 485,515 480,683 448,631 422,036 378,045 378,503
Allowance for loan losses................................ 12,443 12,326 12,326 12,274 12,745 11,775
Debt securities (3):
Available for sale...................................... 104,899 97,007 62,691 31,585 - -
Held to maturity/held for investment.................... 49,801 41,620 89,342 125,126 151,131 140,948
Marketable equity securities (3):
Available for sale...................................... 23,626 20,365 19,074 13,301 - -
Held for investment..................................... - - - - 3,790 3,973
Deposits................................................. 481,467 484,016 474,215 471,811 444,848 444,507
Borrowed funds........................................... 61,815 60,565 49,665 43,265 27,000 23,700
Retained earnings........................................ 125,370 113,947 100,583 85,722 72,522 66,221
Net unrealized gain on securities available for sale,
net of taxes, included in retained earnings............. 10,957 8,660 7,233 4,100 - -
Non-performing loans..................................... 1,412 1,337 748 1,284 3,360 4,768
Non-performing assets.................................... 3,414 3,026 2,470 3,089 6,938 11,269
</TABLE>
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
AUGUST 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------
1997/(1)/ 1996/(1)/ 1996 1995 1994 1993 1992
----------- ---------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income................................. $ 36,119 $ 33,563 $ 51,019 $ 48,920 $ 39,943 $ 37,461 $ 41,011
Interest expense................................ 17,204 16,859 25,458 23,938 17,761 16,793 21,075
--------- ---------- -------- -------- -------- -------- --------
Net interest income............................ 18,915 16,704 25,561 24,982 22,182 20,668 19,936
Provision (credit) for loan
losses......................................... - - - - (477) 2,170 3,893
--------- ---------- -------- -------- -------- -------- --------
Net interest income after provision
(credit) for loan losses....................... 18,915 16,704 25,561 24,982 22,659 18,498 16,043
Gains (losses) on sales of securities, net...... 74 464 464 877 4 (10) 132
Other real estate owned income (expense), net... 158 186 299 (40) (741) (1,616) (1,253)
Other non-interest income....................... 597 839 1,077 768 816 789 793
Non-interest expense............................ (5,738) (4,807) (7,713) (7,450) (7,696) (7,493) (7,113)
---------- ---------- -------- -------- -------- -------- --------
Income before income taxes...................... 14,006 13,386 19,688 19,137 15,042 10,168 8,602
Provision for income taxes...................... 4,880 5,191 7,751 7,409 5,942 3,867 3,197
---------- ---------- -------- -------- -------- -------- --------
Net income...................................... $ 9,126 $ 8,195 $ 11,937 $ 11,728 $ 9,100 $ 6,301 $ 5,405
========== ========== ======== ======== ======== ======== ========
</TABLE>
________________________________
(1) The data presented at and for the eight months ended August 31, 1997 and
1996 was derived from unaudited consolidated financial statements and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the eight
months ended August 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
(2) Loans are comprised of gross loan balances less unadvanced funds on loans,
deferred loan origination fees and net unearned discounts.
(3) The Bank adopted SFAS No. 115 as of January 1, 1994 and reclassified
securities having a market value of $26.0 million from its held to maturity
portfolio to its available for sale portfolio in November 1995 pursuant to
FASB interpretation of SFAS No. 115. Prior to the adoption of SFAS No. 115,
securities were carried at amortized cost, adjusted for amortization of
premium and accretion of discounts over the remaining terms of the
securities from the dates of purchase.
3
<PAGE>
- --------------------------------------------------------------------------------
REGULATORY CAPITAL COMPLIANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT AUGUST 31, 1997
-----------------------------
PERCENT
AMOUNT OF ASSETS
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GAAP capital.................................. $125,370 18.57
Tier 1 leverage capital:
Capital level.............................. $114,413 16.95
Requirement................................ 20,254 3.00
Excess..................................... $ 94,159 13.95
Tier 1 risk-based capital:
Capital level.............................. $121,121 20.22
Requirement................................ 43,615 8.00
Excess..................................... $ 77,506 14.22
Total risk-based capital:
Capital level.............................. $121,121 22.22
Requirement................................ 43,615 8.00
Excess..................................... 77,506 14.22
</TABLE>
- --------------------------------------------------------------------------------
THE MUTUAL HOLDING COMPANY REORGANIZATION
- --------------------------------------------------------------------------------
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING IN THE
PLAN, INCLUDING THE PROPOSED CHARTERING INSTRUMENTS AND BYLAWS FOR EACH OF THE
MHC, THE HOLDING COMPANY AND THE STOCK BANK ATTACHED AS EXHIBITS THERETO. THE
PLAN IS BEING PROVIDED TO YOU ALONG WITH THIS INFORMATION STATEMENT.
GENERAL
On October 8, 1997, the Board of Trustees of the Bank unanimously adopted
the Plan pursuant to which the Bank will establish: (i) the Stock Bank as the
successor to the Bank; (ii) the Holding Company, which will own 100% of the
common stock of the Stock Bank; and (iii) the MHC, which will own at least 51%
of the common stock of the Holding Company.
Concurrently with the Reorganization, the Holding Company will offer for
sale its common stock in the Stock Offering pursuant to the Stock Issuance Plan
to eligible account holders, the ESOP, supplemental eligible account holders,
and employees, officers and trustees of the Bank, with any remaining shares
offered to the public in a direct community offering. In the event the
Commissioner adopts new regulations that place the ESOP in a third priority
after supplemental eligible account holders, the ESOP shall have subscription
rights in such third priority. The Stock Issuance Plan will be subject to the
approval of the corporators at a special meeting expected to be held in January
1998. Immediately after consummation of the Reorganization, it is expected that
the only business activity of the MHC will be to hold at least 51% of the
outstanding stock of the Holding Company, and the only business activity of the
Holding Company will be to fund a loan to the Stock Bank's ESOP from a portion
of capital raised in the Stock Offering, to hold all of the outstanding stock of
the Stock Bank, and to invest any net proceeds of the Stock Offering retained by
the Holding Company. In the future, however, the Holding Company and the MHC,
as holding companies of the Stock Bank, will be authorized to pursue other
business activities, which may include borrowing funds for reinvestment in the
Bank, diversification of operations and mergers and acquisitions. The Bank has
no current plans for diversification of the holding company's activities.
4
<PAGE>
THE REORGANIZATION
The Reorganization is expected to be effected as follows, or in any other
manner approved by the Commissioner that is consistent with the purposes of the
Plan and applicable laws and regulations.
The Bank will organize De Novo which will reorganize into the MHC and form
a stock savings bank subsidiary (the Stock Bank), with all of the assets and
liabilities of De Novo to be transferred to the Stock Bank. Concurrently with
the foregoing, the Bank will merge with and into the Stock Bank with the Stock
Bank as the resulting entity. Concurrently with the preceding steps, the MHC
will organize a separate Massachusetts-chartered wholly-owned stock subsidiary
(the Holding Company), and will contribute all of the common stock of the Stock
Bank to the Holding Company. Upon completion of the Reorganization and the
Stock Offering, the corporate structure of the MHC, the Holding Company and the
Stock Bank will be as follows:
------------------ ---------------
The Mutual Public
Holding Company Stockholders
------------------ ---------------
53% of the 47% of the
Common Common
Stock Stock
-------------------------------------
The Holding
Company
-------------------------------------
100% of the
Common Stock
-------------------------------------
The Stock Bank
-------------------------------------
In connection with the Reorganization, the Holding Company and the MHC will
not retain any assets of the Bank that are required by the Stock Bank in order
to satisfy capital and reserve requirements of Massachusetts or federal law. It
is expected that up to $250,000 will be retained by the MHC out of the cash
proceeds raised in the Stock Offering. The Stock Bank may distribute additional
capital to the Holding Company and the Holding Company may distribute capital to
its stockholders (including the MHC) through cash dividends and/or stock
repurchases, subject to FDIC or Commissioner regulations governing capital
distributions.
Upon completion of the Reorganization, each deposit account in the Bank at
the date the Reorganization is completed will become a deposit account in the
Stock Bank in the same amount and upon the same terms and conditions, except
that all persons who had liquidation rights with respect to the Bank will
continue to have such rights solely with respect to the MHC. All insured
deposit accounts of the Bank that are transferred to the Stock Bank will
continue to be insured by the FDIC and the DIF in the same manner as deposit
accounts existing in the Bank immediately prior to the Reorganization.
The Reorganization will not affect any borrower or other customer
relationships with the Bank, as each borrowing, contract or other customer
relationship shall automatically continue with the Stock Bank on the same terms
and conditions that such relationship existed with the Bank immediately prior to
the Reorganization. Upon completion of the Reorganization, the Stock Bank may
exercise any and all powers, rights and privileges of, and shall be subject to
all limitations applicable to, stock savings banks under Massachusetts law. As
long as the MHC is in existence in
5
<PAGE>
mutual form, the MHC will be required to own at least 51% of the issued and
outstanding voting stock of the Holding Company. The Holding Company may issue
any amount of non-voting stock or debt to persons other than the MHC.
CONDITIONS TO CLOSING OF THE REORGANIZATION
The Reorganization will not be consummated until the following conditions
are satisfied: (i) the Bank receives rulings or opinions of counsel with respect
to the federal and Massachusetts tax consequences of the Reorganization; (ii)
the FDIC approves the Bank's applications under the Bank Merger Act and for
deposit insurance for the newly chartered Stock Bank and the interim De Novo;
(iii) the DIF approves the continuation of insurance of deposit accounts in
excess of FDIC coverage; (iv) the Commissioner approves the Reorganization and
the merger of the Bank into the Stock Bank and the BBI approves the
establishment of the Stock Bank and the interim De Novo; and (v) the FRB
approves the applications of the MHC and the Holding Company under the Bank
Holding Company Act (the "BHCA") to acquire direct or indirect control of the
Bank. FDIC regulations require that any mutual-to-stock conversion or mutual
holding company reorganization be approved by a majority of the votes of
eligible depositors of the converting institution. Massachusetts laws and
regulations do not grant depositors voting rights. Accordingly, as part of the
Reorganization, the Bank is requesting a waiver of the FDIC's depositor voting
requirement. APPROVALS, NONOBJECTIONS, AND AUTHORIZATIONS BY THE FDIC, THE FRB,
THE BBI, THE DIF, OR THE COMMISSIONER WILL NOT CONSTITUTE RECOMMENDATIONS OR
ENDORSEMENTS BY SUCH ENTITIES OF THE REORGANIZATION.
EFFECTIVE DATE OF THE REORGANIZATION
The effective date of the Reorganization (the "Effective Date") will be the
date upon which the Bank completes the reorganization into the mutual holding
company structure after all necessary regulatory approvals have been obtained.
On such date, the Stock Bank will commence business as Brookline Savings Bank,
the Holding Company will commence business as Brookline Bancorp, Inc. and the
MHC will commence business as Brookline Bancorp, M.H.C.
REASONS FOR THE REORGANIZATION
The primary purpose of the Reorganization is to establish a holding company
and to convert the Bank to the stock form of ownership, which will enable the
Bank to compete and expand more effectively in the financial services
marketplace. The Reorganization will permit the Holding Company to issue
capital stock, which is a source of capital not available to mutual savings
banks. The Reorganization will also provide the Bank with greater flexibility
to structure and finance the expansion of its operations, including the
potential acquisition of other financial institutions. Lastly, the
Reorganization will enable the Bank to better manage its capital by providing
broader investment opportunities through the holding company structure. The
Bank's mutual form of ownership and its ability to remain an independent savings
bank will be preserved through the mutual holding company structure.
The Reorganization does not preclude the conversion of the MHC from the
mutual to stock form of organization following the Reorganization. Such a
conversion would require the prior approval of the corporators of the MHC. No
assurance can be given when, if ever, the MHC will convert to stock form or what
conditions the Commissioner or other regulatory agencies may impose on such a
transaction. The Commissioner has not yet adopted regulations governing
conversions of mutual holding companies to stock form. However, the
Commissioner's proposed regulations regarding mid-tier stock holding companies
of mutual holding companies (the "Proposed Regulations") provide that a mutual
holding company may not convert to stock form for three years following its
initial stock issuance, unless the Commissioner waives such restriction for
supervisory reasons.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
Consummation of the Reorganization is conditioned on prior receipt by
the Bank of (i) either an IRS ruling or an opinion of counsel with respect to
the federal income tax consequences of the Reorganization and (ii) either a
ruling from the Massachusetts Department of Revenue or an opinion of counsel or
tax advisor with respect
6
<PAGE>
to the Massachusetts tax consequences of the Reorganization. Unlike private
letter rulings, opinions of counsel are not binding on the IRS or the
Massachusetts Department of Revenue, and either agency could disagree with such
opinions. In the event of such disagreement, there can be no assurance that the
Stock Bank or the members would prevail in a judicial proceeding.
The Bank will receive an opinion of counsel from Luse Lehman Gorman
Pomerenk & Schick, P.C., to the effect that, for federal income tax purposes:
(1) the conversion of De Novo into the MHC, a Massachusetts mutual holding
company, will qualify as a tax-free reorganization under Code Section
368(a)(1)(F); (2) provided that the merger of the Bank into the Stock Bank
qualifies as a merger under Massachusetts law, the merger of the Bank into the
Stock Bank with the Stock Bank as the survivor and the transfer of the
depositors' equity interest in the Bank to the MHC in exchange for equity
interests in the MHC qualifies as a tax-free reorganization described in Code
Sections 368(a)(1)(A) and 368(a)(2)(D) (the Bank, the Stock Bank and the MHC are
each "a party to the reorganization," as defined in Code Section 368(b)); (3)
the Bank will recognize no gain or loss upon the transfer of substantially all
its assets to the Stock Bank solely in exchange for equity interests (voting and
liquidation rights) in the MHC and the Stock Bank's assumption of its
liabilities, if any; (4) neither the Stock Bank nor the MHC will recognize gain
or loss upon the receipt by the Stock Bank of substantially all of the assets of
the Bank in exchange for equity interests in the MHC and the Stock Bank's
assumption of the Bank's liabilities; (5) the MHC's basis in the stock of the
Stock Bank will increase by an amount equal to the Bank's net basis in the
property transferred to the Stock Bank; (6) the Stock Bank's basis in the
property received from the Bank will be the same as the basis of such property
in the hands of the Bank immediately prior to the Reorganization; (7) the Stock
Bank's holding period for the property received from the Bank will include the
period during which such property was held by the Bank; (8) subject to the
conditions and limitations set forth in Code Sections 381, 382, 383 and 384 and
the Treasury regulations promulgated thereunder, the Stock Bank will succeed to
and take into account the items of the Bank described in Code Section 381(c);
(9) no gain or loss will be recognized by the depositors of the Bank on the
receipt of equity interests with respect to the MHC in exchange for their equity
interests surrendered therefor; (10) each depositor's aggregate basis, if any,
in the MHC equity interest received in the exchange will equal the aggregate
basis, if any, of each depositor's equity interest in the Bank; (11) the holding
period of the MHC equity interests received by the depositors of the Bank will
include the period during which the Bank equity interests surrendered in
exchange therefor were held; (12) the MHC and the Minority Stockholders of the
Holding Company will recognize no gain or loss upon the transfer of the Stock
Bank stock and cash, respectively, to the Holding Company in exchange for stock
of the Holding Company; (13) the Holding Company will recognize no gain or loss
upon its receipt of property from the MHC and Minority Stockholders in exchange
for Common Stock of the Holding Company; and (14) the MHC will increase its
basis in its shares of Holding Company Common Stock by the MHC's basis in its
Stock Bank stock.
ACCOUNTING TREATMENT OF REORGANIZATION
The Reorganization will result in the creation of no new equity and no
change in ownership. The Reorganization will result in no change to the
accounting of the Bank's assets, liabilities, and equity on a consolidated
basis.
INTERPRETATION AND AMENDMENT OF THE PLAN
The Plan may be amended by a majority vote of the Board of Trustees in
response to comments received from the Commissioner or the FDIC or otherwise
prior to the approval of the Reorganization by corporators at the Special
Meeting, and may be amended at any time thereafter only with the concurrence of
the Commissioner. The Plan may be terminated at any time prior to the Special
Meeting by a majority vote of the Board of Trustees and at any time thereafter
with the concurrence of the Commissioner.
7
<PAGE>
- --------------------------------------------------------------------------------
THE MUTUAL HOLDING COMPANY AND THE STOCK HOLDING COMPANY
- --------------------------------------------------------------------------------
GENERAL
The mutual holding company formed as part of the Reorganization will be a
Massachusetts-chartered mutual holding company under the laws of the
Commonwealth of Massachusetts with the powers set forth in its proposed charter
and bylaws. The Holding Company will be a Massachusetts corporation with powers
set forth in its Articles of Organization and Massachusetts law. The Holding
Company and the MHC will not hold any assets of the Bank that are required to be
held by the Stock Bank in order to satisfy capital or reserve requirements of
Massachusetts or federal law. All assets, rights, obligations and liabilities
of whatever nature of the Bank that are not expressly retained by the Holding
Company and the MHC will be transferred to the Stock Bank. The MHC and the
Holding Company will be regulated by the Commissioner and the FRB.
Immediately after consummation of the Reorganization, it is expected that
the only business activities of the MHC will be owning all of the common stock
of the Holding Company and up to $250,000 in cash and investments, and the only
business activity of the Holding Company will be to hold all of the outstanding
common stock of the Stock Bank, to fund a loan to the Bank's ESOP from the
proceeds of any capital raised in the Stock Offering, and to invest up to 50% of
the net proceeds raised in the Stock Offering. The MHC and the Holding Company
will be authorized to pursue other business activities that are closely related
to banking, although the Bank has no current plans for the holding companies to
engage in any other business activities immediately after the Reorganization.
PROPERTIES
The MHC and the Holding Company are not expected to own real or personal
property initially. Instead, the MHC and the Holding Company intend to utilize
the premises, equipment and furniture of the Bank, and the holding companies may
pay a rental fee to the Bank for the use of such facilities. The principal
executive offices of the MHC and the Holding Company will be located at 160
Washington Street, Brookline, Massachusetts, and their telephone number at that
address will be (617) 730-3500.
COMPARISON OF THE CHARTERING INSTRUMENTS AND BYLAWS OF THE MHC, THE HOLDING
COMPANY, THE STOCK BANK AND THE BANK
The Bank was organized as a corporation by a special Act of the
Massachusetts Legislature in 1871, with all of the powers and privileges, and
subject to all the duties, liabilities and restrictions set forth in
Massachusetts laws relating to institutions for savings. The following is a
comparison of the Bank's current mutual charter and mutual bylaws (the "Mutual
Bank Bylaws") with: (i) the Stock Bank's Charter (the "Stock Bank Charter") and
bylaws (the "Stock Bank Bylaws"); (ii) the MHC's Charter (the "MHC Charter") and
bylaws (the "MHC Bylaws"); and (iii) the Holding Company's Articles of
Organization (the "HC Charter") and bylaws (the "HC Bylaws").
PURPOSE AND POWERS. The MHC Charter provides that the MHC shall have and
may exercise all powers and authority, express or implied, under applicable
federal and state law, but shall not have power to take deposits. The Mutual
Bank Bylaws and the Stock Bank Charter provide that the Bank and the Stock Bank,
respectively, have all powers granted to savings banks under applicable law and
regulation. The HC Charter provides that the purpose of the Holding Company is
to carry on any business generally permitted to a Massachusetts business
corporation.
DURATION. The duration of the Bank, the Stock Bank, the MHC and the
Holding Company is perpetual.
CAPITAL. Neither the Bank, in its current mutual form, nor the MHC may
issue capital stock. The HC Charter authorizes the Holding Company to issue up
to 5.0 million shares of preferred stock and up to 45.0 million shares of common
stock, par value $.01 per share. The Stock Bank Charter authorizes the Stock
Bank to issue up to 5.0 million shares of preferred stock and up to 45.0 million
shares of common stock, par value $1.00 per share. The Stock Bank will not issue
or sell shares of voting stock to persons other than the Holding Company for so
long as the MHC is in existence.
8
<PAGE>
VOTING RIGHTS OF DEPOSITORS. Depositors of Massachusetts-chartered mutual
savings banks do not have voting rights, and will not have such rights with
respect to the MHC. Stockholders of the Holding Company and of the Stock Bank
shall have one vote for each share of common stock held.
DIRECTORS/TRUSTEES. The Stock Bank Charter, the MHC Charter and the HC
Charter provide that the directors are divided into three classes and are to be
elected to three year terms. The MHC Bylaws and the Bank Bylaws provide for no
fewer than 11 trustees, the exact number to be determined from time to time by
resolution of the Board. The HC Bylaws and the Stock Bank Bylaws state the
number of directors shall be designated by the Board.
CORPORATORS. The Mutual Bank Bylaws and the MHC Bylaws provide for a
minimum of 25 corporators. The MHC Bylaws provide for ten year terms for
corporators. The corporators have such powers as are expressly reserved to them
under the laws of Massachusetts to act on such matters as are properly brought
before them by trustees, and to annually elect trustees. Pursuant to
Massachusetts law, the corporators of the MHC will initially consist of the
corporators of the Bank, and such corporators shall continue to serve as
corporators of the MHC for the balance of their terms. The Holding Company and
the Stock Bank do not have corporators.
LIQUIDATION RIGHTS. Under Massachusetts law, in the event of a liquidation
of a mutual savings bank, deposit account holders have the right to any assets
remaining after payment of expenses and satisfaction of liabilities. All persons
who had liquidation rights with respect to the Bank as of the effective date of
the Reorganization will continue to have such rights solely with respect to the
MHC. In addition, all persons who become depositors of the Stock Bank
subsequent to the Reorganization will have liquidation rights with respect to
the MHC. In each case no person who ceases to be the holder of a deposit
account of the Stock Bank shall have any liquidation rights with respect to the
MHC. Liquidation rights accorded depositors under Massachusetts law relate to
the liquidation of the MHC and not to the liquidation or other disposition of
any asset of the MHC, including the Holding Company or the Stock Bank. In the
event of a liquidation or dissolution of the MHC, the MHC will comply with such
rules and regulations with respect to such liquidation or dissolution as are in
effect at such time. Upon the dissolution of the Holding Company, stockholders
shall receive any funds remaining after all perfected claims, including those of
eligible depositors, against the corporation have been satisfied.
INDEMNIFICATION. The Mutual Bank Bylaws provide for indemnification of
trustees, officers and employees for claims against such persons. However, no
indemnification shall be provided with respect to a matter as to which the
claimant has been adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Bank. The MHC Bylaws,
the Stock Bank Bylaws and the HC Charter similarly indemnify trustees,
directors, officers, and employees against claims in connection with their
service as such, provided indemnification shall not be provided with respect to
a matter in which it shall have been adjudicated that the trustee, officer or
employee did not act in good faith in the reasonable belief that their action
was in the best interest of the MHC, the Stock Bank or the Holding Company,
respectively. In the absence of an adjudication, the determination of good
faith will be made by a majority of the disinterested trustees. The MHC Bylaws,
the Mutual Bank Bylaws, the Stock Bank Bylaws and the HC Charter also provide
for payment by the MHC, the Bank, the Stock Bank and the Holding Company,
respectively, of expenses incurred by the indemnified party in advance of a
final disposition of the matter upon receipt of an undertaking by the
indemnified party to repay such payment if such person is adjudicated or
determined to be not entitled to indemnification.
LIMITATION OF LIABILITY. The Mutual Bank Bylaws have no provision
addressing the limitation of personal liability of trustees, directors or
officers. The HC Charter, the MHC Charter and the Stock Bank Charter provide
that trustees/directors shall not be personally liable for monetary damages for
breach of fiduciary duty, except for liability, among other things, (i) for any
breach of the duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or (iii) for
any transaction from which the individual derived an improper personal benefit.
AMENDMENT. The MHC Charter requires that amendments be approved by a two-
thirds vote of the corporators and then submitted to the Commissioner. The MHC
Bylaws provide for amendment by a majority vote of the corporators. The Mutual
Bank Bylaws require the vote of a majority of the corporators to amend the
Mutual Bank Bylaws. The Bank has been advised by the staff of the Commissioner
that an amendment to its organizing instrument could be accomplished by a filing
with the Secretary of State pursuant to General Laws chapter 168,
9
<PAGE>
section 7. The HC Charter generally may be amended by the affirmative vote of
stockholders holding not less than a majority of the outstanding shares, except
with respect to certain provisions thereof, for which super-majority votes are
required. The Stock Bank Charter may be amended by the affirmative vote of
stockholders holding not less than 80% of the then outstanding shares, except
with respect to certain provisions thereof, for which a majority vote is
required. The HC Bylaws and the Stock Bank Bylaws may be amended by majority
vote of the Board of Directors and may be amended by a vote of at least 80% of
the voting power of the then outstanding common stock.
MUTUAL-TO-STOCK CONVERSION OF THE MUTUAL HOLDING COMPANY
The Plan states that the MHC may elect to convert to stock form in
accordance with applicable law and regulation (a "Conversion Transaction"). In
a Conversion Transaction, the depositors of the Bank would receive the right to
subscribe for common stock of the Holding Company on a priority basis, pursuant
to applicable regulations of the FDIC and the Commissioner. Any shares of
common stock of the Holding Company issued in the Conversion Transaction shall
be sold at their aggregate pro forma market value. Any existing public
stockholders of the Holding Company would be entitled to maintain the same
percentage ownership interest in the Holding Company after the Conversion
Transaction as they had immediately prior to the completion of the Conversion
Transaction, subject only to adjustment (if required by federal or state law,
regulation or policy) to reflect (i) the cumulative effect of the aggregate
amount of any dividends paid by the Holding Company and waived by the MHC, and
(ii) the market value of assets of the MHC (other than common stock of the
Holding Company). Any Conversion Transaction will be subject to the approval of
the corporators of the MHC as well as the Commissioner and applicable federal
regulators. If a Conversion Transaction does not occur, the MHC will always own
a majority of the voting stock of the Holding Company. Management of the Bank
has no current intention to conduct a Conversion Transaction, and the Proposed
Regulations provide that a Massachusetts-chartered mutual holding company may
not convert to stock form within three years of the initial minority stock
offering by a mutual holding company subsidiary, unless the Commissioner waives
such restriction for supervisory reasons.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE HOLDING COMPANIES
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS. Upon the completion of the Reorganization, the
executive officers of the Holding Company and of the MHC will consist of the
following persons, each of whom is currently an executive officer of the Bank:
<TABLE>
<CAPTION>
NAME DATE OF BIRTH POSITION
- ---- ------------- --------
<S> <C> <C>
Richard P. Chapman, Jr. 2/7/35 President
Charles H. Peck 10/19/40 Executive Vice President
Paul R. Bechet 4/1/42 Senior Vice President and Chief Financial Officer
Susan M. Ginns 4/12/45 Senior Vice President and Treasurer
George C. Caner, Jr. 10/12/25 Secretary and Clerk
</TABLE>
DIRECTORS AND TRUSTEES. Upon the completion of the Reorganization, the
directors of the Holding Company and the trustees of the MHC will consist of the
15 persons who are currently trustees of the Bank. The directors of the Holding
Company and the trustees of the MHC will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year.
10
<PAGE>
The names, occupations, dates of birth, current term and date elected to
the Board for each of the current trustees of the Bank are as follows:
<TABLE>
<CAPTION>
TRUSTEE DATE OF TERM DATE OCCUPATION
BIRTH EXPIRES ELECTED
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oliver F. Ames 12/11/20 2000 1/4/73 Retired
Dennis S. Aronowitz 6/14/31 2000 4/18/91 Retired; Formerly Boston
University Professor of Law
George C. Caner, Jr. 10/12/25 1999 1/6/66 Attorney; Ropes & Gray
David C. Chapin 7/6/36 1998 4/20/89 President; Cameron Properties
Richard P. Chapman, Jr. 2/7/35 1999 1/6/72 President and Chief Executive
Officer; Brookline Savings Bank
William G. Coughlin 7/9/32 2000 1/8/76 Private investor in commercial
real estate
John L. Hall, II 9/29/39 1998 1/6/83 President; Hall Properties, Inc.
(Real Estate)
Charles H. Peck 10/19/40 1998 4/20/95 Executive Vice President;
Brookline Savings Bank;
Hollis W. Plimpton, Jr. 4/29/30 1998 1/3/74 Rector; St. George's Anglican
Church
Edward D. Rowley 8/16/18 1999 1/6/66 Retired
Joseph J. Slotnik 7/22/36 2000 1/8/70 Private investor
William V. Tripp, III 4/20/38 1999 1/9/75 Attorney; Sherburne, Powers and
Needham, P.C.
Rosamond B. Vaule 11/17/37 1998 4/20/89 Volunteer; Educational/Charitable
Organizations
Peter O. Wilde 4/15/39 1999 4/20/93 Managing Director; Beckwith Bemis
Incorporated
Franklin Wyman, Jr. 3/27/21 1998 1/3/74 Chairman and Treasurer; O'Conor,
Wright, Wyman, Inc.
</TABLE>
CORPORATORS. The MHC must have at least 25 corporators. Upon the
completion of the Reorganization, the corporators of the MHC will consist of
those persons who are currently corporators of the Bank, who will serve the
balance of their terms as corporators. Corporators will be elected for
staggered terms of ten years.
REMUNERATION. The Reorganization will not result initially in an increase
in the total compensation currently paid to trustees of the Bank. Such
compensation, however, will be paid in part by the MHC, the Holding Company and
the Stock Bank based on the services performed by the trustees and directors for
such entities. Compensation of directors and trustees may be increased in the
future to reflect the additional responsibilities of directors of a stock
company with public shareholders.
11
<PAGE>
- --------------------------------------------------------------------------------
REGULATION OF THE HOLDING COMPANIES
- --------------------------------------------------------------------------------
After consummation of the Reorganization, the Holding Company and MHC will
be subject to examination, regulation and periodic reporting under the BHCA, as
administered by the FRB. The FRB has adopted capital adequacy guidelines for
bank holding companies (on a consolidated basis) substantially similar to those
of the FDIC for the Bank. On a consolidated basis after the Reorganization, the
equity of the Holding Company and MHC will exceed these requirements.
Prior FRB and BBI approval will be required for the Holding Company or the
MHC to acquire direct or indirect ownership or control of any voting securities
of any bank or bank holding company. In addition to the approval of the FRB and
BBI, prior approval of any bank acquisition may also be required to be obtained
from other agencies having supervisory jurisdiction over the bank to be
acquired, including the Commissioner.
The status of the Holding Company and the MHC as registered bank holding
companies under the Bank Holding Company Act does not exempt them from certain
federal and state laws and regulations applicable to corporations generally. In
addition, a bank holding company is generally prohibited from engaging in, or
acquiring direct or indirect control of any company engaged in, non-banking
activities. One of the principal exceptions to this prohibition is for
activities found by the FRB to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the principal
activities that the FRB has determined by regulation to be so closely related to
banking are: (i) making or servicing loans; (ii) performing certain data
processing services; (iii) providing limited securities brokerage services; (iv)
acting as a securities broker-dealer or underwriter on a limited basis; (v)
acting as fiduciary, investment or financial advisor; (vi) leasing personal or
real property; (vii) making investments in corporations or projects designed
primarily to promote community welfare; and (viii) acquiring a savings and loan
association.
Massachusetts regulations define the powers and duties of the MHC. Under
such regulations, the MHC may engage in the following activities: (i) invest in
the stock of one or more banking institutions, (ii) acquire a mutual banking
institution through consolidation or merger; (iii) merge with or acquire another
holding company; (iv) invest in a corporation, the purchase of whose capital
stock is permitted for a Massachusetts banking institution; and (v) exercise any
other power or engage in any other activity permitted to mutual banks chartered
in Massachusetts, except that a Massachusetts-chartered mutual holding company
may not accept deposits.
- --------------------------------------------------------------------------------
THE STOCK BANK
- --------------------------------------------------------------------------------
GENERAL
The Stock Bank will be a Massachusetts-chartered stock savings bank
regulated by the FDIC and the Commissioner. Upon the effective date of the
Reorganization, all of the Common Stock of the Stock Bank will be issued to the
Holding Company and the Stock Bank will commence business under the name
"Brookline Savings Bank."
12
<PAGE>
MANAGEMENT OF THE STOCK BANK
OFFICERS. Upon completion of the Reorganization, the management of the
Stock Bank will consist of those persons currently serving as officers of the
Bank. No changes will be made to the terms and conditions of employment of
officers of the Bank as a result of the Reorganization.
DIRECTORS. Upon completion of the Reorganization, the Stock Bank will have
eight directors consisting of those persons who currently serve on the Board of
Investment and on the Auditing Committee of the Board of Trustees of the Bank.
The directors of the Stock Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Stock Bank will be elected by the Holding
Company as sole stockholder. The proposed directors of the Stock Bank are as
follows:
<TABLE>
<CAPTION>
DIRECTOR DATE OF BIRTH OCCUPATION
- -------- ------------- ----------
<S> <C> <C>
Oliver F. Ames 12/11/20 Retired
David C. Chapin 7/6/36 President; Cameron Properties
Richard P. Chapman, Jr. 2/7/35 President and Chief Executive Officer; Brookline Savings Bank
William G. Coughlin 7/9/32 Private investor in commercial real estate
Joseph J. Slotnik 7/22/36 Private investor
William V. Tripp, III 4/20/38 Attorney; Sherburne, Powers and Needham, P.C.
Peter O. Wilde 4/15/39 Managing Director; Beckwith Bemis Incorporated
Franklin Wyman, Jr. 3/27/21 Chairman and Treasurer; O'Conor, Wright, Wyman, Inc.
</TABLE>
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Trustees is not aware of any business to come before the
Special Meeting other than those matters described above in this Information
Statement.
BY ORDER OF THE BOARD OF TRUSTEES
/s/ George C. Caner, Jr.
--------------------------------------------------
George C. Caner, Jr., Clerk
Brookline, Massachusetts
November 15, 1997
13
<PAGE>
EXHIBIT 99.4
<PAGE>
Brookline Savings Bank
----------------------
TABLE OF CONTENTS
-----------------
CORRESPONDENCE
- --------------
Letter to Depositors
Potential Investor Letter (Non-Customers)
Ryan, Beck "Broker Dealer" Letter
Stock Order Acknowledgement Letter
Stock Certificate Mailing Letter
Stockgram
ADVERTISEMENTS
- --------------
Tombstone Newspaper Advertisement
Lobby Poster
PRESS RELEASES
- --------------
Press Release - Offering Commences
Press Release - Offering Completed
BROCHURES
- ---------
Q&A
Folder (Cover & Inside Copy)
FORMS
- -----
Stock Order Form
<PAGE>
LETTER TO DEPOSITORS
[Brookline Savings Bank Letterhead]
January ___, 1998
Dear Sir/Madam:
I am pleased to inform you that the trustees of Brookline Savings Bank have
unanimously approved a Plan of Reorganization from a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, the Savings Bank will convert to a stock charter and form a
Massachusetts-chartered stock holding company, Brookline Bancorp, Inc. (the
"Holding Company"), which will own 100% of the common stock of the converted
Savings Bank. As part of the mutual holding company formation, the Holding
Company will offer for sale 47% of its common stock to eligible depositors and
others in a subscription offering, and the remaining shares will be held by
Brookline Bancorp, MHC (the "Mutual Holding Company"). The primary purpose of
the Plan is to establish a holding company and to convert Brookline Savings Bank
to the stock form of ownership, which will enable it to compete and expand more
effectively in the financial services marketplace. The Plan will permit the
holding company to issue capital stock, which is a source of capital not
available to mutual savings banks. The Plan will also provide the Bank with
greater flexibility to structure and finance the expansion of its operations and
to manage its capital. The Bank's mutual form of ownership, and its ability to
remain an independent institution, will be preserved through the mutual holding
company structure.
In connection with the Plan, between 8,789,000 and 11,891,000 shares of common
stock are being offered by Brookline Bancorp, Inc. to certain depositors and to
the general public at a purchase price of $10.00 per share. We intend to pay an
initial annual cash dividend of $___ per share on the common stock, to be paid
in quarterly installments. There can be no assurance, however, as to the payment
of any future dividends.
We believe that the mutual holding company formation and related stock offering
are in the best interest of our customers and the communities we serve. Please
remember:
* YOUR SAVINGS ACCOUNTS WILL CONTINUE TO BE INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION AND THE MASSACHUSETTS DEPOSITORS INSURANCE FUND.
* THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
* DEPOSITORS AND BORROWERS WILL ENJOY THE SAME SERVICES IN OUR OFFICES.
* AS A BROOKLINE SAVINGS BANK CUSTOMER ON SEPTEMBER 30, 1996 OR DECEMBER 31,
1997, YOU HAVE A PRIORITY, BUT NO OBLIGATION, TO BUY COMMON STOCK BEFORE IT
IS SOLD TO THE GENERAL PUBLIC, AS DESCRIBED IN THE PROSPECTUS.
<PAGE>
LETTER TO DEPOSITORS
Page 2
Enclose pleased find a Prospectus, Stock Order Form, Informational Brochure and
Reply Envelope. IF YOU ARE INTERESTED IN PURCHASING SHARES OF COMMON STOCK, YOU
MAY DO SO DURING THE OFFERING WITHOUT PAYING A COMMISSION OR FEE. YOU COMPLETED
STOCK ORDER FORM, ALONG WITH PAYMENT OR AUTHORIZATION TO WITHDRAW FUNDS FROM
YOUR BROOKLINE SAVINGS BANK DEPOSIT ACCOUNT(S), MUST BE RECEIVED BY BROOKLINE
SAVINGS BANK BY 11.00 A.M. BOSTON TIME, ON ________, 1998. Funds received by us
will be held in a deposit account from the date they are received until the
Offering is completed or terminated. Interest will be paid by Brookline Savings
Bank at its passbook rate on all funds received, or at the account contract rate
with respect to withdrawals of funds from existing accounts. THERE WILL BE NO
PENALTY FOR EARLY WITHDRAWAL FOR THE PURCHASE OF COMMON STOCK.
PLEASE CALL THE STOCK INFORMATION CENTER WITHIN THE FIRST TWO WEEKS OF THE
OFFERING PERIOD IF YOU WISH TO USE FUNDS IN AN IRA TO PURCHASE COMMON STOCK.
IRA-RELATED PROCEDURES REQUIRE ADDITIONAL PROCESSING TIME.
IF YOU HAVE ANY QUESTIONS PLEASE CALL THE STOCK INFORMATION CENTER AT (617)
___-___ OR (800) ___-___, FROM 9:00 A.M. TO 4:00 P.M., BOSTON TIME, MONDAY
THROUGH FRIDAY.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of Brookline Bancorp, Inc.
Sincerely,
Richard P. Chapman, Jr.
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(617) ___-___ OR (800) ___-___
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT BROOKLINE SAVINGS' MAIN OFFICE
<PAGE>
POTENTIAL INVESTOR LETTER (NON-CUSTOMERS)
[Brookline Savings Bank Letterhead}
January ___, 1998
Dear Potential Investor:
I am pleased to inform you that the trustees of Brookline Savings Bank have
unanimously approved a Plan of Reorganization from a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, the Savings Bank will convert to a stock charter and form a
Massachusetts-chartered stock holding company, Brookline Bancorp, Inc. (the
"Holding Company"), which will own 100% of the common stock of the converted
Savings Bank. As part of the mutual holding company formation, the Holding
Company will offer for sale 47% of its common stock to eligible depositors and
others in a subscription offering, and the remaining shares will be held by
Brookline Bancorp, MHC (the "Mutual Holding Company"). The primary purpose of
the Plan is to establish a holding company and to convert Brookline Savings Bank
to the stock form of ownership, which will enable it to compete and expand more
effectively in the financial services marketplace. The Plan will permit the
holding company to issue capital stock, which is a source of capital not
available to mutual savings banks. The Plan will also provide the Bank with
greater flexibility to structure and finance the expansion of its operations and
to manage its capital. The Bank's mutual form of ownership, and its ability to
remain an independent institution, will be preserved through the mutual holding
company structure.
In connection with the Plan, between 8,789,000 and 11,891,000 shares of common
stock are being offered by Brookline Bancorp, Inc. to certain depositors of the
Bank and to the general public at a purchase price of $10.00 per share.
Brookline Savings Bank is a well-capitalized, community-oriented savings
institution headquartered in Brookline, Massachusetts, a Boston suburb. The
Bank conducts business through its home office, and its four other offices also
located in the Town of Brookline. At August 31, 1997, Brookline Savings Bank
had total assets, deposits, and retained earnings of $680.3 million, $481.5
million and $125.4 million, respectively.
Enclosed please find a Prospectus, Stock Order Form, Informational Brochure and
Reply Envelope. IF YOU ARE INTERESTED IN PURCHASING SHARES OF COMMON STOCK, YOU
MAY DO SO DURING THE OFFERING WITHOUT PAYING A COMMISSION OR FEE. YOUR
COMPLETED STOCK ORDER FORM, ACCOMPANIED BY YOUR PAYMENT, MUST BE RECEIVED BY
BROOKLINE SAVINGS BANK BY 11:00 A.M, BOSTON TIME, ON _____________, 1998.
<PAGE>
POTENTIAL INVESTOR LETTER (NON-CUSTOMERS)
Page 2
IF YOU HAVE ANY QUESTIONS PLEASE CALL THE STOCK INFORMATION CENTER AT (617)
___-____ OR (800) ___-____, FROM 9:00 A.M. TO 4:00 P.M., BOSTON TIME, MONDAY
THROUGH FRIDAY.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of Brookline Bancorp, Inc.
Sincerely,
Richard P Chapman, Jr.
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
________________________________________________________________________________
STOCK INFORMATION CENTER
(617) ___,____ OR (800) ___,____
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT BROOKLINE SAVINGS' MAIN OFFICE
<PAGE>
RYAN, BECK "BROKER DEALER" LETTER
[Ryan, Beck Letterhead]
Dear Sir/Madam:
At the request of Brookline Bancorp, Inc., we are enclosing materials regarding
its Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan and its related stock Offering. Ryan, Beck &
Co., Inc., has been retained by Brookline Bancorp, Inc. as selling agent in
connection with the Offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and the securities laws of your state.
Sincerely,
RYAN, BECK & CO.
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER ACKNOWLEDGEMENT LETTER
Date:
Name:
Address:
Dear Investor:
We are pleased to confirm the receipt of your order for $_______ for the
purchase of Brookline Bancorp,Inc. common stock.
The stock will be registered in the name(s) shown above in the event that your
order is filled in whole, or in part. Please verify the spelling and accuracy of
your name and address. If this information is incorrect, please contact
______________ at ( ) ________________.
We appreciate your confidence in our future.
_____________________________
NOTE: PRINTED AND MAILED BY DATA PROCESSING AGENT. (THE CONTACT NAME/PHONE IS AT
THE DATA PROCESSING AGENT'S OFFICE.)
<PAGE>
STOCK CERTIFICATE MAILING LETTER
[Brookline Savings Bank Letterhead]
Date
Dear Stockholder:
I would like to welcome you as a charter stockholder of Brookline Bancorp, Inc.
A total of __________ shares were purchased by investors at $10.00 per share.
Our holding company, Brookline Bancorp, MHC, owns _____ shares, the balance of
the issued and outstanding shares of Common Stock.
Your stock certificate is enclosed. Please review it to make sure the
registration and number of shares are correct. If you find an error or have
questions about your certificate, please call our Transfer Agent:
[Name & Address]
If the original stock certificate must be forwarded for reissue, it is
recommended that it be sent to the Transfer Agent by registered mail. If you
should change your address, please notify the Transfer Agent immediately so you
will continue to receive all Brookline Bancorp, Inc. stockholder communications.
If you paid for your shares by check, you will soon receive a check representing
interest at Brookline Savings Bank's passbook account rate of __%. If you paid
for your shares by authorizing withdrawal from a Brookline Savings Bank deposit
account, that withdrawal has been made.
We thank you for your participation in our Offering.
Sincerely,
Richard P. Chapman, Jr.
President and Chief Executive Officer
__________________
NOTE: MAILED BY TRANSFER AGENT
<PAGE>
LOBBY POSTER
[OFFERING THEME]
11,891,000 SHARES
COMMON STOCK
BROOKLINE BANCORP, INC. IS CONDUCTING A COMMON STOCK OFFERING!
If you have any questions or would like to obtain a copy of the Prospectus,
please call the Stock Information Center at (617) ___-____ or (800) ___-____,
from 9:00 a.m. to 4:00 p.m., Monday through Friday.
[LOGO]
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY PROSPECTUS. THE SHARES OF COMMON STOCK
ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE MASSACHUSETTS
DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE - OFFERING COMMENCES
PRESS RELEASE
-------------
CONTACT: RICHARD P. CHAPMAN, JR.
PRESIDENT AND CEO
TELEPHONE: (617) 730-3500
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
BROOKLINE, MASSACHUSETTS. Brookline Savings Bank (the "Bank"), a
Massachusetts-chartered state savings bank announced today that Brookline
Bancorp, Inc. (the "Company"), a newly-formed holding company of Brookline
Savings Bank will be offering to certain depositors and members of the general
public between 8,789,000 and 11,891,000 shares of common stock at a purchase
price of $10.00 per share. An independent financial appraiser has determined the
appraised value of the Company and the Bank to be between $187.0 and $253.0
million. Public stockholders will own 47% and Brookline Bancorp, MHC will own
53% of the total shares of common stock to be outstanding.
The offering, which is being managed by Ryan, Beck & Co., Inc., is expected to
commence in _________ 1998.
Information including details of the offering and the Bank's operations are
provided in the Prospectus, which is available upon request by calling Brookline
Savings Bank's Stock Information Center at (617) ___- ____ or (800) ___- ____,
from 9:00 a.m. to 4:00 p.m., Monday through Friday.
THIS RELEASE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE - OFFERING COMPLETED
PRESS RELEASE
-------------
CONTACT: RICHARD P. CHAPMAN, JR.
PRESIDENT AND CEO
TELEPHONE: (617) 730-3500
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
BROOKLINE, MASSACHUSETTS. Bookline Savings Bank has completed its two-tier
mutual holding company reorganization and its related common stock offering.
A total of __________ shares were sold in the Offering at $10.00 per share
representing a 47% minority interest in Brookline Bancorp, Inc. Brookline
Bancorp, MHC, the mutual holding company, owns the remaining shares and is the
majority holder of Brookline Bancorp's common stock. Net proceeds were $_____
million in the Offering which will increase Brookline Savings Bank's capital
base and will support investment and lending activities.
Ryan, Beck & Co., Inc. served as financial advisor and selling agent with regard
to the transaction. Ryan, Beck makes a market in Brookline Bancorp Inc.'s common
stock, which is quoted on the NASDAQ National Market System under the symbol
"____".
Brookline Bancorp, Inc. expects initially to declare cash dividends on the
common stock of $____ per share per year, payable quarterly.
<PAGE>
FOLDER COVER
Brookline Bancorp, Inc.
[LOGO]
(OFFERING THEME)
<PAGE>
INSIDE FOLDER COPY
Brookline Savings Bank is a community-oriented financial institution which was
organized in 1871 as a Massachusetts-chartered mutual savings bank. The Bank
operates five full-service banking offices in the Town of Brookline, a Boston
suburb.
In order to better position Brookline Savings Bank for the future, our Board of
Trustees has approved a plan to convert from the mutual form of ownership to a
------
stock form of ownership through a mutual holding company structure. As part of
- -----
the mutual holding company formation, a mid-tier stock holding company -
Brookline Bancorp, Inc. - will be established and will offer 47% of its common
stock for sale on a priority basis to depositors and others in a subscription
and community offering. Among other benefits, the mutual holding company and
stock offering will enhance the long-term growth and performance of the Bank.
Implementation of the mutual holding company structure will result in a change
in our legal form of organization, but it will not affect our staff, branch
locations or the services that we provide to our customers.
We are pleased to provide our customers and community members with an
opportunity to become charter stockholders of Brookline Bancorp, Inc. and its
subsidiary, Brookline Savings Bank.
Sincerely.
Richard P. Chapman, Jr.
President and Chief Executive Officer
[MAP OR FINANCIAL RATIOS MAY BE INCLUDED]
FOLDER FLAP
THIS FOLDER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
________________________________________________________________________________
STOCK INFORMATION CENTER
(617)___-_____ OR (800)___-_____
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT BROOKLINE SAVINGS' MAIN OFFICE
<PAGE>
TOMBSTONE NEWSPAPER ADVERTISEMENT
(Optional)
Brookline Bancorp, Inc.
11,891,000 SHARES
Common Stock
PRICE
$10.00 Per Share
Shares may be purchased directly from Brookline Bancorp, Inc. during the
Offering period.
This Offering expires at 11:00 a.m., Boston Time, on ________, 1998.
To receive a copy of the Prospectus, please call the Stock Information Center at
(617) ___-____ or (800) ___-____, from 9:00 a.m. to 4:00 p.m., Monday through
Friday.
[LOGO]
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
STOCKGRAM
[Brookline Savings Bank Letterhead]
(Optional)
STOCKGRAM
DEAR POTENTIAL INVESTOR:
TIME IS RUNNING OUT FOR YOU TO PURCHASE STOCK IN OUR OFFERING!
THIS IS A REMINDER THAT YOUR OPPORTUNITY TO PURCHASE STOCK IN OUR OFFERING
EXPIRES AT 11:00 A.M., BOSTON TIME, ON ______________, 1998.
YOU SHOULD HAVE RECENTLY RECEIVED A PROSPECTUS AND STOCK ORDER FORM.
AN ADDITIONAL STOCK ORDER FORM AND POSTAGE-PAID REPLY ENVELOPE ARE ENCLOSED. IF
YOU WISH TO PURCHASE SHARES OF COMMON STOCK, THE STOCK ORDER FORM AND PAYMENT
MUST BE RECEIVED AT ANY BROOKLINE SAVINGS BANK OFFICE BY NO LATER THAN 11:00
A.M., BOSTON TIME, ON _____________, 1998. IF YOU NEED AN ADDITIONAL COPY OF THE
PROSPECTUS, PLEASE CALL THE STOCK INFORMATION CENTER.
IF YOU HAVE ALREADY PLACED AN ORDER FOR BROOKLINE BANCORP, INC. COMMON STOCK,
PLEASE DISREGARD THIS NOTICE.
ANY QUESTIONS THAT YOU MAY HAVE CAN BE ANSWERED BY CALLING THE STOCK INFORMATION
CENTER AT (617) ___-____ OR (800) ___-____, FROM 9:00 A.M. TO 4:00 P.M., BOSTON
TIME, MONDAY THROUGH FRIDAY.
SINCERELY,
RICHARD P. CHAPMAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STOCKGRAM
<PAGE>
Page 2
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
BROCHURE
Cover:
Q & A
ABOUT THE FORMATION OF
BROOKLINE BANCORP, INC.
AND THE RELATED OFFERING OF COMMON STOCK
[LOGO]
Inside Cover:
THE REORGANIZATION OF BROOKLINE SAVINGS BANK INTO A MUTUAL HOLDING COMPANY,
INCLUDING THE ORGANIZATION OF BROOKLINE BANCORP, INC. AS A MID-TIER STOCK
HOLDING COMPANY, AND THE RELATED STOCK OFFERING BY BROOKLINE BANCORP, INC. ARE
REFERRED TO HEREIN AS THE "TRANSACTION". REFERENCES HEREIN TO BROOKLINE SAVINGS
INCLUDE BROOKLINE SAVINGS IN ITS CURRENT MUTUAL FORM OR POST-REORGANIZATION
STOCK FORM, AS INDICATED BY THE CONTEXT.
THIS PAMPHLET ANSWERS FREQUENTLY ASKED QUESTIONS ABOUT THE TRANSACTION AND ABOUT
YOUR OPPORTUNITY TO INVEST IN BROOKLINE BANCORP, INC. PLEASE READ THE ENCLOSED
PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. FOR A DISCUSSION OF CERTAIN
RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, PLEASE SEE THE
"RISK FACTORS" SECTION OF THE PROSPECTUS.
THE TRANSACTION
Q. WHAT IS MEANT BY THE TRANSACTION?
A. Brookline Savings Bank ("Brookline Savings" or the "Bank") is changing
its legal form from a Massachusetts-chartered mutual (no stockholders)
------
savings bank to a Massachusetts-chartered capital stock savings bank that
------- -----
will be a subsidiary of Brookline Bancorp, Inc., a Massachusetts-chartered
stock holding company, (the "Company"). In addition, the Bank will organize
Brookline Bancorp, MHC (the "Mutual Holding Company") which will own the
majority of voting common stock of the Company. The Transaction
concurrently involves the sale of 47% of the common stock of the Company
(the "Offering") which will result in the public owning a minority interest
in the Company. After consummation of the Transaction, Brookline Savings
Bank will continue to provide its customers with personalized financial
services.
1
<PAGE>
Q. WHY IS THE BANK PURSUING THIS TRANSACTION?
A. The Board of Trustees has determined that the Transaction is in the best
interests of Brookline Savings and its customers for a number of reasons
including:
. The Offering gives customers (including trustees, officers, and
employees) and community members an opportunity to have equity
ownership in the Bank and the Company. Management believes that the
Offering will provide purchasers of the common stock an opportunity to
share in any of Brookline Savings' capital growth and potential
earnings through the receipt of dividends. There can be no assurances,
however, as to Brookline Savings' capital growth, earnings, or the
payment of future dividends.
. While Brookline Savings currently exceeds all regulatory capital
requirements, the mutual holding company structure permits the Bank to
strengthen its capital base and will help the Bank take advantage of
future business opportunities by raising equity capital through the
Offering.
. The Transaction will place the Bank in stock form which is the
corporate form of organization used by commercial banks and most
savings institutions.
Q. WILL THERE BE ANY CHANGES IN TRUSTEES, OFFICERS OR EMPLOYEES AS A RESULT OF
THE TRANSACTION?
A. No. The trustees, officers and employees of Brookline Savings will not
change as a result of the Transaction. The management and employees of
Brookline Savings will continue in their current capacity and will also
serve as the initial trustees of the Holding Company. The day-to-day
activities will not change as a result of the Transaction.
Q. WILL THE TRANSACTION HAVE ANY EFFECT ON SAVINGS ACCOUNTS OR LOAN ACCOUNTS?
A. No. CUSTOMERS WILL BE SERVED BY THE SAME STAFF. The Transaction will not
affect the amount, interest rate or withdrawal rights of deposit accounts,
which will continue to be insured by the FDIC and the Massachusetts
Depositors Insurance Fund to the maximum legal limit. Likewise, the loan
accounts and rights of borrowers will not be affected.
2
<PAGE>
PURCHASING STOCK
Q. WHO MAY PURCHASE THE COMMON STOCK?
A. Anyone may place an order for the Company's common stock during the
offering period. In the event, however, that more orders are received than
common stock available, the common stock will be allocated on a priority
basis to: (1) depositors of the Bank with aggregate deposits of $50 or more
on September 30, 1996; (2) the Bank's Employee Stock Ownership Plan; (3)
depositors of the Bank with aggregate deposits of $50 or more on December
31, 1997; (4) employees, officers and trustees of the Bank; and (5) members
of the general public. Please note that you are not obligated to purchase
stock.
Q. HOW MUCH COMMON STOCK IS BEING OFFERED?
A. The Company is offering between 8,789,000 and 13,674,650 shares of common
stock, which represents a 47% minority ownership interest of the total
common stock expected to be outstanding.
The number of shares offered is based on an independent appraisal of the
Company and the Bank, which determined that the estimated pro forma market
value was between $187.0 and $290.95 million as of November __, 1997. The
final appraisal value will depend upon market and financial conditions at
the time the Offering is consummated.
Q. WHAT IS THE PRICE PER SHARE?
A. The Company is offering the shares at a purchase price of $10.00 per share.
All purchasers, including the trustees and officers, will pay the same
price per share. NO COMMISSION WILL BE CHARGED FOR STOCK PURCHASED IN THE
OFFERING.
Q. HOW DO I PURCHASE COMMON STOCK?
A. Complete the Stock Order Form and submit it to Brookline Savings with
payment by 11:00 a.m. Boston Time, on ________, 1998. You may hand-deliver
the Stock Order Form to any Brookline Savings' office, or you may use the
enclosed Reply Envelope. Payment may be made by check or money order or by
authorization of withdrawal from Brookline Savings deposit accounts. (NOTE
THAT ANY APPLICABLE PENALTY FOR EARLY WITHDRAWAL WILL BE WAIVED.)
3
<PAGE>
Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR STOCK PURCHASES?
A. Yes. Funds received will be placed in a deposit account at Brookline
Savings, and interest will be paid at the Bank's passbook savings account
rate (currently __%) from the date payment is received until the Offering
is completed. With respect to authorized account withdrawals, interest will
continue to accrue at the account's contract rate until the Offering is
completed.
Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES THAT I MAY PURCHASE IN THE
OFFERING?
A. No person purchasing stock in the Subscription Offering in his/her capacity
as an eligible account holder, supplemental account holder or employee,
officer, or trustee, may purchase more than $300,000 or 30,000 shares or
common stock sold in the Offering. No person, together with associates of
persons acting in concert, may purchase more than $300,000 or 30,000 shares
of common stock in the Community Offering. No person, together with
associates or persons acting in concert with such person, may purchase in
the aggregate more than $1.0 million of the common stock sold in the
Subscription Offering, Community Offering or any Syndicated Community
Offering. The ESOP, however, intends to purchase 4% of the Common Stock
sold in the Offering. THE MINIMUM PURCHASE IS 25 SHARES.
Q. WILL DIVIDENDS BE PAID ON THE COMMON STOCK?
A. Yes. The Company initially intends to pay cash dividends of $____ per share
annually, with payments made on a quarterly basis. This represents a ____%
yield based on a $10.00 per share price. The first dividend is expected to
be declared and paid following the first full quarter after completion of
the Offering. However, there can be no assurance that dividends will be
declared, or if declared, as to the amount.
Q. IS THE COMMON STOCK INSURED BY THE FDIC OR THE MASSACHUSETTS DEPOSITORS
INSURANCE FUND?
A. No. Stock cannot be insured by the FDIC, the Massachusetts Depositors
Insurance Fund, or any other government agency.
Q. ARE INSIDERS PURCHASING COMMON STOCK IN THE OFFERING?
A. Yes. Trustees, executive officers and their associates expect to purchase
an aggregate of $_______ or ___% of the maximum number of shares offered in
the Offering.
4
<PAGE>
Q. MAY I OBTAIN A LOAN FROM BROOKLINE SAVINGS TO PAY FOR MY SHARES?
A. No. Regulations do not allow Brookline Savings to make loans for this
purpose, but other financial institutions may be able to make such a loan.
Q. MAY I PURCHASE THE COMMON STOCK THROUGH A BROOKLINE SAVINGS IRA?
A. Yes. However if you have an IRA at Brookline Savings, you will need to
-------
transfer your existing relationship to an independent trustee authorized to
hold self-directed IRA accounts. Please call the Stock Information Center
for assistance in transferring your account or establishing a new self-
directed IRA for the purchase of the stock. BECAUSE SUCH TRANSFERS TAKE
TIME, PLEASE CONTACT THE STOCK INFORMATION CENTER WITHIN THE FIRST TWO
WEEKS OF THE OFFERING PERIOD.
Q. WHEN DOES THE OFFERING TERMINATE?
A. The Offering will terminate at 11:00 a.m. Boston Time, on _______, 1998,
unless extended by the Bank.
Q. WHAT WILL HAPPEN TO MY ORDER IF ORDERS ARE RECEIVED FOR MORE COMMON STOCK
THAN IS AVAILABLE?
A. This is referred to as an over-subscription and shares will be allocated on
a priority basis as disclosed in the Prospectus. (The order of priority is
also provided previously). There is no guarantee than an order will be able
to be filled in its entirety. Of course, if we are not able to fill an
order (either wholly or partly), funds remitted which are not used toward
the purchase of stock will be refunded with interest. If payment for the
stock is made by authorization to withdraw the funds from a Brookline
Savings Bank account, those funds not used to purchase common stock, will
remain in that account along with accrued interest.
Q. WHEN WILL I RECEIVE MY STOCK CERTIFICATE?
A. Stock certificates will be mailed as soon as practicable after the Offering
is completed. Please be aware that you may not be able to sell the shares
you purchased until you have received a stock certificate.
5
<PAGE>
Q. HOW MAY I PURCHASE OR SELL SHARES IN THE FUTURE?
A. You may purchase or sell shares through a stockbroker. Brookline Savings
has received conditional approval to have the common stock quoted on NASDAQ
National Market under the symbol "______" There can be no assurance,
however, that an active and liquid market for the common stock will
develop.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION CENTER AT
(617)____-____ OR (800)____-____ FROM 9:00 AM TO 4:00 PM, MONDAY THROUGH FRIDAY.
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
MASSACHUSETTS DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
6
<PAGE>
EXHIBIT 99.5
<PAGE>
BROOKLINE BANCORP, INC.
[LOGO]
STOCK ORDER FORM
Please read and complete this Stock Order Form. Instruction are included on the
reverse side of this form.
DEADLINE FOR DELIVERY
- -------------------------------------------------------------------------------
11:00 a.m., Boston Time, on __________, 1998
Please mail the Stock Order Form to the enclosed business reply envelope to the
address listed below or hand-deliver to any Brookline Savings Bank office.
Brookline Bancorp, Inc. Is not required to accept copies of Stock Order Forms.
- -------------------------------------------------------------------------------
NUMBER OF SHARES
- -------------------------------------------------------------------------------
(1) Number of Shares Price per Share Total Amount Due
_______________ x $10.00 = $_____________
(25 Share Minimum)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OFFICE USE ONLY
________________ __________________ ________________
Date Rec'd Batch # Order #
- -------------------------------------------------------------------------------
METHOD OF PAYMENT
- -------------------------------------------------------------------------------
(2) __ Enclosed is a check or money order payable to Brookline Savings Bank for
$__________.
(3) __ I authorize Brookline Savings Bank to make the withdrawal(s) from the
Brookline Savings Bank account(s) listed below, and understand that the amounts
I authorize below will not otherwise be available to me once this Stock Order
Form is authorized:
Account Number(s) Amount(s)
- ----------------- ---------
__________________________________ ___________________
__________________________________ ___________________
__________________________________ ___________________
__________________________________ ___________________
Total Withdrawal $ ===================
There is no early withdrawal penalty for the purchase of stock.
- -------------------------------------------------------------------------------
PURCHASE INFORMATION
- -------------------------------------------------------------------------------
(4) Check the box which applies.
(a) __ Check here if you were a depositor of Brookline Savings Bank on
September 30. 1996. List any account(s) you had at that date.
(b) __ Check here if you were not a depositor at September 30, 1996. but you
were a depositor on December 31, 1997. List any account(s) you had at that
date.
(c) __ Check here if you have never been a Brookline Savings Bank depositor.
-----
Account Title (Name(s) on Account Account Number
______________________________________ _________________________
______________________________________ _________________________
______________________________________ _________________________
______________________________________ _________________________
If additional space is needed, please use back of this Stock Order Form.
- -------------------------------------------------------------------------------
STOCK REGISTRATION (Please Print Clearly)
- -------------------------------------------------------------------------------
(5) __________________________________ (6) _________________________________
(First Name) (M.I.) (Last Name) Social Security # or ID# (stock
certificate will show this number)
__________________________________ _________________________________
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
__________________________________ (7) _________________________________
(Street Address) (Daytime Phone Number)
__________________________________ _________________________________
(City) (State) (Zip) (Evening Phone Number)
(8) Form of Stock Ownership (check one)
__ Individual __ Joint Tenants __Tenants in Common __Uniform Transfer in
Minors
__ Individual __ Corporation __Fidiciary (Under --Other_____________
Retirement Account Agreement Dated__,
(IRA) 199__)
- --------------------------------------------------------------------------------
NASD AFFILIATION(If Applicable)
- -------------------------------------------------------------------------------
__ Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD member
or a member of the immediate family of any such person to whose support such
person contributes, directly or indirectly, or if you have an account in which
an NASD member, or person associated with an NASD member, has a beneficial
interest. I agree (i) not to sell, transfer, or hypothecate the stock for a
period of 90 days following issuances; and (ii) to report this subscription in
writing to the applicable NASD member I am associated with within one day of
payment for the stock.
______(Please initial)
- -------------------------------------------------------------------------------
ACKNOWLEDGEMENT AND SIGNATURE (VERY IMPORTANT)
- -------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated___, 1998, and I(we) have read
the conditions described therein (including the section entitled "Risk
Factors"). I(we) understand that, after receipt by Brookline Savings Bank, this
order may not be modified or withdrawn without the consent of Brookline Savings
-------
Bank. I(we) hereby certify that the shares which are being subscribed for are
for my (our) account only, and that I(we) have no present agreement or
understanding regarding any subsequent sale or transfer of such shares and I(we)
confirms that my(our) order does not conflict with the purchase limitation and
ownership limitation provisions in the Plan of Reorganization from a Mutual
Savings Bank to a Mutual Holding Company and Stock Issuance Plan. I(we)
acknowledges that the common stock being ordered is not a deposit or savings
account, is not insured by the FDIC, Massachusetts Depositors Insurance Fund and
is not guaranteed by Brookline Savings Bank, or any government agency. Under
penalties of perjury, I(we) certify that (1) the Social Security #(s) or Tax
ID#(s) given above is(are) correct; and (2) I(we) am(are) not subject to backup
withholding tax (You must cross out #2 above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return).
Please sign and date this form. Only one signature is required unless
authorizing a withdrawal from a Brookline Savings Bank deposit account requiring
more than one signature to withdraw funds. If signing as a custodian, corporate
officer,etc., please include your full title.
___________________________________________
Signature Title (if applicable) Date Stock Information Center: Brookline
Savings Bank
160
___________________________________________
Signature(if required) Date Washington
St.
Brookline,MA
02147
THIS ORDER NOT VALID UNLESS SIGNED QUESTIONS? Call (617)_____ or (800)___
- ----------------------------------
9:00 am to 4:00 pm, Monday-Friday
- -------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FDIC,
MASSACHUSETTS DEPOSITORS INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
-----------------------------
1 - Indicate the number of shares of Brookline Bancorp, Inc. common stock that
you wish to purchase and indicate the amount due. The minimum purchase is 25
shares or $250. No person may purchase in the Subscription Offering more than
$300,000. No person, together with associates or persons acting in concert with
such person, may purchase in the Community Offering more than $300,000. No
person, or persons acting in concert with such person, may purchase in aggregate
more than $1.0 million in the Offering. The categories of the Offering are
described in the Prospectus, page ___. Brookline Savings Bank reserves the right
to accept or reject orders placed in the Offering.
2 - Payment for shares may be made by check or money order payable to Brookline
Savings Bank. Funds received in this form of payment will be cashed immediately
and deposited into a separate account established for the purposes of this
Offering. You will earn interest at Brookline Savings Bank's passbook rate
(currently ___%) from the time funds are received until the Offering is
consummated.
3 - You may pay for your shares by withdrawal from your Brookline Savings Bank
deposit account(s). Indicate the account number(s) and the amount(s) to be
withdrawn. These funds will be unavailable to you from the time this Stock Order
Form is received until the Offering is consummated. The funds will continue to
earn interest at the account's contractual rate until the Offering is
consummated. Please contact the Stock Information Center early in the Offering
period, if you are intending to utilize Brookline Savings Bank IRA funds (or any
other IRA funds) to make your stock purchase.
4 - Check the applicable box. This information is very important because
eligibility dates are utilized to prioritize your order in the that we
receive more stock orders than available stock. List the name(s) on the deposit
account(s) and account number(s) that you held at the applicable date. Please
see the portion of the Prospectus entitled "The Conversion - The Offerings" for
a detailed explanation of how shares will be allocated in the event the Offering
is oversubscribed. Failure to complete this section could result in a loss of
----------------------------------------------------------
all or part of your stock allocation.
- -------------------------------------
- --------------------------------------------------------------------------------
(Continued from previous page)
Account Title (Name(s) on Account) Account Number
---------------------------------- --------------
__________________________________ ______________
__________________________________ ______________
__________________________________ ______________
- --------------------------------------------------------------------------------
5 - Please CLEARLY PRINT the name(s) and address in which you want the stock
certificate registered and mailed. If you are exercising subscription rights by
purchasing in the Subscription Offering as a Brookline Savings Bank (i) eligible
depositor as of 9/30/96 or (ii) eligible depositor as of 12/31/97, you must
register the stock in the name of one of the account holders listed on your
account as of the applicable date. However, adding the name(s) of other persons
-------
who are not account holders, or were account holders at a later date than
yourself, will be a violation of your subscription right and will result in a
loss of your purchase priority. NOTE: ONE STOCK CERTIFICATE WILL BE GENERATED
PER ORDER FORM. IF VARIOUS REGISTRATIONS AND SHARE AMOUNTS ARE DESIRED ON
VARIOUS CERTIFICATES, A SEPARATE STOCK ORDER FORM MUST BE COMPLETED FOR EACH
CERTIFICATE DESIRED.
6 - Enter the Social Security Number or Tax ID Number of the registered
owner(s). The first number listed will be identified with the stock certificate.
7 - Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
8 - Please check the one type of partnership applicable to registration. An
explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Brookline Bancorp, Inc. Stock Certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
_____________________________________
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words
of limitation that do not affect ownership rights such as
"special account," "single man," "personal property," etc.
If the stock is held individually upon the individual's
death, the stock will be owned by the individual's estate
and distributed as indicated by the individual's will or
otherwise in accordance with law.
_____________________________________
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types
of joint ownership. Names should be joined by "and"; do not
connect with "or." Omit titles such as "Mrs.," "Dr.," etc.
JOINT TENANTS -- Joint Tenancy with Rights of Survivorship
and act as Tenants in Common may be specified to identify
two or more owners where ownership is intended to pass
automatically to the surviving tenant(s).
TENANTS IN COMMON -- Tenants in Common may be specified to
identify two or more owners. When stock is held as tenancy
in common, upon the death of one co-tenant, ownership of the
stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to
the transfer or sale of shares held in this form of
ownership.
_____________________________________
UNIFORM Stock may be held in the name of a custodian for a minor
TRANSFER TO under the Uniform Transfers to Minors laws of the individual
MINORS: states. There may be only one custodian and one minor
designated on a stock certificate. The standard abbreviation
of custodian is "CUST.", while the description "Uniform
Transfers to Minors Act" is abbreviated "UNIF TRAN MIN ACT."
Standard U.S. Postal Service state abbreviations should be
used to describe the appropriated state. For example, stock
held by John P. Jones under the Uniform Transfers to Minors
Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT MA
_____________________________________
FIDUCIARIES: Stock held in a fiduciary capacity must contain the
following:
1. The name(s) of the fiduciary:
.If an individual, this the first given name,
middle initial, and last name.
.If a corporation, list the corporate title.
.If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity:
.Administrator
.Conservator
.Committee
.Executor
.Trustee
.Personal Representative
.Custodian
3. The type of document governing the fiduciary
relationship. Generally, such relationships are
either under a form of living trust agreement or
pursuant to a court order. Without a document
establishing a fiduciary relationship, your stock
may not be registered in a fiduciary capacity.
4. The date of the document governing the
relationship. The date of the document need not be
used in the description of a trust created by a
will.
5. Either of the following:
The name of the maker, donor or testator OR
The name of the beneficiary
Examples of Fiduciary Ownership:
JOHN D. SMITH TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
