As filed with the Securities and Exchange Commission on August 27, 1998
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Ridgewood Financial, Inc.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
New Jersey 6036 (Requested)
- --------------------------------- ----------------- -------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
55 North Broad Street, Ridgewood, New Jersey 07450
(201)445-4000
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Ms. Susan E. Naruk
President and Chief Executive Officer
Ridgewood Financial, Inc.
55 North Broad Street, Ridgewood, New Jersey 07450
(201) 445-4000
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
Samuel J. Malizia, Esq., Gregory J. Rubis, Esq., Andrew S. White, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Maximum Proposed
Class of Securities Amount to Offering Price Maximum Aggregate Amount of
To Be Registered be Registered Per Unit Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.10 Par Value 1,616,095 $10.00 $16,160,950 $4,767.48
- ------------------------------------------------------------------------------------------------------------------------------------
Interests of participants in the
401(k) Plan 71,500 $10.00 $715,000 (2) $ 0.00 (2)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Consists of shares that may be acquired by the 401(k) Plan of the
registrant, based on the assumption that all of the assets of the 401(k)
Plan are used to purchase such shares. Pursuant to Rule 457(h)(2) under the
Securities Act of 1933, no additional fee is required with respect to the
interests of participants of the 401(k) Plan.
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
statement 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 Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS RIDGEWOOD FINANCIAL, INC.
Up to 1,616,095 Shares (Proposed Holding Company for Ridgewood Savings Bank
of Common Stock of New Jersey)
55 North Broad Street
Ridgewood, New Jersey
- --------------------------------------------------------------------------------
Ridgewood Savings Bank of New Jersey is reorganizing from a New
Jersey-chartered mutual savings bank to a New Jersey- chartered stock savings
bank. As part of the reorganization, Ridgewood Savings Bank of New Jersey will
become a wholly owned subsidiary of Ridgewood Financial, Inc., a New
Jersey-chartered stock corporation. Upon consummation of the reorganization,
Ridgewood Financial, Inc. will own all of the shares of Ridgewood Savings Bank
of New Jersey. A majority of the common stock of Ridgewood Financial, Inc. to be
issued will be owned by a New Jersey-chartered mutual savings bank holding
company that will have the same directors and officers as Ridgewood Savings Bank
of New Jersey. The remainder (less than half) of the common stock of Ridgewood
Financial, Inc. is being offered to the public in accordance with a plan of
reorganization and stock issuance. The reorganization must be ratified by a
majority of the votes eligible to be cast by depositors of Ridgewood Savings
Bank of New Jersey and approved by state and federal banking agencies. No common
stock will be sold if Ridgewood Savings Bank of New Jersey, Ridgewood Financial,
Inc. and the mutual holding company do not receive the necessary votes or
regulatory approvals or Ridgewood Financial, Inc. does not receive orders for at
least the minimum number of shares. The common stock is expected to be quoted on
The Nasdaq Stock Market under the symbol "_______."
- --------------------------------------------------------------------------------
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
reorganized Ridgewood Savings Bank of New Jersey to be between $22,100,000 and
$29,900,000. Of this amount, 47%, between $10,387,000 and $14,053,000, is being
offered publicly, which establishes the number of shares to be offered. Subject
to regulatory approval, up to 1,616,095 shares, an additional 15% above the
maximum number of shares, may be sold. Based on these estimates, we are making
the following offering of shares of common stock:
<TABLE>
<CAPTION>
<S> <C> <C>
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 1,038,700 to 1,405,300 to 1,616,095
o Underwriting Commissions and Expenses
Minimum/Maximum/Maximum, as adjusted: $600,000
o Net Proceeds
Minimum/Maximum/Maximum, as adjusted: $9,787,000 to $13,453,000 to $15,560,950
o Net Proceeds per Share
Minimum/Maximum/Maximum, as adjusted: $9.42 to $9.57 to $9.63
</TABLE>
Please refer to Risk Factors beginning on page 1 of this document.
Any transfer of subscription rights is prohibited.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
For information on how to subscribe,
call the Stock Information Center at (201) 445-2109.
Ryan, Beck & Co.
The Date of this Prospectus is __________ ____, 1998
<PAGE>
RIDGEWOOD FINANCIAL, INC.
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[MAP GOES HERE]
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THE PLAN OF REORGANIZATION AND STOCK ISSUANCE IS CONTINGENT UPON
RECEIPT OF ALL REQUIRED REGULATORY APPROVALS, RATIFICATION OF THE PLAN BY THE
DEPOSITORS OF THE BANK, AND THE SALE OF AT LEAST THE MINIMUM NUMBER OF SHARES
OFFERED PURSUANT TO THE PLAN.
<PAGE>
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
Q: What is the purpose of the reorganization and offering?
A: The reorganization will establish a stock holding company and the Bank will
convert to the stock form of ownership, which will enable it to raise
additional capital in order to compete and expand more effectively in the
financial services marketplace. Ridgewood Financial, Inc. will be able to
issue capital stock, which is a source of capital not available to mutual
savings banks, and will enable depositors, employees and directors to
indirectly obtain an ownership interest in the Bank. The reorganization and
offering also will provide greater flexibility to structure and finance the
expansion of its operations, including the potential expansion of branch
facilities, and to diversify into other financial services, to the extent
permitted by law.
Q: Why are we creating a mutual holding company instead of selling all of our
stock?
A: We are using a structure (a bank that is wholly owned by a stock holding
company that is in turn majority owned by a mutual holding company and by
minority public stockholders) that we feel is best for Ridgewood Savings
Bank of New Jersey, our depositors and the communities we serve. If
Ridgewood Financial, Inc. offered all of its stock to the public, we would
be forced to invest a much larger amount of proceeds (at least twice as
much) and might feel pressured to make investments with substantially more
risk. We believe that the proceeds we will receive in the offering will be
sufficient to implement the business strategy we feel is appropriate.
In addition, the use of this structure enables Ridgewood Savings Bank of
New Jersey to achieve many of the benefits of a stock company while
reducing the threat of an acquisition by another institution, as can occur
following a full conversion from mutual to stock form. Sales of locally
based, independent savings institutions to larger, regional financial
institutions can result in closed branches, fewer choices for consumers,
employee layoffs and the loss of community support and involvement by local
savings institutions.
Q: Who will be the minority stockholders of Ridgewood Financial, Inc.?
A: Other than the mutual holding company that will own 53% of the common
stock, everyone who purchases common stock will be a minority stockholder.
Q: How do I purchase the stock?
A: You must complete and return the stock order form (no copies will be
accepted) together with your payment, on or before 12:00 noon, New Jersey
time on _________________, 1998. If we do not receive sufficient orders by
that time, the offering may be extended until _____, 199__.
Q: How much stock may I purchase?
A: The minimum purchase is 100 shares (or $1,000). The maximum purchase is
10,000 shares (or $100,000), for any individual person or persons ordering
through a single account. No person or persons ordering through multiple
accounts, together with their associates, or group of persons acting
together, may purchase in total more than 20,000 shares (or $200,000). We
may decrease or increase the maximum purchase limitation without notifying
you. In the event that the offering is oversubscribed, there will not be
enough shares to fill all orders.
- --------------------------------------------------------------------------------
(i)
<PAGE>
- --------------------------------------------------------------------------------
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase. If
there is an oversubscription in the subscription offering, the stock will
be offered in the following priorities:
o Priority 1 - Persons who had a deposit account with us of at least
$50.00 on May 31, 1997.
o Priority 2 - Tax qualified employee plans (the employee stock
ownership plan of Ridgewood Savings Bank of New Jersey).
o Priority 3 - Persons who had a deposit account with us of at least
$50.00 on September 30, 1998.
o Priority 4 - Depositors as of _______________, 1998 entitled to vote
on the ratification of the reorganization.
If the persons described above do not subscribe for all of the shares,
the remaining shares may be offered, with the help of Ryan, Beck & Co., in a
community offering. In the event of a community offering, we will give a
preference to natural persons who reside in Bergen County, New Jersey (first
preference) and New Jersey (second preference). We may offer shares to others in
a public offering. In a syndicated public offering, we would offer any remaining
shares to the general public through a group of brokers/dealers organized by
Ryan, Beck. We have the right to reject any stock order in the community
offering, public offering or syndicated public offering.
Q: What particular factors should I consider when deciding whether to buy the
stock?
A: Before you decide to purchase stock, you should read this prospectus,
including the Risk Factors section on pages 1-__.
Q: As a depositor of Ridgewood Savings Bank of New Jersey, what will happen if
I do not purchase any stock?
A: You are not required to purchase stock. Your deposit account, certificate
account and any loans you may have with us will not be affected.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. In addition, you should contact:
Stock Information Center
Ridgewood Financial, Inc.
55 North Broad
Ridgewood, New Jersey
(201) 445-2109
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(ii)
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements. References
in this document to "we," "us," and "our" refer to Ridgewood Financial, Inc.,
because we are offering the stock. In certain instances where appropriate, "we,"
"us," or "ours" refers collectively to Ridgewood Financial, Inc. and Ridgewood
Savings Bank of New Jersey. Throughout this document we refer to Ridgewood
Savings Bank of New Jersey (whether in mutual or stock form) as the "Bank." We
also refer to ourselves as the "Company." Our mutual holding company is
Ridgewood Financial, MHC or the "MHC."
The Companies
Ridgewood Savings Bank of New Jersey
55 North Broad Street
Ridgewood, New Jersey 07450
(201) 445-4000
Ridgewood Savings Bank of New Jersey was founded in 1885 and primarily serves
northwestern Bergen County, New Jersey. The Bank is a community and customer
oriented mutual savings bank chartered by the State of New Jersey. The Bank
provides financial services primarily to individuals, families and small
businesses. The Bank emphasizes residential mortgage lending, primarily
originates one- to four-family mortgage loans and funds these loans with
deposits. The Bank originates other loans secured by real estate, purchases
investment and mortgage-backed securities, and uses borrowings as a secondary
source of funding. At June 30, 1998, the Bank had assets of $242.7 million,
deposits of $198.6 million and equity of $17.4 million. See pages _______.
Ridgewood Financial, Inc.
55 North Broad Street
Ridgewood, New Jersey 07450
(201) 445-4000
Ridgewood Financial, Inc. is not an operating company and has not engaged in any
significant business to date. Minority owners will hold 47% of its common stock.
It is a New Jersey-chartered stock holding company that will own 100% of the
stock of the Bank. See pages _______.
Ridgewood Financial, MHC
55 North Broad Street
Ridgewood, New Jersey 07450
(201) 445-4000
Ridgewood Financial, MHC will become the mutual holding company for Ridgewood
Financial, Inc. The mutual holding company will be a New Jersey-chartered mutual
savings bank holding company owning a majority of the stock of Ridgewood
Financial, Inc. See pages _______.
The Reorganization and Offering
The reorganization from mutual to stock form and the stock offering
include the following steps:
- --------------------------------------------------------------------------------
(iii)
<PAGE>
- --------------------------------------------------------------------------------
o The Bank will establish the Company and the mutual holding company,
neither of which will have any assets prior to the completion of the
reorganization.
o The Bank will convert from a New Jersey-chartered mutual savings bank
to a New Jersey-chartered stock savings bank.
o Following the merger of an interim stock savings bank owned by the
mutual holding company into the Bank, the Bank will become a wholly
owned subsidiary of the Company.
o The Company will issue between 2,210,000 shares (minimum) and
2,990,000 shares (maximum) of its common stock in the reorganization;
53% of these shares (or between 1,171,300 shares and 1,584,700 shares)
will be issued to the mutual holding company, and 47% (or between
1,038,700 shares and 1,405,300 shares) will be sold to the public.
Description of the Mutual Holding Company Structure
This chart shows the corporate structure following completion of the
reorganization:
- ---------------------------------- -----------------------------------------
| | | |
| Ridgewood Financial, MHC | | Public Stockholders |
| | | |
- ---------------------------------- -----------------------------------------
| 53% of the | 47% of the
| Common Stock | Common Stock
- --------------------------------------------------------------------------------
| |
| Ridgewood Financial, Inc. |
| |
- --------------------------------------------------------------------------------
|
| 100% of the Common Stock
|
- --------------------------------------------------------------------------------
| |
| Ridgewood Savings Bank of New Jersey |
| |
- --------------------------------------------------------------------------------
The mutual holding company structure differs in significant respects
from the holding company structure that is often used in a full mutual-to-stock
conversion. In a full conversion, a converting mutual institution or its
newly-formed holding company sells 100% of its common stock in a stock offering.
A savings institution that converts from the mutual to stock form of
organization using the mutual holding company structure sells less than half of
its shares at the time of the reorganization. By doing so, a converting
institution using the mutual holding company structure will raise less than half
the capital that it would have raised in a full mutual-to-stock conversion.
The shares that are issued to the mutual holding company may be
subsequently sold to the Bank's depositors if the mutual holding company
converts from the mutual to the stock form of organization. See "Conversion of
the Mutual Holding Company to the Stock Form of Organization." In addition,
- --------------------------------------------------------------------------------
(iv)
<PAGE>
- --------------------------------------------------------------------------------
because regulations generally prohibit the sale of a savings association in the
mutual holding company structure, the reorganization and stock offering will
permit the Bank to achieve many of the benefits of a stock company while
reducing the threat of an acquisition by another institution, as can occur
following a full conversion from mutual to stock form. Sales of locally based,
independent savings institutions to larger, regional financial institutions can
result in closed branches, fewer choices for consumers, employee layoffs and the
loss of community support and involvement by local savings institutions.
Because the mutual holding company is a mutual corporation, its actions
will not necessarily always be in the best interests of the Company's
stockholders. In making business decisions, the mutual holding company's board
of directors will consider a variety of constituencies, including the depositors
of the Bank, the employees of the Bank and the communities in which the Bank
operates. As the majority stockholder of the company, the mutual holding company
is also interested in the continued success and profitability of the Bank and
the Company. Consequently, the mutual holding company will act in a manner that
furthers the general interests of all of its constituencies, including, but not
limited to, the interests of the stockholders of the Company. The mutual holding
company believes that the interests of the stockholders of the Company and those
of the mutual holding company's other constituencies are, in many circumstances
the same, such as the increased profitability of the Company and the Bank and
continued service to the communities in which the Bank operates.
Conversion of the Mutual Holding Company to the Stock Form of Organization
Federal and state regulations and the plan of reorganization permit the
mutual holding company to convert from the mutual to the capital stock form of
organization (a "conversion transaction"). If the mutual holding company were to
undertake a conversion transaction, the transaction would in most circumstances
be structured as follows:
o The mutual holding company and the Company would cease to exist.
o The Bank would form a new stock holding company.
o The new stock holding company would sell shares of its common
stock in a subscription offering to certain of the Bank's
depositors.
o In addition to the shares it would sell in the subscription
offering, the new stock holding company would issue shares of its
common stock to the Company's stockholders in exchange for their
shares of the Company's common stock.
After the conversion transaction, the Company's minority stockholders
would own approximately the same percentage of the new stock holding company as
they owned of the Company. Purchasers in the conversion transaction's
subscription offering would own approximately the same percentage of the new
stock holding company as the mutual holding company owned in the Company prior
to the conversion transaction. However, if the mutual holding company waived any
dividends paid by the Company prior to the conversion transaction, then the
Company's minority stockholders would receive a smaller percentage of the new
stock holding company's common stock. See "Regulation--Holding Company
Regulation." There can be no assurance that the mutual holding company will
convert to the stock form, and the Board of Directors has no plan to do so.
- --------------------------------------------------------------------------------
(v)
<PAGE>
- --------------------------------------------------------------------------------
Stock Purchases
The shares of common stock will be offered on the basis of priorities.
As a depositor, you will receive non-transferable subscription rights to
purchase the shares. The shares will be offered first in a subscription offering
and any remaining shares may be offered in a community offering or public
offering or syndicated public offering. Ryan, Beck will assist us in selling our
common stock in the offering.
See pages __________.
Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the
estimated market value of the common stock by FinPro Financial Services, Inc.,
an appraisal firm experienced in appraisals of savings institutions. FinPro has
estimated, that in its opinion as of August 13, 1998 the aggregate pro forma
market value of the common stock ranged between $22,100,000 and $29,900,000
(with a mid-point of $26,000,000). The Board of Directors has decided to offer
47% of these shares, or between 1,038,700 and 1,405,300 shares to depositors and
the public. The 53% of these shares not sold to depositors and the public will
be issued to the mutual holding company. The estimated market value of the
shares is our estimated market value after giving effect to the reorganization
and the offering.
The appraisal was based in part upon our financial condition and
operations and the effect of the additional capital we will raise in this
offering. The $10.00 price per share was determined by our board of directors.
It is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. The independent appraisal will be updated before we
complete the reorganization. If the estimated market value of the common stock
is either below $22,100,000 or above $29,900,000 you will be notified and will
have the opportunity to modify or cancel your order. The appraisal is not a
recommendation about buying the common stock. You should read the entire
prospectus before making an investment decision. See pages __________.
Termination of the Offering
The subscription offering will terminate at 12:00 noon, New Jersey
time, on __________ ____, 1998. The community offering, public offering, or
syndicated public offering, if any, may terminate at any time without notice but
no later than __________ ____, 199___.
Benefits to Management from the Offering
Our full-time employees will participate in the offering through
individual purchases and through purchases of stock by our employee stock
ownership plan, which is a type of retirement plan. We also intend to implement
a restricted stock plan and a stock option plan, which may benefit the president
and other officers and directors. We do not intend to adopt these within the
first year after the reorganization. The restricted stock plan and stock option
plan are subject to stockholder approval and compliance with regulations.
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(vi)
<PAGE>
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Characteristics of the Bank
The financial highlights and strategy of the Bank include the following:
o Community Savings Institution - The Bank is a community-oriented
savings institution providing residential and commercial loans in its
primary market area, primarily secured by real estate along with a
variety of deposit products and other traditional financial services at
convenient locations and hours.
o Asset Growth - The Bank has expanded its office network by opening two
new offices in 1996 to better serve the community. As a result, total
assets of the Bank increased from approximately $217 million at
December 31, 1996 to $243 million at June 30, 1998; during this same
period, deposit accounts increased from approximately 12,400 to 15,300
accounts.
o Asset Composition and Quality - As of June 30, 1998, 100% of the Bank's
total loan portfolio consisted of locally-originated mortgage loans
secured by one-to-four family dwellings. At June 30, 1998, 89.1% of the
Bank's total assets consisted of residential mortgages, mortgage-backed
securities, investment securities and cash and cash equivalents. The
results of this asset mix are reflected in its low level of
non-performing assets. At June 30, 1998, the Bank's total
non-performing assets were less than 0.01% of total assets.
o Interest Rate Risk Management and Profitability - In an attempt to
lessen the interest rate risk that results because the Bank's deposits
typically adjust more quickly to changes in interest rates than its
mortgage loans and mortgage-backed securities, the Bank has implemented
several strategies to improve the match between asset and liability
maturity rates. These strategies include:
* The Bank generally originates 30-year, fixed rate
mortgages primarily for sale in the secondary market.
* Over the past five years, the Bank has increased its
origination of commercial real estate loans, which
generally have shorter maturities and higher yields
than single family residential mortgages.
* Over the past five years, the Bank has increased its
origination of consumer loans, consisting primarily
of home equity loans, which generally have shorter
maturities and greater yields than single family
residential mortgages.
* The Bank has maintained a high percentage of
investment securities and mortgage-backed securities,
a significant portion of which are available for
sale.
* The Bank has maintained a relatively stable base of
core deposits, which include checking accounts,
savings accounts and money market accounts. These
accounts are considered to be more stable and are a
lower cost of funds than certificates of deposits or
borrowings.
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(vii)
<PAGE>
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Use of the Proceeds Raised from the Sale of Common Stock
Ridgewood Financial, Inc. will use a portion of the net proceeds from
the offering to purchase all the common stock to be issued by the Bank in the
reorganization and to make a loan to an employee stock ownership plan of the
Bank to fund its purchase of stock in the offering. The Bank will invest the net
proceeds primarily in residential and commercial real estate loans,
mortgage-backed securities, consumer loans and other investment securities.
Proceeds may also be invested in new equipment and additional office facilities.
The mutual holding company will receive $200,000. The balance of the funds will
be retained as Ridgewood Financial, Inc.'s initial capitalization. See page
__________.
Dividends
We anticipate paying an annual cash dividend following the completion
of the full first quarter of operations following the reorganization in an
amount that has yet to be determined. There are restrictions on dividends. See
pages __________.
Market for the Common Stock
We expect the common stock to be quoted on The Nasdaq Stock Market
under the symbol "__________". If we do not meet the requirements for the Nasdaq
National Market, our common stock will be traded on the Nasdaq SmallCap Market
or the Nasdaq OTC Bulletin Board. Ryan, Beck intends to make a market in the
common stock but it is under no obligation to do so. See page __________.
Important Risks in Owning the Common Stock of Ridgewood Financial, Inc.
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 1-____ of this document.
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(viii)
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL AND OTHER DATA
The following summary financial information is derived from, and should
be read in conjunction with, the financial statements and notes beginning on
pages F-__.
Selected Financial Condition and Other Data
<TABLE>
<CAPTION>
At June 30, At December 31,
-------------------------- ---------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total Amount of:
Assets.................................................... $ 242,662 $ 222,589 $ 229,065 $ 216,775
Loans receivable, net..................................... 104,627 107,427 105,715 107,959
Loans held for sale....................................... -- 3,735 750 3,756
Investment securities held to maturity.................... 2,495 9,970 9,666 12,721
Investment securities available for sale.................. 11,730 41,678 26,954 43,211
Mortgage-backed securities held to maturity............... 12,794 15,496 14,356 16,611
Mortgage-backed securities available for sale............. 85,679 26,363 50,099 19,359
Cash and cash equivalents................................. 19,528 11,109 15,398 6,364
Deposits.................................................. 198,602 185,958 193,889 170,551
Borrowed funds............................................ 25,432 19,181 16,282 28,400
Total equity.............................................. 17,351 15,976 17,194 15,369
Number of:
Deposit accounts.......................................... 15,270 13,746 14,688 12,427
Full service offices...................................... 3 3 3 3
</TABLE>
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(ix)
<PAGE>
- --------------------------------------------------------------------------------
Selected Operating Data
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
------------------------- ----------------------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income............................ $ 8,027 $ 7,862 $ 15,834 $ 14,966 $ 11,915
Interest expense........................... 5,312 5,047 10,287 9,522 7,434
------- ------ ------- ------ ------
Net interest income........................ 2,715 2,815 5,547 5,444 4,481
Provision for loan losses.................. 132 6 12 12 60
------- ------- ------- ------ -------
Net interest income after
provision for loan losses................ 2,583 2,809 5,535 5,432 4,421
Noninterest income......................... 118 63 232 146 71
Noninterest expense........................ 1,969 1,785 3,676 4,210(1) 2,708
------- ------ ------ ------ ------
Income before income taxes................. 732 1,087 2,091 1,368 1,784
Income taxes............................... 245 425 841 628 657
------- ------ ------ ------ ------
Net income................................. $ 487 $ 662 $ 1,250 $ 740 $ 1,127
======= ====== ====== ====== ======
</TABLE>
- --------------------
(1) Includes a one-time special assessment of $830,000 ($523,000 net of tax
based on a 37% statutory tax rate) to recapitalize the Savings
Association Insurance Fund (the "SAIF") of the FDIC. Excluding this
assessment, total noninterest expense would have been $3.4 million,
income taxes would have totalled $935,000 and net income would have
been $1.3 million.
- --------------------------------------------------------------------------------
(x)
<PAGE>
- --------------------------------------------------------------------------------
Key Operating Ratios
<TABLE>
<CAPTION>
At or For
the Six Months At or For the Years Ended
Ended June 30, December 31,
------------------------ ----------------------------------------
1998(1) 1997(1) 1997 1996(2) 1995
---------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets............................. 0.42 % 0.60 % 0.57 % 0.36 % 0.69 %
Return on average equity............................. 5.59 8.66 7.87 5.03 7.89
Average equity to average assets..................... 7.49 6.98 7.20 7.21 8.72
Equity to assets at period end....................... 7.15 7.18 7.51 7.09 8.52
Interest rate spread (3)............................. 2.08 2.39 2.30 2.48 2.40
Net interest margin.................................. 2.38 2.64 2.58 2.75 2.79
Average interest-earning assets to average
interest-bearing liabilities....................... 1.07 X 1.05 X 1.06 X 1.06 X 1.08 X
Net interest income after provision for loan
losses to total non-interest expenses.............. 1.31 X 1.57 X 1.51 X 1.29 X 1.63 X
Asset Quality Ratios:
Non-performing loans to total assets................. -- % 0.12 % -- % 0.14 % 0.22 %
Non-performing assets to total assets................ -- 0.12 -- 0.14 0.22
Non-performing loans to total loans.................. 0.01 0.24 -- 0.28 0.41
Allowance for loan losses to total loans
at end of period................................... 0.72 0.55 0.58 0.54 0.62
Allowance for loan losses to
non-performing loans............................... 12,500.00 225.83 -- 193.61 148.25
</TABLE>
- -----------------
(1) Annualized where appropriate.
(2) 1996 included a one-time special assessment of $830,000.
(3) The interest rate spread is the difference between the weighted average
yield on average interest earning assets and the weighted average cost
of average interest bearing liabilities.
- --------------------------------------------------------------------------------
(xi)
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RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit largely depends on our net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets (such as mortgage loans and investment
securities) and the interest expense we pay on our interest-bearing liabilities
(such as deposits and borrowings). Most of our mortgage loans have rates of
interest which are fixed for the term of the loan ("fixed rates") and are
generally originated with terms of up to 30 years, while our deposit accounts
have significantly shorter terms to maturity. Because our interest-earning
assets generally have fixed rates of interest and have longer effective
maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities, which are primarily
time deposits. As a result, our net interest income may be adversely affected by
material and prolonged increases in interest rates. In addition, rising interest
rates may adversely affect our earnings because there may be a lack of customer
demand for loans. Declining interest rates may also adversely affect our net
interest income if adjustable rate or fixed rate mortgage loans are refinanced
at lower rates or prepaid, and we reinvest the resulting funds in lower yielding
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Asset and Liability Management."
Changes in interest rates can also affect the average life of loans and
mortgage-backed securities. Historically lower interest rates have resulted in
increased prepayments of loans and mortgage-backed securities, as borrowers
refinanced their mortgages in order to reduce their borrowing cost. Under these
circumstances, we are subject to reinvestment risk to the extent that we are not
able to reinvest such prepayments at rates which are comparable to the rates on
the prepaid loans or securities.
Increase in Non- 1- to 4- Family First Mortgage Lending
Over the past five years, we have significantly increased our
origination of commercial real estate loans and intend to continue to do so. We
also intend to continue to expand our origination of home equity loans and
consumer loan products, such as automobile loans. This type of lending has a
greater degree of credit risk than traditional one- to four-family residential
lending, which could result in an increase in non-performing assets and
provisions for loan losses. See "Business of the Bank - Lending Activities -
Consumer Loans."
Return on Equity After Reorganization
As a result of the reorganization, our equity will increase
substantially. Our ability to leverage this capital will be significantly
affected by competion for loans and deposits and economic conditions. Our
expenses will increase because of the costs associated with our employee stock
ownership plan, our expected stock benefit plans, and the costs of being a
public company. Our preparation costs for offering new types of consumer
products will also increase our expenses. We do not know if we will receive
sufficient income to offset these additional costs. Because of the increases in
our equity and expenses, our return on equity may decrease as compared to our
performance in previous years. Initially, we intend to invest the net proceeds
in short term investments which generally have lower yields than residential
mortgage loans. A lower return on equity could reduce the trading price of our
shares. For the six months ended June 30, 1998 our annualized return on average
equity was 5.59%.
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Reduced Ownership Following a Mutual Holding Company Conversion
If the mutual holding company converted to stock form in the future,
our plan of reorganization provides that our stockholders would exchange their
common stock of the Company for common stock of the converted mutual holding
company on an equitable basis. If the mutual holding company were to convert to
stock form, the related stock offering would likely (1) provide subscription
rights to depositors of the Bank, (2) limit the maximum number of shares that
could be purchased by a person and (3) include shares received in exchange of
our common stock in the maximum number of shares that could be purchased. This
could mean that our stockholders who own a large amount of our common stock
might not be able to exercise their subscription rights for shares sold by the
converted mutual holding company or, possibly, be forced to sell some shares (if
the maximum purchase limit were below the number of shares that such a person
would own after they received shares in exchange of our shares they already
owned).
With regulatory approval, the mutual holding company may waive the
receipt of dividends that we pay. One of the conditions to such approval would
be that any waived dividends would reduce the percentage ownership that minority
stockholders would receive in exchange of their shares of our common stock if
the mutual holding company converted to stock form in the future. The plan of
reorganization also provides for such an adjustment. See "Regulation--Holding
Company Regulation-- Conversion of the Mutual Holding Company to Stock Form" The
mutual holding company has not determined whether it will waive dividends that
we pay. In addition, the value of assets owned by the mutual holding company
would reduce the percentage ownership that minority stockholders would receive
if the mutual holding company converted to stock form.
You should not assume that the mutual holding company would be
permitted to convert to stock form or, even if permitted, that our stockholders
would be entitled to exchange or redeem their shares of our common stock.
Reliance Upon Local Economy and Competition Within Our Market Area.
We originate primarily residential real estate and consumer loans in
our market area. Our ability to originate loans that meet our underwriting
standards and the ability of mortgage borrowers to make monthly payments of
principal and interest is substantially dependent upon the strength of the local
economy. Competition from both local financial institutions and much larger
financial institutions headquartered outside our market area but with local
offices makes it difficult for us to generate sufficient loans. Our loan
portfolio declined from 108.0 million at December 31, 1996 to $104.6 million at
June 30, 1998. In its market area, the Bank competes with commercial banks,
savings institutions, 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 we have and offer services that we do not or cannot provide.
Our profitability depends upon our continued ability to successfully compete in
our market area. Further, economic stagnation or decline in economic activity in
our market area could have an adverse effect on our financial condition or
results of operations.
Takeover Restrictions
Mutual Holding Company Structure. Under federal and state regulations
and the plan of reorganization, the mutual holding company must own at least a
majority of our common stock at all times after the offering. The mutual holding
company will be controlled by the same directors and
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<PAGE>
officers who control the Bank. Because of this, our directors and management
will be able to control a majority of our common stock.
Provisions in the Company's Governing Instruments. Our certificate of
incorporation and bylaws provide for, among other things, a staggered board of
directors, noncumulative voting for directors, limits on the calling of special
meetings, and limits on a person or group voting shares in excess of 10% of the
outstanding shares. These restrictions may discourage proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors, and thus may perpetuate current management. See "Certain
Restrictions on Acquisition of the Company."
Ownership and Control of Common Stock by Management. Our directors and
executive officers are expected to purchase up to 131,000 shares of our common
stock in the offering (10.7% at the midpoint of the offering range). In
addition, approximately 8% of the shares of common stock issued in the offering
are expected to be purchased by the ESOP. Shares owned by the ESOP but not yet
allocated to the accounts of participants will be voted by the independent
directors for the ESOP. Further, because of the mutual holding company's
ownership of our stock, current officers and directors will control between
12.6% and 9.3% of the total number of minority shares outstanding, based on the
sale of between 1,038,700 and 1,405,300 shares of common stock. To the extent we
implement stock benefit plans, the ownership by management would increase. See
"Management - Executive Compensation - Employee Stock Ownership Plan" and "-
Potential Stock Benefit Plans."
Certain provisions of employment agreements with our key officers
provide for cash payments in the event of a change in control. These provisions
increase the cost of, and may discourage a future attempt to acquire the
Company, and thus generally may serve to perpetuate current management. See
"Management - Executive Compensation - Employment Agreements."
Limited Market for Common Stock
We have never issued capital stock and there is not, at this time, any
market for the common stock. We have applied to have the common stock quoted on
the National Market of The Nasdaq Stock Market under the symbol "__________". If
the common stock is not listed on the National Market, we expect that the common
stock will be quoted on the Nasdaq SmallCap Market or the Nasdaq OTC Bulletin
Board.
Due to the relatively small size of the offering (due, in part from the
public offering of less than half of the shares to be issued), you have no
assurance that an active and liquid market for the common stock will exist. You
should consider the potentially illiquid nature of an investment in the common
stock and recognize that the absence of an established market might make it
difficult to buy or sell the common stock. See "Market for the Common Stock."
Possible Effect of ESOP
The ESOP currently intends to purchase up to 8% of the common stock
offered in the offering. The net proceeds of the offering available for
investment by the Bank will be reduced by the cost of the shares (including the
costs of borrowing, if any) bought by the ESOP. The ESOP will also increase
compensation expense and adversely affect net income. See "Pro Forma Data" and
"Management Executive Compensation - Employee Stock Ownership Plan."
3
<PAGE>
Financial Institution Regulation and Possible Legislation
The Bank is subject to extensive regulation and supervision as a New
Jersey-chartered, FDIC- insured savings bank. The regulatory authorities have
extensive discretion in connection with their supervision and enforcement
activities and their examination policies, including the imposition of
restrictions on Bank operation, the classification of assets and the imposition
of an increase in allowance for loan losses. In addition, the Company, as a bank
holding company, will be subject to extensive regulation and supervision.
Regulatory changes, whether by the New Jersey Department of Banking and
Insurance (the "Department") , the FDIC, the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), or Congress, could have a material
impact on us. See "Regulation - Regulation of the Company."
Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies.
Most of the Bank's material data processing that could be affected by
this problem is provided by a third party service bureau. The service bureau has
advised the Bank that it expects to resolve this problem before the year 2000.
However, if this problem is not resolved before the year 2000, the Bank would
likely experience significant data processing delays, mistakes or failures.
These delays, mistakes or failures could have a significant adverse impact on
the Bank's financial condition and its results of operations. The Bank expects
to spend approximately $200,000 through September 30, 1998 for year 2000
compliance. The Bank does not expect to incur material additional expense for
year 2000 compliance after that date. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations - Year
2000 Evaluation."
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Ridgewood Savings Bank of New Jersey or the Bank is a New
Jersey-chartered mutual savings bank, originally chartered in 1885 as The
Ridgewood Building and Loan Association. In 1942, the Bank became a New
Jersey-chartered savings and loan association. In December 1992, the Bank
converted its mutual charter from a New Jersey-chartered savings and loan
association to a New Jersey-chartered savings bank. The Bank became a member of
the FHLB System in 1933 and the Bank's deposits are currently insured by the
SAIF as administered by the FDIC. The Bank is regulated by the Department and
the FDIC.
The Bank is a community-oriented retail savings bank offering
traditional deposit, residential real estate mortgage loans and, to a lesser
extent, consumer loans and other loans. Ridgewood, through its three offices
located in Ridgewood and Mahwah, New Jersey provides retail banking services,
with an emphasis on one-to-four family residential mortgages. Currently, the
Bank originates 20 year and 30 year conforming fixed rate residential mortgage
loans primarily for sale on the secondary market. All other mortgage loans are
originated for portfolio. At June 30, 1998, net loans receivable amounted to
approximately $104.6 million or 43.1% of total assets, of which approximately
$84.0 million or 79.4% of such total was secured by one-to-four family
residential real estate. The Bank invests excess liquidity
4
<PAGE>
in mortgage-backed and investment securities (consisting primarily of U.S.
government and government agency securities and obligations of states and
political subdivisions). Investment and mortgage-backed securities amount to
$112.7 million or 46.4% of total assets at June 30, 1998. At June 30, 1998, the
Bank had total assets, deposits and total equity of $242.7 million, $198.6
million, and $17.4 million, respectively. See "Business of the Bank."
RIDGEWOOD FINANCIAL, INC.
We are a New Jersey-chartered corporation organized on July 31, 1998 at
the direction of the Bank to acquire all of the capital stock that the Bank will
issue upon its conversion from the mutual to stock form of ownership. The
Company has not engaged in any significant business to date but will serve as a
holding company of the Bank following the reorganization. A majority of our
shares will, in turn, be owned by the mutual holding company. The Company has
applied for approval to acquire control of the Bank. The Company will retain up
to 50% of the net proceeds from the issuance of common stock as its initial
capitalization less the amount retained by the mutual holding company. The
Company will use the balance of the net proceeds to purchase all of the common
stock of the Bank to be issued upon conversion. Part of the proceeds retained by
the Company will be used to fund the loan to the ESOP. Upon consummation of the
reorganization, the Company will have no significant assets other than that
portion of the net proceeds of the offering retained by the Company (less the
loan to the ESOP) and the shares of the Bank's capital stock acquired in the
reorganization, and will have no significant liabilities. Cash flow to the
Company will be dependent upon earnings from the investment of the portion of
net proceeds retained by it in the reorganization and any dividends received
from the Bank. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. 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 condition, to take advantage of any such acquisition and
expansion opportunities that may arise. However, some of these activities could
be deemed to entail a greater risk than the activities permissible for New
Jersey-chartered savings institutions such as the Bank. The initial activities
of the Company are anticipated to be funded by the portion of the net proceeds
retained by the Company and earnings thereon.
RIDGEWOOD FINANCIAL, MHC
As part of the reorganization, the Bank will organize Ridgewood
Financial, MHC or the MHC as a New Jersey-chartered mutual holding company. As
long as they remain depositors of the Bank, persons 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 after the reorganization.
The MHC's principal assets will be the shares of common stock received
and up to $200,000 received as its initial capitalization in the reorganization.
Immediately after consummation of the reorganization, it is expected that the
MHC will not engage in any business activity other than its investment in a
majority of the common stock of the Company and its initial capitalization. The
MHC will be a mutual corporation chartered under New Jersey law and regulated by
the Department and the Federal Reserve. The MHC will be subject to the
limitations and restrictions imposed on bank holding companies under federal and
state laws. See "Regulation - Regulation of the MHC."
5
<PAGE>
USE OF PROCEEDS
The net proceeds will depend on the total number of shares of common
stock issued in the offering, which will be dependent on the independent
valuation and marketing considerations, and the expenses incurred by the Company
and the Bank in connection with the offering. Although the actual net proceeds
from the sale of the common stock cannot be determined until the offering is
completed, it is currently estimated that net proceeds, assuming the sale of
1,038,700 and 1,405,300 shares of stock at $10.00 per share, would be
approximately $9,787,000 and $13,453,000 respectively. The actual net proceeds
may vary from these estimates because, among other things, actual expenses may
be more or less than those estimated.
Of the net proceeds at least one half will be used by the Company to
purchase 100% of the common stock of the Bank that is issued. Of the remainder
of the net proceeds, the mutual holding company will receive $200,000 as its
initial capitalization and the Company will receive the rest. The net proceeds
from the offering will be used for general corporate purposes and will increase
the Bank's total capital to expand investment and lending, internal growth, and
possible external growth through the acquisition of branch offices, expansion
into new lending areas, and other acquisitions. Proceeds from the offering may
also be used to acquire property in Ridgewood, New Jersey or the surrounding
area to become the administrative office of the Company, MHC and the Bank.
However, there are no current agreements and arrangements regarding expansion or
acquisition. Net proceeds will initially be invested in U.S. government and
federal agency securities, marketable securities, or a combination of both. 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 stock in the offering, or in
the open market to the extent the stock is not available to fill the ESOP's
subscription. Net proceeds may also be used to make contributions to the ESOP
which in turn would be used to repay the loan.
In the event the ESOP does not purchase common stock in the offering,
the ESOP may purchase shares of common stock in the market after the
reorganization. In the event the purchase price of the common stock is higher
than $10.00 per share, the amount of proceeds required for the purchase by the
ESOP will increase and the resulting stockholders' equity will decrease.
The net proceeds may vary because total expenses of the reorganization
may be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the reorganization are adjusted to reflect a
change in the estimated pro forma market value of the Company and the Bank.
Payments for shares made through withdrawals from existing Bank deposit accounts
will not result in the receipt of new funds for investment by the Bank but will
result in a reduction of the Bank's deposits and interest expense as funds are
transferred from interest bearing certificates or other deposit accounts.
DIVIDEND POLICY
Subject to regulatory and other considerations which generally limit
the authority of the Bank to pay, and the amount of, dividends, the Bank intends
to establish a cash dividend policy following the offering commencing after the
completion of one full calendar quarter after the reorganization. The initial
annual amount of the dividends is as yet undetermined. Dividends will be subject
to determination and declaration by the Bank's Board of Directors, which will
take into account, among other factors, the Bank's financial condition, results
of operations, tax considerations, industry standards, economic conditions,
regulatory restrictions which affect the payment of dividends by the Company to
the MHC, and other factors. If the MHC elects not to waive receipt of dividends
from the Company or if the Department or Federal Reserve does not approve such a
waiver, the amount of dividends may be
6
<PAGE>
adversely affected. See "Risk Factors - Waiver of Dividends by the MHC" and
"Waiver of Dividends by the MHC." There can be no assurance that dividends will
in fact be paid on the common stock or that, if paid, such dividends will not be
reduced or eliminated in future periods.
The Company will not be permitted to pay dividends on its capital stock
if its stockholders' equity would be reduced below the amount required for the
liquidation account. See "The Reorganization -- Effects of the Reorganization --
Liquidation Rights". Under New Jersey law, a savings bank is required to
maintain at all times surplus in an amount which is at least equal to its
required capital as set forth in the New Jersey Banking Act of 1948, as amended
("Banking Code"). Dividends may be declared by the Company and paid to
stockholders only out of accumulated net earnings after any required transfers
to surplus and only if the Company's surplus would not be reduced by the payment
of such dividend. Furthermore, as a condition to non-objection by the FDIC, the
Company has agreed that it will not initiate any action within one year of
completion of the reorganization in the furtherance of payment of a special
distribution or return of capital (as distinguished from a regular or special
dividend payment in the ordinary course of business) to stockholders of the
Company. See also "Waiver of Dividends by the MHC."
In addition to the foregoing, earnings of the Company and the Bank
appropriated to bad debt reserves and deducted for federal income tax purposes
are not available for payment of cash dividends or other distributions to
stockholders without payment of taxes at the then-current tax rate by the
Company and the Bank on the amount of earnings deemed to be removed from the
reserves for such distribution. See "Taxation" and Note 10 of the financial
statements. The Bank does not contemplate any distribution out of its bad debt
reserve which would cause such tax liability.
WAIVER OF DIVIDENDS BY THE MHC
The MHC, prior to the declaration of any dividends by the Company, will
determine whether to apply to the Federal Reserve for permission to waive the
receipt of any dividends paid by the Company to its stockholders. Any waiver of
dividends, if approved by the Federal Reserve, will be subject to various
conditions. There can be, however, no assurances that the Federal Reserve will
approve such application or if such approval is obtained, that the MHC will
continue to waive dividends. The Company and MHC are not aware of any mutual
bank holding company regulated by the Federal Reserve that has been permitted to
waive the receipt of dividends from its majority-owned bank subsidiary holding
company. In waiving dividends, the Board of Directors must conclude, among other
things, that a dividend waiver by the MHC, which permits retention of capital by
the Company and the Bank, is in the best interest of the MHC because, among
other reasons: (i) the MHC has no need for the dividend for its business
operations; (ii) the cash that would be received by the MHC could be invested by
the Company and the Bank at a more favorable rate of return; (iii) such waiver
increases the capital of the Company and the Bank and enhances the Bank's
business so that customers will continue to have access to the offices and
services of the Bank; and (iv) such waiver preserves the net worth of the MHC
through its principal asset (the Company and the Bank), which would be available
for distribution in the unlikely event of a voluntary liquidation of the Company
and the Bank after satisfaction of claims of depositors, other creditors and
minority shareholders.
If the MHC determines that the waiver of dividends is in the best
interest of the parties involved: (i) The MHC will make prior application to the
Federal Reserve for approval to waive any dividends declared on the capital
stock of the Company. Such application will be made on an annual basis with
respect to any year in which the MHC intends to waive such dividends; (ii) If a
waiver is granted, dividends waived by the MHC will not be available for payment
to minority shareholders and will be excluded from the capital accounts of the
Bank for purposes of calculating any dividend payments to
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<PAGE>
minority shareholders; (iii) If a waiver is granted, the Bank will, so long as
the MHC remains a mutual holding company, establish a restricted capital account
in the cumulative amount of any dividends waived by the MHC for the benefit of
the mutual members of the MHC. The restricted capital account would be senior to
the claims of minority stockholders of the Company and would not decrease
notwithstanding changes in depositors of the Bank. This restricted capital
account would be added to any liquidation account in the Bank established in
connection with a conversion of the MHC to stock form and would not be available
for distribution to minority shareholders; (iv) In any conversion of the MHC
from mutual to stock form, the Bank, Company and MHC will comply with the
requirements of the Federal Reserve; and (v) In the event that the Federal
Reserve adopts regulations regarding dividend waivers by mutual holding
companies, the MHC will comply with the applicable requirements of such
regulations. See "Risk Factors - Considerations Resulting from the Mutual
Holding Company Structure" and "MHC Conversion to Stock Form."
Immediately after consummation of the reorganization, it is expected
that the MHC's operations will consist of activities relating to its investment
in a majority of the common stock of the Company and its initial capitalization.
In the future, the MHC may accept dividends paid by the Company to be used for
other purposes, including purchasing common stock from time to time in the open
market or from the Company, if permitted. The Company may establish an open
market purchase dividend reinvestment plan, pursuant to which stockholders may
elect to have cash dividends used to purchase additional shares of common stock
in the open market. The MHC may participate in any such plan. There can be no
assurances that the MHC will accept dividends paid by the Company, or if such
dividends are accepted, that the MHC will purchase shares of common stock in the
open market. Any purchases of common stock other than from the MHC will increase
the percentage of the Company's outstanding shares of common stock held by the
MHC and increase the number of shares eligible to be sold in any subsequent
secondary offering or mutual to stock conversion of the MHC.
MHC CONVERSION TO STOCK FORM
Following completion of the reorganization, the MHC may elect to
convert to stock form in accordance with applicable state and federal law, if
any. The MHC's directors, who will be the initial directors of the Bank and the
Company, have no current plans to convert the MHC to stock form. The terms of
such a conversion cannot be determined at this time and there is no assurance
when, if ever, a conversion will occur. In the event of a conversion, minority
shareholders will be entitled to exchange their shares of common stock for
shares of the converted MHC in a manner that is fair and reasonable to such
shareholders and the MHC. This will include an appropriate downward adjustment
in the exchange ratio to account for waived dividends, if any. See "Risk Factors
- - Possible Dilution in Ownership and Other Results From a Subsequent Conversion"
and "Waiver of Dividends by the MHC." Alternatively, minority shareholders will
receive cash for their shares in an amount equal to the fair market value of
their shares given the circumstances of the conversion. Such value will be
determined in the same manner as if shares were to be exchanged, including the
factoring of any waived dividends or any assets of the MHC. The fair market
value shall be established by an independent appraisal utilized in the
conversion. Moreover, in the event that the MHC converts to stock form in a
conversion, any options or other convertible securities held by any trustee,
officer, or employee of the Company, will be convertible into the right to
acquire shares of the converted MHC (or its successor) on the same basis as
outstanding common stock (pursuant to applicable exchange ratios); provided,
however, that if such shares cannot be so converted, the holders of such options
or other convertible securities shall be entitled to receive cash equal to the
fair value of such options or convertible securities. Any exchange or redemption
will be subject to the approval of the Department and the Federal Reserve, and
the Department and the Federal Reserve have made no determination as to the
permissibility of any exchange or redemption described in the plan of
reorganization.
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Although the plan of reorganization allows for such an event, there can
be no assurances when, if ever, a conversion will occur, or what conditions may
be imposed by the Department and Federal regulators. If a conversion does not
occur, the MHC will always own a majority of the common stock of the Company.
MARKET FOR COMMON STOCK
The Company has never issued capital stock. Consequently, there is not,
at this time, any market for the common stock. The Company has received
preliminary approval to have the common stock quoted on the National Market of
the Nasdaq Stock Market under the symbol "__________." If the number of shares
of common stock sold to our non-affiliates is not at least 1.1 million, we will
seek approval for quotation of our common stock on the Nasdaq SmallCap Market.
If the number of shares of common stock sold to our non-affiliates is not at
least 1.0 million, we will ask market makers to seek quotation of our common
stock on the Nasdaq OTC Bulletin Board. One of the conditions for Nasdaq
quotation (National Market and SmallCap Market) is that at least three market
makers make, or agree to make, a market in the stock. The Company will seek to
encourage and assist at least three market makers to make a market in the common
stock. Ryan, Beck has indicated its intent to make a market in the common stock
upon the completion of the offering, subject to compliance with applicable laws
and regulations, but is under no obligation to do so. While the Company
anticipates that prior to the completion of the offering it will obtain a
commitment from at least two other broker-dealers to make a market in the common
stock, there can be no assurance that there will be three or more market makers
for the common stock.
An active and liquid market for the common stock may not develop or be
maintained. Accordingly, prospective purchasers should consider the potentially
illiquid nature of an investment in the common stock and recognize that the
absence of an established market might make it difficult to buy or sell the
common stock. In the event the common stock is not listed on the National
Market, the common stock is expected to be quoted and traded on the SmallCap
Market of The Nasdaq Stock Market or the OTC Bulletin Board.
The aggregate price of the common stock is based upon an independent
appraisal of the pro forma market value of the common stock. However, there can
be no assurance that an investor will be able to sell the common stock purchased
in the offering at prices in the range of the pro forma book values of the
common stock or at or above the purchase price. See "Pro Forma Data" and "The
Offering - Stock Pricing and Number of Shares to be Offered."
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CAPITALIZATION
Set forth below is the historical capitalization, including deposits
and borrowed funds, of the Bank as of June 30, 1998, and the pro forma
capitalization of the Company after giving effect to the shares issued to the
MHC in the reorganization, the sale of shares offered pursuant to the offering
and other assumptions set forth under "Pro Forma Data." A change in the number
of shares to be sold in the offering may affect materially such pro forma
capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at June 30, 1998
---------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
1,038,700 1,222,000 1,405,300 1,616,095
Actual, as of Shares at Shares at Shares at Shares at
June 30, $10.00 per $10.00 per $10.00 per $10.00 per
1998 share share share share(1)
----------------- --------------- ---------------- --------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................... $ 198,602 $ 198,602 $ 198,602 $ 198,602 $ 198,602
Borrowed funds................................ 25,432 25,432 25,432 25,432 25,432
Total deposits and borrowed funds............. 224,034 224,034 224,034 224,034 224,034
Stockholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized; none to be issued........ -- -- -- -- --
Common stock, $0.10 par value, 10,000,000
shares authorized, assuming shares
outstanding as shown(3)................... -- 221 260 299 344
Additional paid-in capital(3)(4).............. -- 9,366 11,160 12,954 15,017
Retained earnings(3).......................... 17,453 17,453 17,453 17,453 17,453
Accumulated other comprehensive income........ (102) (102) (102) (102) (102)
Less:
Common stock acquired by ESOP(5)............ -- 831 978 1,124 1,293
Common stock acquired by
stock programs(6)......................... -- 415 489 562 646
-------- -------- --------- --------- ---------
Total equity/stockholders' equity............. $ 17,351 $ 25,692 $ 27,304 $ 28,918 $ 30,773
======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) 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 a
commensurate increase in the offering range of up to 15% to reflect changes
in market and financial conditions.
(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) No effect has been given to the issuance of additional shares of common
stock pursuant to any stock option plans that may be adopted by the Company
and the Bank and presented for approval by the minority stockholders after
the offering. An amount equal to 10% of the shares of common stock sold in
the offering would be reserved for issuance upon the exercise of options to
be granted under the stock option plans no earlier than one year following
the reorganization. See "Risk Factors - Possible Dilutive Effective of ESOP
and stock benefit plans" and "Management of the Bank - Potential Stock
Benefit Plans - Stock Options Plans."
(4) The reduction in additional paid in capital of the Bank reflects the
retention by the MHC of up to $200,000 upon consummation of the
reorganization.
(5) Assumes that 8.0% of the shares sold in the offering will be purchased by
the ESOP, and that the funds used to acquire the ESOP shares will be
borrowed from the Company. For an estimate of the impact of the loan on
earnings, see "Pro Forma Data." The Bank intends to make scheduled
discretionary contributions to the ESOP sufficient to enable the ESOP to
service and ultimately retire its debt. The amount of shares to be acquired
by the ESOP is reflected as a reduction of stockholders' equity. See
"Management - Benefits - Employee Stock Ownership Plan." If the ESOP is
unable to purchase common stock in the reorganization due to an
oversubscription in the offering by Eligible Account Holders, and the
purchase price in the open market is greater than the original $10.00 price
per share, there will be a corresponding reduction in stockholders' equity.
(6) Assumes that an amount equal to 4% of the shares of common stock sold in
the offering is purchased by stock programs no earlier than one year
following the reorganization. The common stock purchased by the stock
programs is reflected as a reduction of stockholders' equity. See "Risk
Factors -Potential Effect of ESOP and Stock Benefit Plans" and "Management
for the Bank - Potential Stock Benefit Plans - Stock Programs."
10
<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 to the Company
are currently estimated to be between $8.3 million and $11.6 million (or $13.4
million in the event the independent valuation is increased by 15%) based upon
the following assumptions: (i) an amount equal to 4% of the shares offered will
be awarded pursuant to the stock programs (which will be adopted no sooner than
one year following the offering), funded through open market purchases; (ii)
Ryan, Beck will receive an advisory and marketing fee equal to $150,000 and
(iii) other fixed expenses incurred in connection with the offering are
estimated to be $450,000. As part of the reorganization, the MHC will be
capitalized at $200,000, which will result in a reduction of the Company's
assets and equity by the same amount.
Pro forma earnings have been calculated assuming the common stock had
been sold at the beginning of the periods and the net proceeds had been invested
at an average yield of 5.41% for the six months ended June 30, 1998 and the year
ended December 31, 1997, which approximates the yield on a one-year U.S.
Treasury bill on June 30, 1998. The yield on a one-year U.S. Treasury bill,
rather than an arithmetic average of the average yield on interest-earning
assets and average rate paid on deposits, has been used to estimate income on
net proceeds because it is believed that the one-year U.S. Treasury bill rate is
a more accurate estimate of the rate that would be obtained on an investment of
net proceeds from the offering. The pro forma after-tax yield is assumed to be
3.41% for the six months ended June 30, 1998 and the year ended December 31,
1997, based on an effective tax rate of 37.00%. The effect of withdrawals from
deposit accounts for the purchase of common stock has not been reflected.
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 (in the case of pro forma net earnings per share) to give
effect to the purchase of shares by the ESOP. Pro forma stockholders' equity
amounts have been calculated as if the common stock had been sold on June 30,
1998 and December 31, 1997, respectively, and, accordingly, no effect has been
given to the assumed earnings effect of the transactions.
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 consolidated assets and liabilities
of the Company computed in accordance with generally accepted accounting
principles ("GAAP"). 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 historical data of the Bank and pro
forma data of the Company at or for the six months ended June 30, 1998 and at
and for the year ended December 31, 1997, 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 reorganization. No effect has
been given in the tables to the possible issuance of additional shares reserved
for future issuance pursuant to a stock option plan that may be adopted by the
Board of Directors of the Company no earlier than one year following the
reorganization, nor does book value give any effect to the liquidation account
to be established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders or the bad debt reserve in liquidation. See "The
Reorganization - Effects of Reorganization - Liquidation Rights" and "Management
of the Bank -Potential Stock Benefit Plans - Stock Option Plans."
11
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended June 30, 1998
-------------------------------------------------------------------------
$22,100,000 $26,000,000 $29,900,000 $34,385,000
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
--------- --------- --------- ---------
1,038,700 1,222,000 1,405,300 1,616,095
Shares Shares Shares Shares
------ ------ ------ ------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds....................................... $ 10,387 $ 12,220 $ 14,053 $ 16,161
Less expenses........................................ 600 600 600 600
Less capital to MHC.................................. 200 200 200 200
----------- ----------- ----------- -----------
Estimated net proceeds to the Company............. 9,587 11,420 13,253 15,361
Less ESOP funded by the Company...................... 831 978 1,124 1,293
Less stock programs adjustment....................... 415 489 562 646
----------- ----------- ----------- -----------
Estimated investable net proceeds................. $ 8,341 $ 9,953 $ 11,567 $ 13,422
=========== ========== =========== ===========
Net income:
Historical........................................ $ 487 $ 487 $ 487 $ 487
Pro forma income on net proceeds.................. 142 170 197 229
Pro forma ESOP adjustments(1)..................... (26) (31) (35) (41)
Pro forma stock programs adjustment(2)............ (26) (31) (35) (41)
----------- ---------- ----------- -----------
Pro forma net income(1)(3)(4)..................... $ 577 $ 595 $ 614 $ 634
=========== ========== =========== ===========
Per share net income
Historical........................................ $ 0.23 $ 0.19 $ 0.17 $ 0.15
Pro forma income on net proceeds.................. 0.07 0.07 0.07 0.07
Pro forma ESOP adjustments(1)..................... (0.01) (0.01) (0.01) (0.01)
Pro forma stock programs adjustment(2)............ (0.01) (0.01) (0.01) (0.01)
----------- ---------- ----------- -----------
Pro forma net income per share(1)(3)(4)........... $ 0.28 $ 0.24 $ 0.22 $ 0.20
=========== ========== =========== ===========
Shares used in calculation of income per share(1).... 2,131,059 2,507,128 2,883,197 3,315,676
Stockholders' equity:
Historical........................................ $ 17,351 $ 17,351 $ 17,351 $ 17,351
Estimated net proceeds............................ 9,587 11,420 13,253 15,361
Less: Common Stock acquired by the ESOP (1)....... (831) (978) (1,124) (1,293)
Less: Common stock acquired by stock
programs(2)................................. (415) (489) (562) (646)
----------- ---------- ----------- -----------
Pro forma stockholders' equity(1)(3)(4)........... $ 25,692 $ 27,304 $ 28,918 $ 30,773
========== ========== =========== ===========
Stockholders' equity per share:
Historical (4).................................... $ 7.85 $ 6.67 $ 5.80 $ 5.05
Estimated net proceeds............................ 4.34 4.39 4.43 4.47
Less: Common Stock acquired ESOP(1)............... (0.38) (0.38) (0.38) (0.38)
Less: Common Stock acquired by stock
programs(2)................................. (0.19) (0.19) (0.19) (0.19)
----------- ---------- ----------- -----------
Pro forma stockholders' equity per share(4)....... $ 11.62 $ 10.49 $ 9.66 $ 8.95
=========== ========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 86.06% 95.33% 103.52% 111.73%
========== ========== ========== ==========
Offering price to pro forma
net income per share............................... 17.86X 20.83X 22.73X 25.00X
========== ========== ========== ==========
Shares used in calculation of book value/share....... 2,210,000 2,600,000 2,990,000 3,438,500
</TABLE>
- ----------------------------
(1) Assumes that 8% of the shares of common stock sold in the offering will be
purchased by the ESOP and that the ESOP will borrow funds from the Company.
The common stock acquired by the ESOP is reflected as a reduction of
stockholder's equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the loan. This table assumes a 10 year amortization period. See
"Management of the Bank - Benefits - Employee Stock Ownership Plan." The
pro forma net earnings assumes: (i) that the Bank's contribution to the
ESOP for the principal portion of the debt service requirement for the six
months ended June 30, 1998 were made at the end of the period; (ii) that
4,155, 4,888, 5,621, and 6,464 shares at the minimum, midpoint, maximum,
and 15%
12
<PAGE>
above the maximum of the range, respectively, were committed to be released
during the six months ended June 30, 1998 at an average fair value of
$10.00 per share and were accounted for as a charge to expense in
accordance with Statement of Position ("SOP") No. 93-6; and (iii) only the
ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations, while all ESOP shares
were considered outstanding for purposes of the stockholders' equity per
share calculations. See also "Risk Factors - Potential Effect of ESOP" for
a discussion of possible added costs for the ESOP.
(2) Gives effect to the stock programs that may be adopted by the Bank
following the reorganization and presented for approval at a meeting of
stockholders to be held no earlier than one year after completion of the
reorganization. If the stock programs are approved by the stockholders, the
stock programs would be expected to acquire an amount of common stock equal
to 4% of the shares of common stock sold in the offering, or 41,548,
48,880, 56,212, and 64,644 shares of common stock respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range through
open market purchases. Funds used by the stock programs to purchase the
shares will be contributed to the stock programs by the Bank. In
calculating the pro forma effect of the stock programs, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the stock programs at the beginning of the six months ended
June 30, 1998 through open market purchases, at $10.00 per share, and that
10% of the amount contributed was amortized to expense during the six
months ended June 30, 1998. There can be no assurance that stockholder
approval of the stock programs will be obtained, or the actual purchase
price of the shares will be equal to $10.00 per share. See "Management of
the Bank - Potential Stock Benefit Plans - Stock Programs."
(3) The retained earnings of the Company and the Bank will continue to be
substantially restricted after the reorganization. See "Dividend Policy,"
"The Reorganization - Effects of Reorganization - Liquidations Rights" and
"Regulation - Dividends and Other Capital Distributions Limitations."
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plans that may be adopted by the Bank
following the reorganization which, in turn, would be presented for
approval at a meeting of stockholders to be held no earlier than one year
after the completion of the reorganization. If the stock option plans are
presented and approved by stockholders, an amount equal to 10% of the
common stock sold in the offering, or 103,870, 122,200, 140,530, and
161,610 shares at the minimum, midpoint, maximum and 15% above the maximum
of the 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 stockholder approval of the stock option plans and the
exercise of all options at the end of the period at an exercise price of
$10.00 per share, the pro forma net earnings per share would be $0.26,
$0.23, $0.20, and $0.18, respectively at the minimum, midpoint, maximum and
15% above the maximum of the range for the six months ended June 30, 1998;
pro forma stockholders' equity per share would be $11.55, $10.48, $9.68 and
$9.00, respectively at the minimum, midpoint, maximum and 15% above the
maximum of the range for the six months ended June 30, 1998. See
"Management of the Bank - Potential Stock Benefit Plans - Stock Option
Plans."
13
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
----------------------------------------------------------------------
$22,100,000 $26,000,000 $29,900,000 $34,385,000
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
--------- --------- --------- ---------
1,038,700 1,222,000 1,405,300 1,616,095
Shares Shares Shares Shares
------ ------ ------ ------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds....................................... $ 10,387 $ 12,220 $ 14,053 $ 16,161
Less expenses........................................ 600 600 600 600
Less capital to MHC.................................. 200 200 200 200
----------- ----------- ----------- -----------
Estimated net proceeds............................ 9,587 11,420 13,253 15,361
Less ESOP funded by the Company...................... 831 978 1,124 1,293
Less stock programs adjustment....................... 415 489 562 646
----------- ----------- ----------- -----------
Estimated investable net proceeds................. $ 8,341 $ 9,953 $ 11,567 $ 13,422
=========== ========== ========== ==========
Net Income:
Historical........................................ $ 1,250 $ 1,250 $ 1,250 $ 1,250
Pro forma income on net proceeds.................. 284 339 394 458
Pro forma ESOP adjustments(1)..................... (52) (62) (71) (81)
Pro forma stock programs adjustment(2)............ (52) (62) (71) (81)
----------- ---------- ---------- ----------
Pro forma net income(1)(3)(4)..................... $ 1,430 $ 1,465 $ 1,502 $ 1,546
=========== ========== ========== ==========
Per share net income
Historical........................................ $ 0.59 $ 0.50 $ 0.43 $ 0.38
Pro forma income on net proceeds.................. 0.13 0.13 0.14 0.14
Pro forma ESOP adjustments(1)..................... (0.02) (0.02) (0.02) (0.02)
Pro forma stock programs adjustment(2)............ (0.02) (0.02) (0.02) (0.02)
----------- ---------- ---------- ----------
Pro forma net income per share(1)(3)(4)........... $ 0.68 $ 0.59 $ 0.53 $ 0.48
=========== ========== ========== ==========
Shares used in calculation of income per share(1).... 2,135,214 2,512,016 2,888,818 3,322,141
Stockholders' equity:
Historical........................................ $ 17,194 $ 17,194 $ 17,194 $ 17,194
Estimated net proceeds............................ 9,587 11,420 13,253 15,361
Less: Common Stock acquired by the ESOP(1)........ (831) (978) (1,124) (1,293)
Less: Common stock acquired by stock
programs(2)................................. (415) (489) (562) (646)
----------- ---------- ----------- ----------
Pro forma stockholders' equity(1)(3)(4)........... $ 25,535 $ 27,147 $ 28,761 $ 30,616
=========== ========== ========== ==========
Stockholders' equity per share:
Historical (4).................................... $ 7.78 $ 6.61 $ 5.75 $ 5.00
Estimated net proceeds............................ 4.34 4.39 4.43 4.47
Less: Common Stock acquired ESOP(1)............... (0.38) (0.38) (0.38) (0.38)
Less: Common Stock acquired by stock
programs(2)................................. (0.19) (0.19) (0.19) (0.19)
----------- ---------- ----------- ----------
Pro forma stockholders' equity per share(4)....... $ 11.55 $ 10.43 $ 9.61 $ 8.90
=========== ========== =========== ==========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 86.58% 95.88% 104.06% 112.36%
=========== ========== ========== ==========
Offering price to pro forma
net income per share............................... 14.71X 16.95X 18.87X 20.83X
=========== ========== ========== ==========
Shares used in calculation of book value/share....... 2,210,000 2,600,000 2,990,000 3,438,500
</TABLE>
- ---------------------
(1) Assumes that 8% of the shares of common stock sold in the offering will be
purchased by the ESOP and that the ESOP will borrow funds from the Company.
The common stock acquired by the ESOP is reflected as a reduction of
stockholder's equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the loan. This table assumes a 10 year amortization period. See
"Management of the Bank - Benefits - Employee Stock Ownership
14
<PAGE>
Plan." The pro forma net earnings assumes: (i) that the Bank's contribution
to the ESOP for the principal portion of the debt service requirement for
the year ended December 31, 1997 were made at the end of the period; (ii)
that 8,310, 9,776, 11,242, and 12,929 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, 1997 at an
average fair value of $10.00 per share and were accounted for as a charge
to expense in accordance with Statement of Position ("SOP") No. 93-6; and
(iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations, while
all ESOP shares were considered outstanding for purposes of the
stockholders' equity per share calculations. See also "Risk Factors -
Potential Effect of ESOP" for a discussion of possible added costs for the
ESOP.
(2) Gives effect to the stock programs that may be adopted by the Bank
following the reorganization and presented for approval at a meeting of
stockholders to be held no earlier than one year after completion of the
reorganization. If the stock programs are approved by the stockholders, the
stock programs would be expected to acquire an amount of common stock equal
to 4% of the shares of common stock sold in the offering, or 41,548,
48,880, 56,212, and 64,644 shares of common stock respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range through
open market purchases. Funds used by the stock programs to purchase the
shares will be contributed to the stock programs by the Bank. In
calculating the pro forma effect of the stock programs, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the stock programs at the beginning of the year ended December
31, 1997 through open market purchases, at $10.00 per share, and that 20%
of the amount contributed was amortized to expense during the year ended
December 31, 1997. There can be no assurance that stockholder approval of
the stock programs will be obtained, or the actual purchase price of the
shares will be equal to $10.00 per share. See "Management of the Bank -
Potential Stock Benefit Plans - Stock Programs."
(3) The retained earnings of the Company and the Bank will continue to be
substantially restricted after the reorganization. See "Dividend Policy,"
"The Reorganization - Effects of Reorganization - Liquidations Rights" and
"Regulation - Dividends and Other Capital Distributions Limitations."
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plans that may be adopted by the Bank
following the reorganization which, in turn, would be presented for
approval at a meeting of stockholders to be held no earlier than one year
after the completion of the reorganization. If the stock option plans are
presented and approved by stockholders, an amount equal to 10% of the
common stock sold in the offering, or 103,870, 122,200, 140,530, and
161,610 shares at the minimum, midpoint, maximum and 15% above the maximum
of the 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 stockholder approval of the stock option plans and the
exercise of all options at the end of the period at an exercise price of
$10.00 per share, the pro forma net earnings per share would be $0.64,
$0.56, $0.50, and $0.44, respectively at the minimum, midpoint, maximum and
15% above the maximum of the range for the year ended December 31, 1997;
pro forma stockholders' equity per share would be $11.48, $10.42, $9.63 and
$8.95, respectively at the minimum, midpoint, maximum and 15% above the
maximum of the range for the year ended December 31, 1997. See "Management
of the Bank - Potential Stock Benefit Plans - Stock Option Plans."
15
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
Under FDIC regulations, depository institutions such as the Bank are
required to maintain a minimum ratio of qualifying total capital to total
risk-based assets and off-balance sheet instruments, as adjusted to reflect
their relative credit risks, of 8%. At least one-half of total risk-based
capital is to be comprised of common equity, retained earnings, non-cumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill ("Tier I capital"). The remainder of total risk-based
capital may consist of a limited amount of subordinated debt, other preferred
stock, certain other instruments and a limited amount of general reserves for
loan losses ("Tier II capital").
The FDIC also has established an additional capital adequacy guideline
referred to as the leverage capital ratio, which measures the ratio of Tier I
capital to total assets less goodwill. Depository institutions are required to
maintain a minimum leverage capital ratio of between 3% and 5%, or more. The
actual required ratio is based on the FDIC's assessment of the individual
depository institution's asset quality, earnings performance, interest-rate risk
and liquidity.
For purposes of New Jersey law, all New Jersey-chartered banking
institutions are expected to maintain a Tier 1 leverage capital ratio of 3%. At
June 30, 1998, the Bank exceeded all regulatory capital requirements.
The Federal Reserve has established guidelines regarding the capital
adequacy of bank holding companies, such as the Company. These requirements are
substantially similar to those adopted by the FDIC for depository institutions,
as set forth above. See generally "Regulation and Supervision Regulation of the
Company - Regulatory Capital Requirements" and "- Regulation of the Bank
Regulatory Capital Requirements."
The pro forma tables do not take into account the dilutive effect of
any stock options because the stock options to be issued under the contemplated
stock option plan are exercisable over a ten-year period. Any stock option plan
would be submitted for approval by stockholders to obtain certain favorable
securities law treatment and for listing on the Nasdaq National Market. The
options are not directly attributable to the reorganization or the offering as
no funds will be received or paid until such options vest. Furthermore, no such
plans will be implemented without stockholder approval and will not be
implemented within one year of the reorganization. See "Management of the Bank -
Potential Stock Benefit Plans - Stock Option Plans." See footnote (4) at "Pro
Forma Data" for pro forma earnings per share and pro forma stockholders' equity
per share for the period indicated assuming all options are exercised at the
close of the offering (which is impossible).
16
<PAGE>
The following table presents the Bank's historical and pro forma
capital position relative to its capital requirements as of June 30, 1998. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the FDIC. For a discussion of the capital standards
applicable to the Bank, see "Regulation - The Bank - Regulatory Capital
Requirements."
<TABLE>
<CAPTION>
Pro Forma as of June 30, 1998(1)
-----------------------------------------------------------------------------------
Actual, As of $11.5 Million $13.5 Million $15.5 Million $17.9 Million
June 30, 1998 Offering Offering Offering Offering
--------------------- ------------------- ------------------- -------------------- -------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital............ $17,351 7.15% $20,899 8.49% $21,594 8.75% $22,292 9.00% $23,093 9.30%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Leverage Capital:
Actual or Pro Forma... $17,449 7.49% $20,997 8.88% $21,692 9.15% $22,390 9.41% $23,191 9.72%
Required (3).......... 9,317 4.00 9,459 4.00 9,487 4.00 9,515 4.00 9,547 4.00
------ ----- ------ ----- ------ ----- ----- ----- ------ -----
Excess................ $ 8,132 3.49% $11,538 4.88% $12,205 5.15% $12,875 5.41% $13,644 5.72%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tier I Risk-Based
Capital:
Actual or Pro Forma... $17,449 19.40% $20,997 22.90% $21,692 23.56% $22,390 24.23% $23,941 24.99%
Required(4)........... 3,597 4.00 3,668 4.00 3,682 4.00 3,696 4.00 3,712 4.00
------ ----- ------ ----- ------ ----- ------- ----- ------ -----
Excess................ $13,852 15.40% $17,329 18.90% $18,010 19.56% $18,694 20.23% $19,479 20.99%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total Risk-Based
Capital(3):
Actual or Pro Forma... $18,199 20.24% $21,747 23.71% $22,442 24.38% $23,140 25.04% $23,941 25.80%
Required.............. 7,195 8.00 7,336 8.00 7,364 8.00 7,392 8.00 7,424 8.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess................ $11,004 12.24% $14,411 15.71% $15,078 16.38% $15,748 17.04% $16,517 17.80%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -----------------
(1) See "Pro Forma Data." Proceeds are assumed to be invested in interest
earning assets which have a 50% risk-weighting.
(2) GAAP, average or risk-weighted assets as appropriate.
(3) Risk-weighted assets as of June 30, 1998, totalled $89.9 million.
(4) Regulations of the FDIC require Tier I risk based capital that varies based
upon an institution's regulatory examination rating.
17
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
STATEMENTS OF INCOME
The Statements of Income of the Bank for the two years ended December
31, 1997 have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, whose report thereon appears elsewhere in the prospectus.
The statement of income for the year ended December 31, 1995 was audited by
Dorfman, Abrams, Music & Co., whose report thereon appears elsewhere herein.
With respect to information for the six months ended June 30, 1998 and 1997,
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 six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. These Statements of Income should be read in conjunction with
the Financial Statements and Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
---------------------- --------------------------------------
1998 1997 1997 1996 1995
--------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income: (In thousands)
Loans receivable ............................................. $4,150 $4,245 $ 8,562 $ 8,267 $ 7,697
Investment securities......................................... 184 417 756 1,134 1,300
Mortgage-backed securities.................................... 481 565 1,068 1,171 1,682
Securities available for sale................................. 2,700 2,369 4,778 3,998 894
Other......................................................... 512 266 670 396 342
------- ------ ------- ------- ------
Total interest income..................................... 8,027 7,862 15,834 14,966 11,915
Interest expense:
Deposits ..................................................... 4,792 4,289 8,982 7,650 6,553
Borrowed funds ............................................... 520 758 1,305 1,872 881
------- ------- ------ ------ -------
Total interest expense.................................... 5,312 5,047 10,287 9,522 7,434
----- ----- ------ ------ ------
Net interest income....................................... 2,715 2,815 5,547 5,444 4,481
Provision for loan losses ......................................... 132 6 12 12 60
------- ------ ------- ------- -------
Net interest income after provision for loan losses...... 2,583 2,809 5,535 5,432 4,421
----- ----- ------ ------ ------
Noninterest income:
Fees and service charges...................................... 67 47 114 73 58
Gain (loss) on sale of securities............................. 24 -- 19 45 (29)
Gain on sale of loans......................................... 21 3 45 14 38
Other......................................................... 6 13 54 14 4
------ ------ ------ ------ ------
Total noninterest income.................................. 118 63 232 146 71
------- ------ ------- ------- -------
Noninterest expenses:
Salaries and benefits......................................... 1,036 942 1,926 1,691 1,385
Occupancy and equipment ...................................... 555 501 1,034 878 586
Advertising and promotion..................................... 76 68 150 178 152
SAIF deposit insurance premium................................ 59 54 110 250 286
SAIF assessment .............................................. -- -- -- 830 --
Other expenses................................................ 243 220 456 383 299
------- ------- ------- ------- -------
Total noninterest expenses................................ 1,969 1,785 3,676 4,210 2,708
----- ----- ------ ------ ------
Income before income taxes................................ 732 1,087 2,091 1,368 1,784
Income taxes ...................................................... 245 425 841 628 657
------- ------- ------- ------- -------
Net income...........................................$ 487 $ 662 $ 1,250 $ 740 $ 1,127
======= ======= ====== ======= ======
</TABLE>
See accompanying notes to financial statements beginning on page F-____ which
are an integral part of these statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Bank's results of operations are primarily dependent on its net
interest income, which is the difference between the interest income earned on
assets, primarily loans, mortgage-backed securities, investments, and other
interest earning assets less the interest expense on its liabilities, primarily
deposits and borrowings. Net interest income may be affected significantly by
general economic and competitive conditions, particularly those with respect to
market interest rates, and policies of regulatory agencies. Furthermore, the
Bank's lending activity is concentrated in loans secured by real estate in the
Bank's market area and therefore the Bank's operations are affected by local
market conditions. The results of operations are also influenced by the level of
non-interest expenses, such as employees' salaries and benefits, occupancy and
equipment costs, non-interest income such as loan related fees and fees on
deposit related services, and the Bank's provision for loan losses.
STRATEGY/HIGHLIGHTS
Management Strategy
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services. Management's
strategy has been to emphasize residential mortgage loans, monitor interest rate
risk through asset and liability management, maintain asset quality and control
operating expenses. During recent years, the Bank has expanded its office
facilities, increased its origination of local commercial real estate loans and
increased its origination of consumer loans, consisting primarily of home equity
loans. Most of the loans on the Bank's loan portfolio have fixed rates. The
Bank's intent in the future is to focus more on originating adjustable rate and
shorter term residential mortgage loans, commercial real estate loans and
consumer loans for its own portfolio, while originating long-term, fixed rate
loans primarily for sale in the secondary market. In order to leverage its
assets and assist in the management of its interest rate risk, the Bank also
invests significantly in mortgage-backed securities and investment securities.
During the past several years, the competing financial institutions
located in Ridgewood have essentially all been acquired by state-wide and
regional bank and thrift holding companies. As a result, the Bank is the only
remaining local institution headquartered and managed in Ridgewood, New Jersey.
The Bank believes that its "hometown" advantage provides an opportunity to
expand its operations as the only local, independent financial institution and
that the reorganization to the mutual holding company format and capital raised
from the reorganization and offering will enable it to take advantage of this
opportunity. The Bank intends to use the new structure and capital to expand
both the amount and scope of its current lending and investment activities. The
Bank also believes it has a unique ability to grow as a result of the relatively
high level of income and businesses operating in its primary market area.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets increased by $13.6 million or 5.9% to $242.7 million at
June 30, 1998 from $229.1 million at December 31, 1997. This increase was
primarily due to an increase in available for sale mortgage-backed securities
and cash and cash equivalents, offset by decreases in investment securities,
held to maturity mortgage backed securities, loans held for sale and loans
receivable. Cash and cash
19
<PAGE>
equivalents increased $4.1 million to $19.5 million at June 30, 1998 compared to
$15.4 million at December 31, 1997. Available for sale mortgage-backed
securities increased by $35.6 million to $85.7 million at June 30, 1998, from
$50.1 million at December 31, 1997, as new purchases and reinvestment of
prepayments of mortgage-backed securities were classified as available for sale.
At the same time total investment securities decreased by $22.4 million from
$36.6 million to $14.2 million for the six months ended June 30, 1998 as a
result of sales and redemptions of callable securities. Net loans receivable
decreased $1.1 million and loans held for sale decreased $750,000 as a result of
the sale of $750,000 of loans held for sale during the six months ended June 30,
1998.
The Bank's deposits increased by $4.7 million or 2.4% to $198.6 million
at June 30, 1998, due primarily to continued deposit growth at both of its new
branches opened in 1996. Borrowings increased $9.1 million to $25.4 million at
June 30, 1998 from $16.3 million at December 31, 1997 as the Bank used
borrowings to lengthen liabilities to reduce interest rate risk and to generate
additional income as part of its leveraging strategy.
Total equity increased $157,000 to $17.4 million at June 30, 1998 due
to net income of $487,000 for the six months ended June 30, 1998 offset by
$330,000 of unrealized depreciation on securities available for sale, net of
taxes.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1997
Net Income. Net income decreased $175,000 to $487,000 for the six
months ended June 30, 1998 as compared to $662,000 for the same period in 1997.
Net income decreased primarily due to a decrease of $100,000 in net interest
income, an increase in the provision for loan losses of $126,000, and an
increase in non-interest expenses of $184,000.
Net Interest Income. Net interest income decreased by $100,000 or 3.6%
to $2.7 million for the period ended June 30, 1998 compared to the same period
in 1997. The decrease was primarily due to a decline in the average yield on
interest earning assets, from 7.38% for the period ended June 30, 1997, compared
to 7.05% for the same period in 1998. The average balances of interest bearing
liabilities increased by $11.4 million or 5.6% from $202.3 million to $213.7
million, which was slightly offset by a decrease in the average cost of interest
bearing liabilities of 2 basis points from 4.99% for the six months ended June
30, 1997, to 4.97% for the six months ended June 30, 1998.
The Bank's interest rate spread, which is the difference between the
yield on average interest earning assets and the cost of interest bearing
liabilities, declined to 2.08% for the six months ended June 30, 1998, from
2.39% for the six months ended June 30, 1997. This was primarily attributed to
redemptions of callable bonds, higher prepayments on mortgage backed securities
and loans receivable, with the proceeds reinvested in lower yielding assets due
to the general decline of market interest rates for these instruments.
Interest Income. Interest income increased $165,000 to $8.0 million for
the six months ended June 30, 1998, from $7.9 million for the same period in
1997. The increase was due to an increase in the average balance of available
for sale securities of $15.8 million from $69.1 million for the six months ended
June 30, 1997 to $84.9 million for the six months ended June 30, 1998, while the
average balance of other interest earning assets increased $8.6 million to $17.7
million for the six months ended June 30, 1998, offset by a decrease in the
average balance of mortgage backed and investment securities and loans
receivable. The average yield on interest earning assets declined 33 basis
points to 7.05% from 7.38% for the six months ended June 30, 1998 compared to
the same six months in 1997. The increase
20
<PAGE>
in available for sale securities was due to new purchases being classified as
available for sale; the decrease in investment and mortgage backed securities
was due to redemptions and sales of callable securities and higher prepayments
on mortgage backed securities classified as held to maturity. The weighted
average yield declined as a result of the redemption and prepayment of higher
coupon loans and securities with reinvestment of proceeds into lower coupon
instruments during a low interest rate environment along with a flat yield
curve.
Interest on loans receivable decreased by $95,000 or 2.2% to $4.1
million for the six months ended June 30, 1998 from $4.2 million for the six
months ended June 30, 1997. The decrease was due to a $1.4 million or 1.3%
decrease in the average balance of loans receivable, which declined due to
prepayments and amortization on mortgage loans in excess of new originations.
Further contributing to the decrease was the decline in the average yield of
loans receivable from 7.94% for the six months ended June 30, 1997, to 7.87% for
the same period in 1998 because of lower interest rates on loans originated
during the 1998 period and the prepayment/amortization of higher rate loans.
Interest expense. Interest expense increased $265,000 to $5.3 million
for the six months ended June 30, 1998, from $5.0 million for the same period
the preceding year. The increase was due to an $11.4 million increase in the
average balance of interest bearing liabilities, slightly offset by a decrease
of 2 basis points in the average cost of interest bearing liabilities. Time
deposit interest expense increased $402,000 to $4.2 million for the six months
ended June 30, 1998 due to an increase in the average balance of time deposits
of $12.3 million to $150.6 million as well as an increase in the average cost of
time deposits from 5.45% to 5.54% for the same six month period, due to market
driven pricing of time accounts. The increase in the average cost of time
deposits was partially offset by a decrease of $8.0 million in the average
balance of borrowings to $18.0 million for the six months ended June 30, 1998
from $26.0 million for the six months ended June 30, 1997, and a decline of 6
basis points in the average cost of borrowings to 5.77% for the six months ended
June 30, 1998, from 5.83% for the same period in 1997.
Provision for loan losses. The provision for loan losses increased by
$126,000 to $132,000 for the six months ended June 30, 1998 from $6,000 for the
first six months of 1997. The increase was recognized in order to raise the
allowance for loan losses primarily as a result of management's review of the
risk inherent in the loan portfolio based in part on a comparison of loss
experience at the Bank and loss experience and reserve levels at peer
institutions. In addition, the allowance was increased as a result of the
changing composition of the loan portfolio from single family mortgages to
commercial real estate and consumer loans.
Non-interest income. Non-interest income increased by $55,000 to
$118,000 for the six months ended June 30, 1998, from $63,000 for the same
period in 1997. Fees and service charges increased $20,000 due to an increase in
fee based DDA accounts and increases in ATM transaction fees mostly due to
higher non-customer use of Bank ATM's. Gains on sales of securities and loans
increased by $24,000 and $18,000 respectively, for the six months ended June 30,
1998 compared to the same period in 1997.
Non-interest expenses. Non-interest expenses increased by $184,000 to
$2.0 million for the six months ended June 30, 1998 from $1.8 million for the
same six months in 1997. The increase was due to higher salaries and benefits
expenses of $94,000 for the six months ended June 30, 1998 resulting from an
increase in staff, increases in medical insurance rates, recognition of expenses
for new benefit plans for senior executives and the Board of Directors, as well
as normal salary and merit increases. Occupancy and equipment expenses increased
$54,000, mostly attributable to increases in computer service expense of $27,000
resulting from an increase in account volumes and including $10,000 in year 2000
compliance costs.
21
<PAGE>
Income Taxes. Income taxes decreased by approximately $180,000 to
$245,000 for the six months ended June 30, 1998, as compared to $425,000 for the
same period one year ago. The decrease was primarily due to the decrease in net
income before taxes as discussed above and an increase in levels of tax exempt
securities.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31,
1996
Total assets increased by $12.3 million or 5.7% to $229.1 million at
December 31, 1997 from $216.8 million at December 31, 1996. This increase was
primarily due to an increase in mortgage-backed securities and federal funds
sold, offset by decreases in loans receivable, investment securities, and loans
held for sale. Mortgage-backed securities increased by $28.5 million, while
investment securities decreased by $19.3 million due to restructuring of assets
and liabilities in order to reduce interest rate risk. Net loans receivable
decreased $2.2 million, and loans held for sale decreased $3.0 million,
primarily due to sales of loans totaling $3.6 million.
The Bank's deposits, increased by $23.3 million or 13.7% to $193.9
million at December 31, 1997, due primarily to continued deposit growth at both
of its new branches opened during 1996. Federal Home Loan Bank advances
decreased $12.1 million to $16.3 million at December 31, 1997 from $28.4 million
at December 31, 1996. The Bank used deposit pricing strategies to lengthen
liabilities while paying off short term borrowings to reduce interest rate risk.
Total equity increased $1.8 million to $17.2 million at December 31,
1997 due to net income of $1.3 million earned during the year ended December 31,
1997 and approximately $575,000 of unrealized appreciation on securities
available for sale, net of taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1996
Net Income. Net income increased $510,000 to $1.3 million for the year
ended December 31, 1997 as compared to $740,000 for the year ended December 31,
1996. Net income increased primarily as a result of a decrease of $534,000 in
non-interest expenses. This decrease was mainly due to the absence of the
one-time SAIF Special Assessment which occurred in 1996.
Net Interest Income. Net interest income increased by approximately
$103,000 or 1.9% to $5.5 million for the year ended December 31, 1997. The
increase was primarily due to an increase in the average balances of interest
earning assets of $16.8 million or 8.5% from $198.3 million to $215.1 million,
but was offset by a 19 basis point decline in the average yield on interest
earning assets. The average balances of interest bearing liabilities increased
by $15.6 million or 8.3% from $187.7 million to $203.2 million, and were subject
to a slight decrease in the average cost of interest bearing liabilities of 1
basis point from 5.07% for the year ended December 31, 1996, to 5.06% for the
year ended 1997.
The Bank's interest rate spread, which is the difference between the
yield on average interest earning assets less the cost of interest bearing
liabilities, declined to 2.30% for the year ended December 31, 1997, from 2.48%
for the year ended December 31, 1996.
Interest Income. Interest income increased to $15.8 million for the
year ended December 31, 1997, from $15.0 million for the year ended December 31,
1996. The increase was due to higher average balances in loans receivable and
available for sale securities, offset by a decrease in the average balance of
securities held to maturity. The decrease in securities held to maturity was due
to higher
22
<PAGE>
prepayments, redemptions and sales of investment securities. The increase in
available for sale securities was due to classification of reinvested funds as
available for sale. The average yield of interest earning assets decreased from
7.55% for the year ended December 31, 1996, to 7.36% for the year ended December
31, 1997, due to lower interest rates on such instruments for the 1997 period as
compared to 1996.
Interest on loans receivable increased by $295,000 or 3.6% to $8.6
million for the year ended December 31, 1997 from $8.3 million for the year
ended December 31, 1996. The increase was due to a $4.6 million increase or 4.5%
in the average balance of loans receivable resulting from a net increase in one
- - to four - family residential mortgage loans, due to continued acceptance of
the Bank's first time home-buyers program and marketing of loan products. That
increase was offset somewhat by a decrease of 7 basis points in the average
yield because of lower interest rates on originated loans during the 1997
period.
Interest expense. Interest expense increased $765,000 to $10.3 million
for the year ended December 31, 1997. The increase was due to a $15.6 million
increase in the average balance of interest bearing liabilities as well as a
decrease of 1 basis point in the average cost of interest bearing liabilities.
Time deposit interest expense increased $1.2 million partially offset by a
$567,000 decrease in interest on borrowings. The increase was due to increased
time deposit balances primarily from the two new branches opened during 1996.
These funds were used to reduce short term borrowings in order to lower the
Bank's interest rate risk position.
Provision for loan losses. The provision for loan losses for 1997
remained at $12,000, thereby increasing the allowance for loan losses to
$618,000 for the year ended December 31, 1997. This increase in the allowance
reflects the Bank's decision to provide for loan losses based on management's
evaluation of the inherent risk in the Bank's loan portfolio, as well as
management's evaluation of the general economic conditions in the Bank's market
area.
Non-interest income. Non-interest income increased by $86,000 to
$232,000 for the year ended December 31, 1997, from $146,000 for the year 1996.
Fees and service charges increased $41,000 due to an increase of $14,000 in ATM
fees due to the first full year of operation in 1997, and an increase of $39,000
in checking account fees. Gains on loan sales increased by $31,000, which were
mostly offset by a decrease of $26,000 in gains on sales of securities.
Non-interest expenses. Non-interest expenses decreased by $534,000 to
$3.7 million for the year ended December 31, 1997 from $4.2 million for the year
ended December 31, 1996. The decrease was primarily due to the absence of the
one-time special SAIF assessment, paid in 1996 to the FDIC by all SAIF members
to recapitalize the SAIF, which amounted to $830,000 for the Bank. In addition,
deposit insurance premiums decreased $140,000 to $110,000 for the year ended
December 31, 1997 from $250,000 for the year ended December 31, 1996, as the
FDIC lowered insurance premiums shortly following the one-time special SAIF
assessment. These decreases were partially offset by increases of $235,000 in
salaries and benefits due to the impact of a full year of operation with
increased personnel resulting from the Bank's two de-novo branches opened during
1996, as well as normal salary and merit increases. Additional increases for the
year ended December 31, 1997 in occupancy and equipment expenses of $156,000
were mostly attributable to the first full year of operation for the two
additional branch offices. Other non-interest expenses increased by $73,000 to
$456,000 for the year ended December 31, 1997, from $383,000 for the year ending
December 31, 1996, mostly attributed to an increase of $32,000 for other real
estate expense stemming from various foreclosure costs.
23
<PAGE>
Income Taxes. Income taxes increased by approximately $213,000 to
$841,000 for 1997 as compared to $628,000 for 1996. The increase was primarily
due to the increase in net income before taxes as discussed above, partially
offset by an increase in tax exempt income.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31,
1995
Total assets increased by $37.3 million or 20.8% to $216.8 million at
December 31, 1996 from $179.5 million at December 31, 1995. This increase was
due primarily to increases in investment and mortgage-backed securities, loans
held for sale and loans receivable. Mortgage-backed securities increased by $3.8
million, while investment securities increased by $14.7 million, as a result of
the Bank's leverage strategy during 1996 which was implemented to generate
additional income in order to offset the expected increase in operating expenses
due to two new branch offices. Loans receivable increased $11.8 million to
$108.0 million at December 31, 1996 from $96.2 million at December 31, 1995.
Loans held for sale increased $3.6 million to $3.8 million at December 31, 1996
from $199,000 at December 31, 1995. Loan originations increased as a result of
market driven loan pricing during a period of higher than usual refinancings as
well as the origination of higher balance commercial real estate loans.
The Bank's deposits increased by $23.5 million or 16.0% to $170.6
million at December 31, 1996, due to continued deposit growth at its existing
branch as well as new deposit growth from both of the Bank's new branches.
Federal Home Loan Bank advances increased $12.4 million to $28.4 million at
December 31, 1996 from $16.0 million at December 31, 1995, due to the Bank's
leverage strategy during 1996 as discussed above.
Total equity increased $81,000 to $15.4 million at December 31, 1996
due to net income of $740,000 earned during the year ended December 31, 1996,
which was offset by approximately $659,000 of unrealized depreciation on
securities available for sale, net of taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995
Net Income. Net income decreased $387,000 to $740,000 for the year
ended December 31, 1996 as compared to $1.1 million for the year ended December
31, 1995. Net income decreased primarily due to an increase of $1.5 million in
non-interest expenses, largely due to the one-time SAIF Special Assessment which
occurred in the third quarter of 1996.
Net Interest Income. Net interest income increased by approximately
$963,000 or 21.5% to $5.4 million for the year ended December 31, 1996. The
increase was primarily due to an increase in the average balances of interest
earning assets of $37.5 million or 23.3%, from $160.8 million to $198.3 million
for the year ended December 31, 1996, while the average yield increased from
7.41% to 7.55% for the year ended December 31, 1996. In addition, the average
balances of interest bearing liabilities increased by $39.4 million or 26.5%
from $148.3 million to $187.7 million and the average cost increased from 5.01%
to 5.07% for the year ended December 31, 1996.
The Bank's interest rate spread, which is the difference between the
yield on average interest earning assets less the cost of interest bearing
liabilities, increased to 2.48% for the year ended December 31, 1996, from 2.40%
for the year ended December 31, 1995. The average balance of loans receivable
increased $8.5 million to $102.4 million for the year ended December 31, 1996
while the average yield declined 13 basis points. In addition, the average
balance of available for sale securities increased $42.4
24
<PAGE>
million from $13.7 million to $56.1 million for the year ended December 31, 1996
and the average yield increased from 6.53% to 7.13% for the same periods. These
increases in average balances were accompanied by increases in the average
balances of certificates of deposits from $103.3 million to $122.0 million and
borrowings from $13.8 million to $32.2 million for the year ended December 31,
1996.
Interest Income. Interest income increased to $15.0 million for the
year ended December 31, 1996, from $11.9 million for the year ended December 31,
1995. Interest on loans receivable increased $570,000 as a result of an $8.5
million increase in the average balance of loans receivable. This was due to a
net increase in one - to four - family residential mortgage loans and commercial
real estate loans, somewhat offset by a decrease in the average yield of 13
basis points due to lower interest rates on loans originated during the 1996
period. The increase in loans receivable was a result of the Bank's ability to
increase mortgage loan originations resulting from higher levels of loan
refinancings during a lower interest rate environment. In addition, interest
income from available for sale securities increased $3.1 million to $4.0
million. This was due to the increase of $42.4 million in the average balance of
available for sale securities while the yield increased 60 basis points for the
year ended December 31, 1996. The increase in available for sale securities was
due to the Bank's leverage strategy during 1996 which was to generate additional
income to offset the expected increase in operating expenses due to the two
planned branch openings.
Conversely, the average balances of securities held to maturity declined $15.0
million for the year ended December 31, 1996. Overall, there was an increase of
14 basis points in the average yield of interest earning assets to 7.55 for the
year ended December 31, 1996, as compared to an average yield of 7.41% for the
year ended December 31, 1995.
Interest expense. Interest expense increased $2.1 million to $9.5
million for the year ended December 31, 1996. The increase was due to a $39.4
million increase in the average balance of interest bearing liabilities as well
as an increase of 6 basis points in the average cost of interest bearing
liabilities. The average balance of certificates of deposits increased $18.7
million to $122.0 million at December 31, 1996 from $103.3 million at December
31, 1995, while borrowings increased $18.4 million to $32.2 million from $13.8
million for the same period. Certificates of deposit increased due to the Bank
offering higher rates on CD's relative to the competition in conjunction with
the opening of two new branches. The increase in borrowings was due to the
Bank's strategy of leveraging in order to boost income to help offset the
anticipated increase in operating expenses arising from the opening of the two
new branches.
Provision for loan losses. The provision for loan losses decreased by
$48,000 for the year ended December 31, 1996 to $12,000 from $60,000 for the
year ended December 31, 1995. This decrease reflects the Bank's decision to
increase the allowance for loan losses albeit at a lower rate than the previous
year, based on management's evaluation of the inherent risk in the Bank's loan
portfolio, as well as management's evaluation of the general economic conditions
in the Bank's market area.
Non-interest income. A $15,000 increase in fees and service charges and
a $74,000 increase in gains on sales of investment securities were somewhat
offset by $24,000 less in gains on sales of loans. As a consequence non-interest
income increased by $75,000 to $146,000 for the year ended December 31, 1996,
from $71,000 for the year ended 1995.
Non-interest expenses. Non-interest expenses increased by $1.5 million
to $4.2 million for the year ended December 31, 1996 from $2.7 million for the
year ended December 31, 1995. The increase was primarily due to the one-time
special SAIF assessment paid in 1996 to the FDIC by all SAIF members to
recapitalize the SAIF, which amounted to $830,000 for the Bank. In addition,
salaries and
25
<PAGE>
benefits increased $306,000 to $1.7 million for the year ended December 31, 1996
from $1.4 million for the same period in 1995, reflecting an increase in
personnel required by the Bank's two de-novo branches opened during 1996, as
well as normal salary and merit increases. Occupancy and equipment expenses
increased by $292,000 due to the branch expansion during 1996 as well as ongoing
expenses relating to the original office. Other non-interest expenses increased
by $84,000 to $383,000 for the year ended December 31, 1996, from $299,000 for
the year ending December 31, 1995.
Income Taxes. Income taxes decreased by approximately $29,000 to
$628,000 for 1996 as compared to $657,000 for 1995. The decrease was primarily
due to the decrease in net income before taxes as discussed above, offset by an
increase in income taxes to reflect the tax effect of the post 1987 bad debt
reserve.
Average Balance Sheet. The following table sets forth certain
information relating to the Bank's average balance sheet and reflects the
average yield on assets and average cost of liabilities for the periods
indicated and the average yields earned and rates paid. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented.
26
<PAGE>
<TABLE>
<CAPTION>
For the Six Month Periods Ended June 30,
------------------------------------------------------------------------------
1998 1997
------------------------------------ ---------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans Receivable, net (1)................... $105,493 $4,150 7.87% $106,880 $4,245 7.94%
Securities held to maturity (2) 19,805 665 6.72 28,166 982 6.97
Securities available for sale (3)........... 84,851 2,700 6.36 69,095 2,369 6.86
Other interest-earning assets (4)........... 17,656 512 5.80 9,038 266 5.89
-------- ------ -------- -----
Total interest-earning assets............. 227,805 8,027 7.05 213,179 7,862 7.38
Non-interest-earning assets................. 5,126 5,793
-------- --------
Total assets.............................. $232,931 $218,972
======= =======
INTEREST-BEARING LIABILITIES:
Deposit accounts:
DDA accounts............................... $ 13,159 $ 121 1.84 $ 9,361 $ 88 1.88
Savings accounts........................... 28,049 443 3.16 24,303 369 3.04
Money market .............................. 3,835 57 2.97 4,268 63 2.95
Certificates of deposit.................... 150,645 4,171 5.54 138,353 3,769 5.45
Borrowed funds.............................. 18,009 520 5.77 25,995 758 5.83
-------- ------ ------- -----
Total interest-bearing liabilities....... 213,697 5,312 4.97 202,280 5,047 4.99
------ -----
Non-interest bearing liabilities............ 1,797 1,407
-------- --------
Total liabilities......................... 215,494 203,687
Total equity.................................. 17,437 15,285
-------- --------
Total liabilities and total equity........ $232,931 $218,972
======= =======
Net interest income........................ $2,715 $2,815
===== =====
Interest rate spread (5)................... 2.08% 2.39%
Net interest margin (6).................... 2.38% 2.64%
Ratio of average interest-earning assets
to average interest-bearing liabilities.... 1.07X 1.05X
</TABLE>
- -----------------------
(1) Loans receivable, net includes non-accrual loans.
(2) Includes mortgage-backed and investment securities held to maturity.
(3) Investments, mortgage-backed securities, and loans held for sale are
carried at market value.
(4) Includes federal funds sold, Federal Home Loan Bank stock and
interest-earning deposits.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
27
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- -------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net (1)..................$106,991 $ 8,562 8.00% $102,411 $ 8,267 8.07% $ 93,918 $ 7,697 8.20%
Securities held to maturity (2)............ 26,181 1,824 6.97 32,755 2,305 7.04 47,788 2,982 6.24
Securities available for sale (3).......... 70,563 4,778 6.77 56,097 3,998 7.13 13,700 894 6.53
Other interest-earning assets (4).......... 11,382 670 5.89 7,051 396 5.62 5,434 342 6.29
-------- ------- -------- -------- -------- -------
Total interest-earning assets............ 215,117 15,834 7.36 198,314 14,966 7.55 160,840 11,915 7.41
Non-interest-earning assets................ 5,569 5,591 3,057
-------- -------- --------
Total assets.............................$220,686 $203,905 $163,897
======= ======= =======
INTEREST-BEARING LIABILITIES:
Deposit accounts:
DDA accounts..............................$ 10,358 195 1.88 $ 7,170 139 1.94 $ 5,223 103 1.97
Savings accounts.......................... 25,260 785 3.11 22,218 663 2.98 21,487 634 2.95
Money market deposit accounts............. 4,051 121 2.99 4,068 122 3.00 4,493 133 2.96
Certificates of deposit................... 141,564 7,881 5.57 122,001 6,726 5.51 103,261 5,683 5.50
Borrowed funds............................. 22,012 1,305 5.93 32,210 1,872 5.81 13,833 881 6.37
-------- -------- ------ -------- -------
Total interest-bearing liabilities....... 203,245 10,287 5.06 187,667 9,522 5.07 148,297 7,434 5.01
------ ------ ------
Non-interest bearing liabilities........... 1,552 1,538 1,314
-------- -------- --------
Total liabilities........................ 204,797 189,205 149,611
Total equity................................. 15,889 14,700 14,286
-------- -------- --------
Total liabilities and total equity.......$220,686 $203,905 $163,897
======= ======= =======
Net interest income....................... $ 5,547 $ 5,444 $ 4,481
===== ====== ======
Interest rate spread (5).................. 2.30% 2.48% 2.40%
Net interest margin (6)................... 2.58% 2.75% 2.79%
Ratio of average interest-earning assets
to average interest-bearing liabilities... 1.06X 1.06X 1.08X
</TABLE>
- -----------------------
(1) Loans receivable, net includes non-accrual loans.
(2) Includes mortgage-backed and investment securities held to maturity.
(3) Investments, mortgage-backed securities, and loans held for sale are
carried at market value.
(4) Includes federal funds sold, Federal Home Loan Bank stock and
interest-earning deposits.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
28
<PAGE>
Rate/Volume Analysis
Net interest income can also be analyzed in terms of the impact of
changing interest rates on interest-earning assets and interest-bearing
liabilities and changing volume or amount of these assets and
liabilities. The following table represents the extent to which changes
in interest rates and changes in the 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 (change in volume multiplied by prior rate), (ii)
changes attributable to changes in rate (change in rate multiplied by
prior volume), and (iii) the net change. Changes attributable to the
combined impact of volume and rate have been allocated proportionately
to the change due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31, Years Ended December 31,
------------------------- ------------------------ ------------------------
1998 vs. 1997 1997 vs. 1996 1996 vs. 1995
---- --- ---- ---- --- ---- ---- --- ----
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------------- ------------------------ ------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
------ ------- ------ ------- ------- ------ ------- ----- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net ....... (57) (38) (95) 368 (73) 295 694 (124) 570
Securities held to maturity . (273) (44) (317) (459) (22) (481) (960) 283 (677)
Securities available for sale 513 (182) 331 991 (211) 780 2,996 108 3,104
Other interest earning assets 250 (4) 246 250 24 274 93 (39 54
------ ------ ------ ------ ------ ------ ------ ------ ------
Total ..................... 433 (268) 165 1,150 (282) 868 2,823 228 3,051
====== ====== ====== ====== ====== ====== ====== ====== ======
Interest expense:
NOW Accounts ................ 35 (2) 33 60 (4) 56 38 (2) 36
Passbook accounts ........... 59 15 74 92 30 122 23 6 29
Money market accounts ....... (6) -- (6) (1) -- (1) (13) 2 (11)
Certificates of deposit ..... 339 63 402 1,084 71 1,155 1,031 12 1,043
Borrowed funds .............. (230) (8) (238) (604) 37 (567) 1,082 (91) 91
------ ------ ------ ------ ------ ------ ------ ------ ------
Total ..................... 197 68 265 631 134 765 2,161 (73) 2,088
====== ====== ====== ====== ====== ====== ====== ====== ======
Net change in interest income . 236 (336) (100) 519 (416) 103 662 301 963
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
29
<PAGE>
Asset and Liability Management
The Bank, like many other financial institutions, is vulnerable to an
increase in interest rates to the extent that interest-bearing liabilities
generally mature or reprice more rapidly than interest-earning assets. The
lending activities of the Bank have historically emphasized the origination of
long-term, fixed rate loans secured by single family residences, and the primary
source of funds has been deposits with substantially shorter maturities. While
having interest-bearing liabilities that reprice more frequently than
interest-earning assets is generally beneficial to net interest income during a
period of declining interest rates, such an asset/liability mismatch is
generally detrimental during periods of rising interest rates.
To reduce the effect of interest rate changes on net interest income
the Bank has adopted various strategies to enable it to improve matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include: (1) purchasing investment
securities with maturities that match specific deposit maturities; (2)
emphasizing origination of shorter-term consumer loans, which in addition to
offering more rate flexibility, typically bear higher interest rates than
residential mortgage loans and (3) purchasing mortgage-backed securities to
provide monthly cash flows. Although consumer loans inherently generally possess
a higher credit risk than residential mortgage loans, the Bank believes that its
underwriting standards will minimize this risk.
The Bank has also made a significant effort to maintain its level of
lower costs deposits as a method of enhancing profitability. At June 30, 1998,
the Bank had 24.2% of its deposits in low-cost passbook, interest-bearing
checking (NOW) and Money Market Demand Accounts. Although its base of such
deposits has increased as a result of branch expansion, advertising and
marketing as well as the current interest rate environment, such deposits have
traditionally remained relatively stable and would be expected to be moderately
affected in a period of rising interest rates. Because of this relative
stability in a significant portion of its deposits, the Bank has been able to
offset the impact of rising rates in other deposit accounts.
Exposure to interest rate risk is actively monitored by management. The
Bank's objective is to maintain a consistent level of profitability within
acceptable risk tolerances across a broad range of potential interest rate
environments. The Bank uses the FDIC Regulatory Analysis Model to monitor its
exposure to interest rate risk, which calculates changes in market value of
portfolio equity and net income. Reports generated from assumptions provided and
modified by management are reviewed by the Asset/Liability Management Committee
and reported to the Board of Directors quarterly. The Balance Sheet Shock Report
shows the degree to which balance sheet line items and the market value of
portfolio equity are potentially affected by a 200 basis point upward and
downward parallel shift (shock) in the Treasury yield curve. An Income Shock
Report shows the degree to which income statement line items and net income are
potentially affected by a 200 basis point upward and downward parallel shift in
the Treasury yield curve. The Bank also receives reports that show the impact on
portfolio equity of upward and downward shifts in interest rates of between 0
and 400 basis points.
30
<PAGE>
The following table sets forth, as of June 30, 1998, an estimate of the
projected changes in the economic value of equity ("EVE") of instantaneous and
permanent increases and decreases in market interest rates in the amount of 100,
200, 300, and 400 basis points ("bp"). One hundred basis points equals one
percent. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
Economic Value of Equity EVE as % of PV of Assets
----------------------------------------------- ------------------------
Change BP
in Rates $ Amount $ Change % Change EVE Ratio Change
-------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+400 bp $10,677 $-11,084 -50.9% 4.6% -420 bp
+300 13,509 -8,252 -37.9 5.9 -290
+200 16,347 -5,414 -24.9 7.0 -180
+100 19,223 -2,538 -11.7 8.0 -80
0 21,761 8.8
-100 22,947 1,186 5.5 9.1 30
-200 22,298 537 2.5 8.8 --
-300 21,400 -361 -1.7 8.3 -50
-400 20,984 -777 -3.6 8.1 -70
</TABLE>
This table shows that the Bank's economic value of equity would
decrease with rising interest rates while decreasing or increasing with falling
interest rates. However, computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, loan repayments and deposit runoffs, and may
not be indicative of actual results. The computations do not reflect any actions
the Bank may undertake in response to changes in interest rates although
management cannot always predict future interest rates or their effect on the
Bank. Certain shortcomings are inherent in the method of analysis presented in
the computation of EVE. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in differing
degrees to changes in market interest rates. Additionally, certain assets, such
as adjustable rate loans, have features that restrict changes in interest rates
during the initial term and over the remaining life of the asset. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their adjustable rate debt may decrease in
the event of an interest rate increase.
Liquidity and Capital Resources
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits, and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Savings bank liquidity is normally considered in terms
of the nature and mix of the banking institution's sources and uses of funds.
31
<PAGE>
Asset liquidity is provided through loan repayments and the management
of maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining high levels of mortgage-backed securities that
generate monthly cash flows.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see "Historical
and pro Forma Capital Compliance" and "Regulation - Regulatory Capital
Requirements."
Management is not aware of any known trends, events or uncertainties
that will have or are reasonably likely to have a material effect on the Bank's
liquidity, capital or operations nor is management is aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
Recent Accounting Pronouncements
Effective January 1, 1998, the Bank adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130. Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Under Statement No. 130, comprehensive income is
divided into net income and other comprehensive income. Other comprehensive
income includes items previously recorded directly in equity, such as unrealized
gains or losses on securities available for sale. Comparative financial
statements provided for earlier periods have been reclassified to reflect the
application of the provisions of Statement No. 130.
Statement No. 130 requires total comprehensive income and its
components to be displayed on the face of a financial statement for annual
financial statements. For the Bank, comprehensive income is determined by adding
unrealized investment holding gains or losses during the period to net income.
In February 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 132 "Employers
Disclosures about Pensions and Other Postretirement Benefits" (Statement No.
132). Statement 132 revises employers' disclosures about pension and other
postretirement benefits plans. It does not change the measurement or recognition
of those plans. It standardized the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information in changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis and eliminates certain required
disclosure of previous accounting pronouncements.
Statement No. 132 is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Restatement of disclosures
for earlier periods provided for comparative purposes is required unless the
information is not readily available. As Statement No. 132 affects disclosure
requirements, it is not expected to have an impact on the financial statements
of the Bank.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(Statement No. 133). Statement No. 133 establishes accounting and reporting
standards for derivative instruments, including
32
<PAGE>
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Statement No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this Statement should be as of the
beginning of an entity's fiscal quarter, on that date, hedging relationships
must be designated a new and documented pursuant to the provisions of this
Statement. Earlier application of all of the provisions of Statement No. 133 is
encouraged, but it is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this Statement. This Statement should not be
applied retroactively to financial statements of prior periods. The Bank has not
determined the impact, if any, Statement No. 133 will have on the Bank's
financial statement presentation.
Year 2000 Evaluation
Rapid and accurate data processing is essential to the Bank's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data. We
have been evaluating both information technology (computer systems) and
non-information technology systems (e.g., vault timers, electronic door lock and
heating, ventilation and air conditioning controls). We have examined all of our
non-information technology systems and have either received certifications of
year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the year 2000. We expect
to further test the systems we control and receive third party certification,
where appropriate, that they will continue to function. We do not expect any
material costs to address our non- information technology systems and have not
had any material costs to date. We have determined that the information
technology systems we use have substantially more year 2000 risk than the
non-information technology systems we use. We have evaluated our information
technology systems risk in three areas: (1) our own computers, (2) computers of
others used by our borrowers, and (3) computers of others who provide us with
data processing.
Our own computers. We expect to spend approximately $200,000 through
September 30, 1998 to upgrade our computer system. This upgrade is expected to
eliminate the year 2000 risk in our computers. We do not expect to have material
costs to address this risk area after September 30, 1998. At June 30, 1998, none
of the estimated $200,000 had been expensed.
Computers of others used by our borrowers. We have evaluated most of
our borrowers and do not believe that the year 2000 problem should, on an
aggregate basis, impact their ability to make payments to the Bank. We believe
that most of our residential borrowers are not dependent on their home computers
for income and that none of our commercial borrowers are so large that a year
2000 problem would render them unable to collect revenue or rent and, in turn,
continue to make loan payments to the Bank. We do not expect any material costs
to address this risk area.
Computers of others who provide us with data processing. This risk is
primarily focused on one third party service bureau that provides virtually all
of the Bank's data processing. This service bureau is not year 2000 compliant
but has advised us that it expects to be compliant before the year 2000. If this
problem is not solved before the year 2000, we would likely
33
<PAGE>
experience significant delays, mistakes or failures. These delays, mistakes or
failures could have a significant impact on our financial condition and results
of operations.
Contingency Plan. We are monitoring our service bureau to evaluate
whether our data processing system will fail. We are being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If our service bureau fails, we will attempt to locate an alternative
service bureau that is year 2000 compliant. If we are unsuccessful, we will
enter deposit and loan transactions by hand in our general ledger and compute
loan payments and deposit balances and interest with our existing computer
system. We can do this because of our relatively small number of loan and
deposit accounts and our internal bookkeeping system. Our computer systems are
independently able to generate labels and mailings for all of our customers and
we periodically test this system and print and store this material. If this
labor intensive approach is necessary, management and our employees will become
much less efficient. However, we believe that we would be able to operate in
this manner indefinitely, until our existing service bureau, or their
replacement, is able to again provide data processing services. If very few
financial institution service bureaus were operating in the year 2000, our
replacement costs, assuming we could negotiate an agreement, could be material.
Effect of Inflation and Changing Prices
The Bank's financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. Unlike industrial companies, virtually all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or with the same
magnitude as the prices of goods and services.
Inflation can have a more direct impact on categories of non-interest
expenses such as salaries and wages, supplies and employee benefit costs. These
expenses normally fluctuate more in line with changes in the general price level
and are very closely monitored by management for both the effects of inflation
and increases related to such items as staffing levels, usage of supplies and
occupancy costs.
BUSINESS OF THE COMPANY
Upon consummation of the reorganization we will own all of the stock of
the Bank. We have not engaged in any significant business to date. We will
retain up to 50% of the net proceeds from the issuance of common stock (less
$200,000 for the initial capitalization of the mutual holding company). We will
use the balance of the net proceeds to purchase all of the common stock of the
Bank to be issued at the conclusion of the reorganization. Part of the proceeds
we retain will be used to fund the loan to the ESOP. Prior to the
reorganization, we will not transact any material business. In the future, we
may pursue other business activities, including the merger with or acquisition
of other financial institutions or other entities, borrowing funds for
investment in the Bank and diversification of operations. There are, however, no
current plans for such activities. We may sell or issue a portion of our common
stock, subject to applicable regulatory approvals, provided that the MHC owns at
least a majority of our
34
<PAGE>
common stock as long as the MHC remains in existence. Initially, we will not
maintain offices separate from those of the Bank or employ any persons other
than their officers. Company officers will not be separately compensated for
such service.
BUSINESS OF THE BANK
General
The Bank provides retail banking services, with an emphasis on
one-to-four family residential mortgage loans, home equity loans and lines of
credit, commercial, and consumer loans as well as certificates of deposit,
passbook accounts and NOW accounts. At June 30, 1998, the Bank had total assets,
deposits and equity of $242.7 million, $198.6 million, and $17.4 million,
respectively.
The Bank attracts deposits from the general public and uses these
deposits primarily to originate loans and to purchase mortgage-backed and other
securities. The principal sources of funds for the Bank's lending and investing
activities are deposits, Federal Home Loan Bank (FHLB) advances, the repayment
and maturity of loans and sale, maturity, and call of securities. The principal
source of income is interest on loans and mortgage-backed and investment
securities. The principal expense is interest paid on deposits and FHLB
advances.
Market Area
The Bank's primary market area for loans and deposits is northwestern
Bergen County, New Jersey and includes the townships of Allendale, Franklin
Lakes, Glen Rock, Ho-Ho-Kus, Mahwah, Midland Park, Oakland, Paramus, Ramsey,
Ridgewood, Saddle River, Upper Saddle River, Waldwick and Wyckoff. These
townships consist primarily of single family homes. There are approximately
140,000 residents and 48,000 households within the Bank's primary market area.
This market area could be characterized as affluent.
Lending Activities
General. The Bank primarily originates one- to four-family residential
real estate loans and, to a lesser extent, commercial real estate loans,
consumer loans and other loans. Consumer loans consist of home equity and home
improvement lines of credit and loans, student loans and loans secured by
savings accounts. Commercial real estate loans consist primarily of mortgage
loans secured by small commercial office/retail space, retail businesses and
small and medium sized apartment buildings.
35
<PAGE>
<TABLE>
<CAPTION>
Analysis of Loan Portfolio
At June 30, At December 31,
---------------- -------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------------- --------------- ----------------- ---------------- ----------------- --------------
$ % $ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --- --- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans:
First Mortgage loans:
1- to 4-family..........$ 83,990 79.44% $ 86,140 80.70% $ 90,500 82.96% $ 88,685 91.02% $79,757 90.96% $89,651 92.70%
Commercial and Other...... 10,661 10.08 10,313 9.66 10,613 9.73 3,170 3.25 2,732 3.12 2,458 2.54
Consumer loans:
Equity.................. 10,583 10.01 9,645 9.04 7,519 6.89 5,185 5.32 4,688 5.35 3,968 4.10
Lines of credit......... 154 0.15 134 0.13 78 0.07 78 0.08 14 0.01 -- --
Education............... 186 0.18 160 0.15 120 0.12 84 0.09 189 0.21 172 0.18
Loans to depositors,
secured by savings.... 152 0.14 350 0.32 256 0.23 235 0.24 304 0.35 466 0.48
------- ---- ------- ----- ------- ----- ------- ----- ---- ------ ---- ----
105,726 100.00% 106,742 100.00% 109,086 100.00% 97,437 100.00% 87,684 100.00% 96,715 100.00%
------- ====== ------- ====== ------- ====== ------- ====== ------ ====== ------ ======
Less:
Net deferred loan fees.... 349 409 521 638 750 912
Allowance for loan losses. 750 618 606 593 528 464
------- ------- -------- ------- ------ ------
Total loans receivable, net.$104,627 $105,715 $107,959 $ 96,206 $86,406 $95,339
======= ======= ======= ======= ====== ======
Loans held for sale.........$ -- $ 750 $ 3,756 $ 199 $ 504 $ 37
======= ======= ======= ======= ====== ======
</TABLE>
36
<PAGE>
Loan Maturity Tables
The following table sets forth the maturity of the Bank's loan portfolio at June
30, 1998. The table does not include prepayments or scheduled principal
repayments. For the six months ended June 30, 1998 and the year ended December
31, 1997, prepayments and scheduled principal repayments on loans totaled $14.7
million and $23.0 million, respectively. All loans are shown as maturing based
on contractual maturities.
<TABLE>
<CAPTION>
1- to 4-Family Consumer Consumer
First Commercial Consumer Lines of Consumer Secured
Mortgage and Other Equity Credit Education by Deposits Total
-------- ----------- ------ ------ --------- ----------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 year............... $ 4,874 $ 599 $ 6 $ 98 $186 $152 $ 5,915
Over 1 to 3 years......... 3,739 5,415 171 56 -- -- 9,381
Over 3 to 5 years......... 3,907 210 670 -- -- -- 4,787
Over 5 to 10 years........ 22,027 3,863 2,029 -- -- -- 27,919
Over 10 to 20 years....... 13,877 364 7,707 -- -- -- 21,948
Over 20 years............. 35,566 210 -- -- -- -- 35,776
------ ------ ------ --- --- --- -------
Total amount due............ $83,990 $10,661 $10,583 $154 $186 $152 105,726
====== ====== ====== === === ===
Less:
Allowance for loan losses... 750
Net deferred loan fees...... 349
-------
Loans receivable, net..... $104,627
=======
</TABLE>
37
<PAGE>
The following table sets forth the dollar amount of all loans due after
June 30, 1999 which have pre-determined interest rates and which have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In Thousands)
<S> <C> <C> <C>
First mortgage - 1 to 4 family.......... $43,305 $35,811 $79,116
Commercial and other.................... 9,099 963 10,062
Consumer - equity....................... 6,424 4,153 10,577
Consumer - lines of credit.............. -- 56 56
Consumer - education.................... -- -- --
Consumer - loans to depositors,
secured by savings....... -- -- --
------- ------ ------
Total............................... $58,828 $40,983 $99,811
====== ====== ======
</TABLE>
One- to four-Family Lending. The Bank's primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in the Bank's market area. The Bank generally
originates one- to four-family residential mortgage loans in amounts up to 80%
of the lesser of the appraised value or selling price of the mortgaged property
without requiring mortgage insurance. The Bank will originate a mortgage loan in
an amount up to 90% of the lesser of the appraised value or selling price of a
mortgaged property, however, mortgage insurance for the borrower is required.
The Bank originates and retains fixed rate and adjustable rate loans for
retention in its portfolio. A mortgage loan originated by the Bank, whether
fixed rate or adjustable rate, can have a term of up to 30 years. The Bank also
originates one- to four-family conforming fixed rate loans for terms of 20 and
30 years primarily for sale in the secondary mortgage market. These loans are
sold without recourse to the Bank by the buyer and the Bank receives a servicing
fee. Servicing fee income has been immaterial during the past five years. All
other mortgage products are generally held in portfolio and are serviced by the
Bank. The Bank offers fixed rate loans with a 15 year amortization period and a
variety of adjustable rate loans. The adjustable rate loans typically have a 15
to 30 year amortization period. The Bank offers these loans with a fixed rate
for the first five, seven or ten years with repricing following every year after
that initial fixed period. Also offered are loans with payment schedules and an
amortization schedule of 30 years but with full payment due in either five or
seven years (balloon loans). In addition, a five year fixed period is offered
with subsequent repricing once every five years and a maximum adjustment of 2%
per adjustment period. Adjustable rate loans limit the periodic interest rate
adjustment and the minimum and maximum rates that may be charged over the term
of the loan based on the type of loan and various adjustable-rate mortgage loan
products are offered and are targeted from time-to-time at discounted rates.
The Bank's one- to four-family residential loans (both fixed rate and
adjustable rate) are underwritten in accordance with Federal National Mortgage
Association ("FNMA") guidelines, regardless of whether they will be sold in the
secondary market. However, the Bank originates some shorter-term loans and
adjustable rate, large dollar amount loans that exceed FNMA guidelines.
Substantially all of the Bank's residential mortgages include "due on sale"
clauses, which are provisions giving the Bank the right to declare a loan
immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
38
<PAGE>
Property appraisals on real estate securing the Bank's single-family
residential loans are made by state certified and licensed independent
appraisers approved by the Board of Directors. Appraisals are performed in
accordance with applicable regulations and policies. The Bank obtains title
insurance policies on all first mortgage real estate loans originated. Borrowers
generally advance funds with each monthly payment of principal and interest, to
a loan escrow account from which the Bank makes disbursements for such items as
real estate taxes and hazard insurance premiums and mortgage insurance premiums
as they become due. The Bank charges a fee equal to a percentage of the loan
amount (commonly referred to as points) but may waive those points to attract
first-time borrowers.
Commercial Real Estate and Other Loans. The Bank originates commercial
real estate mortgage loans and, to a much lesser extent, commercial business
loans. The Bank's commercial real estate mortgage loans are permanent loans
secured by improved property such as office buildings, retail stores, and
apartment buildings. Essentially all originated commercial real estate loans are
within the Bank's market area and all are within the State of New Jersey. As of
June 30, 1998, the Bank had 20 loans secured by commercial real estate,
totalling $10.7 million, or 10.1% of the Bank's total loan portfolio, with an
average principal balance of $533,000. The largest commercial real estate loan
had a balance of $2.2 million on June 30, 1998. Typically, commercial real
estate loans are originated in amounts up to 70% of the appraised value of the
mortgaged property.
The Bank maintains a small number of commercial lines of credit made to
local businesses and professionals. At June 30, 1998, $98,000, or 0.09%, of the
Bank's total loan portfolio consisted of commercial lines of credit. Many of
these lines of credit are also secured by real property. Commercial real estate
and business loans generally are deemed to entail significantly greater risk
than that which is involved with single family real estate lending. The
repayment of commercial loans typically is dependent on the successful
operations and income stream of the commercial real estate and the borrower.
Such risks can be significantly affected by economic conditions. In addition,
commercial lending generally requires substantially greater oversight efforts
compared to residential real estate lending.
Consumer Loans. As of June 30, 1998 consumer loans amounted to $11.1
million or 10.48% of the Bank's total loan portfolio and consist primarily of
home equity and home improvement loans. To a lesser extent, the Bank originates
lines of credit, student loans, loans secured by savings accounts and other
consumer loans. Consumer loans are originated in the Bank's market area and
generally have maturities of up to 15 years. As of June 30, 1998, the Bank had
67 overdraft accounts with an available line of $248,100. For savings account
loans, the Bank will lend up to 90% of the account balance. Student loans are
originated and serviced through Student Loan Marketing Association (Sallie Mae),
affording the Bank the ability to offer all of the student loan programs
available to students without the burden of servicing them.
Consumer loans have a shorter term and generally provide higher
interest rates than residential loans. The consumer loan market can be helpful
in improving the spread between average loan yield and costs of funds and at the
same time improve the matching of the rate sensitive assets and liabilities.
Management is considering adding new consumer loan products, including
automobile loans and additional personal loan options.
Consumer loans entail greater risks than one-to-four-family residential
mortgage loans, particularly consumer loans secured by rapidly depreciable
assets such as automobiles or loans that are unsecured. In such cases, any
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the
39
<PAGE>
borrower's continuing financial stability, and therefore are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy. Even
for consumer loans secured by real estate (most of our consumer loan portfolio)
the risk to the Bank is greater than that inherent in the single-family loan
portfolio in that the security for consumer loans is generally not the first
lien on the property and ultimate collection of amounts due may be dependent on
whether any value remains after collection by a holder with a higher priority
than the Bank. Finally, the application of various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans in the event of a default. At June 30,
1998, there were no consumer loans 90 days or more delinquent. See also "-
Non-performing Loans and Problem Assets - Collection Procedures."
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's credit history and an assessment of
the applicant's ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant's monthly income may be determined
by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount. For home improvement and home equity loans and lines of credit, the
Bank lends a maximum of 80% of the value of the property. See "- Non-performing
Loans and Problem Assets" for information regarding the Bank's loan loss
experience and reserve policy.
Loans to One Borrower. Under New Jersey and federal law, savings banks
have, subject to certain exemptions, lending limits to one borrower in an amount
equal to 15% of the institution's capital accounts. As of June 30, 1998, the
Bank's largest aggregation of loans to one borrower was $2.3 million, consisting
of loans secured by commercial real estate, in the Ridgewood, New Jersey area,
which was within the Bank's legal lending limit to one borrower of $2.7 million
at such date. The increase in the capital of the Bank from this offering will
increase its lending limit. At June 30, 1998, the loans were current.
Loan Solicitation and Processing. The Bank's primary source of mortgage
loan applications is referrals from existing or past customers. The Bank also
originates loans solicited by independent mortgage brokers. The Bank advertises
in local newspapers and on the internet through "Loan Search", a free service
for New Jersey consumers seeking mortgage loans.
Upon receipt of any loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser. In connection with the loan approval process,
the Bank's officers analyze the loan applications and the property involved. All
residential, home equity, multi-family, construction and commercial real estate
loans are processed at the Bank's main office by the Bank's loan committee which
consists of two designated officers together with one outside director. The loan
committee approves all loans, other than loans over $500,000 and commercial
loans over $50,000, which require approval of the Board of Directors.
Loan applicants are promptly notified of the decision of the Bank by a
letter setting forth the terms and conditions of the decision. If approved,
these terms and conditions include the amount of the loan, interest rate basis,
amortization term, a brief description of real estate to be mortgaged to the
Bank, tax escrow and the notice of requirement of insurance coverage to be
maintained to protect the Bank's interest. The Bank requires title insurance on
first mortgage loans and fire and casualty insurance on all properties securing
loans, which insurance must be maintained during the entire term of the loan.
40
<PAGE>
Loan Purchases and Sales. The Bank sells most conforming fixed rate
mortgage loans it originates for 30 year and 20 year terms in the secondary
mortgage market to FNMA. In 1995, the Bank sold without recourse $4.3 million in
adjustable rate mortgages to a private institutional investor at a premium and
may, from time-to-time, sell such loans or other loans to investors in the
future. The Bank originates and holds home equity and home improvement loans
until maturity. In 1996, the Bank entered into an agreement with Sallie Mae to
sell all qualifying student loans held by the Bank. The Bank originates student
loans through Sallie Mae and currently sells these loans prior to repayment. The
Bank has not purchased loans in the secondary market but may consider doing so
in the future.
The following table shows the balance of loans sold during the periods
presented. All of these sales were made into the secondary market.
Six Months ended
June 30, Years ended December 31,
- ------------------------ -----------------------------------------------------
1998 1997 1996 1995
- ------------------------ ------------------ ----------------- ------------
(In thousands)
$750 $3,592 $736 $4,337
=== ===== === =====
Loan Commitments. The Bank generally grants commitments to fund fixed
and adjustable-rate single-family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of the Bank's commitments to
extend credit as of June 30, 1998, December 31, 1997, 1996 and 1995 was $6.2
million, $2.2 million, $937,000 and $3.9 million, respectively.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Bank receives loan origination and commitment fees for originating or
purchasing loans. In accordance with GAAP, all loan origination fees net of
certain loan origination costs over the related life of the loan are amortized.
The points (percentage based fee the Bank charges to originate a loan)
the Bank generally charges range up to 3% of the loan amount on residential
mortgages, construction loans and commercial real estate loans. The total amount
of deferred loan fees and net discounts on loans originated and purchased as of
June 30, 1998 was $349,000.
The Bank also receives other fees and charges relating to existing
loans, which include prepayment penalties on commercial loans, late charges, and
fees collected in connection with a change in borrower or other loan
modifications. These fees and charges have not constituted a material source of
income.
Non-performing Loans and Problem Assets.
Collection Procedures. The Bank's collection procedures provide that
when a loan is 15 to 20 days delinquent, the borrower is notified. If the loan
becomes 30 days or more delinquent, the borrower is sent a written delinquent
notice requiring payment. If the delinquency continues, subsequent efforts are
made to contact the delinquent borrower. In certain instances, the Bank may
modify the loan or grant a limited moratorium on loan payments to enable the
borrower to reorganize his financial affairs and the Bank attempts to work with
the borrower to establish a repayment schedule to cure the delinquency. As to
mortgage loans, if the borrower is unable to cure the delinquency or reach a
payment agreement with the Bank within 90 days, the Bank will institute
foreclosure actions. If a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which the Bank
41
<PAGE>
may be the buyer if there are no adequate offers to satisfy the debt. Any
property acquired as the result of foreclosure or by deed in lieu of foreclosure
is classified as real estate owned ("REO") until such time as it is sold or
otherwise disposed of by the Bank. When REO is acquired, it is recorded at the
lower of the unpaid principal balance of the related loan or its fair market
value less estimated selling costs. The initial writedown of the property is
charged to the allowance for loan losses.
As to consumer and unsecured commercial loans, the main thrust of the
Bank's collection efforts is through telephone contact and a sequence of
collection letters. If the Bank is unable to resolve the delinquency within 90
days, the delinquent loans are referred to the Bank's local counsel for
collection. Adjustors are required to evaluate each assigned account on a
case-by-case basis, within the parameters of the Bank's policies. All
collections are done in accordance with the Fair Debt Collection Practices Act.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when they are more than 90 days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At June 30, 1998, the Bank had $6,000 of loans that
were held on a non-accrual basis and held no REO.
42
<PAGE>
Non-performing Assets. The following table sets forth information with
respect to the Bank's non-performing assets for the periods indicated. During
the periods indicated the Bank had no restructured loans.
<TABLE>
<CAPTION>
At June 30, At December 31,
---------------------- --------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- ---------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
First mortgage loans:
1- to 4-family .............................. $ 6 $ -- $ 313 $ 397 $ 650 $1,668
Commercial and other ........................ -- -- -- -- -- --
Consumer loans:
Equity ...................................... -- -- -- -- 58 115
Lines of credits ............................ -- -- -- -- -- --
Education ................................... -- -- -- 3 8 --
Loans to depositors,
secured by savings ........................ -- -- -- -- -- --
--------- --------- ---------- ---------- ---------- ------
Total ......................................... $ 6 $ -- $ 313 $ 400 $ 716 $1,783
========= ========= ========== ========== ========== ======
Real estate owned ............................... $ -- $ -- $ -- $ -- $ -- $ 138
========= ========= ========== ========== ========== ======
Total non-performing assets ..................... $ 6 $ -- $ 313 $ 400 $ 716 $1,921
========= ========= ========== ========== ========== ======
Total non-accrual loans to net loans ............ 0.01% --% 0.28% 0.41% 0.82% 1.87%
========= ========= ========== ========== ========== ======
Total non-accrual loans to total assets ......... --% --% 0.14% 0.22% 0.50% 1.37%
========= ========= ========== ========== ========== ======
Total non-performing assets to total assets ..... --% --% 0.14% 0.22% 0.50% 1.48%
========= ========= ========== ========== ========== ======
</TABLE>
43
<PAGE>
During the six months ended June 30, 1998 and the years ended December
31, 1997, 1996, and 1995, approximately $0, $0, $13,000 and $22,000,
respectively of interest would have been recorded on loans accounted for on a
non-accrual basis if such loans had been current according to the original loan
agreements for the entire period. These amounts were not included in the Bank's
interest income for the respective periods. The amount of interest income on
loans accounted for on a non-accrual basis that was included in income during
the same periods was insignificant during the six months ended June 30, 1998 and
the years ended December 31, 1997, 1996, and 1995, respectively. At June 30,
1998, the Bank had no loans classified as troubled debt restructuring.
Classified Assets. Management, in compliance with regulatory
guidelines, has instituted an internal loan review program, whereby loans are
classified as special mention, substandard, doubtful or loss. When a loan is
classified as substandard or doubtful, management is required to establish a
valuation reserve for loan losses in an amount that is deemed prudent. When
management classifies a loan as a loss asset, a reserve equal to 100% of the
loan balance is required to be established or the loan is to be charged-off.
This allowance for loan losses is composed of an allowance for both inherent
risk associated with lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
reserve is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management. In
addition, each loan that exceeds $500,000 and each group of loans to one
borrower that exceeds $500,000 is monitored more closely due to the potentially
greater losses from such loans.
Management's evaluation of the classification of assets and the
adequacy of the reserve for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process.
Classification of Assets
At
June 30,
1998
--------------
(In thousands)
Special mention............................. $765
Substandard................................. 82
Doubtful ................................... --
Loss ....................................... --
----
Total.................................. $847
===
44
<PAGE>
Allowance for Loan Losses and REO. At least quarterly, the Bank's
management evaluates the need to establish reserves against losses on loans and
other assets based on estimated losses on specific loans and on any real estate
held for sale or investment when a finding is made that a loss is estimable and
probable. Such evaluation includes a review of all loans for which full
collectibility may not be reasonably assured and considers, among other matters,
the estimated market value of the underlying collateral of problem loans, prior
loss experience, economic conditions and overall portfolio quality. Also
considered are trends in the loan portfolio, expected future loss experience,
and industry reserve levels. Provisions for losses are charged against earnings
in the period they are established. The Bank had $750,000 in allowances for loan
losses at June 30, 1998. The Bank held no REO at that date.
While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP, there can be no assurance that regulators,
in reviewing the Bank's loan portfolio, will not request the Bank to
significantly increase its allowance for loan losses, or that general economic
conditions, a deteriorating real estate market, or other factors will not cause
the Bank to significantly increase its allowance for loans losses, therefore
negatively affecting the Bank's financial condition and earnings.
In making loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
It is the Bank's policy to review its loan portfolio, in accordance
with regulatory classification procedures, on at least a quarterly basis.
Additionally, the Bank maintains a program of reviewing loan applications prior
to making the loan and immediately after loans are made in an effort to maintain
loan quality.
45
<PAGE>
The following table sets forth certain information regarding the Bank's
allowance for loan losses at or for the dates indicated.
<TABLE>
<CAPTION>
At or for six months ended
June 30, At or for years ended December 31,
-------------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- ------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period..............$ 618 $ 606 $ 606 $ 593 $ 528 $ 464 $ 372
Provision for loan losses................... 132 6 12 12 60 60 112
Charge-offs................................. -- -- -- 2 -- -- 23
Recoveries.................................. -- -- -- 3 5 4 3
------- ------- --------- -------- ------- -------- ---------
Balance at end of period....................$ 750 $ 612 $ 618 $ 606 $ 593 $ 528 $ 464
======= ======= ======= ======= ====== ======= =========
Total loans receivable(1)...................$104,627 $111,162 $106,465 $111,715 $96,405 $ 86,910 $ 95,376
======= ======= ======= ======= ====== ======= ========
Average loans outstanding(1)................$105,493 $110,586 $109,954 $105,170 $94,040 $ 87,369 $ 107,403
======= ======= ======= ======= ====== ======= ========
Allowance for loan losses as a
percent of total loans.................... 0.72% 0.55% 0.58% 0.54% 0.62% 0.61% 0.49%
===== ===== ===== ===== ====== ===== ====
Net loans charged off as a
percent of average loans outstanding...... --% --% --% --% --% --% 0.02%
====== ====== ====== ====== ====== ====== ====
</TABLE>
- ----------------
(1) includes loans held for sale
46
<PAGE>
The following table exhibits a breakdown by loan category of the
allowance for loan losses.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------
1998 1997
-------------------- --------------------
Percent of Percent of
Loans in Loans in
Each Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
First mortgage -
1- to 4-family.......... $596 79.44% $509 81.76%
Commercial and other...... 75 10.08 53 9.33
Consumer - equity......... 75 10.01 46 8.19
Consumer - lines of credit 1 0.15 2 0.34
Consumer - education...... 1 0.18 1 0.13
Consumer - loans
to depositors,
secured by savings...... 2 0.14 1 0.25
Unallocated .............. -- -- -- --
----- ------ ---- ------
Total allowance
for loan losses.... $750 100.00% $612 100.00%
=== ====== === ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------- -------------------- ---------------------- -------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage -
1- to 4-family.......... $499 80.70% $512 82.96% $542 91.02% $478 90.96% $434 92.70%
Commercial and other...... 60 9.66 54 9.73 18 3.25 15 3.12 8 2.54
Consumer - equity......... 56 9.04 38 6.89 30 5.32 32 5.35 20 4.10
Consumer - lines of credit 1 0.13 -- 0.07 -- 0.08 --- 0.01 -- --
Consumer - education...... 1 0.15 1 0.12 2 0.09 1 0.21 1 0.18
Consumer - loans
to depositors,
secured by savings...... 1 0.32 1 0.23 1 0.24 2 0.35 1 0.48
Unallocated .............. -- -- -- -- -- -- -- -- -- --
---- ------ ---- ------ ---- ------ ---- ----- --- ------
Total allowance
for loan losses.... $618 100.00% $606 100.00% $593 100.00% $528 100.00% $464 100.00%
=== ====== === ====== === ====== === ====== === ======
</TABLE>
47
<PAGE>
Investment Activities
General. New Jersey-chartered savings banks have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various Federal agencies, certain certificates of
deposits of insured banks and savings institutions, municipal securities,
corporate debt securities and loans to other banking institutions.
The Bank maintains liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -
Regulation of the Bank - Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources". Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities and its expectation of future yield levels, as well as
management's projections as to the short-term demand for funds to be used in the
Bank's loan origination and other activities. The Bank maintains an investment
securities portfolio and a mortgage-backed securities portfolio as part of its
investment portfolio. At June 30, 1998, the Bank had an investment securities
portfolio of $14.2 million (5.9% of total assets) and a mortgage-backed
securities portfolio of $98.5 million (40.6% of total assets), consisting
primarily of U.S. Government Treasury Securities, U.S. government agency
obligations, obligations of states and political subdivisions. At June 30, 1998,
the market value of the investment securities portfolio was $14.2 million and
the market value of the mortgage-backed securities portfolio was $98.6 million.
See Notes 2 and 3 of the financial statements.
Investment Policies. The investment policy of the Bank, which is
established by the Board of Directors, is designed to foster earnings and
liquidity within prudent interest rate risk guidelines, while complementing the
Bank's lending activities. The policy provides for available for sale, held to
maturity, and trading classifications. However, the Bank does not currently use
a trading classification and does not anticipate doing so in the future. The
policy permits investments in high credit quality instruments with diversified
cash flows while permitting the Bank to maximize total return within the
guidelines set forth in the Bank's interest rate risk, funds and liquidity
management policy. Permitted investments include but are not limited to U. S.
government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, mortgage backed securities
and collateralized mortgage obligations guaranteed by government or
government-sponsored agencies, investment grade corporate debt securities, and
commercial paper. The Bank also invests in Federal Home Loan Bank overnight and
term deposits, certificates of deposit of insured banks, and federal funds, but
these instruments are not considered part of the investment portfolio.
The policy also includes several specific guidelines and restrictions
to insure adherence with safe and sound activities. The policy prohibits
investments in zero coupon securities with maturities over five years, high risk
mortgage derivative products (as defined by federal banking regulators),
transactions with forward settlement dates in excess of 90 days, dual indexed
notes, and inverse floaters. In addition, the policy limits the maximum amount
of any single transaction. The Bank does not participate in hedging programs,
interest rate swaps, or other activities involving the use of off-balance sheet
derivative financial instruments. Further, the Bank does not invest in
securities which are not rated investment grade.
The Board has charged the President, Executive Vice President, and
Chief Financial Officer to implement the policy. The policy statement requires
authorization by at least two of these three officers for approval of securities
transactions. All transactions are reported to the Board of Directors monthly,
with the entire portfolio reported quarterly, including market values and
unrealized gains (losses).
48
<PAGE>
Investment Securities. The Bank maintains a portfolio of investment
securities held to maturity. The Bank also maintains a portfolio of investment
securities available for sale to enhance total return on investments. These
assets are accounted at fair market value. During the six months ended June 30,
1998 and the year ended December 31, 1997 the Bank sold $7.0 million and $17.5
million of securities, respectively. As of June 30, 1998, the market value of
investment securities available for sale was $11.7 million, with a cost basis of
$11.6 million.
Mortgage-backed Securities. The Bank invests in mortgage-backed
securities to provide earnings, liquidity, cash flows, and diversification to
the Banks' overall balance sheet. These mortgage-backed securities are
classified as either available for sale or held to maturity. These securities
are participation certificates issued and guaranteed by the Government National
Mortgage Association ("GNMA") the Federal National Mortgage Association ("FNMA")
and the Federal Home Loan Mortgage Association ("FHLMC") and secured by interest
in pools of mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities secured
by single-family mortgages.
The Bank also invests in mortgage-related securities, primarily CMOs,
issued or sponsored by GNMA, FNMA, FHLMC, as well as private issuers. CMOs are a
type of debt security that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of CMO securities with varying
maturities and amortization schedules as well as a residual interest with each
class having different risk characteristics. The cash flows from the underlying
collateral are usually divided into "tranches" or classes whereby tranches have
descending priorities with respect to the distribution of principal and interest
repayment of the underlying mortgages and mortgage backed securities as opposed
to pass through mortgage backed securities where cash flows are distributed pro
rata to all security holders. Unlike mortgage backed-securities from which cash
flow is received and prepayment risk is shared pro rata by all securities
holders, cash flows from the mortgages and mortgage backed securities underlying
CMOs are paid in accordance with a predetermined priority to investors holding
various tranches of such securities or obligations. A particular tranche or
class may carry prepayment risk which may be different from that of the
underlying collateral and other tranches. CMOs attempt to moderate reinvestment
risk associated with conventional mortgage-backed securities resulting from
unexpected prepayment activity. Management believes these securities represent
attractive alternatives relative to other investments due to the wide variety of
maturity, repayment and interest rate options available.
Other Securities. Other securities used by the Bank, but not
necessarily included in the investment portfolio, consist of equity securities,
interest-bearing deposits and federal funds sold. Equity securities owned
consist of 400 shares of Federal National Mortgage Association common stock
(included in the investment securities portfolio) and 19,486 shares of Federal
Home Loan Bank of New York (FHLB NY) common stock. As an approved FNMA
Seller-Servicer and as a member of the FHLB NY, ownership of common shares is
required. The remaining securities provide diversification and complement the
Bank's overall investment strategy.
49
<PAGE>
Investment Portfolio
The following table sets forth the carrying value of the Bank's
portfolio investment securities portfolio, and mortgage-backed securities
portfolio at the dates indicated. At June 30, 1998, the fair value of the Bank's
investment securities portfolio and mortgage-backed securities portfolio were
$14.2 million and $98.6 million, respectively.
<TABLE>
<CAPTION>
At June 30, At December 31,
----------------- ----------------------------------------------------
1998 1997 1996 1995
----------------- -------------- ----------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities Held to Maturity:
U.S. Government Securities.............................. $ 1,575 $ 1,771 $ 2,328 $ 761
U.S. Agency Securities.................................. 920 7,895 10,393 23,081
------- ------- ------ -------
Total Investment Securities Held to Maturity.......... 2,495 9,666 12,721 23,842
Investment Securities Available for Sale:
U.S. Government Securities............................. 499 498 493 496
U.S. Agency Securities................................. 6,501 23,193 40,103 16,909
Municipal Securities................................... 4,704 3,241 2,599 --
Equity Securities(1)................................... 26 22 16 12
------- ------- ------ --------
Total Investment Securities Available For Sale....... 11,730 26,954 43,211 17,417
Mortgage-backed Securities Held to Maturity.............. 12,794 14,356 16,611 19,179
Mortgage-backed Securities Available For Sale............ 85,679 50,099 19,359 13,041
------- ------- ------ -------
Total Investment and Mortgage-backed
Securities............................................ $112,698 $101,075 $91,902 $ 73,479
======= ======= ====== =======
</TABLE>
- -------------
(1) Equity securities consist of 400 shares of Federal National Mortgage
Association common stock (requirement of being a Seller-Servicer).
50
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Bank's investment and mortgage-backed securities portfolio at
June 30, 1998.
<TABLE>
<CAPTION>
Total
One Year or Less One to Five Years Five to Ten Years More than Ten Years Investment Securities
---------------- ------------------ ----------------- ------------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ----- ------- ------- ------- ------- ------- ------- ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Government
Securities ........... $ 500 5.13% $ 167 9.38% $ 746 9.73% $ 662 9.43% $ 2,075 8.41% $ 2,075
U. S. Agency Securities 920 5.19 4,001 6.51 -- -- 2,500 7.07 7,421 6.26 7,421
Municipal Securities ... -- -- -- -- -- -- 4,704 5.25 4,704 5.25 4,704
Equity Securities(1) ... 26 4.56 -- -- -- -- -- -- 26 4.56 26
-------- ---- ------- ---- ------- ---- ------ ---- ------ ---- -------
Total Investment
Securities ......... 1,446 5.16 4,168 6.62 746 9.73 7,866 6.18 14,226 6.39 14,226
Mortgage-backed Securities -- -- 10,206 6.82 25,581 7.72 62,686 8.39 98,473 8.06 98,632
-------- ---- ------- ---- ------- ---- ------ ---- ------- ---- -------
Total Investments .... $ 1,446 5.16% $14,374 6.77% $26,327 7.78% $70,552 8.14% $112,699 7.85% $112,858
======== ==== ======= ==== ======= ==== ====== ==== ======= ==== =======
</TABLE>
- ---------------
(1) Equity securities consist of 400 shares of Federal National Mortgage
Association common stock (requirement of being a Seller-Servicer).
51
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowings, the Bank derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the sale of
mortgage-backed securities and investment securities. Loan and mortgage-backed
securities payments are a relatively stable source of funds, while deposit
inflows are significantly influenced by general interest rates and money market
conditions. They also may be used on a longer-term basis for interest rate risk
management and general business purposes.
Deposits. The Bank offers a variety of deposit accounts, although a
majority of deposits are in fixed-term, market-rate certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate.
The Bank's current deposit products include certificates of deposit
accounts ranging in terms from 91 days to five years as well as passbook,
statement, NOW, and money market accounts. Included in these are individual
retirement accounts (IRAs). The Bank does not negotiate its interest rates on
any of its certificates of deposit.
Deposits are obtained primarily from residents in northwestern Bergen
County, New Jersey. The Bank attracts deposit accounts by offering outstanding
service, competitive interest rates, and convenient locations and service hours.
The Bank uses traditional methods of advertising to attract new customers and
deposits, including radio, cable television, direct mail and print media
advertising. The Bank does not utilize the services of deposit brokers and
management believes that an insignificant number of deposit accounts are held by
non-residents of New Jersey.
The Bank pays interest on its deposits which are competitive in its
market. Interest rates on deposits are set weekly by senior management, based
upon a number of factors, including: (1) the previous week's deposit flow; (2) a
current survey of a selected group of competitors' rates for similar products;
(3) external data which may influence interest rates; (4) investment
opportunities and loan demand; and (5) scheduled maturities.
Because of the large percentage of certificates of deposit in the
deposit portfolio (75.8% at June 30, 1998), the Bank's liquidity could be
reduced if a significant amount of certificates of deposit, maturing within a
short period of time, were not renewed. Most certificates of deposit remain with
the Bank after they mature and the Bank believes that this will continue.
However, the need to retain these time deposits could result in an increase in
the Bank's cost of funds.
52
<PAGE>
Deposit Portfolio
Deposits in the Bank as of June 30, 1998, were represented by various
types of savings programs described below.
<TABLE>
<CAPTION>
Balances Percentage
Interest as of of Total
Category Term Rate(1) June 30, 1998 Deposits
- -------- ------- ------------- --------
(In thousands)
<S> <C> <C> <C> <C>
Traditional(2) None 3.21% 29,126 14.67%
NOW Accounts(3) None 2.28 15,165 7.64
Money Market Accounts None 2.98 3,807 1.92
Certificates of Deposit:
Fixed Term, Fixed Rate 3 months 4.41 5,807 2.92
Fixed Term, Fixed Rate 6 months 5.07 18,412 9.27
Fixed Term, Fixed Rate 7 months 5.75 17 0.01
Fixed Term, Fixed Rate 8 months 5.56 220 0.11
Fixed Term, Fixed Rate 9 months 5.51 6,004 3.02
Fixed Term, Fixed Rate 12 months 5.28 21,506 10.83
Fixed Term, Fixed Rate 13 months 5.79 1,831 0.92
Fixed Term, Fixed Rate 18 months 5.81 32,914 16.57
Fixed Term, Fixed Rate 24 months 5.84 26,655 13.42
Fixed Term, Fixed Rate 30 months 5.89 13,365 6.73
Fixed Term, Fixed Rate 36 months 5.69 153 0.08
Fixed Term, Fixed Rate 60 months 5.67 6,320 3.18
Fixed Term, Fixed Rate 120 months 6.44 2,473 1.25
Jumbo Certificates(4) 14,827 7.46
------- -------
Total Certificates of Deposit 150,504 75.77
------- ------
Total 198,602 100.00%
======= ======
</TABLE>
- --------------
(1) Weighted average interest rates as of June 30, 1998.
(2) Consists of passbook accounts, statement savings accounts and childrens'
accounts (the Moola Moola program).
(3) Weighted average interest rate based upon interest bearing NOW accounts
only.
(4) Interest rate and term for jumbo certificates (certificates with a balance
of $100,000 or more) may vary depending on the term of certificate of
deposits offered.
53
<PAGE>
Time Deposits by Rate
The following table sets forth the time deposits in the Bank classified
by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
------------------ -------------------------------------------------------
1998 1997 1996 1995
------------------ ----------------- ------------------ --------------
(In thousands)
<S> <C> <C> <C> <C>
Interest Rate
2.01-4.00%................................... $ 1 $ 1 $ -- $ --
4.01-6.00%................................... 125,575 126,204 122,799 83,651
6.01-8.00%................................... 24,928 24,596 11,975 30,493
------- ------- ------- -------
Total........................................ $150,504 $150,801 $134,774 $114,144
======= ======= ======= =======
</TABLE>
Time Deposits Maturity Schedule
The following table sets forth the amount and maturities of time
deposits at June 30, 1998.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1998 1999 2000 2001 Total
- ------------- -------------------- ------------------- ------------------- --------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
2.01-4.00%...................... $ - $ - $ 1 $ - $ 1
4.01-6.00%...................... 47,218 70,108 6,483 1,766 125,575
6.01-8.00%...................... 14 15,520 6,283 3,111 24,928
------ ------ ------ ----- -------
Total........................... $47,232 $85,628 $12,767 $4,877 $150,504
====== ====== ====== ===== =======
</TABLE>
54
<PAGE>
Jumbo Certificates of Deposit
The following table shows the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
1998.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Within three months................................... $ 3,018
Three through six months.............................. 2,039
Six through twelve months............................. 6,320
Over twelve months.................................... 3,450
------
$14,827
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
Six Months Ended
June 30, Years Ended December 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
Net increase (decrease)
before interest credited $ (61) $11,145 $14,402 $15,931 $20,306
Interest credited ........ 4,774 4,262 8,936 7,603 6,518
------- ------- ------- ------- -------
Net increase in savings
deposits ............... $ 4,713 $15,407 $23,338 $23,534 $26,824
======= ======= ======= ======= =======
Borrowings. Deposits are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes. The
Bank, as the need arises, relies upon advances from the FHLB NY to supplement
its supply of lendable funds and to meet deposit withdrawal requirements.
Advances from the FHLB NY are typically secured by the Bank's stock in the FHLB
and a portion of the Bank's residential mortgage loans and may be secured by
other assets (principally securities which are obligations of or guaranteed by
the U.S. Government). The Bank funds loan demand and investment opportunities
out of current loan and mortgage-backed securities repayments, investment
maturities and new deposits. However, the Bank has utilized FHLB advances to
supplement these sources and as a match against certain assets in order to
better manage interest rate risk.
55
<PAGE>
The following table sets forth information concerning FHLB advances
during the periods indicated (includes both short- and long-term advances).
<TABLE>
<CAPTION>
At or For the
Six Months Ended At or For the Years
June 30, Ended December 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding ............. $18,009 $25,995 $22,012 $32,210 $13,833
Maximum amount outstanding
at any month-end during
the period .......................... 25,436 28,400 28,400 38,972 17,829
Balance outstanding at
end of period ......................... 25,432 19,181 16,282 28,400 16,012
Weighted average interest
rate during the period .............. 5.77% 5.83% 5.93% 5.81% 6.37%
Weighted average
interest rate at
the end of the period ............... 5.63% 5.89% 6.00% 5.86% 6.11%
</TABLE>
Subsidiary Activity
The Bank is permitted to invest its assets in the capital stock of, or
originate secured or unsecured loans to, subsidiary corporations. The Bank does
not have any subsidiaries.
Personnel
As of June 30, 1998, the Bank had 28 full-time employees and 13
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank believes its relationship with its employees to be
satisfactory.
Competition
The Bank faces strong competition in its attraction of deposits, which
are its primary source of funds for lending, and in the origination of real
estate and consumer loans. The Bank's competition for deposits and loans
historically has come from other savings institutions and commercial banks
located in the Bank's market area. The Bank also competes with mortgage banking
companies for real estate loans, and commercial banks and savings institutions
for consumer loans; and faces competition for investor funds from short-term
money market securities and corporate and government securities. The Bank's
primary market area is northwestern Bergen County, New Jersey.
The Bank competes for loans by charging competitive interest rates and
loan fees, and emphasizing outstanding service for its customers. The Bank
offers consumer banking services such as passbook and NOW accounts, certificates
of deposit, retirement accounts, consumer and mortgage loans and provides
drive-up facilities, automated teller machines and overdraft protection. The
emphasis on
56
<PAGE>
outstanding service differentiates the Bank in its competition for deposits. The
Bank offers overall market rates on deposits. Although the bank is ranked first
in deposit share in its primary market area, many of the competitors of the Bank
offer a much broader array of services and products.
Properties and Equipment
The Bank's executive offices are located at 531 North Maple Avenue in
Ridgewood, New Jersey. The Bank conducts its business through three offices,
which are located in Ridgewood and Mahwah, New Jersey. The following table sets
forth the location of each of the Bank's offices, the year the office was
acquired and the net book value of each office.
Net Book
Year Facility Value as of
Opened or Leased or June 30,
Office Location Acquired Owned 1998
- --------------- --------- ------- ------
Broad Street Office
55 North Broad Street
Ridgewood, NJ 07450 1964 Leased $292,000
Mahwah Office
6 East Ramapo Avenue
Mahwah, NJ 07430 1995 Leased 246,000
Maple Avenue Office
531 North Maple Avenue
Ridgewood, NJ 07450 1995 Owned 1,101,000
---------
TOTAL $1,639,000
==========
The Broad Street office lease is dated April 6, 1975 with a term of
thirty years. The Mahwah office lease has a term of twelve years. Each lease has
a renewal option.
As of June 30, 1998, the net book value of land, buildings, furniture,
and equipment owned by the Bank, less accumulated depreciation, totalled $2.2
million.
Legal Proceedings
The Bank, from time to time, is a party to routine litigation, which
arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. There were no lawsuits
pending or known to be contemplated against the Bank at June 30, 1998 that would
have a material effect on our operations or income.
57
<PAGE>
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
reference to applicable laws and regulations.
Regulation of the Bank
General. As a New Jersey chartered savings bank insured by the Savings
Association Insurance Fund (the "SAIF"), the Bank is subject to extensive
regulation and examination by the New Jersey Department of Banking and Insurance
(the "Department"), the FDIC, which insures its deposits to the maximum extent
permitted by law, and to a much less or extent, by the Federal Reserve. The
federal and state laws and regulations which are applicable to banks regulate,
among other things, the scope of their business, their investments, the reserves
required to be kept against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain loans.
The laws and regulations governing the Bank generally have been promulgated to
protect depositors and not for the purpose of protecting stockholders. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Department, the FDIC or the United
States Congress could have a material adverse impact on the Company, the Bank
and their operations.
New Jersey Savings Bank Law. The New Jersey Banking Act of 1948
("Banking Code") contains detailed provisions governing the organization,
location of offices, rights and responsibilities of directors, officers, and
employees, as well as corporate powers, savings and investment operations and
other aspects of the Bank and its affairs. The Banking Code delegates extensive
rule-making power and administrative discretion to the Department so that the
supervision and regulation of state chartered savings banks may be flexible and
readily responsive to changes in economic conditions and in savings and lending
practices.
One of the purposes of the Banking Code is to provide savings banks
with the opportunity to be fully competitive with each other and with other
financial institutions existing under other state, federal and foreign laws. To
this end, the Banking Code provides state-chartered savings banks with all of
the powers enjoyed by federal savings and loan associations, subject to
regulation by the Department. Federal law, however, prohibits state chartered
institutions from making new investments, loans, or becoming involved in
activities as principal and equity investments which are not permitted for
national banks unless (1) the FDIC determines the activity or investment does
not pose a significant risk of loss to the appropriate deposit insurance fund
and (2) the savings bank meets the fully phased-in capital requirements.
Accordingly, the ability of the Banking Code to provide additional operating
authority to the Bank is limited by federal law.
The Department generally examines the Bank not less frequently than
every two years. The Department may order any savings bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a savings bank engaged in an
objectionable activity, after the Department has ordered the activity to be
terminated, to show cause at a hearing before the Department why such person
should not be removed.
58
<PAGE>
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
0.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the
deposit insurance assessment for most SAIF members was reduced to 0.064% of
deposits on an annual basis through the end of 1999. During this same period,
BIF members will be assessed approximately 0.013% of deposits. After 1999,
assessments for BIF and SAIF members should be the same. It is expected that
these continuing assessments for both SAIF and BIF members will be used to repay
outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 70%.
Regulatory Capital Requirements. Under FDIC regulations, the Bank is
required to maintain minimum leverage capital (a ratio of Tier 1 capital to
total risk-weighted assets) of 4%. For institutions other than those most highly
rated by the FDIC, additional capital of at least 100 to 200 basis points is
required. Tier 1 capital is the sum of common stockholders' equity,
noncumulative perpetual preferred stock (including any related surplus) and
minority investments in certain subsidiaries, less certain intangible assets,
deferred tax assets, certain identified losses and certain investments in
securities subsidiaries. As a SAIF-insured, state-chartered savings bank, the
Bank must currently also deduct from Tier 1 capital an amount equal to its
investments in, and extensions of credit to, subsidiaries engaged in certain
activities not permissible for national banks.
In addition to the leverage ratio, the Bank must maintain a ratio of
qualifying total capital to risk- weighted assets of at least 8.0%, of which at
least four percentage points must be Tier 1 capital. Qualifying total capital
consists of Tier 1 capital plus Tier 2 or supplementary capital items which
include allowances for loan losses in an amount of up to 1.25% of risk-weighted
assets, cumulative preferred stock and preferred stock with a maturity of over
20 years and certain other capital instruments. The includable amount of Tier 2
capital cannot exceed the institution's Tier 1 capital. Qualifying total capital
is further reduced by the amount of the bank's investments in banking and
finance subsidiaries that are not consolidated for regulatory capital purposes,
reciprocal cross-holdings of capital securities issued by other banks and
certain other deductions. Under the FDIC's risk-weighted system, all of a bank's
balance sheet assets and the credit equivalent amounts of certain off-balance
sheet items are assigned to risk weight categories. The aggregate dollar amount
of each category is multiplied by the risk weight assigned to that category. The
sum of these weighted values equals the bank's risk-weighted assets.
Pursuant to New Jersey banking law the minimum leverage capital for a
depository institution is a ratio of Tier 1 capital to total risk-weighted
assets of four percent. However, the Department may require a higher ratio for a
particular depository institution.
59
<PAGE>
New Jersey banking law requires that a depository institution maintain
qualifying capital of at least eight percent of its risk weighted assets. At
least four percent of this qualifying capital shall be in the form of Tier 1
capital. For purposes of New Jersey banking law, risk weighted assets, Tier 1
capital, and total assets are defined in the same manner as in the FDIC
regulations.
The Bank was in compliance in both the FDIC and New Jersey capital
requirements at June 30, 1998. See "Historical and Pro Forma Capital
Compliance."
Regulatory Capital Distributions. Following the reorganization,
earnings of the Bank appropriated to bad debt reserves and deducted for federal
income tax purposes will not be available for payment of cash dividends or other
distributions to stockholders without payment of taxes at the then current tax
rate by the Bank on the amount of earnings removed from the reserves for such
distributions.
Dividends payable by the Bank to the Company and dividends payable by
the Company to stockholders will be subject to various additional limitations
imposed by federal and state laws, regulations and policies adopted by federal
and state regulatory agencies. The Bank will be required by federal law to
obtain FDIC approval for the payment of dividends if the total of all dividends
declared by the Bank in any year exceed the total of the Bank's net profits (as
defined) for that year and the retained net profits (as defined) for the
preceding two years, less any required transfers to surplus. Under New Jersey
law, the Bank may not pay dividends unless, following payment, the capital stock
of the Bank would be unimpaired and (a) the Bank will have a surplus of not less
than 50% of its capital stock, or, if not, (b) the payment of such dividends
will not reduce the surplus of the Bank.
Under applicable regulations, the Bank would be prohibited from making
any capital distributions if, after making the distribution, the Bank would
have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1
risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less
than 4.0%, unless a higher ratio is required by the Department.
The Bank was in compliance with both the FDIC and New Jersey capital
distribution requirements at June 30, 1998. See "Historical and Pro Forma
Capital Compliance."
Qualified Thrift Lender Test. The Bank must maintain an appropriate
level of certain investments ("Qualified Thrift Investments") and otherwise
qualify as a "Qualified Thrift Lender" ("QTL"), in order to continue to enjoy
full borrowing privileges from the FHLB NY. The required percentage of Qualified
Thrift Investments is 65% of portfolio assets. In addition, savings banks may
include shares of stock of the Federal Home Loan Banks, FNMA and FHLMC as
qualifying QTL assets. Compliance with the QTL test is measured on a monthly
basis in nine out of every 12 months. As of June 30, 1998, the Bank was in
compliance with its QTL requirement.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between the Bank and its affiliates be
on terms as favorable to the Bank as transactions with non-affiliates. In
addition, certain of these transactions are restricted to a percentage of the
Bank's capital. Collateral in specified amounts must usually be provided by
affiliates in order to receive loans from the Bank. Within certain limits,
affiliates are permitted to receive more favorable loan terms than
non-affiliates.
60
<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB NY,
which is one of 12 regional FHLBs. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from funds
deposited by its members and 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. The FHLB imposes various limitations on advances such as limiting the
amount of certain types of real estate related collateral to 30% of a member's
capital and limiting total advances to a member.
As a member, we are required to purchase and maintain stock in the FHLB
NY in an amount equal to at least 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
in low and moderate income housing projects.
Federal Reserve System. The Federal Reserve requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. At June 30, 1998, the Bank
met its reserve requirements.
Regulation of the Company
General. As a bank holding company, we will be subject to regulation
and supervision by the Board of Governors of the Federal Reserve System and by
the Department. This regulation is generally intended to ensure that the Company
limits its activities to those allowed by law and that it operates in a safe and
sound manner without endangering the financial health of its subsidiary bank.
Federal Law and Other Limitations. A bank holding company may not
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank, or increase its ownership or control of any bank, without
prior approval of the Federal Reserve. In determining whether to authorize a
bank holding company (or a company that will become a bank holding company) to
acquire control of a bank, the Federal Reserve takes into consideration the
financial and managerial resources of the bank holding company, as well as those
of the bank to be acquired, and considers whether the acquisition is likely to
have anti-competitive effects or other adverse effects. A bank holding company
may not acquire any bank located outside of the state in which the operations of
the existing bank subsidiaries of the bank holding company are principally
conducted unless specifically authorized by applicable state law. No federal
approval is required, however, for a bank holding company already owning or
controlling 50% or more of the voting shares of a bank to acquire additional
shares of that bank.
Federal law also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. The Federal Reserve is authorized to approve the ownership
of shares by a bank holding company in any company, the activities of which the
Federal Reserve has determined to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve is required to weigh expected benefits to
the public, such as greater convenience, increased competition or gains in
efficiency,
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against the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices.
The Federal Reserve has determined that certain activities are closely
related to banking. These activities include those of operating a mortgage
company, a finance company, a credit card company, a factoring company, a trust
company or a savings association; performing certain data processing operations;
providing limited securities brokerage services; acting as an investment or
financial advisor; leasing personal property on a full-payout (and, to a limited
extent, less than full-payout), non-operating basis; providing tax planning and
preparation services; operating a collection agency; and providing certain
courier services. The Federal Reserve also has determined that certain other
activities, including real estate brokerage and syndication, land development,
property management and underwriting of life insurance not related to credit
transactions, are not proper activities for banks.
Regulatory Capital Requirements. The Federal Reserve has adopted
capital adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and in analyzing
applications. The Federal Reserve capital adequacy guidelines are similar to
those imposed on the Bank by the FDIC. See "Regulation of the Bank - Regulatory
Capital Requirements."
Commitments to Affiliated Depository Institutions. Under Federal
Reserve policy, the Company will be expected to act as a source of financial
strength to the Bank and to commit resources to support the Bank in
circumstances when it might not do so absent such policy. The enforceability and
precise scope of this policy is unclear. However, should the Bank require the
support of additional capital resources, it is expected that the Company will be
required to respond with any such resources available to it.
Restrictions Applicable to New Jersey-Chartered Mutual Holding
Companies. The Department is authorized to approve the reorganization of a state
chartered savings bank to a mutual savings bank holding company. The general
powers of a mutual savings bank holding company are similar to the authorized
powers of New Jersey corporations, subject to the interpretation of the
Department.
TAXATION
Federal Taxation
Savings institutions are subject to the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), in the same general manner as
other corporations. Prior to certain changes to the Code in 1996, thrift
institutions enjoyed a tax advantage over banks with respect to determining
additions to its bad debt reserves. All thrift institutions, prior to 1996, were
generally allowed a deduction for additions to a reserve for bad debts. In
contrast, only "small banks" (the average adjusted bases of all assets of such
institution equals $500 million or less) were allowed a similar deduction for
additions to their bad debt reserves. In addition, while small banks were only
allowed to use the experience method in determining their annual addition to a
bad debt reserve, all thrift institutions generally enjoyed a choice between (i)
the percentage of taxable income method and, (ii) the experience method, for
determining the annual addition to their bad debt reserve. This choice of
methods provided a distinct advantage to thrift institutions that continually
experienced little or no losses from bad debts, over small banks in a similar
situation, because thrift institutions in comparison to small banks were
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<PAGE>
generally allowed a greater tax deduction by using the percentage of taxable
income method (rather than the experience method) to determine their deductible
addition to their bad debt reserves.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debt. Now only thrift institutions that are treated as
small banks under the Code may continue to account for bad debts under the
reserve method; however such institutions may only use the experience method for
determining additions to their bad debt reserve. Thrift institutions that are
not treated as small banks may no longer use the reserve method to account for
their bad debts but must now use the specific charge-off method.
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of (i) the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over (ii) the
balance of such reserves as of the close of its last taxable year beginning
before January 1, 1988 ("pre- 1988 reserves"). The Bank will be required to
recapture $1.2 million of applicable excess reserve.
In addition, all thrift institutions must continue to keep track of
their pre-1988 reserves because this amount remains subject to recapture in the
future under the Code. A thrift institution such as the Bank, would generally be
required to recapture into its taxable income its pre-1988 reserves in the case
of certain excess distributions to, and redemptions of the Bank's shareholders.
For taxable years after 1995, the Bank will continue to account for its bad
debts under the reserve method. The balance of the Bank's pre-1988 reserves
equaled $3.1 million.
The Company may exclude from its income 100% of dividends received from
the Bank as a member of the same affiliated group of corporations. A 70%
dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group.
The Bank's federal income tax returns for the last five tax years have
not been audited by the IRS.
State Taxation
The Bank files New Jersey income tax returns. For New Jersey income tax
purposes, savings institutions are presently taxed at a rate of 3% of income,
which is calculated based on federal taxable income, subject to certain
adjustments.
The Bank's state tax returns have not been audited for the past five
years.
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MANAGEMENT
Directors and Executive Officers
Our board of directors is composed of nine members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our proposed certificate of incorporation and bylaws require that
directors be divided into three classes, as nearly equal in number as possible.
Our officers are elected annually by our board and serve at the board's
discretion. These same provisions apply to the Bank and mutual holding company,
which will have the same directors and executive officers that we have.
The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the reorganization.
<TABLE>
<CAPTION>
Age at Current
December 31, Director Term
Directors 1997 Position Since Expires(1)
- ------------------------------- ------------------- -------------------------------- ------------- ----------
<S> <C> <C> <C> <C>
Susan E. Naruk 44 Director, President and 1991 2000
Chief Executive Officer
Nelson Fiordalisi 50 Director, Executive Vice 1987 1999
President and Chief
Operating Officer
Michael W. Azzara 50 Director 1989 2000
Jerome Goodman 61 Director 1989 2000
Bernard J. Hoogland 54 Director 1992 1999
John Kandravy 62 Director 1995 1999
Robert S. Monteith 73 Director 1981 2001
John J. Repetto 73 Director 1975 2001
Paul W. Thornwall 57 Director 1995 2001
John Scognamiglio 42 Senior Vice President and N/A N/A
Chief Financial Officer
Jean M. Miller 51 Senior Vice President and N/A N/A
Chief Lending Officer
</TABLE>
- -------------------
(1) The terms for directors of the Company and the MHC are the same as
those of Ridgewood Savings Bank of New Jersey.
The business experience for the past five years of each of the
directors and executive officers is as follows:
Michael W. Azzara has been a member of the Board since 1989. Mr. Azzara
is the President of The Valley Hospital and the Valley Health System, Inc., both
in Ridgewood, New Jersey. He is also a member of the board of directors of
Princeton Insurance Co. and Health Care Insurance Co.
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<PAGE>
Nelson Fiordalisi has been a member of the Board since 1987 and
employed by the Bank since 1986. Mr. Fiordalisi is the Executive Vice President
and Chief Operating Officer of the Bank. He is a trustee, past president and
co-founder of the Ho-Ho-Kus Education Foundation, a member of the Ho- Ho-Kus
300th Anniversary Committee, the Ho-Ho-Kus Chamber of Commerce, and the
Financial Managers Society.
Jerome Goodman has been a member of the Board since 1989. Mr. Goodman
is a Certified Public Accountant and a Partner of Flackman, Goodman & Potter PA
in Ridgewood, New Jersey.
Bernard J. Hoogland has been a member of the Board since 1992. Mr.
Hoogland is the Vice President of Ridgewood Associates, a securities firm in
Paramus, New Jersey.
John Kandravy has been a member of the Board since 1995. Mr. Kandravy
is an attorney and a Partner of Shanley & Fisher, P.C. in Morristown, New
Jersey. He is a trustee and a Vice Chairman of The Valley Hospital, a trustee of
Valley Health System, Inc., and The Forum School, trustee and the President of
The Forum School Foundation, and a trustee of Children's Aid and Family
Services, Inc.
Robert S. Monteith has been a member of the Board of Directors since
1981. Mr. Monteith is the past President of the Bank and is now retired. He is a
member of the board of associates of Sacred Heart Hospital, Allentown,
Pennsylvania.
Susan E. Naruk has been a member of the Board of Directors since 1991.
Ms. Naruk has been the President and Chief Executive Officer of the Bank since
1991. Previously, she was a senior vice president with Warwick Savings Bank. Ms.
Naruk began her banking career as a lending officer in the national banking
group of Citibank, N.A. and served as a vice president and team leader in
corporate banking for Chase Manhattan Bank, N.A. She is a member of the board of
directors of the YWCA of Bergen County, a trustee and the First Vice President
of the Western Bergen Mental Health Care, a trustee of the Bankers Cooperative
Group and a member of the board of governors of the New Jersey League of
Community and Savings Bankers. She is a past President of the Northern New
Jersey Savings League.
John J. Repetto has been a member of the Board of Directors since 1975.
Mr. Repetto is the Real Estate Manager for Marron Enterprises in Ho-Ho-Kus, New
Jersey.
Paul W. Thornwall has been a member of the Board of Directors since
1995. Mr. Thornwall is an attorney and owner of the Thornwall Law Firm in Glen
Rock, New Jersey. He is the past president of the Ridgewood Rotary Club.
John Scognamiglio is a Senior Vice President and the Chief Financial
Officer of the Bank, where he has been employed since 1992. Mr. Scognamiglio is
a member of St. Mary's Parish Council and the Financial Managers Society.
Jean M. Miller is a Senior Vice President and the Chief Lending Officer
of the Bank, where she has been employed since 1992. Ms. Miller is a member of
the International Credit Council and the Ridgewood Chamber of Commerce.
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<PAGE>
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended December
31, 1997, the board of directors held 12 regular meetings. No director attended
fewer than 75% of the total meetings of the board of directors and committees on
which such director served during the year ended December 31, 1997. The Bank has
standing Nominating, Audit and Personnel (Compensation) Committees, as well as
other standing committees such as the Strategic Planning, Year 2000 Compliance,
Executive, and Asset Liability Committees.
The Nominating Committee of the Bank consists of Directors Monteith,
Naruk, Repetto and Thornwall. The Committee presents its recommendations of
nominees for Directors to the full Board for nomination. The Committee met once
during the year ended December 31, 1997.
The Audit Committee of the Bank consists of Directors Goodman, Monteith
and Thornwall. The Audit Committee meets at least semi-annually and meets with
the Bank's independent certified public accountants to review the results of the
annual audit and other related matters. The Audit Committee met four times
during the year ended December 31, 1997
The Personnel (Compensation) Committee of the Bank consists of
Directors Azzara, Hoogland, Naruk and Thornwall. The Committee meets at least
annually to review the performance and remuneration of the officers and
employees of the Bank. The Committee met three times during the year ended
December 31, 1997.
Director Compensation
During 1997 each non-management director was paid a fee of $1,250 for
each Board meeting attended and each Director Emeritus was paid $500 per Board
meeting attended. In 1998, the non-management director fees were increased to
$1,350 for each Board meeting attended. Each non-management director member of
the Loan Review Committee and the Property Inspection Committee was paid $50 per
respective Committee meeting attended. Directors are not paid a fee for
attending any other committee meetings nor will they be paid a fee for attending
the Company Board meetings. The total fees paid to the directors for the year
ended December 31, 1997 were approximately $182,000 consisting of $141,000 in
Board fees, $33,000 in Life/Health Insurance (including $6,000 for former
President Schletzer) and $8,000 to the Loan Committee.
Directors Consultant and Retirement Plan ("DRP"). The DRP provides
retirement benefits to directors following retirement after age 60 and
completion of at least 10 years of service. If a director agrees to become a
consulting director to our board upon retirement, he or she will receive a
monthly payment equal to between 50% and 80% of the Board fee in effect at the
date of retirement for a period of 120 months; such level of benefits is based
upon years of prior service as of the retirement date (i.e., 50% with 10-15
years, 60% with up to 20 years, 70% with up to 25 years and 80% with more than
25 years of service). Benefits under our DRP will begin upon a director's
retirement. In the event there is a change in control, all directors will be
presumed to have not less than 10 years of service and each director will
receive a lump sum payment equal to the present value of future benefits
payable.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer, chief
operating officer and chief financial officer for the three years ended December
31, 1997.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------
Other Annual All other
Compensation Compensation
Name and Principal Position Year Salary Bonus (1) (2)
- --------------------------- ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Susan E. Naruk, President 1997 $155,000 $25,000 $ -- $3,661
and Chief Executive Officer 1996 125,000 20,000 -- 2,946
1995 115,000 16,000 -- 2,626
Nelson Fiordalisi, Executive 1997 108,450 15,000 -- 2,501
Vice President and Chief 1996 93,000 12,000 -- 2,116
Operating Officer 1995 90,000 11,000 -- 2,028
John Scognamiglio, Senior 1997 88,000 13,000 -- 2,029
Vice President and Chief 1996 82,700 11,000 -- 1,883
Financial Officer 1995 80,000 9,100 -- 1,784
</TABLE>
- --------------------
(1) The Bank provides an automobile and group term life for certain
officers. The value of these benefits do not exceed the lesser of
$50,000 or 10% of total salary and bonus.
(2) Consists of company contributions and matching contributions under the
401(k) plan. Additionally, the individual participates in a defined
benefit pension plan whereby a benefit of up to 33-1/3% of final
average earnings is payable at age 65 with 10 or more years of service.
Also, each individual participates in the SERP Plan. See
"--Supplemental Executive Retirement Plan".
Employment Agreements. We have entered into an employment agreement
with our President, Ms. Susan E. Naruk. Ms. Naruk's base salary under the
employment agreement is $157,500. The employment agreement has a term of three
years. The agreement is terminable by us for "just cause" as defined in the
agreement. If we terminate Ms. Naruk without just cause, Ms. Naruk will be
entitled to a continuation of her salary from the date of termination through
the remaining term of the agreement. The employment agreement contains a
provision stating that in the event of the termination of employment in
connection with any change in control of us, Ms. Naruk will be paid a lump sum
amount equal to 2.999 times her five year average annual taxable cash
compensation. If a payment had been made under the agreement as of December 31,
1997, the payment would have equaled approximately $418,000. The aggregate
payment that would have been made to Ms. Naruk would be an expense to us,
thereby reducing our net income and our capital by that amount. The agreement
may be renewed annually by our board of directors upon a determination of
satisfactory performance within the board's sole discretion. If Ms. Naruk shall
become disabled during the term of the agreement, she shall continue to receive
payment of 100% of the base salary for a period of 6 months and 50% of such base
salary for an additional six months. Such payments shall be reduced by any other
benefit payments made under other disability programs in effect for our
employees. Similar agreements have been implemented for
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<PAGE>
our other senior officers including Mr. Nelson Fiordalisi, Executive Vice
President and Mr. John Scognamiglio, Senior Vice President. Payment to each such
individual upon a change in control is limited to 200% of the average annual
compensation over the prior 36 month taxable compensation period. As of December
31, 1997, payment to Mr. Fiordalisi and to Mr. Scognamiglio would have been
$221,000 and $188,000, respectively, had there been a change in control as of
that date.
Supplemental Executive Retirement Plan. We have implemented a
supplemental executive retirement plan ("SERP") for the benefit of our senior
officers, including Susan E. Naruk, Nelson Fiordalisi and John Scognamiglio. The
SERP provides that the participant may receive additional retirement income in
addition to benefits payable under the Bank's defined benefit pension plan.
Benefits under the SERP are calculated as 60% of final average earnings upon
retirement at age 65, reduced by benefits payable under the Bank's defined
benefit pension plan and Social Security benefits. Benefits payable prior to age
65 will be reduced by 1% per month of early retirement. Upon a termination of
employment following a change in control, the participant will be presumed to
have attained not less than the minimum retirement age under the SERP. Payments
under the SERP will be accrued for financial reporting purposes during the
period of employment of the participant. At June 30, 1998, approximately $12,000
has been accrued and recognized as an expense. The SERP shall be unfunded. All
benefits payable under the SERP will be paid from our current assets. There are
no tax consequences to either the participant or us related to the SERP prior to
payment of benefits. Upon receipt of payment of benefits, the participant will
recognize taxable ordinary income in the amount of such payments received and we
will be entitled to recognize a tax-deductible compensation expense at that
time.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the reorganization.
Participating employees are employees who have completed one year of service
with us or our subsidiary and have attained the age of 21. An application for a
letter of determination as to the tax-qualified status of the ESOP will be
submitted to the IRS. Although no assurances can be given, we expect that the
ESOP will receive a favorable letter of determination from the IRS.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the offering. The ESOP intends to borrow
funds from the Company. The loan is expected to be for a term of ten years at an
annual interest rate equal to the prime rate as published in The Wall Street
Journal. Presently it is anticipated that the ESOP will purchase up to 8% of the
common stock to be issued in the offering (i.e., 97,760 shares, based on the
midpoint of the offering range). The loan will be secured by the shares
purchased and earnings of ESOP assets. Shares purchased with such loan proceeds
will be held in a suspense account for allocation among participants as the loan
is repaid. It is anticipated that all such contributions will be tax-deductible.
This loan is expected to be fully repaid in approximately 10 years.
Shares sold above the maximum of the offering range (i.e., more than
1,405,300 shares) may be sold to the ESOP before satisfying remaining unfilled
orders of Eligible Account Holders to fill the ESOP's subscription or the ESOP
may purchase some or all of the shares covered by its subscription after the
offering in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
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<PAGE>
receive an allocation. Participant benefits become vested in plan allocations
following five years of service. Employment prior to the adoption of the ESOP
shall be credited for the purposes of vesting. Our contributions to the ESOP are
discretionary and may cause a reduction in other forms of compensation.
Therefore, benefits payable under the ESOP cannot be estimated.
The board of directors has appointed the non-employee directors to the
ESOP Committee to administer the ESOP and to serve as the initial ESOP
Directors. The ESOP Directors must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Unallocated
shares and allocated shares for which no timely direction is received will be
voted by the ESOP Directors as directed by the board of directors or the ESOP
Committee, subject to the Directors' fiduciary duties.
401(k) Savings Plan. The Bank sponsors a tax-qualified defined
contribution savings plan ("401(k) Plan") for the benefit of its employees.
Employees become eligible to participate under the 401(k) Plan after reaching
age 21 and completing one year of service. Under the 401(k) Plan, employees may
voluntarily elect to defer between 1% and 18% of compensation, not to exceed
applicable limits under the Code (i.e., $9,500 in calendar 1997). The Bank
matches 50% of the first 4% of employee contributions. Employee and matching
contributions immediately vest. The Bank intends to amend the 401(k) Plan to
permit voluntary investments of plan assets by participants in the common stock
in, and following, the offering.
Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
65. Additionally, funds under the 401(k) Plan may be distributed upon
application to the plan administrator upon severe financial hardship in
accordance with uniform guidelines which comply with those specified by the
Code. It is intended that the 401(k) Plan operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the requirements of Section 401(a) of the Code.
Costs associated with the 401(k) Plan were approximately $9,000 and
$20,000, respectively, for the six months ended June 30, 1998 and the year ended
December 31, 1997. Contributions to the 401(k) Plan by the Bank for employees
may be reduced in the future or eliminated as a result of contributions made to
the Employee Stock Ownership Plan. See "-Employee Stock Ownership Plan."
Potential Stock Benefit Plans
Stock Option Plans. Following the offering, we intend to adopt a stock
option plan for directors and key employees. No plan will be adopted within one
year after the reorganization. Any plan adopted will be subject to stockholder
approval and applicable laws. Any plan adopted after the reorganization will
require the approval of a majority of our stockholders, other than the mutual
holding company. Up to 10% of the shares of common stock sold in the offering
will be reserved for issuance under the stock option plan. No determinations
have been made as to the specific terms of, or awards under, the stock option
plan.
The purpose of the stock option plan will be to attract and retain
qualified personnel in key positions, provide officers, key employees and
directors with a proprietary interest in the Company as an incentive to
contribute to our success and reward officers and key employees for outstanding
performance. Although the terms of the stock option plan have not yet been
determined, it is expected that the stock option plan will provide for the grant
of: (i) options to purchase the common stock
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<PAGE>
intended to qualify as incentive stock options under the Code (incentive stock
options); and (ii) options that do not so qualify (non-statutory stock options).
Any stock option plans would be in effect for up to ten years from the earlier
of adoption by the board of directors or approval by the stockholders.
Stock Programs. Following the offering, we also intend to establish
stock programs to provide our officers and outside directors with a proprietary
interest in the Company. The stock programs are expected to provide for the
award of common stock, subject to vesting restrictions, to eligible officers,
employees and directors. The adoption of a stock program will not be adopted
within one year after the reorganization and will be subject to appropriate
stockholder approval and applicable laws. Any plan adopted after the
reorganization would require the approval of a majority of our stockholders
other than the mutual holding company.
We expect to contribute funds to stock programs to acquire, in the
aggregate, up to 4% of the shares of common stock sold in the offering. Shares
used to fund the stock programs may be acquired through open market purchases or
from authorized but unissued shares. No determinations have been made as to the
specific terms of stock programs.
Transactions with Management and Others
No directors, executive officers or immediate family members of such
individuals were engaged in transactions with the Bank or any subsidiary
involving more than $60,000 (other than through a loan) during the year ended
December 31, 1997. Furthermore, the Bank had no "interlocking" relationships in
which (i) any executive officer is a member of the board of directors or of
another entity, one of whose executive officers are a member of the Bank's board
of directors, or where (ii) any executive officer is a member of the
compensation committee of another entity, one of whose executive officers is a
member of the Bank's board of directors.
The Bank has followed the policy of offering residential mortgage loans
for the financing of personal residences, share loans, and consumer loans to its
officers, directors and employees. Loans are made in the ordinary course of
business and also made on substantially the same terms and conditions, including
interest rate and collateral, as those of comparable transactions prevailing at
the time with other persons, and do not include more than the normal risk of
collectibility or present other unfavorable features.
As of June 30, 1998, the aggregate principal balance of loans
outstanding to all directors, executive officers and immediate family members of
such individuals was $180,000.
Proposed Stock Purchases by Management
The following table sets forth for each of the directors and executive
officers of the Bank and for all such directors and executive officers as a
group (including in each case all "associates" of such persons) the number of
shares of common stock which such person or group intends to purchase, assuming
the sale of 1,222,000 shares of common stock at $10.00 per share. The table does
not include purchases by the ESOP (8% of the common stock sold in the offering
or 97,760 shares), and does not take into account any stock benefit plans
adopted no sooner than one year following the reorganization
-See "Management of the Bank - Potential Stock Benefit Plans."
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
Total Number Total Dollar 1,222,000 Total
of Shares Amount of Shares Shares Sold in
to be Purchased to be Purchased the Offering(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Susan E. Naruk 20,000 $ 200,000 1.6
Nelson Fiordalisi 20,000 200,000 1.6
Michael W. Azzara 7,500 75,000 *
Jerome Goodman 20,000 200,000 1.6
Bernard J. Hoogland 12,000 120,000 *
John Kandravy 5,000 50,000 *
Robert S. Monteith 1,000 10,000 *
John J. Repetto 500 5,000 *
Paul W. Thornwall 20,000 200,000 1.6
John Scognamiglio 20,000 200,000 1.6
Jean M. Miller 5,000 50,000 *
-------- ---------- ----
Total 131,000 $1,310,000 10.7
======== ========== ====
</TABLE>
- ----------------
* Less than 1.0%
(1) In the event the stockholders of the Company approve the stock benefit
plans as discussed in this prospectus (stock programs (4% of the common
stock sold in the offering) and the stock option plans (10% of the common
stock sold in the offering)), and all of the common stock is awarded
pursuant to the stock benefit plans and all options are exercised
(increasing the number of outstanding shares), directors and executive
officers would own 302,080 or 22.5% of the shares of common stock owned by
persons other than the mutual holding company (11.1% of the total shares
outstanding, including those held by the mutual holding company). If fewer
than 1,222,000 shares were publicly sold, these percentage ownership
estimates would increase. See "- Potential Stock Benefit Plans."
THE REORGANIZATION
THE BOARD OF DIRECTORS OF THE BANK HAS ADOPTED THE PLAN AUTHORIZING THE
REORGANIZATION, SUBJECT TO THE APPROVAL OF THE DEPARTMENT, THE NON-OBJECTION OF
THE FDIC AND RATIFICATION OF THE DEPOSITORS OF THE BANK AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. DEPARTMENT APPROVAL DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE DEPARTMENT.
General
On June 22, 1998, the Board of Directors of the Bank adopted the plan
of reorganization and stock issuance which was subsequently amended, pursuant to
which the Bank proposes to reorganize from a New Jersey chartered, mutual
savings bank to a New Jersey chartered stock savings bank. The Bank will be a
wholly owned subsidiary of the Company, the majority of whose shares are to be
owned by the MHC. Concurrently with the reorganization, the Company will sell a
minority percentage of its common stock in the offering to the Bank's depositors
and members of the general public. The Board of Directors unanimously adopted
the Plan after consideration of the advantages and the disadvantages of the
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reorganization and offering and alternative transactions, including a full
conversion from the mutual to stock form of organization. Following the receipt
of all required regulatory approvals, the approval of the plan by the Bank's and
the satisfaction of all other conditions precedent to the reorganization, the
Bank will effect the reorganization (i) by exchanging its New Jersey mutual
savings bank charter for a New Jersey stock savings bank charter and becoming a
wholly owned subsidiary of the Company and the Company then becoming a
majority-owned subsidiary of the MHC, and having the depositors of the Bank
receive such liquidation interests in the MHC as they have in the Bank before
the reorganization; or (ii) in any other manner consistent with the plan or
reorganization and applicable regulations. See "Description of the
Reorganization." On the effective date, the Company will commence business as
Ridgewood Financial, Inc., a bank holding company, and the Bank will commence
business as Ridgewood Savings Bank of New Jersey, a New Jersey-chartered stock
savings bank, and the MHC will commence business as Ridgewood Financial, MHC,
majority owner of the common stock of the Company. The reorganization will be
accomplished in accordance with the procedures set forth in the plan, the
requirements of applicable laws and regulations, and the policies of the
Department.
For additional information concerning the offering, see "The Offering."
Purposes of the Reorganization
The Board of Directors of the Bank has determined that the
reorganization is in the best interest of the Bank and has several business
purposes for the reorganization.
The reorganization will structure the Bank in the stock form, which is
used by commercial banks, most major business corporations and an increasing
number of savings institutions. Formation of the Bank as a capital stock savings
bank subsidiary of the Company will permit the Company to issue common stock,
which is a source of capital not available to mutual savings banks or savings
and loan associations. At the same time, the Bank's mutual form of ownership
will be preserved in the MHC, and the MHC, as a mutual corporation, will control
at least a majority of the common stock of the Company so long as the MHC
remains in existence as a mutual institution. The reorganization will enable the
Bank to achieve certain benefits of a stock company without a loss of control
that sometimes follows standard conversions from mutual to stock form. Sales of
locally based, independent savings institutions to larger, regional financial
institutions following such mutual to stock conversions can result in closed
branches, fewer choices for consumers, employee layoffs and the loss of
community support and involvement by a financial institution. The Bank is
committed to being an independent, community-oriented institution, and the Board
of Directors believes that the mutual holding company structure is best suited
for this purpose. The mutual holding company structure also will give the
Company flexibility to issue its common stock at various times and in varying
amounts as market conditions permit, rather than in a single stock offering. The
MHC may convert from mutual to stock form of organization in the future. The
holding company form of organization is expected to provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions, as well as other companies. Although the Bank has no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the reorganization and
offering, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise.
The Company is offering for sale up to 47% of the common stock in an
offering at an aggregate price based upon an independent appraisal. The proceeds
from the sale of common stock of the Company will provide the Bank with new
equity capital, which will support future deposit growth and expanded
operations. The ability of the Company to sell common stock also will enable the
Company and the Bank
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to increase capital in response to the changing capital requirements of the
Department. While the Bank currently meets or exceeds all regulatory capital
requirements, the sale of common stock in connection with the reorganization,
coupled with the accumulation of earnings (net of dividends) from year to year,
represents a means for the orderly preservation and expansion of the Bank's
capital base, and allows flexibility to respond to sudden and unanticipated
capital needs. After the reorganization, the Company may repurchase common
stock. The investment of the net proceeds of the offering also will provide
additional income to enhance further the Bank's future capital position.
The ability of the Company to issue common stock also will enable it in
the future to establish stock benefit plans for management and employees of the
Company and the Bank, including incentive stock option plans, stock award plans,
and employee stock ownership plans.
The formation of the Company also will allow the Company to borrow
funds, on a secured and unsecured basis, and to issue debt to the public or in a
private placement. The proceeds of any such borrowings or debt issuance may be
contributed to the Bank as core capital for regulatory capital purposes. The
Company has not made a determination to borrow funds or issue debt at the
present time.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which include:
the inability of the Company to sell stock representing more than 49.99% of its
estimated pro forma market value so long as the MHC remains in existence; the
more limited liquidity of the common stock, as compared to a full conversion;
and the inability of stockholders other than the MHC to obtain a majority
ownership of the Company which may result in the perpetuation of the existing
management and Board of Directors of the Company and the Bank. The MHC 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 matters which by regulation must be
approved by a majority of the shares owned by persons other than the MHC (the
"minority stockholders"), including certain matters relating to stock
compensation plans and certain votes regarding a conversion to stock form by the
MHC. No assurance can be given that the Company will not take action adverse to
the interests of the minority stockholders. For example, the Company can 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 proposal put forth
by the minority stockholders.
Description of the Reorganization
Following receipt of all required regulatory approvals and ratification
of the plan of reorganization by the voting depositors, the reorganization will
be effected by a series of mergers or in any manner approved by the Department
that is consistent with the purposes of the plan of reorganization and
applicable laws and regulations. The Bank's intention is to complete the
reorganization using a series of mergers, although it may elect to use any
method consistent with applicable regulations, subject to Department approval.
For a detailed description of the merger structure, see "- Federal and
State Tax Consequences of the Reorganization." Upon consummation of the
reorganization, the legal existence of the Bank will not terminate, the
converted 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 any
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 continue to be owned by the Bank as the
survivor of the merger.
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The Bank will possess, 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 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
operations at the Bank's present location.
The foregoing description of the reorganization is qualified in its
entirety by reference to the plan and the charter and bylaws of the Bank, the
MHC and the Company to be effective upon consummation of the reorganization.
Effects of the Reorganization
General. The reorganization will not have any effect on the Bank's
present business of accepting deposits and investing its funds in loans and
other investments permitted by law. The reorganization will not result in any
change in the existing services provided to depositors and borrowers, or in
existing offices, management, and staff. Upon completion of the reorganization,
the Bank will continue to be subject to regulation, supervision, and examination
by the Department and the FDIC.
Deposits and Loans. Each holder of a deposit account in the Bank at the
time of the reorganization will continue as an account holder in the Bank after
the reorganization, and the reorganization will not affect the deposit balance,
interest rate, and other terms of such accounts. Each such account will be
insured by the FDIC to the same extent as before the reorganization. Depositors
will continue to hold their existing certificates, passbooks, checkbooks, and
other evidence of their accounts. The reorganization will not affect the loans
of any borrower from the Bank. The amount, interest rate, maturity, security
for, and obligations under each loan will remain contractually fixed as they
existed prior to the reorganization. See "- Voting Rights" and "- Liquidation
Rights" below for a discussion of the effects of the reorganization on the
voting and liquidation rights of the depositors and borrowers of the Bank.
Voting Rights. As a New Jersey-chartered mutual savings bank, the Bank
has no authority to issue capital stock and thus, no stockholders. Control of
the Bank in its mutual form is vested in the Board of Directors of the Bank.
Although they have no statutory right, certain qualifying holders of the Bank's
savings, demand, or other authorized accounts will be given an opportunity to
vote on the reorganization. In the consideration of the reorganization, each
holder of qualifying account is permitted to cast one vote for each $100, or
fraction thereof, of the withdrawal value of the voting depositor's account.
After the reorganization, the affairs of the Bank will be under the
direction of the Board of Directors of the Company and the Bank and all voting
rights as to the Bank will be vested exclusively in the holders of the
outstanding voting capital stock of the Company, which initially will consist
exclusively of common stock. By virtue of its ownership of a majority of the
outstanding shares of common stock, the MHC will be able to elect all members of
the Board of Directors of the Company and generally will be able to control the
outcome of most matters presented to the stockholders of the Company for
resolution by vote, excluding certain matters where shares held by the MHC are
not counted.
The MHC will be controlled by its Board of Directors, which will
initially consist of the current directors of the Bank. Under the mutual form of
ownership, current directors elect new directors, which
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can perpetuate existing management and control of the MHC, the Company and the
Bank. All depositors of the Bank at the time of the reorganization will become
members of and have voting rights in the MHC.
Liquidation Rights. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, existing holders of deposit accounts of the
Bank would be entitled to share in a liquidating distribution after the payment
of claims of all creditors (including the claims of all account holders to the
withdrawal value of their accounts). Each account holder's pro rata share of
such liquidating distribution would be in the same proportion as the value of
his or her deposit accounts was to the total value of all deposit accounts in
the Bank at the time of liquidation.
Upon a complete liquidation of the Bank after the reorganization, the
Company, as holder of the Bank's common stock, would be entitled to any assets
remaining upon a liquidation or dissolution of the Bank. Each depositor would
not have a claim in the assets of the Bank. However, upon a complete liquidation
of the MHC after the reorganization, each depositor would have a claim up to the
pro rata value of his or her accounts, in the assets of the MHC remaining after
the claims of the creditors of the MHC are satisfied. Depositors who have
liquidation rights in the Bank immediately prior to the reorganization will
continue to have such rights in the MHC after the reorganization for so long as
they maintain deposit accounts in the Bank after the reorganization.
Upon a complete liquidation of the Company, each holder of shares of
the common stock would be entitled to receive a pro rata share of the Company's
assets, following payment of all debts, liabilities and claims of greater
priority of or against the Company.
Federal and State Tax Consequences of the Reorganization
The reorganization may be effected in any manner approved by the
Department that is consistent with the purposes of the plan and applicable law
regulations and policies. However, the Bank intends to consummate the
reorganization using a series of mergers as described below. This structure
enables the Bank to retain all of its historical tax attributes and produces
significant savings to the Bank because it simplifies regulatory approvals and
conditions associated with the completion of the reorganization.
The merger structure will be accomplished as follows: (i) the Bank will
organize the MHC initially as an interim New Jersey stock savings bank as its
wholly owned subsidiary; (ii) the MHC will organize a capital stock corporation
under New Jersey law (i.e., the Company) as its wholly owned subsidiary that
will subsequently hold 100% of the Bank's common stock; (iii) the MHC will also
organize an interim New Jersey stock savings bank as its wholly owned subsidiary
("Interim"). The following transactions will then occur simultaneously: (iv) the
Bank will exchange its charter for a New Jersey stock savings bank charter (the
"Reorganization"); (v) the MHC (while in its stock form) will cancel its
outstanding stock and exchange its charter for a New Jersey mutual savings bank
holding company charter and thereby become the MHC; (vi) Interim will merge with
and into the Bank with the Bank being the surviving institution and (vii) the
initially issued stock of the Bank (which will be constructively received by
former Bank depositors when the Bank becomes the Bank pursuant to step (iv))
will be issued to the MHC in exchange for liquidation interests in the MHC which
will be held by the Bank's depositors. The MHC will then contribute 100% of the
stock of the Bank to the Company, its wholly owned subsidiary. The Company will
subsequently offer for sale up to 49.9% of its common stock pursuant to the
plan. As a result of these transactions, (a) the Bank will be a wholly owned
subsidiary of the Company; (b) the Company will be a majority-owned subsidiary
of the MHC; and (c) the former depositors of the Bank will hold liquidation
interests in the MHC.
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Under this structure: (i) the reorganization is intended to be a
tax-free reorganization under Code section 368(a)(1)(F); and (ii) the exchange
of the shares of the Bank's initial common stock deemed constructively received
by the Bank's depositors for liquidation interests in the MHC (the "Exchange")
is intended to be a tax-free exchange under Code section 351.
Under the plan, consummation of the reorganization is conditioned upon,
among other things, the prior receipt by the Bank of either a private letter
ruling from the IRS and from the New Jersey taxing authorities or an opinion of
the Bank's counsel as to the federal and New Jersey income tax consequences of
the reorganization to the Bank (in both its mutual and stock form), the Company
and the Eligible Account Holders and Supplemental Account Holders. In Revenue
Procedure 96-3, 1996-1 I.R.B. 82, the IRS announced that it will not rule on
whether a transaction qualifies as a tax-free reorganization under Code section
368(a)(1)(F) or as a tax-free exchange of stock for stock in the formation of a
holding company under Code section 351, but that it will rule on significant
sub-issues that must be resolved to determine whether the transaction qualifies
under either of these Code sections.
The Bank has requested a private letter ruling from the IRS regarding
certain significant sub- issues associated with the reorganization. Based in
part upon this private letter ruling, Malizia, Spidi, Sloane & Fisch, P.C. will
issue its opinion regarding certain federal income tax consequences of the
reorganization. There is no assurance that a private letter ruling will be
obtained.
In the following discussion, "Mutual Bank" refers to the Bank before
the reorganization and "Stock Bank" refers to the Bank after the reorganization.
With regard to the reorganization, Malizia, Spidi, Sloane & Fisch, P.C.
intends to issue an opinion that: (1) the reorganization will constitute a
reorganization under Code section 368(a)(1)(F), and the Bank (in either its
status as Mutual Bank or Stock Bank) will recognize no gain or loss as a result
of the reorganization; (2) the basis of each asset of Mutual Bank received by
Stock Bank in the reorganization will be the same as Mutual Bank's basis for
such asset immediately prior to the reorganization; (3) the holding period of
each asset of Mutual Bank received by Stock Bank in the reorganization will
include the period during which such asset was held by Mutual Bank prior to the
reorganization; (4) for purposes of Code section 381(b), Stock Bank will be
treated as if there had been no reorganization and, accordingly, the taxable
year of the Mutual Bank will not end on the effective date of the reorganization
and the tax attributes of Mutual Bank (subject to application of Code sections
381, 382, and 384), including Mutual Bank's bad debt reserves and earnings and
profits, will be taken into account by Stock Bank as if the reorganization had
not occurred; (5) Mutual Bank's qualifying depositors will recognize no gain or
loss upon their constructive receipt of shares of Stock Bank common stock solely
in exchange for their interest (i.e., liquidation rights) in Mutual Bank; and
(6) no gain or loss will be recognized by depositors of Mutual Bank upon the
issuance to them of deposits in Stock Bank in the same dollar amount as their
deposits in the Mutual Bank.
Unlike private rulings of the IRS, an opinion of counsel is not binding
on the IRS and the IRS could disagree with conclusions reached therein. In the
event of such disagreement, there can be no assurance that the IRS would not
prevail in a judicial or administrative proceeding.
Malizia, Spidi, Sloane & Fisch, P.C. intends to opine, subject to the
limitations and qualifications in its opinion, that, for purposes of the New
Jersey corporate income tax, the reorganization will not become a taxable
transaction to the Bank (in either its status as Mutual Bank or Stock Bank), the
MHC, the Company, the stockholders of the Stock Bank or the depositors of the
Bank.
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Accounting Consequences
The reorganization will be accounted for in a manner similar to a
pooling-of-interests under generally accepted accounting principles.
Accordingly, the carrying value of the Bank's assets, liabilities, and capital
will be unaffected by the reorganization and will be reflected in the Company's
and Bank's consolidated financial statements based on their historical amounts.
Conditions to the Reorganization
Consummation of the reorganization is subject to the receipt of all
requisite regulatory approvals, including various approvals or non-objections,
as the case may be, of the Department, FDIC and the Federal Reserve. The receipt
of such approvals or non-objections from the Department, FDIC and the Federal
Reserve does not constitute a recommendation or endorsement of the plan or
reorganization by the Department, the FDIC or the Federal Reserve. Consummation
of the reorganization also is subject to ratification of the plan by a majority
of the total votes of depositors at a special meeting called for the purpose of
approving the plan and to be held on __________ ____, 1998, as well as the
receipt of satisfactory rulings or opinions with respect to the tax consequences
of the reorganization, as discussed under "The Reorganization - Effects of the
Reorganization - Tax Consequences" above.
Capital and Financial Resources of the MHC
The Company intends to capitalize the MHC with up to $200,000 in the
reorganization. Subsequent to the reorganization, the MHC's capital and
financial resources will initially be dependent primarily on earnings from the
investment of its initial capitalization and dividends from the Company. The
payment of dividends by the Company will be subject to declaration by the
Company's Board of Directors, which will take into account the Company's
financial condition, results of operations, tax considerations, industry
standards, economic conditions, regulatory restrictions which affect the payment
of dividends by the Company to the MHC and other factors.
Additional financial resources also may be available to the MHC (and,
through contribution by the MHC, to the Company) through borrowings from an
unaffiliated lender or lenders. In connection with any such borrowings, the MHC
could grant a security interest in the assets of the MHC, including the common
stock held by the MHC. However, a mutual holding company generally may not
pledge the stock of a subsidiary savings association and may not be able to
pledge the Stock of the Company unless the proceeds of the loan secured by the
pledge are infused into the institution whose stock is pledged and the
Department is notified of such pledge within 10 days thereafter. Any borrowings
of the MHC would be serviced with available resources, which initially will
consist of dividends from the Company, subject to applicable regulatory and tax
considerations. The MHC does not have any plans to incur any indebtedness
following consummation of the reorganization.
Amendment or Termination of the Plan of Reorganization
If deemed necessary or desirable by the Board of Directors of the Bank,
the plan may be amended by a two-thirds vote of the Bank's Board of Directors,
with the concurrence of the Department and the FDIC, at any time prior to or
after submission of the plan to voting depositors of the Bank for ratification.
The plan may be terminated by the Board of Directors of the Bank at any time
prior to or after ratification by the voting depositors, by a two-thirds vote
with the concurrence of the Department.
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Management of the MHC
After the reorganization, the MHC will operate under essentially the
same mutual organization structure as was previously applicable to the Bank.
Directors of the MHC will be classified into three classes as equal in size as
is possible, with one of such classes being elected on an annual basis for
three-year terms by the Board of Directors of the MHC. All current members of
the Board of Directors of the Bank will be the initial members of the Board of
Directors of the MHC. For information about these persons, whose terms as
directors of the MHC will be the same as their terms as directors of the Bank,
see "Management." The initial executive officers of the Company will be persons
who are executive officers of the Bank.
It is not anticipated that the directors and executive officers of the
MHC will receive separate compensation in their capacities as such until such
time as such persons devote significant time to the separate management of the
MHC's affairs, which is not expected to occur unless the MHC becomes actively
involved in other investments. The MHC, however, may determine that such
compensation is appropriate in the future.
THE OFFERING
General
Concurrently with the reorganization, we, the Company, are offering
shares of common stock to persons other than the MHC. We are offering between a
minimum of 1,038,700 shares and an anticipated maximum of 1,405,300 shares of
common stock in the offering (subject to adjustment to up to 1,616,095 shares in
the event our estimated pro forma market value has increased at the conclusion
of the offering), which will expire at 12:00 noon, New Jersey time, on
__________ ____, 1998 unless extended. 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 minimum purchase is 100 shares of common
stock (minimum investment of $1,000). Our common stock is being offered at a
fixed price of $10.00 per share in the offering.
Subscription funds may be held by the Bank for up to 45 days after the
last day of the subscription offering in order to consummate the reorganization
and offering and thus, unless waived by the Bank, all orders will be irrevocable
until __________ __, 1999. In addition, the reorganization and offering may not
be consummated until the Bank receives approval from the Department. Approval by
the Department is not a recommendation of the reorganization or offering.
Consummation of the reorganization and offering will be delayed, and
resolicitation will be required, in the event the Department does not issue a
letter of approval within 45 days after the last day of the subscription
offering, or in the event the Department requires a material change to the
offering prior to the issuance of its approval. In the event the reorganization
and offering are not consummated by ________, 1999, subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned with interest at the Bank's passbook rate and all withdrawal
authorizations will be canceled.
We may cancel the offering at any time, and orders for common stock
which have been submitted are subject to cancellation under such circumstances.
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Conduct of the Offering
Subject to the limitations of the plan, shares of common stock are
being offered in descending order of priority in the subscription offering to:
(i) Eligible Account Holders; (ii) the ESOP; (iii) Supplemental Eligible Account
Holders; and (iv) voting depositors. To the extent that shares remain available
and subject to market conditions at or near the completion of the subscription
offering, we will conduct one or more of a community, public and syndicated
public offering.
We have the right, in our sole discretion, to determine whether
prospective purchasers are "associates" or "acting in concert." All such
determinations are in our sole discretion and may be based on whatever evidence
we choose to use in making any such determination.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe
for the purchase of common stock have been granted under the plan of
reorganization to the following persons:
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to $100,000 of common stock
offered in the subscription offering; subject to the overall limitations
described under "Limitations on 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 subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to 100 shares. Thereafter,
unallocated shares will be allocated 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, in each case on May 31,
1997, whose subscriptions remain unfilled. Subscription rights received by
executive officers and directors, based on their increased deposits in the Bank
in the one year preceding the eligibility record date will 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 order form
all accounts in which he had an ownership interest as of the Eligibility Record
Date.
Priority 2: The ESOP. The tax-qualified employee stock benefit plans
may be given the opportunity to purchase in the aggregate up to 10% of the
common stock issued in the subscription offering. It is expected that the ESOP
will purchase up to 8% of the common stock issued in the offering. In the event
of a an oversubscription in the offering by Eligible Account Holders, the ESOP
may, in whole or in part, fill its order through open market purchases
subsequent to the closing of the offering. See also "Risk Factors - Potential
Effect of ESOP."
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 and other tax-qualified employee stock benefit
plans, if any, each Supplemental Eligible Account Holder shall have the
opportunity to purchase up to $100,000 of common stock offered in the
Subscription offering, subject to the overall limitations described under
"Limitations on 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 and other tax-qualified
employee stock benefit plans, if any, is in excess of the total number of shares
offered in the offering, the shares of common stock will be allocated among
subscribing Supplemental Eligible Account Holders first so as to permit
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each subscribing Supplemental Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to 100 shares. 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 bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders, in each case
on September 30, 1998, whose subscriptions remain unfilled. To ensure proper
allocation of stock each Supplemental Eligible Account Holder must list on his
order form all accounts and loans in which he had an ownership interest as of
the Supplemental Eligible Date.
Priority 4: Voting Depositors. To the extent that there are sufficient
shares remaining after satisfaction of all subscriptions by the Eligible Account
Holders, the tax-qualified employee stock benefit plans, and Supplemental
Eligible Account Holders, each voting depositor shall have the opportunity to
purchase up to $100,000 of common stock offered in the subscription offering,
subject to the overall limitations described under "Limitations on Purchases of
Common Stock." In the event depositors subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the
tax-qualified employee stock benefit plans and Supplemental Eligible Account
Holder, is in excess of the total number of shares offered in the offering, the
subscriptions of depositors will be allocated among subscribing depositors so as
to permit each subscribing depositor, to the extent possible, to purchase a
number of shares sufficient to make his total allocation of common stock equal
to the lesser of 100 shares or the number of shares subscribed for by voting
depositors. Any shares remaining will be allocated among the subscribing voting
depositors whose subscriptions remain unsatisfied on a 100 shares (or whatever
lesser amount is available) per order basis until all orders have been filled or
the remaining shares have been allocated.
State Securities Laws. We in our sole discretion, may make reasonable
efforts to comply with the securities laws of any state in the United States in
which Bank depositors reside, and will only offer and sell the common stock in
states in which the offers and sales comply with state 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: (i) a small number of persons otherwise eligible to purchase
shares under the plan reside in such state or foreign country; or (ii) the offer
or sale of shares of common stock to such persons would require us or the Bank
or our 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 and such registration or
qualification would be impracticable for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares. The plan
prohibits any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders, and voting depositors, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the plan
or the shares of common stock to be issued upon their exercise. Such rights may
be exercised only by the person to whom they are granted and only for his or her
account. Each person subscribing for shares will be required to certify that
such person is purchasing shares solely for his or her own account and that such
person has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of common stock prior to the completion of the
offering.
We and the Bank will pursue any and all legal and equitable remedies in
the event we become aware of the transfer of subscription rights and will not
honor orders we know to involve the transfer of such rights.
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Expiration Date. The subscription offering will expire at 12:00 noon,
New Jersey time, on __________ ____, 1998, unless it is extended, up to an
additional 45 days with the approval of the Department, if necessary, but
without additional notice to subscribers (the "expiration date"). Subscription
rights will become void if not exercised prior to the expiration date.
Community Offering
If less than the total number of shares of common stock to be
subscribed for in the offering are sold in the subscription offering, shares
remaining unsubscribed may be made available for purchase in the community
offering to certain members of the general public, which may subscribe together
with any associate or group of persons acting in concert for up to $100,000 of
common stock. In the community offering, if any, shares will be available for
purchase by the general public with preference given first to natural persons
residing in Bergen County, New Jersey and second, to natural persons residing in
the State of New Jersey. We will attempt to issue common stock in such a manner
as to promote a wide distribution of common stock.
If purchasers in the community offering (if any), whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the community offering in an equitable manner we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering and if
commenced simultaneously with or during the subscription offering the community
offering may be limited to residents of Bergen County and/or New Jersey. The
community offering, if any, must be completed within 45 days after the
completion of the subscription offering unless otherwise extended by the
Department.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Public Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares, to selected persons in a public offering on a best-efforts basis through
Ryan, Beck in such a manner as to promote a wide distribution of the common
stock. Any orders received in connection with the public offering, if any, will
receive a lower priority than orders received in the subscription offering.
Common stock sold in the public offering will be sold at the same price as all
other shares in the subscription offering. We have the right to reject orders,
in whole or in part, in our sole discretion in the public offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than 10,000 shares or $100,000 of
common stock in the public offering. To order common stock in the public
offering, if held, an executed stock order and account withdrawal authorization
(if applicable) must be received by Ryan, Beck prior to the termination of the
public offering. Promptly upon receipt of available funds, together with a
properly executed stock order and account withdrawal authorization, if
applicable, and certification, Ryan, Beck will forward such funds to the Bank to
be deposited in a subscription escrow account.
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The date by which orders must be received in the public offering will
be set by us at the time of commencement of the public offering; provided
however, if the public offering is extended beyond ___________, 1999, each
purchaser will have the opportunity to maintain, modify, or rescind his order.
In such event, all funds received in the public offering will be promptly
returned with interest to each purchaser unless he affirmatively indicates
otherwise.
If an order in the public offering is accepted, promptly after the
completion of the reorganization, a certificate for the appropriate amount of
shares will be forwarded to Ryan, Beck as nominee for the beneficial owner. In
the event that an order is not accepted or the reorganization is not
consummated, the Bank will promptly refund with interest the funds received to
Ryan, Beck which will then return the funds to subscribers' accounts. If the
aggregate pro forma market value of the Bank, as converted, is less than
$22,100,000 or more than $34,385,000, each purchaser will have the right to
modify or rescind his or her order.
The opportunity to order shares of common stock in the public offering,
if held, is subject to our right, in our sole discretion, to accept or reject
any such orders in whole or in part.
Limitations on Purchases of Common Stock
The following additional limitations have been imposed upon purchases
of shares of common stock:
1. The aggregate amount of our outstanding common stock owned or
controlled by persons other than the mutual holding company at
the close of the offering will be less than 50% of the
Company's total outstanding common stock.
2. The maximum number of shares of common stock which may be
purchased in the subscription offering by any person (or
persons through a single account) in the first priority, third
priority and fourth priority shall not exceed 10,000 shares or
$100,000.
3. The maximum number of shares of common stock which may be
subscribed for or purchased in all categories in the offering
by any person (or persons through a single account) together
with any associate or group of persons acting in concert shall
not exceed 20,000 shares or $200,000, except for our employee
plans, which in the aggregate may subscribe for up to 10% of
the common stock issued in the offering.
4. The maximum number of shares of common stock which may be
purchased in all categories in the offering by officers and
directors of the Bank and their associates in the aggregate
shall not exceed 31% of the total number of shares of common
stock issued in the offering to persons other than the mutual
holding company.
5. A minimum of 100 shares of common stock must be purchased by
each person purchasing shares in the offering to the extent
those shares are available.
6. If the number of shares of common stock otherwise allocable to
any person or that person's associates would be in excess of
the maximum number of shares permitted as set forth above, the
number of shares of common stock allocated to each such person
shall be reduced to the lowest limitation applicable to that
person, and then the number
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of shares allocated to each group consisting of a person and
that person's associates shall be reduced so that the
aggregate allocation to that person and his associates
complies with the above maximums, and such maximum number of
shares shall be reallocated among that person and his
associates in proportion to the shares subscribed by each
(after first applying the maximums applicable to each person,
separately).
7. Depending upon market or financial conditions, the Board of
Directors of the Bank, without further approval of the
depositors, may decrease or increase the purchase limitations
in the plan, provided that the maximum purchase limitations
may not be increased to a percentage in excess of 5% of the
offering. If the Company increases the maximum purchase
limitations, the Company is only required to resolicit Persons
who subscribed for the maximum purchase amount and may, in the
sole discretion of the Company, resolicit certain other large
subscribers.
8. In the event of an increase in the total number of shares
offered in the offering due to an increase in the maximum of
the estimated valuation range of up to 15% (the adjusted
maximum") the additional shares will be used in the
following order of priority: (i) in the event that there is
an oversubscription at the Eligible Account Holder level, to
fill unfilled subscriptions of Eligible Account Holders
exclusive of the adjusted maximum; (ii) in the event that
there is an oversubscription at the Employee Plan level,
fill the Employee Plan's subscription up to 10% of the
adjusted maximum; (iii) in the event that there is an
oversubscription at the Supplemental Eligible Account Holder
level, to fill unfilled subscriptions of Supplemental
Eligible Account Holders exclusive of the adjusted maximum;
(iv) in the event that there is an oversubscription at the
depositor level, to fill unfilled subscriptions of
depositors exclusive of the adjusted maximum; and (v) to
fill unfilled Subscriptions in the community offering
exclusive of the adjusted maximum, with preference given to
persons residing in the local community.
9. 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 NASD, particularly those 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 purchase order if
such opinion is not timely furnished.
10. The Board of Directors has the right 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.
11. The foregoing restrictions on purchases by any person also
apply to purchases by persons acting in concert under
applicable regulations of the Department. Under regulations of
the Department, directors of the Bank are not deemed to be
affiliates or a group acting in concert with other directors
solely as a result of membership on the Board of Directors of
the Bank.
The term "associate" of a person is defined in the plan to mean (i) any
corporation or organization (other than the Bank or a majority-owned subsidiary
of the Bank) of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of
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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, (excluding tax-qualified employee stock benefit
plans or tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity and except that, for purposes of aggregating total shares that may be
held by officers and directors, the term "Associate" does not include any
tax-qualified employee stock benefit plan), and (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 trustee or officer of the Bank, or any of its parents or
subsidiaries. For example, a corporation of which a person serves as an officer
would be an associate of such person, and therefore, all shares purchased by
such corporation would be included with the number of shares which such person
individually could purchase under the above limitations.
Each person purchasing shares of the common stock in the offering will
be deemed to confirm that such purchase does not conflict with the maximum
purchase limitation. In the event that such purchase limitation is violated by
any person (including any associate or group of persons affiliated or otherwise
acting in concert with such persons), we will have the right to purchase from
such person at the purchase price per share all shares acquired by such person
in excess of such purchase limitation or, if such excess shares have been sold
by such person, to receive the difference between the purchase price per share
paid for such excess shares and the price at which such excess shares were sold
by such person.
Our right to purchase such excess shares will be assignable.
Common stock purchased pursuant to the offering will be freely
transferable, except for shares purchased by directors and officers of the Bank.
For certain restrictions on the common stock purchased by directors and
officers, see "- Restrictions on Transferability by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering (by mail or in person ) to the Bank a properly
executed and completed order form, together with full payment of the purchase
price for all shares for which subscription is made; provided, however, that if
the Employee Plans subscribe for shares during the subscription offering, the
Employee Plans will not be required to pay for the shares at the time they
subscribe but rather may pay for the shares upon consummation of the
reorganization. Except for institutional investors, all subscription rights
under the plan will expire on the expiration date, whether or not the Bank has
been able to locate each person entitled to such subscription rights. The Bank
shall have the right, in its sole discretion, to permit institutional investors
to submit contractually irrevocable orders in the public offering at any time
prior to the completion of the offering. Once tendered, subscription orders
cannot be revoked without the consent of the Bank unless the reorganization is
not completed within 45 days of the expiration date.
In the event an order form (i) is not delivered and is returned to the
Bank by the United States Postal Service or the Bank is unable to locate the
addressee; (ii) is not received or is received after the applicable expiration
date, (iii) is defectively completed or executed; (iv) is not accompanied by the
full required payment for the shares subscribed for (including instances where a
savings account or certificate balance from which withdrawal is authorized is
insufficient to fund the amount of such required payment,
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but excluding subscriptions by the Employee Plans) or, in the case of an
institutional investor in the public offering, by delivering irrevocable orders
together with a legally binding commitment to pay the full purchase price prior
to 48 hours before the completion of the reorganization; or (v) is not mailed
pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights for the person to whom such rights have been granted will
lapse as though such person failed to return the completed order form within the
time period specified. However, we may, but will not be required to, waive any
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 we
may otherwise specify. The waiver of an irregularity on an order form in no way
obligates us to waive any other irregularity on any other order form. Waivers
will be considered on a case by case basis. We reserve the right in our sole
discretion to accept or reject orders received on photocopies or facsimile order
forms, or whose payment is to be made by wire transfer or payment from private
third parties. Our interpretation of the terms and conditions of the plan and of
the acceptability of the order forms will be final, subject to the authority of
the Department.
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date . Execution of the order form will confirm receipt or delivery in
accordance with Rule 15c2- 8. Order forms will only be distributed with a
prospectus.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms, on or prior to the expiration date specified on the order form unless we
extend the date. Employee Plans subscribing for shares during the subscription
offering may pay for such shares upon consummation of the offering. Payment for
shares of common stock may be made (i) in cash, if delivered in person, (ii) by
check or money order, or (iii) for shares of common stock subscribed for in the
subscription offering, by authorization of withdrawal from savings accounts
(including certificates of deposit) maintained with the Bank. Appropriate means
by which such withdrawals may be authorized are provided in the order form. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be used by a subscriber for any purpose other than to purchase the common
stock for which a subscription has been made until the offering has been
completed or terminated. In the case of payments authorized to be made through
withdrawal from savings accounts, all sums authorized for withdrawal will
continue to earn interest at the contract rate until the offering has been
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 partial 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 passbook savings account rate
subsequent to the withdrawal. In the case of payments made in cash or by check
or money order, such funds will be placed in a segregated account and interest
will be paid by the Bank at the passbook savings account rate from the date
payment is received until the offering is completed or terminated. An executed
order form, once we receive it, may not be modified, amended, or rescinded
without our consent, unless the offering is not completed within 45 days after
the conclusion of the subscription offering, in which event subscribers may be
given the opportunity to increase, decrease, or rescind their subscription for a
specified period of time. In the event that the offering is not consummated for
any reason, all funds submitted pursuant to the offerings will be promptly
refunded with interest as described above.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the offerings, provided that such IRAs are
not maintained on deposit at the Bank. Persons with IRAs maintained at the Bank
must have their accounts transferred to an unaffiliated institution or broker
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to purchase shares of common stock in the offerings. There is no early
withdrawal or IRS interest penalties for such transfers. Instructions on how to
transfer self-directed IRAs maintained at the Bank can be obtained from the
stock information center. Depositors interested in using funds in a Bank IRA to
purchase common stock should contact the stock information center as soon as
possible so that the necessary forms may be forwarded, executed and returned
prior to the expiration date.
Federal regulations prohibit the Bank from lending funds or extending
credit to any person to purchase the common stock in the reorganization.
Stock Information Center. The stock information center is located at
55 North Broad Street, Ridgewood, New Jersey. Its phone number is (201)445-2109.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
address noted on the order form, as soon as practicable following consummation
of the offering. Any certificates returned as undeliverable will be held 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 subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
Restriction on Sales Activities
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock in jurisdictions where such
participation is not prohibited. Other employees of the Bank may participate in
the offering in ministerial capacities. Such other employees have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock. Questions of prospective purchasers will
be directed to executive officers of the Bank or registered representatives of
Ryan, Beck. No officer, director or employee of the Bank will be compensated in
connection with such person's solicitations or other participation in the
offering by the payment of commissions or other remuneration based either
directly or indirectly on transactions in the common stock.
Stock Pricing and the Number of Shares to be Offered
FinPro, which is experienced in the valuation and appraisal of business
entities, including savings institutions, has been retained to prepare an
appraisal of the estimated pro forma market value of the common stock (the
"Independent Valuation"). This independent valuation will express our pro forma
market value in terms of an aggregate dollar amount. FinPro will receive fees of
$24,000 for its appraisal services, including the independent valuation and
subsequent updates, and for assistance in preparation of other material, plus
its reasonable out-of-pocket expenses incurred in connection with the
independent valuation and for assistance in the preparation of other material.
The Bank has agreed to indemnify FinPro under certain circumstances against
liabilities and expenses (including certain legal fees) arising out of or based
on any misstatement or untrue statement of a material fact contained in the
information supplied by the Bank to FinPro, except where FinPro is determined to
have been negligent or failed to exercise due diligence in the preparation of
the independent valuation.
Pursuant to the plan, the number of shares of common stock to be
offered in the offering will be based upon the estimated pro forma market value
of the common stock and the purchase price of $10.00 per share. The final
minority ownership percentage will be determined as follows: (i) the numerator
will
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be the product of (x) the number of shares of common stock sold in the offering
and (y) the purchase price ($10.00 per share); and (ii) the denominator will be
the updated valuation of our pro forma market value immediately upon conclusion
of the offering as determined by FinPro.
FinPro has determined that as of August 13, 1998, our estimated
aggregate pro forma market value was $26.0 million. Pursuant to regulations,
this estimate must be included within a range with a
minimum of $22.1 million and a maximum of $29.9 million. We have determined to
offer shares of common stock in the offering at a price of $10.00 per share. We
are offering a maximum of 1,405,300 shares in the offering (subject to
adjustment), representing a 47% minority ownership percentage. In determining
the offering range, the Board of Directors reviewed FinPro's appraisal and in
particular, considered (i) the Bank's financial condition and results of
operations for the year ended December 31, 1997 and six months ended June 30,
1998, (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 FinPro in preparing its appraisal. The number of shares, and
the minority ownership interest, are subject to change if the independent
valuation changes at the conclusion of the offering.
The number of shares and price per share of common stock was determined
by the Board of Directors based upon the independent valuation. The actual
number of shares to be sold in the offering may be increased or decreased prior
to the completion of the offering, subject to approval and conditions that may
be imposed by the Department and FDIC, to reflect any change in our estimated
pro forma market value. The total number of shares of common stock that may be
sold to persons other than the mutual holding company in the offering may not
exceed 49.9% of our issued and outstanding voting stock.
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 reorganization and offering. No resolicitation of
purchasers will be made and purchasers will not be permitted to modify or cancel
their purchase orders unless the change in the number of shares to be issued in
the offering results in fewer than 1,038,700 shares or more than 1,616,095
shares being sold in the offering at the purchase price of $10.00, in which
event the Bank may also elect to terminate the offering. In the event that the
Bank elects to terminate the offering, purchasers will receive a prompt refund
of their purchase orders (including termination of withdrawal authorizations),
together with interest earned thereon from the date of receipt to the date of
termination of the offering. In the event we receive orders for less than
1,038,700 shares, at the discretion of the Board of Directors and subject to
approval of the Department and FDIC, we may establish a new offering range and
resolicit purchasers. In the event of such a resolicitation, purchasers will be
permitted to modify or cancel their purchase orders. Any adjustments in our pro
forma market value as a result of market and financial conditions or a
resolicitation of prospective purchasers would be subject to Department and FDIC
approval. A resolicitation, if any, following conclusion of the offering would
not extend beyond the expiration date, without prior approval of the Department
and FDIC.
The independent valuation will be updated at the time of the completion
of the offering, and the minority ownership interest may increase or decrease to
reflect the changes in market conditions, the estimated pro forma market value
of the Bank, or both. If the updated estimate of the pro forma market value of
the Bank immediately upon conclusion of the offering changes, there will be a
corresponding change to the 2,600,000 shares issued, in the aggregate, to the
mutual holding company in the reorganization and sold to subscribers in the
offering. For example, if the independent valuation at the
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conclusion of the offering increases to $29,900,000, or decreases to
$22,100,000, then the total number of shares outstanding after the
reorganization and offering will be 2,990,000 or 2,210,000, respectively. If the
updated independent valuation increases, the Company may increase the number of
shares sold in the offering (to up to 1,616,095 shares), and will increase the
number of shares issued to the mutual holding company. Subscribers will not be
given the opportunity to change or withdraw their orders unless more than
1,616,095 shares or fewer than 1,038,700 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 Bank.
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, FinPro has relied upon and
assumed the accuracy and completeness of financial and statistical information
provided by the Bank. FinPro did not independently verify the financial
statements and other information provided by the Bank, nor did FinPro 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 a
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.
No sale of shares of common stock may be consummated unless, FinPro
confirms that, to the best of its knowledge, nothing of a material nature has
occurred that, taking into account all relevant factors, would cause FinPro to
conclude that the independent valuation is incompatible with its estimate of our
pro forma market value at the conclusion of the offering. Any change that would
result in an aggregate value that is below $22,100,000 or above $34,385,000
would be subject to Department approval. If confirmation from FinPro is not
received, the Bank may extend the offering, reopen or commence a new offering,
request a new Independent Valuation, establish a new offering range and commence
a resolicitation of all purchasers with the approval of the Department, or take
such other action as permitted by the Department in order to complete the
offering.
Plan of Distribution/Marketing Arrangements
The common stock will be offered in the offering principally by the
distribution of this prospectus and through activities conducted at the stock
information center. It is expected that a registered representative employed by
Ryan, Beck will be working at, and supervising the operation of, the stock
information center. Ryan, Beck will be responsible for overseeing the mailing of
material relating to the offering, responding to questions regarding the
reorganization and the offering and processing order forms.
The Bank and Company have entered into an agency agreement with Ryan,
Beck under which Ryan, Beck will provide advisory assistance and assist, on a
best efforts basis, in the distribution of the common stock in the offering.
Ryan, Beck is a broker-dealer registered with the National Association of
Securities Dealers, Inc. Specifically, Ryan, Beck will assist in the offering in
the following manner: (i) training and educating the Bank's employees regarding
the mechanics and regulatory requirements of the stock conversion process; (ii)
conducting informational meetings for potential subscribers, if necessary; (iii)
managing the sales efforts in the offering; and (iv) keeping records of all
stock subscriptions.
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Ryan, Beck will receive, as compensation, an advisory and marketing fee
of $150,000. In the event common stock is sold through licensed brokers under a
selected dealers agreement, we will pay a fee of 5.5% of the value of the common
stock sold to such brokers (which may include Ryan, Beck). Ryan, Beck will also
be reimbursed for its legal fees and out-of-pocket expenses, which are not to
exceed $45,000. The Bank has agreed to indemnify Ryan, Beck, to the extent
allowed by law, for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Pro Forma Data" for further information regarding
expenses of the offering.
Restrictions on Repurchase of Stock
Current FDIC regulations prohibit the Company and the Bank from
repurchasing common stock for one year following the reorganization. In
addition, securities rules also restrict the method, time, price, and number of
shares of common stock that may be repurchased by the Company, the Bank and
affiliated purchasers.
Restrictions on Transferability by Directors and Officers
Shares of the common stock purchased by directors or officers of the
Bank cannot be sold for a period of one year following completion of the
reorganization, except for a disposition of shares in the event of the death of
the stockholder. Accordingly, shares of the common stock issued to directors and
officers will bear a legend restricting their sale. Any shares issued to
directors and officers as a stock dividend, stock split, or otherwise with
respect to restricted stock will be subject to the same restriction.
For a period of three years following the reorganization, no director
or officer of the Bank or their associates may, without the prior approval of
the Department, purchase our common stock except from a broker or dealer
registered with the SEC. This prohibition does not apply to negotiated
transactions including more than 1% of our common stock or purchases made for
tax qualified or non-tax qualified employee stock benefit plans which may be
attributable to individual officers or directors.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Prior to the completion of the reorganization and offering, no
depositor may transfer or enter into an agreement or understanding to transfer
any subscription rights or the legal or beneficial ownership of the shares of
common stock to be purchased by such person in the offering. Depositors who
submit an order form will be required to certify that their purchase of common
stock is solely for their own account and there is no agreement or understanding
regarding the sale or transfer of their shares. We intend 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 we reasonably believe to involve
such an agreement or understanding.
Conditions to the Offering
Consummation of the offering is subject to (i) consummation of the
reorganization, which requires the receipt of various approvals from the
Department, the ratification of the Bank's voting depositors, and the receipt of
rulings and/or opinions of counsel as to the tax consequences of the
reorganization, (ii) the receipt of all required federal approvals for the
issuance of common stock in the offering, including
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without limitation the approval of the Department, and (iii) the sale of a
minimum of 1,038,700 shares of common stock. In the event that conditions (i)
and (ii) are not satisfied prior to completion of the offering, all funds
received will be promptly returned with interest at the Bank's passbook rate and
all withdrawal authorizations will be canceled.
CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY
General
The following discussion is a summary of statutory and regulatory
restrictions on the acquisition of our common stock. In addition, the following
discussion summarizes the mutual holding company structure, certain provisions
of certificates of incorporation and bylaws and certain regulatory provisions
that have an anti-takeover effect.
Mutual Holding Company Structure
The mutual holding company structure will restrict the ability of our
stockholders of the Company to effect a change of control of management because
mutual holding company, as long as it remains in existence as a mutual entity,
will control a majority of our voting stock. In addition, voting rights in the
mutual holding company are vested in the Board of Directors, as such, management
of the Bank (which is also management of the Company and the mutual holding
company) will be able to exert voting control over the mutual holding company.
Change in Bank Control Act and Bank Holding Company Provisions of the BHCA
Federal law provides that no person, acting directly or indirectly or
through or in concert with one or more other persons, may acquire control of a
bank unless the FDIC has been given 60 days prior written notice. Federal law
provides that no company may acquire control of a bank holding company without
the prior approval of the Federal Reserve. Any company that acquires control
becomes a "bank holding company" subject to registration, examination and
regulation by the Federal Reserve. Pursuant to federal regulations, control is
conclusively deemed to have occurred when an entity, among other things, has
acquired more than 25 percent of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have occurred, subject to
rebuttal, upon the acquisition of more than 10 percent of any class of voting
stock, or of more than 25 percent of any class of stock, of a savings
institution, where certain enumerated control factors are also present in the
acquisition. The Federal Reserve may prohibit an acquisition of control if: (i)
it would result in a monopoly or substantially lessen competition; (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution; or (iii) the competence, experience or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of stock by one or
more tax-qualified employee stock benefit plans, provided that the plan or plans
do not have beneficial ownership in the aggregate of more than 25 percent of any
class of our equity security.
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The Company's Certificates and Bylaws
General. Our certificate and bylaws are available at our administrative
office or by writing or calling us, 531 North Maple Avenue, Ridgewood, New
Jersey 07450-1612 (our telephone number is (201) 445-4000).
Classified Board of Directors and Related Provisions. Our board of
directors is divided into three classes which are as nearly equal in number as
possible. Directors serve for terms of three years. As a result, each year, only
one-third of the directors are eligible to be elected and it would take at least
two years to elect a majority of our directors. A director may be removed only
by the affirmative vote of the holders of at least 80% of the shares then
entitled to vote.
Restrictions on Voting of Securities. The certificate provides that any
shares of common stock beneficially owned directly or indirectly in excess of
10% by any person, other than the mutual holding company will 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 stockholders for a vote, and
shall not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote. It is possible for such a person to have voting authority for less
than 10% of our shares, depending on how the shares are registered. The purpose
of this provision is to reduce the chance that minority stockholders could
challenge our management.
Prohibition Against Cumulative Voting. Our certificate prohibits
cumulative voting by stockholders in the election of directors. The absence of
cumulative voting rights effectively means that the holders of a majority of the
shares voted at a meeting of stockholders may, if they so choose, elect all
directors elected at the meeting, thus precluding a minority stockholder from
obtaining representation on the Board of Directors unless the minority
stockholder is able to obtain the support of a majority. In accordance with the
law governing mutual holding companies, the mutual holding company must remain
the majority holder of our voting stock.
Supermajority Provision. Any sale or merger, which has not been
approved by at least two-thirds of the Board of Directors, requires the approval
of at least 80% of the outstanding vote.
Additional Anti-Takeover Provisions. The provisions described above are
not the only provisions of our certificate and bylaws having an anti-takeover
effect. For example, the certificate authorizes the issuance of up to five
million shares of preferred stock, which conceivably would represent an
additional class of stock required to approve any proposed acquisition. This
preferred stock, none of which has been issued, together with authorized but
unissued shares of the common stock (the Certificates authorizes the issuance of
up to 10 million shares of the common stock), also could represent additional
capital required to be purchased by the acquiror.
In addition to discouraging a takeover attempt which a majority of our
stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult. It is possible that incumbent officers and directors might be
able to retain their positions (at least until their term of office expires)
even though a majority of our stockholders, other than the mutual holding
company, desire a change.
91
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 10,000,000 shares of common stock, par value
$0.10 per share and 5,000,000 shares of preferred stock, no par value. We
currently expect to issue between 2,210,000 and 2,990,000 shares of common stock
in the reorganization (between 1,038,700 and 1,405,300 shares to persons other
than the mutual holding company). See "Capitalization." Upon payment of the
purchase price shares of common stock issued in the offering will be fully paid
and non-assessable. The common stock will represent nonwithdrawable capital,
will not be an account of insurable type and will not be insured by the FDIC or
any other governmental agency. See also "Dividends" and "Waiver of Dividends by
the MHC."
Voting Rights
The holders of common stock will possess exclusive voting rights in the
Company. The holder of shares of common stock will be entitled to one vote for
each share held on all matters subject to stockholder vote. See also "The
Reorganization - Effect of the Reorganization - Voting Rights"
Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of the
Company, the holders of the common stock generally would be entitled to receive,
after payment of all debts and liabilities of the Company (including all debts
and liabilities of the Bank), all assets of the Company available for
distribution. See also "The Reorganization - Effect of the Reorganization -
Liquidation Rights."
Preemptive Rights; Redemption
The holders of the common stock do not have any preemptive rights with
respect to any shares we may issue. The common stock will not be subject to any
redemption provisions.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of preferred stock
and to fix and state voting powers, designations, preferences, or other special
rights of such shares and the qualifications, limitations and restrictions of
those shares as the Board of Directors may determine in its discretion.
Preferred stock may be issued in distinctly designated series, may be
convertible into common stock and may rank prior to the common stock as to
dividends rights, liquidation preferences, or both, and may have full or limited
voting rights. Accordingly, the issuance of preferred stock could adversely
affect the voting and other rights of holders of common stock.
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares. Depending on the circumstances, however, stockholder approval may be
required pursuant to requirements for eligibility for quotation of the common
stock on The Nasdaq Stock Market or by any exchange on which the common stock
may then be listed.
92
<PAGE>
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and
certain matters relating to the reorganization and federal and state taxation
will be passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington,
D.C. Certain legal matters will be passed upon for Ryan, Beck & Co. by Jamieson,
Moore, Peskin & Spicer, Morristown, New Jersey.
EXPERTS
The financial statements of Ridgewood Savings Bank of New Jersey as of
December 31, 1997 and 1996 and for the years then ended have been included in
this prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Ridgewood Savings Bank of New Jersey as of
December 31, 1995 and for the year then ended have been included in this
prospectus in reliance upon the report of Dorfman, Abrams, Music & Co.,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of that firm as experts in accounting and
auditing.
FinPro has consented to the publication in this document of a summary
of its letter to Ridgewood Savings Bank of New Jersey setting forth its opinion
as to the estimated pro forma market value of us in the converted form and its
opinion setting forth the value of subscription rights and to the use of its
name and statements with respect to it appearing in this document.
CHANGE IN AUDITOR
On July 22, 1996, the board of directors of the Bank engaged KPMG Peat
Marwick LLP as its independent auditor for the fiscal year ended December 31,
1996. By letter dated July 23, 1996, the Bank notified Dorfman, Abrams, Music &
Co., its independent auditor for the fiscal years ended December 31, 1995 and
1994, of this determination and that Dorfman, Abrams, Music & Co. would not
continue to be engaged for the fiscal year ending December 31, 1996. On July 12,
1996, the audit committee of the Bank had recommended this change in auditor to
the board of directors. The determination to replace Dorfman, Abrams, Music &
Co. was approved by the full board of directors of the Bank. The report of KPMG
Peat Marwick LLP for the fiscal year ended December 31, 1996 and the report of
Dorfman, Abrams, Music & Co. for the fiscal years ended December 31, 1995 and
1994 contained no adverse opinion or disclaimer of opinion and were not modified
as to uncertainty, audit scope or accounting principles. During the fiscal years
ended December 31, 1995 and 1994 and during the period from January 1, 1996 to
July 23, 1996, there were no disagreements between the Bank and Dorfman, Abrams,
Music & Co. concerning accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
REGISTRATION REQUIREMENTS
Our common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be
subject to the information, proxy solicitation, insider trading restrictions,
tender offer rules, periodic reporting and other requirements of the SEC under
the Exchange Act. We may not deregister the common stock under the Exchange Act
for a period of at least three years following the reorganization.
93
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act
and must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document 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, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The SEC also maintains an internet address ("Web site") that
contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov." The statements
contained in this document as to the contents of any contract or other document
filed as an exhibit to the Form SB-2 are, of necessity, brief descriptions and
are not necessarily complete; each such statement is qualified by reference to
such contract or document.
A copy of our certificate of incorporation and bylaws, as well as those
of the Bank and the mutual holding company, are available without charge from
Ridgewood Savings Bank of New Jersey. Copies of the plan of reorganization are
also available without charge.
The Bank has filed notice of mutual holding company reorganization with
the Department of Banking and Insurance of New Jersey. In addition, the Bank has
filed copies of this application with the FDIC. This prospectus omits certain
information contained in that application.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Independent Auditors' Reports F-1
Statements of Financial Condition at June 30, 1998 (unaudited)
and December 31, 1997 and 1996 F-3
Statements of Income for the six months ended
June 30, 1998 (unaudited) and for each of the
three years in the period ended December 31, 1997 18
Statements of Equity for the six months ended
June 30, 1998 (unaudited) and for each of the
three years in the period ended December 31, 1997 F-4
Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited) and for
each of the three years in the period ended
December 31, 1997 F-5
Notes to Financial Statements F-7
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the financial statements or related notes.
Financial statements of Ridgewood Financial, MHC and Ridgewood Financial, Inc.
have not been provided because they have conducted no operations.
95
<PAGE>
Independent Auditors' Report
The Board of Directors
Ridgewood Savings Bank of New Jersey:
We have audited the statements of financial condition of Ridgewood Savings Bank
of New Jersey as of December 31, 1997 and 1996 and the related statements of
income, equity, and cash flows for the years then ended as listed in the
accompanying index. 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. The financial statements of Ridgewood
Savings Bank of New Jersey for the year ended December 31, 1995 were audited by
other auditors whose report thereon dated February 29, 1996 expressed an
unqualified opinion on those statements.
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 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the financial position of Ridgewood Savings
Bank of New Jersey as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 27, 1998
F-1
<PAGE>
INDEPENDENT AUDITORS'REPORT
Board of Directors
Ridgewood Savings Bank of New Jersey
Ridgewood, New Jersey
We have audited the accompanying statement of financial condition of Ridgewood
Savings Bank of New Jersey as of December 31, 1995, and the related statements
of income, equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 presentabon.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ridgewood Savings Bank of New
Jersey as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/Dorfman, Abrams, Music & Co.
Glen Rock, New Jersey
February 29, 1996
F-2
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Statements of Financial Condition
(Dollars in thousands)
<TABLE>
<CAPTION>
June, 30 December, 31
------------- ----------------------
Assets 1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 3,128 2,198 2,564
Federal funds sold 16,400 13,200 3,800
--------- --------- ---------
Cash and cash equivalents 19,528 15,398 6,364
Investment securities:
Held to maturity (fair value of $2,496, $9,724
and $12,599 at June 30, 1998, December 31,
1997 and December 31,1996) 2,495 9,666 12,721
Available for sale 11,730 26,954 43,211
Mortgage-backed securities:
Held to maturity (fair value of $12,953, $14,522
and $16,678 at June 30, 1998, December 31,
1997 and December 31, 1996) 12,794 14,356 16,611
Available for sale 85,679 50,099 19,359
Loans held for sale -- 750 3,756
Loans receivable, net 104,627 105,715 107,959
Accrued interest receivable 1,386 1,609 1,818
Premises and equipment, net 2,188 2,253 2,310
Federal Home Loan Bank stock, at cost 1,949 1,949 1,949
Other assets 286 316 717
--------- --------- ---------
Total assets $ 242,662 229,065 216,775
========= ========= =========
Liabilities and Equity
Deposits 198,602 193,889 170,551
Borrowed funds 25,432 16,282 28,400
Advances from borrowers for taxes and insurance 896 902 907
Accounts payable and other liabilities 381 798 1,548
--------- --------- ---------
Total liabilities 225,311 211,871 201,406
--------- --------- ---------
Equity:
Retained earnings 17,453 16,966 15,716
Accumulated other comprehensive income (102) 228 (347)
--------- --------- ---------
Total equity 17,351 17,194 15,369
Commitments and contingencies
Total liabilities and equity $ 242,662 229,065 216,775
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Statements of Equity
(In thousands)
<TABLE>
<CAPTION>
Accu-
mulated
other
Compre- compre-
hensive Retained hensive Total
income earnings income equity
------ -------- ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 13,849 (259) 13,590
Comprehensive income:
Net income 1,127 1,127 - 1,127
Other comprehensive income, net of tax - unrealized gain
on securities, net of reclassification adjustment 571
------
Total comprehensive income $ 1,698 - 571 571
===== --------- ----- ---------
Balance at December 31, 1995 14,976 312 15,288
Comprehensive income:
Net income 740 740 - 740
Other comprehensive income, net of tax - unrealized gain
on securities, net of reclassification adjustment (659)
------
Total comprehensive income $ 81 - (659) (659)
====== --------- ----- ---------
Balance at December 31, 1996 15,716 (347) 15,369
Comprehensive income:
Net income 1,250 1,250 - 1,250
Other comprehensive income, net of tax - unrealized gain
on securities, net of reclassification adjustment 575
------
Total comprehensive income $ 1,825 - 575 575
====== --------- ----- ---------
Balance at December 31, 1997 16,966 228 17,194
Comprehensive income:
Net income 487 487 - 487
Other comprehensive income, net of tax - unrealized gain
on securities, net of reclassification adjustment (330)
------
Total comprehensive income $ 157 - (330) (330)
====== --------- ----- ---------
Balance at June 30, 1998 $ 17,453 (102) 17,351
========= ===== =========
</TABLE>
<TABLE>
<CAPTION>
Six-months Years ended
ended December 31,
June 30, ------------
1998 1997 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Disclosure of reclassification amount:
Unrealized holding (losses) gains arising during period $ (306) 594 (614) 542
Less: reclassification adjustment for (losses) gains in
net income (24) (19) (45) 29
---------- ----- ----- -----
Net unrealized (losses) gains $ (330) 575 (659) 571
========== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
------------------------ --------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 487 662 1,250 740 1,127
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 100 99 199 148 75
Amortization of loan fees (60) (58) (131) (174) (203)
Premiums and discounts on mortgage-
backed and investment securities 416 (11) 376 194 418
Proceeds from loan sales 771 24 3,637 750 4,375
Gain on sale of loans (21) (3) (45) (14) (38)
Loans originated for resale -- -- (585) (4,293) (3,962)
(Gain) loss on sale of securities available
for sale (24) -- (19) (45) 29
Provision for loans losses 132 6 12 12 60
Deferred income tax (benefit) expense (118) 181 265 84 (29)
Decrease (increase) in accrued interest
receivable 223 (85) 209 (347) (710)
Decrease (increase) in other assets, net 215 (76) (298) (57) (48)
(Decrease) increase in other liabilities (299) (994) (605) 1,236 (194)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 1,822 (255) 4,265 (1,766) 900
-------- -------- -------- -------- --------
Cash flows from investing activities:
Net decrease (increase) in first mortgage loans 1,803 2,615 4,660 (9,257) (9,367)
Net increase in consumer loans (787) (2,037) (2,316) (2,390) (451)
Purchase of mortgage-backed securities available
for sale (46,600) (9,332) (40,931) (15,763) (3,971)
Principal collected on mortgage-backed securities 11,669 3,413 7,421 5,930 5,456
Proceeds from sales of mortgage-backed securities
available for sale -- -- 6,320 4,967 --
Purchase of investment securities available
for sale (1,470) (500) (1,503) (41,447) (21,936)
Proceeds from sales of securities available for sale 7,022 2,000 17,525 15,689 10,221
Purchase of investment securities held to maturity -- -- -- -- (16,192)
Maturities of investment securities held to maturity 6,976 2,500 2,500 11,021 2,500
Maturities of investment securities available for sale 9,700 -- -- -- --
Principal collected on investment securities 175 233 -- -- 274
Purchase of premises and equipment (35) (99) (142) (729) (1,268)
Purchase of Federal Home Loan Bank stock -- -- -- (768) (43)
Proceeds from collection of loan fees -- 6 20 56 92
-------- -------- -------- -------- --------
Net cash used in investing activities (11,549) (1,201) (6,446) (32,691) (34,685)
-------- -------- -------- -------- --------
</TABLE>
F-5
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Statements of Cash Flows, Continued
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in passbook, NOW
and money market accounts $ 5,010 6,096 7,311 2,904 (566)
Net (decrease) increase in certificates of deposit (297) 9,311 16,027 20,629 27,390
Proceeds from borrowed funds 18,190 20,181 13,407 25,175 16,487
Repayment of borrowed funds (9,040) (29,400) (25,525) (12,786) (9,326)
Net (decrease) increase in advances from
borrowers for taxes and insurance (6) 13 (5) 77 17
-------- -------- -------- -------- --------
Net cash provided by financing
activities 13,857 6,201 11,215 35,999 34,002
-------- -------- -------- -------- --------
Net increase in cash and cash
equivalents 4,130 4,745 9,034 1,542 217
Cash and cash equivalents at beginning of year 15,398 6,364 6,364 4,822 4,605
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year 19,528 11,109 15,398 6,364 4,822
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information cash payments for:
Interest on deposits and borrowed funds $ 5,344 5,140 10,386 11,185 6,562
======== ======== ======== ======== ========
Income taxes $ 370 163 233 548 779
======== ======== ======== ======== ========
Transfers to available for sale from mortgage-
backed securities held to maturity $ -- -- -- -- 9,317
======== ======== ======== ======== ========
Transfers to held to maturity from investment
securities available for sale $ -- -- -- -- 420
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Business Activities
Ridgewood Savings Bank of New Jersey (the Bank) grants residential,
commercial and consumer loans to, and accepts deposits from, customers
from three branches located in northeastern New Jersey. The Bank is
subject to the regulations of certain federal and state agencies and
undergoes periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the
period. Actual results could differ significantly from these estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with
foreclosures or in settlement of loans. In connection with the
determination of the allowance for loans losses and valuation of real
estate owned, management generally obtains independent appraisals for
significant properties.
The accompanying unaudited financial statements as of June 30, 1998, and
for the six-month periods ended June 30, 1998 and 1997, have been
prepared in accordance with generally accepted accounting principles. All
information in the notes to the financial statements as of June 30, 1998
and for the six-month periods ended June 30, 1998 and 1997 are unaudited.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such interim
periods have been made. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of results that may be
expected for the year ending December 31, 1998.
Effective January 1, 1998, the Bank adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement No. 130). Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Under Statement No.
130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items
previously recorded directly in equity, such as unrealized gains or
losses on securities available for sale. Comparative financial statements
provided for earlier periods have been reclassified to reflect the
application of the provisions of Statement No. 130.
F-7
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(1), Continued
Statement No. 130 requires total comprehensive income and its components
to be displayed on the face of a financial statement for annual financial
statements. For the Bank, comprehensive income is determined by adding
unrealized investment holding gains or losses during the period to net
income.
In February 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132 "Employers
Disclosures about Pensions and Other Postretirement Benefits" (Statement
No. 132). Statement 132 revises employers' disclosures about pension and
other postretirement benefits plans. It does not change the measurement
or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information in changes in the benefit
obligations and fair value of plan assets that will facilitate financial
analysis and eliminates certain required disclosure of previous
accounting pronouncements.
Statement No. 132 is effective for fiscal years beginning after December
15, 1997. Earlier application is encouraged. Restatement of disclosures
for earlier periods provided for comparative purposes is required unless
the information is not readily available. As Statement No. 132 affects
disclosure requirements, it is not expected to have an impact on the
financial statements of the Bank.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(Statement No. 133). Statement No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. Statement No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Initial application of this
Statement should be as of the beginning of an entity's fiscal quarter. On
that date, hedging relationships must be designated as new and documented
pursuant to the provisions of this Statement. Earlier application of all
of the provisions of Statement No. 133 is encouraged, but it is permitted
only as of the beginning of any fiscal quarter that begins after issuance
of this Statement. This Statement should not be applied retroactively to
financial statements of prior periods. The Bank has not determined the
impact, if any, Statement No. 133 will have on the Bank's financial
statement presentation.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
F-8
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(1), Continued
Investment Securities
Management determines the appropriate classification of securities as
either held to maturity or available for sale at the purchase date. Debt
securities that management has the ability and intent to hold to maturity
are classified as held to maturity and carried at cost, adjusted for
amortization of premiums and accretion of discounts. Other securities are
classified as available for sale and are carried at fair value.
Unrealized gains and losses on securities available for sale are
recognized as direct increases or decreases to equity, net of income
taxes. Premiums and discounts are amortized using the level yield method.
The cost of securities sold is recognized using the specific
identification method.
Mortgage-backed Securities
Management determines the appropriate classification of mortgage-backed
securities as either held to maturity or available for sale at the
purchase date. Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and
serviced by third parties. Mortgage-backed securities that management has
the intent and ability to hold to maturity are classified as held to
maturity and carried at unpaid principal balances, adjusted for
unamortized premiums and unearned discounts. All other mortgage-backed
securities are classified as available for sale and are carried at fair
value. Unrealized gains and losses on mortgage-backed securities
available for sale are recognized as direct increases or decrease to
equity, net of income taxes. Premiums and discount are amortized using
the level yield method. The cost of securities sold is determined using
the specific identification method.
Loans Held for Sale
Loans originated and held for sale are carried at the lower of cost or
fair value determined on an aggregate basis. Net unrealized losses are
recognized in a valuation allowance through charges to income. Gains and
losses on the sale of loans held for sale are determined using the
specific identification method. At December 31, 1997 and 1996, the cost
of loans held for sale approximates fair value.
Effective January 1, 1997, the Bank adopted Statement of Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (Statement No. 125). The
statement provides standards for distinguishing transfers of financial
assets that are sales from those that are secured borrowings, and
provides guidance on the recognition and measurement of asset servicing
contracts and on debt extinguishments. As issued, Statement No. 125 is
effective for transactions occurring after December 31, 1996. However, as
a result of an amendment to Statement No. 125
F-9
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(1), Continued
issued by the FASB in December 1996, certain provisions of Statement No.
125 were deferred for an additional year. Statement No. 125 requires the
recognition of separate assets for the rights to service for others
mortgage loans that have been acquired through purchase or origination.
These rights are amortized over the estimated net servicing life of the
loans and are evaluated for impairment based on their fair value on a
quarterly basis. The fair value of the rights is estimated using the
present value of future cash flows and assumptions regarding prepayment
estimates, cost of servicing, discount rates and loan terms. Any
impairments to the value of the rights are recognized as a direct effect
to amortization. The impact of adopting the new accounting standard was
not material to the Bank.
Loans Receivable
Loans receivable are stated at unpaid principal balances less the
allowance for loans losses and net deferred loan origination fees.
Interest income on loans is accrued and credited to interest income as
earned. Loan origination and commitment fees are deferred and amortized
as a yield adjustment over the lives of the related loans using the
interest method.
The allowance for loan losses is increased by charges to income through a
provision for loan losses and decreased by charge-offs, net of
recoveries. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral and
current economic conditions.
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 changes in
economic conditions in the Bank's market area. In addition, various
regulatory agencies, as an integral part of their routine 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.
Loans are placed on nonaccrual status when a loan is specifically
determined to be impaired based on management's periodic evaluation. Any
unpaid interest previously accrued on those loans is reversed from
income. Interest income generally is not recognized on specific
nonaccrual loans unless the likelihood of further loss is remote and only
to the extent of interest payments received.
F-10
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(1), Continued
The Bank has defined the population of impaired loans to be all
nonaccrual and restructured commercial loans, and certain other
performing loans considered to be impaired as to principal and interest.
Impaired loans are individually assessed to determine that the loan's
carrying value is not in excess of the fair value of the collateral or
the present value of the loan's expected future cash flows. Smaller
balance homogeneous loans that are collectively evaluated for impairment,
such as residential mortgage loans and installment loans, are excluded
from the impaired loan portfolio. At June 30, 1998, December 31, 1997 and
1996, the Bank has no impaired loans.
Premises and Equipment
Premises and equipment, including leasehold improvements, are recorded at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets.
Foreclosed Real Estate
Real estate properties acquired through foreclosure are initially
recorded at the lower of amortized cost or estimated fair value, less
estimated costs to sell at the date of foreclosure. Costs relating to
development and improvements of property are capitalized, whereas costs
relating to the holding of property are expensed.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of
a property exceeds its estimated fair value, less estimated costs to
sell.
Income Taxes
Income taxes are accounted for using the asset and liability 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.
Reclassifications
Certain reclassifications have been made to the 1995, 1996 and 1997
financial statements to conform to the 1998 presentation.
F-11
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(2) Investment Securities
At June 30, 1998, December 31, 1997 and 1996, securities held to maturity
consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------
(Unaudited) December 31, 1997 December 31, 1996
---------------------------------- -----------------------------------
Gross Gross Gross Gross Gross Gross
Amor- unre- unre- Amor- unre- unre- Amor- unre- unre-
tized alized alized Fair tized alized alized Fair tized alized alized Fair
cost gains losses value cost gains losses value cost gains losses value
---- ----- ------ ----- ---- ----- ------ ----- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agencies $ 2,495 9 (8) 2,496 9,666 62 (4) 9,724 12,721 15 (137) 12,599
======= ==== ===== ===== ======= === == ====== ====== ==== ===== ======
</TABLE>
At June 30, 1998 and December 31, 1997, securities of $1.6 million and
1.8 million, respectively, were pledged as collateral.
At June 30, 1998 and December 31, 1997 and 1996, securities available for
sale consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------
(Unaudited) December 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Gross Gross Gross Gross Gross Gross
Amor- unre- unre- Amor- unre- unre- Amor- unre- unre-
tized alized alized Fair tized alized alized Fair tized alized alized Fair
cost gains losses value cost gains losses value cost gains losses value
---- ----- ------ ----- ---- ----- ------ ----- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
and federal
agencies $ 7,000 2 (2) 7,000 23,697 28 (34) 23,691 41,204 12 (620) 40,596
Municipal securities 4,561 146 (3) 4,704 3,091 150 - 3,241 2,589 10 - 2,599
Equity securities 8 18 - 26 8 14 - 22 9 7 - 16
------ ----- ----- ------ ------ ----- ---- ------ ------ ---- ----- ------
$11,569 166 (5) 11,730 26,796 192 (34) 26,954 43,802 29 (620) 43,211
====== ===== ===== ====== ====== === ==== ====== ====== ==== ===== ======
</TABLE>
F-12
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(In thousands)
(2), Continued
The following is a summary of maturities of debt securities as of June
30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-------------------------------------- December 31, 1997
(Unaudited) ----------------------------------------
Securities Securities
held to Securities held to Securities
maturity available for sale maturity available for sale
------------------- ------------------ ----------------- ---------------------
Amor- Amor- Amor- Amor-
tized Fair tized Fair tized Fair tized Fair
cost value cost value cost value cost value
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ 920 920 500 500 920 916 500 498
After one year through
five years 167 167 4,000 4,000 1,219 1,238 - -
After five years through
ten years 746 755 - - 3,807 3,842 23,197 23,193
After ten years 662 654 7,061 7,204 3,720 3,728 3,091 3,241
------ ------ ------- -------- ------ ------ ------- -------
$ 2,495 2,496 11,561 11,704 9,666 9,724 26,788 26,932
====== ====== ======= ======== ====== ====== ======= =======
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investment securities available for sale and the
realized gross gains and losses from those sales are as follows (in
thousands):
<TABLE>
<CAPTION>
Six months
ended Years ended
June 30, December 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ 7,022 2,000 17,525 15,689 10,221
====== ====== ======= ======= =======
Gross realized gains 24 - 11 20 3
Gross realized losses - - - - (32)
------ ------ ------- ------- -------
$ 24 - 11 20 (29)
====== ====== ======= ======= =======
</TABLE>
In 1995, debt securities of $420,000 were transferred to held to maturity
from available for sale as a one time reallocation between categories, as
allowed by the "Special Report - A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities"
which was issued in November 1995.
F-13
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(In thousands)
(3) Mortgage-backed Securities
At June 30, 1998, December 31, 1997 and 1996, mortgage-backed securities
held to maturity consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------
(Unaudited) December 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Gross Gross Gross Gross Gross Gross
Amor- unre- unre- Amor- unre- unre- Amor- unre- unre-
tized alized alized Fair tized alized alized Fair tized alized alized Fair
cost gains losses value cost gains losses value cost gains losses value
---- ----- ------ ----- ---- ----- ------ ----- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA $ 2,747 47 (5) 2,789 3,138 64 (8) 3,194 3,658 56 (21) 3,693
FHLMC 2,610 28 (7) 2,631 2,902 34 (5) 2,931 3,530 26 (20) 3,536
FNMA 7,437 100 (4) 7,533 8,316 97 (16) 8,397 9,423 71 (45) 9,449
------- ----- ---- ------- ------ ----- --- ------ ------ ----- ---- ------
$ 12,794 175 (16) 12,953 14,356 195 (29) 14,522 16,611 153 (86) 16,678
======= ===== ==== ======= ====== === === ====== ====== === ==== ======
</TABLE>
At June 30, 1998, December 31, 1997 and 1996, mortgage-backed securities
available for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------
(Unaudited) December 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Gross Gross Gross Gross Gross Gross
Amor- unre- unre- Amor- unre- unre- Amor- unre- unre-
tized alized alized Fair tized alized alized Fair tized alized alized Fair
cost gains losses value cost gains losses value cost gains losses value
---- ----- ------ ----- ---- ----- ------ ----- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA $ 2,158 9 (7) 2,160 1,348 10 - 1,358 474 9 - 483
FHLMC 39,242 165 (338) 39,069 25,567 165 (70) 25,662 7,645 73 (24) 7,694
FNMA 44,598 172 (320) 44,450 22,987 142 (50) 23,079 11,192 27 (37) 11,182
------- ----- ---- ------ ------ ----- ---- ------ ------ ----- ---- ------
$ 85,998 346 (665) 85,679 49,902 317 (120) 50,099 19,311 109 (61) 19,359
======= ===== ==== ====== ====== === ==== ====== ====== === ==== ======
</TABLE>
F-14
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(3), Continued
The following is a summary of maturities of mortgage-backed securities as
of June 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
--------------------------------------- --------------------------------------
(Unaudited)
Securities Securities Securities Securities
held to available held to available
maturity for sale maturity for sale
---------------------- ----------------- ----------------- ----------------
Amor- Amor- Amor- Amor-
tized Fair tized Fair tized Fair tized Fair
cost value cost value cost value cost value
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
After one year through
five years $ 957 962 9,223 9,249 - - 7,549 7,593
After five years through
ten years 703 701 24,855 24,878 963 955 10,546 10,598
After ten years 11,134 11,290 51,920 51,552 13,393 13,567 31,807 31,908
------- ------- ------- ------- ------ ---------- ---------- --------
$ 12,794 12,953 85,998 85,679 14,356 14,522 49,902 50,099
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
Proceeds from sales of mortgage-backed securities available for sale and
the realized gross gains and losses from those sales are as follows (in
thousands):
<TABLE>
<CAPTION>
Six months
ended Years ended
June 30, December 31,
--------------------- -------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ - - 6,320 4,967 -
===== ===== ===== ====== =====
Gross realized gains - - 8 31 -
Gross realized losses - - - (6) -
----- ----- ----- ------ -----
$ - - 8 25 -
===== ===== ===== ====== =====
</TABLE>
At June 30, 1998, mortgage-backed securities of $17.1 million were pledge
as collateral.
In 1995, mortgage-backed securities with an amortized cost of
approximately $9.3 million were transferred from held to maturity to
available for sale as one time reallocation between categories, as
allowed by the "Special Report - A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities"
which was issued in November 1995.
F-15
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(4) Loans
The following is a summary of loans as of June 30, 1998, December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
First mortgage loans:
Secured by one- to four-family
residence $ 83,990 86,140 90,500
Secured by other property 10,661 10,313 10,613
---------- ---------- ----------
Total first mortgage loans 94,651 96,453 101,113
Consumer loans:
Loans to depositors, secured by savings 208 350 256
Education 186 160 120
Equity 10,583 9,645 7,519
Lines of credit 98 134 78
---------- ---------- ----------
Total consumer loans 11,075 10,289 7,973
---------- ---------- ----------
Less:
Net deferred loan fees 349 409 521
Allowance for loan losses 750 618 606
---------- ---------- ----------
$ 104,627 105,715 107,959
========== ========== ==========
Loans held for sale $ - 750 3,756
========== ========== ==========
</TABLE>
Activity in the allowance for loan losses for the six months ended June
30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
--------------------- ---------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 618 606 606 593 528
Provision charged to income 132 6 12 12 60
Charge-offs - - - 2 -
Recoveries - - - 3 5
------ ---- ---- ---- ----
Balance at end of period $ 750 612 618 606 593
====== ==== ==== ==== ====
</TABLE>
F-16
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(4), Continued
The balance of nonaccrual loans for which interest income has been
reduced totals approximately $6,000, $0 and $313,000 at June 30, 1998,
December 31, 1997 and 1996, respectively. Interest income that would have
been recorded under the original terms of such loans approximated $0 and
$59,000 for the six months ended June 30, 1998 and 1997, respectively,
and $0, $13,000 and $22,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
(5) Premises and Equipment
Premises and equipment at June 30, 1998, December 31, 1997 and 1996
consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
-------- -------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Land $ 527 527 527
Building and improvements 607 607 607
Leasehold improvements 787 787 767
Furniture, fixtures and equipment 1,125 1,090 968
-------- ------- -------
3,046 3,011 2,869
Less accumulated depreciation 858 758 559
-------- ------- -------
$ 2,188 2,253 2,310
======== ======= =======
</TABLE>
(6) Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank System, is required
to maintain an investment in capital stock of the Federal Home Loan Bank
of New York (FHLB). The FHLB of New York paid dividends at an effective
rate of 7.4% and 6.3% for the six months ended June 30, 1998 and 1997,
respectively, and 6.6%, 7.6% and 7.6% for the years ended December 31,
1997, 1996 and 1995, respectively.
F-17
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(7) Deposits
Deposits at June 30, 1998, December 31, 1997 and 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, December 31,
------------- 1997 1996
(Unaudited) ------------------------- -------------------------
Weighted Weighted Weighted
average average average
Amount rate Amount rate Amount rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Passbook $ 29,126 3.21% $ 27,136 3.01% $ 23,377 3.01%
NOW accounts 15,165 2.29 12,320 1.84 8,622 1.94
Money market 3,807 2.98 3,632 2.98 3,778 2.98
Certificates of deposit 150,504 5.61 150,801 5.66 134,774 5.54
------- ------- -------
$ 198,602 $ 193,889 $ 170,551
======== ========= ========
</TABLE>
The aggregate amount of certificate of deposit accounts with a minimum
denomination of $100,000 was approximately $14.8 million, $15.6 million,
and $17.1 million at June 30, 1998, December 31, 1997 and 1996,
respectively.
At June 30, 1998, December 31, 1997 and 1996, scheduled maturities of
certificates of deposit are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
One year or less $ 108,575 95,800 109,525
One year to three years 37,294 50,878 19,694
Three years or more 4,635 4,123 5,555
--------- --------- ----------
$ 150,504 150,801 134,774
========= ========= ==========
</TABLE>
Interest expense on deposits for the six months ended June 30, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------- -------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Passbook $ 443 369 785 663 634
NOW accounts 121 88 195 139 103
Money market 57 63 121 122 133
Certificates of deposit 4,171 3,769 7,881 6,726 5,683
------ ------- -------- ------- -------
$ 4,792 4,289 8,982 7,650 6,553
====== ======= ======== ======= =======
</TABLE>
F-18
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(8) Borrowed Funds
Borrowed funds at June 30, 1998, December 31, 1997 and 1996 are
summarized as follows (in thousands):
December 31,
June 30, -------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
Advances from the FHLB $ 25,432 16,282 28,400
======== ======== =========
Pursuant to collateral agreements with the FHLB, advances are secured by
all stock in the FHLB and qualifying first mortgage loans. Advances at
June 30, 1998 and December 31, 1997 have maturity dates as follows (in
thousands):
June 30, December 31,
1998 1997
---- ----
(Unaudited)
1998 $ 6,700 15,525
2000 2,150 150
2006 582 607
2008 16,000 -
------- ------
$ 25,432 16,282
======= =======
The interest rates on advances ranged from 5.30% to 6.76%, 5.30% to 6.85%
and from 5.30% to 6.85% at June 30, 1998, December 31, 1997 and 1996,
respectively.
(9) Employee Retirement Plans
Pension Plan
The Bank has a defined benefit pension plan covering substantially all
employees. The benefits are computed using an average of the employee's
compensation for the highest five years during the last ten years of
employment. The Bank funds an amount equal to the
F-19
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(9), Continued
maximum allowable deduction for tax purposes as reported by the Bank's
actuary. Listed below are the components of pension expense for the six
months ended June 30, 1998 and 1997 and for the years ended December 31,
1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------- -------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Service cost $ 42 34 67 66 79
Interest cost 22 21 42 37 26
Return on plan assets (27) (24) (47) (47) (7)
Other components 3 3 6 3 6
---- ---- ---- ----- ------
Net periodic pension
cost $ 40 34 68 59 104
==== ==== ==== ===== ======
</TABLE>
The following table shows the funded status of the plan and the amount
reported in the statements of financial condition at June 30, 1998,
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
December 31,
June 30, ----------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ 425 430 269
Nonvested 95 79 47
----- ------- -------
Total accumulated benefit
obligation 520 509 316
----- ------ ------
Projected benefit obligation (698) (707) (501)
Fair value of plan assets, primarily
certificates of deposit 716 730 549
----- ------ ------
Excess of fair value of
plan assets over pro-
jected benefit 18 23 48
Other (23) 12 (35)
------ ------ ------
(Accrued pension liability)
net pension asset $ (5) 35 13
====== ====== ======
</TABLE>
F-20
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(9), Continued
Assumptions used to develop the net periodic pension costs are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
---------------- -----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Discount rate 6.8% 7.5% 7.5% 7.5% 7.0%
Expected long-term rate of
return on assets 8.0 8.0 8.0 8.0 7.0
Rate of increase in compen-
sation levels 4.5 5.5 5.5 5.5 5.0
==== ==== ==== ==== ====
</TABLE>
Profit-sharing Plan
The Bank has established a 401(k) profit-sharing plan covering
substantially all employees. The plan provides for the Bank to match 50%
of an employee's contribution up to 4% of individual's salary.
Contributions to the plan for the six months ended June 30, 1998 and 1997
were approximately $9,000 and $9,000, respectively and for the years
ended December 31, 1997, 1996 and 1995 were approximately $20,000,
$19,000 and $17,000, respectively.
(10) Income Taxes
Under tax law that existed prior to 1996, the Bank was generally allowed
a special bad debt deduction in determining income for tax purposes. The
deduction was based on either a specified experience formula or a
percentage of taxable income before such deduction. The experience method
was used in preparing the income tax return for 1995. Legislation was
enacted in August 1996 which repealed for tax purposes the percentage of
taxable income bad debt reserve method. As a result, the Bank will use a
specific experience formula to compute its bad debt deduction for 1996
and 1997. The legislation also requires the Bank to recapture its
post-1987 net additions to its tax bad debt reserves for which the Bank
has accrued a deferred liability.
F-21
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(10), Continued
Income tax expense for the six months ended June 30, 1998 and 1997 and
for the years ended December 31, 1997, 1996 and 1995 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 334 220 532 500 631
State 29 24 44 44 55
------ ------ ------ ------ ------
$ 363 244 576 544 686
====== ====== ====== ====== ======
Deferred:
Federal (111) 172 243 77 (27)
State (7) 9 22 7 (2)
------- ------ ------ ------ ------
$ (118) 181 265 84 (29)
====== ====== ====== ====== ======
Total:
Federal 223 392 775 577 604
State 22 33 66 51 53
------ ------ ------ ------ ------
$ 245 425 841 628 657
====== ====== ====== ====== ======
</TABLE>
Total income tax expense differed from the amounts computed by applying
the U.S. federal income tax rates of 34% to income before income taxes as
a result of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Expected income tax expense
at federal tax rate $ 249 370 711 465 607
Increase (decrease) in taxes
resulting from:
State income tax, net of
federal income tax effect 14 22 44 33 35
Tax-exempt interest (25) (22) (48) - -
Tax bad debt reserve - - - 136 -
Other, net 7 55 134 (6) 15
----- ----- ---- ---- ----
$ 245 425 841 628 657
===== ===== ==== ==== ====
</TABLE>
F-22
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(10), Continued
Total income tax expense for the six months ended June 30, 1998 and 1997
and for the years ended December 31, 1997, 1996 and 1995 was allocated as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------- --------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax expense from operations $ 245 425 841 628 657
Shareholders' equity - unrealized gain (loss)
on securities available for sale (185) (31) 323 (372) 322
----- ----- ------- ------ ----
$ 60 394 1,164 256 979
===== ===== ======= ====== ====
</TABLE>
The following are the significant components of the net deferred tax
(liability) asset at June 30. 1998, December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
-------- --------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Components of deferred tax asset:
Provision for loan losses - book $ 270 222 218
Loan fees 86 85 135
Interest reserves -- -- 16
Amortization of premiums and discounts
on investment securities and mortgage-
backed securities 213 185 355
Unrealized losses on available-for-sale securities 57 -- 196
----- ----- -----
Total deferred tax asset 626 492 920
----- ----- -----
Components of deferred tax liability:
Depreciation (40) (36) (34)
Provision for loan losses - tax (396) (432) (433)
Other (28) (37) (5)
Unrealized gains on available-for-sale securities -- (128) --
----- ----- -----
Total deferred tax liability (464) (633) (472)
----- ----- -----
Net deferred tax asset (liability) $ 162 (141) 448
===== ===== =====
Net state deferred tax asset (liability) 9 (12) 37
Net federal deferred tax asset (liability) 153 (129) 411
----- ----- -----
$ 162 (141) 448
===== ===== =====
</TABLE>
F-23
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(10), Continued
Management has determined that it is more likely than not that it will
realize the deferred tax asset based upon the nature and timing of the
items listed above. There can be no assurances, however, that there will
be no significant differences in the future between taxable income and
pretax book income if circumstances change. In order to fully realize the
net deferred tax asset, the Bank will need to generate future taxable
income. Management has projected that the Bank will generate sufficient
taxable income to utilize the net deferred tax asset; however, there can
be no assurance as to such levels of taxable income generated.
Retained earnings at both June 30, 1998 and December 31, 1997 includes
approximately $3.1 million for which no provision for income taxes has
been made. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Events that would result in taxation of
these reserves include failure to qualify as a bank for tax purposes;
distributions in complete or partial liquidation; stock redemptions; and
excess distributions to shareholders. Management is not aware of the
occurrence of any such events. At both June 30, 1998 and December 31,
1997, the Bank has an unrecognized tax liability of $1.1 million with
respect to this reserve.
(11) Related-party Transactions
At June 30, 1998, December 31, 1997 and 1996, the executive officers and
directors have approximately $180,000, $298,000 and $260,000,
respectively, in outstanding residential first mortgage and consumer
loans. Lending transactions with related parties are on the same terms as
those prevailing at the time for comparable transactions with outside
customers.
(12) Commitments, Contingencies and Concentrations of Credit Risk
In the ordinary course of business, the Bank has various outstanding
commitments that are not reflected in the accompanying financial
statements. The principal commitments of the Bank are outlined in the
following section.
Lease Commitments
At June 30, 1998 and December 31, 1997, the Bank is obligated under a
noncancelable operating lease expiring in February 2005 for its office
and drive-in facilities in Ridgewood, New Jersey. The lease contains
escalation clauses providing for increased rentals based upon increases
in the consumer price index and an option to renew for an additional ten
years. In addition, the Bank leases a facility in Mahwah, New Jersey,
under
F-24
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(12), Continued
a noncancelable operating lease expiring in November 2007. The lease
contains an option to renew for an additional eight years. Net rent
expense exclusive of real estate taxes under the operating leases,
included in occupancy and equipment expense, was approximately $79,000
and $80,000 for the six months ended June 30, 1998 and 1997,
respectively, and approximately $161,000, $154,000 and $123,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The projected minimum rental payments under the terms of the leases,
exclusive of the renewal options, are as follows (in thousands):
June, 30 December 31,
1998 1997
---- ----
(Unaudited)
1998 $ 77 100
1999 155 100
2000 155 100
2001 155 100
2002 155 100
2003 and thereafter 936 539
------- -------
$ 1,633 1,039
======= =======
Real estate taxes, insurance and maintenance expenses are generally
obligations of the Bank and, accordingly, are not included as part of rental
payments.
Financial Instruments with Off-balance-sheet Risk
The Bank maintains its cash and cash equivalents in bank deposit
accounts, the balances of which, at times, may exceed federally insured
limits. Additionally, the Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments primarily
consist of commitments to extend credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit
is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank
F-25
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(12), Continued
evaluates each customer's creditworthiness on a case-by-case basis. The
amount and type of collateral obtained by the Bank upon extension of
credit varies and is based on management's credit evaluation of the
counterparty/customer.
Loan Commitments
At June 30, 1998 and December 31, 1997, the Bank has outstanding firm
commitments to originate loans as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 198
------------------------------- December 31, 1997
(Unaudited) ----------------------------
Vari- Vari-
Fixed able Fixed able
rate rate Total rate rate Total
---- ---- ----- ---- ---- -----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans $ 2,534 3,287 5,821 420 1,575 1,995
Consumer and other
loans 219 195 414 145 100 245
------- ------- ------- ----- ------- -------
$ 2,753 3,482 6,235 565 1,675 2,240
======= ======= ======= ===== ======= =======
</TABLE>
Litigation
In the normal course of business, the Bank may be a party to various
outstanding legal proceedings and claims. In the opinion of management,
the financial position of the Bank will not be materially affected by the
outcome of such legal proceedings and claims.
Concentrations of Credit Risk
A substantial portion of the Bank's loans are one- to four-family
residential first mortgage loans secured by real estate located in New
Jersey. Accordingly, the collectibility of a substantial portion of the
Bank's loan portfolio is susceptible to changes in real estate market
conditions.
(13) Recapitalization of Savings Institution Insurance Fund (SAIF)
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions,
including the Bank, to recapitalize the SAIF and spread the obligations
for payment of Financing Corporation (FICO) bonds across all SAIF and
Bank Insurance Fund (BIF) members. The Federal Deposit Insurance
Corporation (FDIC) special assessment levied amounted to 65.7 basis
points on SAIF assessable deposits held as of March 31, 1995. The special
assessment was
F-26
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(13), Continued
recognized in 1996 and was tax deductible. The Bank took a charge of
$830,000, before tax-effect, as a result of the FDIC special assessment.
This legislation will eliminated the substantial disparity between the
amount that BIF and SAIF member institutions had been paying for deposit
insurance premiums.
Beginning on January 1, 1997, BIF members paid a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits compared to 6.4
basis points on SAIF-insured deposits, and will pay a pro rata share of
the FICO payment on the earlier of January 1, 2000 or the date upon which
the last savings association ceases to exist. The legislation also
requires BIF and SAIF to be merged by January 1, 1999, provided that
subsequent legislation is adopted to eliminate the savings association
charter and no savings associations remain as of that time.
The FDIC has recently lowered SAIF assessments to a range comparable to
that of BIF members, although SAIF members must also make the FICO
payments described above. Management cannot predict the level of FDIC
insurance assessments on an ongoing basis or whether the BIF and SAIF
will eventually be merged.
(14) Regulatory Matters
FDIC regulations require banks to maintain minimum levels of regulatory
capital. Under the regulations in effect at June 30, 1998 and December
31, 1997, the Bank is required to maintain (a) a minimum leverage ratio
of Tier 1 capital to total adjusted assets of 4.0%, and (b) minimum
ratios of Tier 1 and total capital to risk-weighted assets of 4.0% and
8.0%, respectively.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on the institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized. Generally, an institution is considered
well capitalized if it has a leverage (Tier 1) capital ratio of at least
5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to quantitative judgments by the FDIC
about capital components, risk weightings and other factors.
F-27
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(14), Continued
Management believes that, as of June 30, 1998, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent
FDIC notification categorized the Bank as a well-capitalized institution
under the prompt corrective action regulations. There have been no
conditions or events since that notification that management believes
have changed the Bank's capital classification.
The following is a summary of the Bank's actual capital amounts and
ratios as of June 30, 1998, December 31, 1997 and 1996, compared to the
FDIC minimum capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution (in thousands).
<TABLE>
<CAPTION>
To be well
For capital capitalized
adequacy under prompt
Actual purpose correction action
-------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 (unaudited):
Total capital (to risk-
weighted assets) $ 18,199 20.24% $ 7,195 8.00% $ 8,993 10.00%
Tier 1 (capital to risk-
weighted assets) 17,449 19.40 3,597 4.00 5,396 6.00
Tier 1 capital (to average
assets) 17,449 7.49 9,317 4.00 11,647 5.00
As of December 31, 1997:
Total capital (to risk-
weighted assets) 17,579 20.42 6,888 8.00 8,610 10.00
Tier 1 (capital to risk-
weighted assets) 16,962 19.70 3,444 4.00 5,166 6.00
Tier 1 capital (to average
assets) 16,962 7.59 8,942 4.00 11,178 5.00
As of December 31, 1996:
Total capital (to risk-
weighted assets) 16,322 20.89 6,252 8.00 7,814 10.00
Tier 1 (capital to risk-
weighted assets) 15,716 20.11 3,126 4.00 4,688 6.00
Tier 1 capital (to average
assets) 15,716 7.33 8,573 4.00 10,717 5.00
======= ===== ===== ==== ====== ======
</TABLE>
F-28
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(15) Fair Values of Financial Instruments
The following methods and assumptions were used by the Bank in estimating
its fair value disclosure for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the statements of financial condition
for these assets approximate their fair value.
Investment Securities (Including Mortgage-backed Securities)
Fair values for investment securities are based on quoted market prices.
Loans
Fair values are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk
characteristics.
Deposits
The fair values disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date. The fair value for
certificates of deposit is estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates of deposit to a schedule of aggregate contractual maturities
on such time deposits.
Borrowed Funds
The fair value of borrowed funds is estimated using a discounted cash
flow calculation that applies interest rates currently being offered.
FHLB Stock
The fair value of FHLB stock approximates carrying value.
Off-Balance-Sheet Commitments
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar arrangements and is not
included in the table since it is not significant.
F-29
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(15), Continued
The estimated fair values of the Bank's financial instruments at June 30,
1998, December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
June 30,1998
---------------------- December 31, 1997 December 31, 1996
(Unaudited) --------------------- ------------------------
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 19,528 19,528 15,398 15,398 6,364 6,364
Investment securities - HTM 2,495 2,496 9,666 9,724 12,721 12,599
Investment securities - AFS 11,730 11,730 26,954 26,954 43,211 43,211
Mortgage-backed securities -
HTM 12,794 12,953 14,356 14,522 16,611 16,678
Mortgage-backed securities -
AFS 85,679 85,679 50,099 50,099 19,359 19,359
Loans held for sale - - 750 750 3,756 3,756
Loans receivable, net 104,627 108,741 105,715 108,227 107,959 111,112
FHLB stock 1,949 1,949 1,949 1,949 1,949 1,949
Liabilities:
Deposits 198,602 198,201 193,889 192,776 170,551 170,393
Borrowed funds 25,432 25,548 16,282 16,300 28,400 28,407
========= ========= ========= ========= ========= ========
</TABLE>
The carrying amounts in the preceding table are included in the
statements of financial condition under the applicable captions.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on-balance-sheet financial
instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. The tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
estimates.
F-30
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements, Continued
(16) Plan of Conversion (unaudited)
On June 22, 1998, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a New Jersey chartered mutual savings bank to
a New Jersey chartered stock savings bank. The bank will be a
wholly-owned subsidiary of Ridgewood Financial, Inc. (the Company), a
holding company formed by the Bank, subject to approval by regulatory
authorities. The conversion is expected to be accomplished through the
sale of a minority of the Company's common stock in an amount equal to
the pro forma market value of the Company and the Bank after giving
effect to the conversion. The majority of the shares will be owned by
Ridgewood Financial, MHC (the MHC). A subscription right to subscribe for
the purchase of common stock will be made initially to each depositor of
the Bank who had a deposit account balance of at least $50 as of May
31,1997 ( the "Eligible Account Holders"), the employee stock ownership
plan of the Bank, depositors of the Bank, other than Eligible Account
Holders, whose deposit accounts at the Bank total $50 or more as of
September 30,1998 (the "supplemental eligible account holders"), and
other depositors of the Bank, as of the voting record date.
Any shares of common stock not sold in the subscription offering are
expected to be made available for sale at the same price per share to the
general public in a community offering which may be commenced
simultaneously with the subscription offering; thereafter, remaining
shares, if any, are expected to be sold in a public offering.
Upon a complete liquidation of the Bank after the conversion, the
Company, as holder of the Bank's common stock would be entitled to any
assets remaining upon a liquidation of the Bank. Each depositor would not
have a claim in the assets of the Bank. However, upon a complete
liquidation of the MHC after the conversion, each depositor would have a
claim up to the pro rata value of his or her accounts, in the assets of
the MHC remaining after the claims of the creditors of the MHC are
satisfied. Depositors who have liquidation rights in the Bank immediately
prior to the conversion will continue to have such rights in the MHC
after the conversion for so long as they maintain deposit accounts in the
Bank after the conversion.
Upon a complete liquidation of the Company, each holder of shares of
common stock would be entitled to receive a pro rata share of the
Company's assets, following payment of all debts, liabilities and claims
of greater priority of or against the Company.
Costs to be incurred that are directly associated with the conversion are
to be deferred and are to be deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs
would be charged to expense at the conclusion of the offering process.
F-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
===================================================================== ==========================================================
You should rely only on the information contained in this
document or that to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document does not constitute an offer to sell, or
the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or
solicitation would be unlawful. The affairs of Ridgewood
Savings Bank of New Jersey or Ridgewood Financial, Inc. may
change after the date of this prospectus. Delivery of this
document and the sales of shares made hereunder does not
mean otherwise.
TABLE OF CONTENTS
Page Up to 1,616,095 Shares
---- Common Stock
Questions and Answers...........................
Summary ........................................
Selected Financial and Other Data...............
Risk Factors....................................
Ridgewood Savings Bank of New Jersey............
Ridgewood Financial, Inc........................
Ridgewood Financial, MHC........................
Use of Proceeds.................................
Dividend Policy................................. RIDGEWOOD FINANCIAL, INC.
Wavier of Dividends by the MHC..................
MHC Conversion to Stock Form....................
Market for Common Stock.........................
Capitalization..................................
Pro Forma Data..................................
Historical and Pro Forma Capital Compliance.....
Statements of Income............................
Management's Discussion and Analysis of
Financial Condition and Results of Operations..
Business of the Company......................... ---------------
Business of the Bank............................
Regulation ..................................... PROSPECTUS
Taxation........................................
Management ..................................... ---------------
The Reorganization..............................
The Offering....................................
Certain Restrictions on Acquisition of
the Company....................................
Description of Capital Stock....................
Registration Requirements.......................
Legal and Tax Opinions..........................
Experts.........................................
Change in Auditors.............................. Ryan, Beck & Co.
Registration Requirements.......................
Where You Can Find Additional Information.......
Index to Financial Statements .................
Until the later of __________ ____, 199__ or 25 days after ___________ ____, 1998
commencement of the offering, all dealers effecting transactions in
these securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as THESE SECURITIES ARE NOT DEPOSITS ON
underwriters and with respect to their unsold allotments or ACCOUNTS AND ARE NOT FEDERALLY INSURED
subscriptions. OR GUARANTEED.
===================================================================== ==========================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 14A:3-5 of the New Jersey Business Corporation Act (the "Act")
describes those circumstances under which directors, officers, employees and
agents of the registrant may be insured or indemnified against liability which
they may incur in their capacities as such.
The certificate of incorporation of the registrant (the "Certificate")
attached as Exhibit 3(i) hereto, requires indemnification of directors,
officers, employees or agents of the registrant to the full extent permissible
under New Jersey law.
The registrant may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the registrant
or is or was serving at the request of the registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the registrant would have the power to indemnify such
person against such liability under the provisions of the Act or of the
Certificate.
Item 25. Other Expenses of Issuance and Distribution
* Legal Fees - Company Counsel............................ $100,000
* Underwriter's counsel and expenses...................... 45,000
* Courier, Messenger, Postage and Mailing................. 20,000
* Printing................................................ 40,000
* Business Plan and Appraisal............................. 24,000
* Underwriting fees....................................... 150,000
* Transfer Agent fees..................................... 10,000
* Conversion agent........................................ 20,000
* Auditing and accounting fees and expenses............... 100,000
* Filing fees............................................. 22,000
* EDGAR................................................... 10,000
* Stock Certificate....................................... 5,000
* Blue Sky legal fees and other expenses.................. 15,000
* Other expenses.......................................... 39,000
-------
* Total.......................................... $600,000
=======
- -----------------
* Estimated at the mid-point of the offering range.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
<TABLE>
<CAPTION>
The exhibits filed as part of this Registration Statement are as follows:
<S> <C>
1 Form of Sales Agency Agreement with Ryan, Beck & Co.*
2 Plan of Reorganization and Stock Issuance
3(i) Certificate of Incorporation of Ridgewood Financial, Inc.
3(ii) Bylaws of Ridgewood Financial, Inc.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities
registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.3 Opinion of FinPro, Inc. as to the value of subscription rights
10.1 Employment Agreement with Susan E. Naruk
10.2 Employment Agreement with Nelson Fiordalisi
10.3 Employment Agreement with John Scognamiglio
10.4 Employment Agreement with Jean Miller
10.5 Supplemental Executive Retirement Plan
16 Letter of Dorfman, Abrams, Music & Co.
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed
as Exhibits 5.1, 8.1 and 8.2)
23.2 Consent of KPMG Peat Marwick, LLP
23.3 Consent of FinPro, Inc.
23.4 Consent of Dorfman, Abrams, Music & Co.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Marketing Material
99.2 Appraisal
</TABLE>
--------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the
<PAGE>
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer 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
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Ridgewood, New
Jersey, on August 27, 1998.
RIDGEWOOD FINANCIAL, INC.
By: /s/Susan E. Naruk
-----------------------------------------------
Susan E. Naruk
President, Director and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of Ridgewood Financial, Inc.
do hereby severally constitute and appoint Susan E. Naruk our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Susan E. Naruk may deem
necessary or advisable to enable Ridgewood Financial, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Ridgewood Financial, Inc.'s
common stock, including specifically but not limited to, power and authority to
sign for us or any of 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 ratify and confirm all that Susan E. Naruk
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of August 27, 1998.
By: /s/Susan E. Naruk By: /s/Bernard J. Hoogland
--------------------------------------- -------------------------------
Susan E. Naruk Bernard J. Hoogland
President, Director and Chief Director
Executive Officer
By: /s/Nelson Fiordalisi By: /s/John Kandravy
--------------------------------------- -------------------------------
Nelson Fiordalisi John Kandravy
Executive Vice President, Director Director
and Chief Operating Officer
By: /s/John Scognamiglio By: /s/Robert S. Monteith
--------------------------------------- -------------------------------
John Scognamiglio Robert S. Monteith
Senior Vice President, Chief Financial Director
and Accounting Officer
By: /s/Michael W. Azzara By: /s/John J. Repetto
--------------------------------------- -------------------------------
Michael W. Azzara John J. Repetto
Director Director
By: /s/Jerome Goodman By: /s/Paul W. Thornwall
--------------------------------------- -------------------------------
Jerome Goodman Paul W. Thornwall
Director Director
EXHIBIT 2
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION AND STOCK ISSUANCE
FROM A STATE MUTUAL SAVINGS BANK
TO A STATE MUTUAL SAVINGS BANK HOLDING COMPANY
OF
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
ADOPTED BY THE BOARD OF DIRECTORS
ON
June 22, 1998
as amended July 27, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Introduction........................................................ 1
2. Definitions......................................................... 1
3. Business Purposes for the Reorganization............................ 7
4. Method of Reorganization and Certain Effects of the Reorganization.. 8
5. Conditions to Implementation of the Reorganization..................11
6. Ratification by Depositors..........................................12
7. Stock Offering Documents............................................12
8. Stock Offering......................................................13
9. Subscription Rights of Eligible Account Holders (First Priority)....14
10. Subscription Rights of Employee Plans (Second Priority).............15
11. Subscription Rights of Supplemental Eligible Account Holders
(Third Priority)..................................................15
12. Subscription Rights of Current Depositors (Fourth Priority).........16
13. Community Offering..................................................16
14. Public Offering and Syndicated Public Offering......................17
15. Limitation on Purchases............................................ 18
16. Payment for Common Stock............................................20
17. Manner of Exercising Subscription Rights Through Order Forms........21
18. Undelivered, Defective or Late Order Forms: Insufficient Payment....22
19. Restrictions on Resale or Subsequent Disposition....................23
<PAGE>
20. Certificate of Incorporation and Bylaws of the Mutual
Holding Company....................................................23
21. Certificate of Incorporation and Bylaws of the Stock Holding
Company............................................................23
22. Certificate of Incorporation and Bylaws of the Stock Bank...........24
23. Status of Deposit Accounts and Loans Subsequent to Reorganization.. 24
24. Minority Stock Offering.............................................24
25. Conversion of Mutual Holding Company to Stock Form..................24
26. Interpretation......................................................25
27. Amendment or Termination of the Plan................................26
<PAGE>
1. Introduction
The Board of Directors of Ridgewood Savings Bank of New Jersey (the
"Bank") has adopted this Plan of Reorganization and Stock Issuance from a State
Mutual Savings Bank to a State Mutual Savings Bank Holding Company (the "Plan")
pursuant to which the Bank proposes to reorganize from a New Jersey-chartered
mutual savings bank into the mutual holding company structure (the
"Reorganization") pursuant to the laws of the State of New Jersey, the
regulations of the Commissioner, the regulations of the FDIC, and other
applicable laws and regulations. A principal part of the Reorganization is (i)
the formation of the Mutual Holding Company as a New Jersey state mutual savings
bank holding company (ii) the formation of a capital stock corporation as a
wholly owned subsidiary of the Mutual Holding Company (the "Stock Holding
Company"), and (iii) the conversion of the Bank to a New Jersey-chartered state
stock savings bank (the "Stock Bank") which will be a wholly owned subsidiary of
the Stock Holding Company as long as the Mutual Holding Company is in existence.
Subsequent to the Reorganization, the Mutual Holding Company will always own at
least a majority of the Stock Holding Company's common stock so long as the
Mutual Holding Company is in existence.
In adopting the Plan, the Board of Directors has determined that the
Reorganization is advisable and in the best interests of the Bank, its
depositors and the community. The Reorganization is subject to the approval of
the Commissioner and the FRB and the non- objection of the FDIC, and must be
adopted by a two-thirds vote of the Board of Directors. In addition, the
Reorganization is subject to ratification by the Depositors of the Bank.
2. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
Account Holder: The term Account Holder means any Person
holding a Savings Account in the Bank.
Acting in Concert: The Term "Acting in Concert" means (i)
knowing participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not pursuant to an express agreement;
(ii) a combination or pooling of 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; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated. In addition, two or more Persons who have a joint
account will be deemed to be acting in concert.
Associate: The term Associate when used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the Bank or a majority-owned subsidiary of the Bank) of which such person
is an officer or partner or is, directly or indirectly,
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the beneficial owner of 10 percent 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 except that for the purposes of Sections 10 and 15 hereof, the term
"Associate" does not include any Tax-Qualified Employee Stock Benefit Plan or
any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
held by Officers and Directors the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan, and (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 or the Holding Company, or
any of its parents or subsidiaries.
Bank: Ridgewood Savings Bank of New Jersey.
BHCA: The Bank Holding Company Act of 1956, as amended.
BHCA Application: The application filed with the FRB to
obtain FRB approval of acquisition of the Bank by the Mutual Holding Company and
the Stock Holding Company.
BMA: The Bank Merger Act.
Capital Stock: Any and all authorized stock of the Stock
Holding Company.
Certificate of Incorporation of the Bank: The Bank's New
Jersey mutual savings bank certificate of incorporation.
Certificate of Incorporation of the Mutual Holding Company:
The Mutual Holding Company's New Jersey mutual savings bank holding company
certificate of incorporation.
Certificate of Incorporation of the Stock Holding Company:
The certificate of incorporation of the Stock Holding Company.
Commissioner: The Commissioner of Banking and Insurance of
the State of New Jersey.
Common Stock: Common Stock issued by the Stock Holding
Company.
Community Offering: The term Community Offering, if
applicable, means the offering for sale to certain members of the general public
directly by the Stock Bank, of any shares not subscribed for in the Subscription
Offering.
Current Depositors: Persons who have a Savings or Deposit
Account of at least $50 at the Bank as of the Date of Record.
Date of Record: The date established by the Bank for
determining which Depositors are given the opportunity to vote on the
ratification of Plan.
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Department: The New Jersey Department of Banking and
Insurance.
Deposit Account(s): Withdrawable deposit(s) in the Bank,
including certificates of deposit and demand accounts.
Depositor: Each holder of a Deposit Account as of the Date of
Record established by the Board of Directors.
Effective Date: The Effective Date of the Reorganization,
which shall be the date of consummation of the Reorganization and Offering in
accordance with this Plan and the applicable rules and regulations.
Eligible Account Holder: The term Eligible Account Holder
means any Person holding a Qualifying Deposit in a Savings Account at the Bank
on the Eligibility Record Date.
Eligibility Record Date: The term Eligibility Record Date
means the date for determining Eligible Account Holders in the Bank and is the
close of business on May 31, 1997.
Employee: A person who is an Employee of the Bank at the date
of the Reorganization.
Employee Plans: The term Employee Plans means the
Tax-Qualified Employee Stock Benefit Plans, including the Employee Stock
Ownership Plan, approved by the Board of Directors of the Bank.
Estimated Valuation Range: The term Estimated Valuation Range
means the range of the estimated pro forma market value of the Common Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
ESOP: An employees' stock ownership plan with its related
trust, that meets the requirements to be "qualified" under Section 401 of the
Internal Revenue Code of 1986, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
HOLA: The Home Owners' Loan Act of 1933, as amended.
Independent Appraiser: The term Independent Appraiser means
an appraiser retained by the Bank to prepare an appraisal of the pro forma
market value of the Common Stock.
Interim: The New Jersey interim stock savings bank organized
by the Mutual Holding Company in order to consummate the Reorganization.
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Local Community: The term local community means the
incorporated cities and the counties in which the Bank has offices.
Majority Interest: Greater than fifty percent (50%) of the
combined voting power or value of all classes of stock of the Stock Holding
Company.
Merger Application: The application filed with the FDIC to
obtain FDIC approval of the Reorganization.
Minority Ownership Interest: The percentage representing the
number of shares of common stock of the Stock Holding Company held by persons
other than the Mutual Holding Company divided by the total number of shares of
common stock of the Stock Holding Company outstanding.
Minority Stock Offering: One or more offers and sales of
common stock by the Stock Holding Company, after which offering the Mutual
Holding Company continues to own a majority of the outstanding shares of Voting
Stock of the Stock Holding Company.
Minority Stockholder: Any owner of the Stock Holding
Company's common stock other than the Mutual Holding Company.
Mutual Holding Company: The state-chartered mutual savings
bank holding company organized in the Reorganization.
Mutual Bank: Ridgewood Savings Bank of New Jersey in the
mutual form of organization.
New Jersey Application: The notice or application filed with
the Department to obtain the Department approval of the Reorganization.
Non-Voting Stock: Non-Voting Stock means any Capital Stock
other than Voting Stock.
Notice of Reorganization: The Notice of Mutual Holding
Company Reorganization, to be submitted by the Bank to the Department to notify
the Department of the Reorganization.
Officer: An executive officer of the Bank which includes the
Chairman, President, Chief Executive Officer, Executive Vice President, Senior
Vice President and Vice Presidents in charge of principal business functions,
and any other person participating in major policy making functions of the Bank.
4
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Order Form: The term Order Form means any form together with
attached cover letter, sent by the Bank to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Common Stock in the Subscription and Community Offerings.
Participants: The term Participants means the Eligible
Account Holders, Employee Plans, Supplemental Eligible Account Holders and
Current Depositors.
Person: An individual, a corporation, a partnership, an
association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan: This Plan of Reorganization from a State Mutual Savings
Bank to a State Mutual Savings Bank Holding Company, pursuant to which the Bank
shall organize a mutual holding company structure and become the wholly owned
subsidiary of the Stock Holding Company, and an indirect subsidiary of the
Mutual Holding Company.
Preferred Stock: Preferred Stock authorized pursuant to the
Stock Holding Company's articles of incorporation.
Public Offering: The term Public Offering means the offering
for sale through the Underwriter to the general public of any shares of Common
Stock not subscribed for in the Subscription Offering.
Purchase Price: The term Purchase Price means the per share
price at which the Common Stock will be sold in accordance with the terms
hereof.
Qualifying Deposit: The term Qualifying Deposit means the
balance of each Savings Account of $50 or more in the Bank at the close of
business on the Eligibility Record Date or Supplemental Eligibility Record Date.
Savings Accounts with total deposit balances of less than $50 shall not
constitute a Qualifying Deposit.
Reorganization: The reorganization of the Bank into the
mutual holding company structure and the creation of the Mutual Holding Company,
the Stock Bank and the Stock Holding Company pursuant to this Plan.
SAIF: The Savings Association Insurance Fund, which is
administered by the FDIC.
Savings Account(s): Withdrawable deposits in the Bank
including certificates of deposit and demand accounts.
SEC: The Securities and Exchange Commission.
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Special Meeting of Depositors: The Special Meeting of
Depositors and any adjournment thereto, which may be called for the purpose of
ratifying the Plan.
Stock Bank: The newly organized New Jersey-chartered stock
savings bank established as part of the Reorganization and which will be wholly
owned by the Stock Holding Company.
Stock Holding Company: The capital stock corporation that
will own 100% of the Stock Bank's common stock and initially will be wholly
owned by the Mutual Holding Company.
Subscription Offering: The term Subscription Offering means
the offering of Common Stock of the Stock Holding Company for purchase through
Order Forms to Participants.
Supplemental Eligibility Record Date: The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the Department.
Supplemental Eligible Account Holder: The term Supplemental
Eligible Account Holder means a holder of a Qualifying Deposit in the Bank
(other than an officer or director or their Associates) at the close of business
on the Supplemental Eligibility Record Date.
Syndicated Community Offering: The term Syndicated Community
Offering means the offering of Common Stock following the Subscription and
Community Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan: The term
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which, with its related trust, meets
the requirements to be "qualified" under Section 401 of the Internal Revenue
Code.
Underwriter: The term Underwriter means the investment
banking firm or firms through which the Common Stock will be offered and sold in
the Public Offering.
Voting Stock:
(1) Voting Stock means common stock or preferred stock, or
similar interests if the shares by statute, certificate of incorporation or in
any manner, entitle the holder: (i) to vote for or to select directors of the
issuer; and (ii) to vote on or to direct the conduct of the operations or other
significant policies of the issuer.
(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
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<PAGE>
additional amounts or classes of senior securities, the modification of the
terms of the preferred stock, the dissolution of the issuer, or the payment of
dividends by the issuer 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
(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 issuer.
(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. Business Purposes for the Reorganization
The Bank has 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 the
majority of savings banks and savings associations. Formation of the Stock Bank
as a wholly owned capital stock savings bank subsidiary of the Stock Holding
Company will permit the Stock Holding Company to issue Capital Stock and infuse
the proceeds into the Stock Bank, 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 Mutual Holding Company, and the Mutual Holding Company, as a
mutual corporation, will at all times control at least a majority of the Voting
Stock of the Stock Holding Company so long as the Mutual Holding Company remains
in existence. The Reorganization will enable the Bank to achieve many of the
benefits of a stock company without a loss of control and independence that
sometimes follows standard conversions from mutual to stock form. The Bank is
committed to being an independent community-oriented institution, and to meeting
the financial and credit needs of the communities in which it operates. The
Board of Directors believes that the mutual holding company structure is best
suited for this purpose, particularly since standard mutual-to-stock conversions
often result in the sale of locally based savings institutions to larger
regional commercial banks.
Formation of the Stock Holding Company is expected to facilitate
acquisitions and the diversification of the Bank's activities, although the Bank
currently has no diversification or acquisition plans. The Stock Holding Company
will have the ability to acquire other financial institutions and non-financial
institutions which may be owned and operated separate from the Bank. For
economic, legal liability and tax purposes, it may also be advantageous to have
assets held by the Stock Holding Company instead of the Bank.
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The mutual holding company structure will give the Stock Holding
Company flexibility to issue Capital Stock in Minority Stock Offerings at
various times and in varying amounts as market conditions permit, rather than in
a single stock offering. This will better enable the Stock Holding Company to
reinvest the proceeds of any such Minority Stock Offering in a safe and sound
manner. The sale of Capital Stock at appropriate times, coupled with the
accumulation of earnings (net of dividends) from year to year, represents a
means for the orderly preservation and expansion of the Bank's capital base, and
allows flexibility to respond to sudden and unanticipated capital needs.
The formation of the Mutual Holding Company will allow the Mutual
Holding Company and/or the Stock Holding Company to borrow funds, on a secured
and unsecured basis, and to issue debt to the public or in a private placement.
The proceeds of any such borrowings or debt issuance may be contributed to the
Stock Bank as core capital for regulatory capital purposes. No determination has
been made to borrow funds or issue debt at the present time, and there can be no
assurance when, if ever, any such borrowing or debt issuance would occur, or
whether it would be consummated on terms satisfactory to the Mutual Holding
Company or the Stock Holding Company.
4. Method of Reorganization and Certain Effects of the Reorganization
A. Organization of the Mutual Holding Company, the Stock Holding
Company and the Stock Bank.
A principal part of the Reorganization will be the organization of the
Stock Bank which will be a wholly owned subsidiary of the Stock Holding Company.
The Reorganization is expected to be effected in the following manner, or in any
manner approved by the Commissioner that is consistent with the purposes of this
Plan and applicable laws and regulations.
1. The Bank will organize the Mutual Holding Company, which will
initially exist as an interim stock subsidiary of the Bank.
2. The Mutual Holding Company will organize the Stock Holding
Company under state law as a wholly owned subsidiary.
3. The Mutual Holding Company will organize Interim as a wholly
owned New Jersey stock savings bank subsidiary.
4. The Bank will convert to the capital stock form of
organization by exchanging its charter for that of a New
Jersey stock savings bank (becoming the Stock Bank).
5. Interim will merge with and into the Stock Bank with the Stock
Bank as the surviving entity, and the Mutual Holding Company
will become sole stockholder of the Stock Bank.
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6. The Mutual Holding Company will contribute the capital stock
of the Stock Bank to the Stock Holding Company, and the Stock
Bank will become a wholly owned subsidiary of the Stock
Holding Company.
Based upon tax, regulatory, economic or other business reasons, the
Reorganization can eliminate the Middle-Tier Stock Holding Company or otherwise
be revised without any further depositor ratification. At the conclusion of the
Reorganization, the Stock Bank will be the wholly owned subsidiary of the Stock
Holding Company, and the Stock Holding Company will be wholly owned by the
Mutual Holding Company.
B. Ownership and Operation of the Mutual Holding Company
The Mutual Holding Company will be a mutual corporation organized under
New Jersey law. As a mutual corporation, the Mutual Holding Company will have no
stockholders. The Mutual Holding Company will own between 50.1% and 100% of the
Voting Stock of the Stock Holding Company, and will be required to own at least
a majority of the Voting Stock of the Stock Holding Company so long as the
Mutual Holding Company remains in existence. The Mutual Holding Company will
have a board of directors which is expected initially to consist of all of the
members of the board of directors of the Bank. It is expected that management of
the Mutual Holding Company will consist initially of the senior management
person of the Bank.
The rights and powers of the Mutual Holding Company will be defined by
the Mutual Holding Company's Certificate of Incorporation and Bylaws and by the
statutory and regulatory provisions applicable to bank holding companies under
Federal and New Jersey law. Depositors who have liquidation rights in the Bank
immediately prior to the Reorganization will continue to have such rights in the
Mutual Holding Company after the Reorganization for so long as they maintain
deposit accounts in the Stock Bank after the Reorganization. Initially, the sole
business of the Mutual Holding Company will be the ownership of at least a
majority of the voting stock of the Stock Holding Company. The Board of
Directors will continue to have the sole voting rights to govern the Mutual
Holding Company, just as they do now for the Bank.
The Bank will apply to the Commissioner to have the Mutual Holding
Company receive or retain (as the case may be) up to $500,000, in connection
with the Reorganization. The Stock Holding Company may distribute additional
capital to the Mutual Holding Company following the Reorganization subject to
applicable state and federal regulations regarding capital distributions.
C. Ownership and Operation of the Stock Holding Company
The Stock Holding Company will be a capital stock corporation organized
under New Jersey law. The Mutual Holding Company initially will be the sole
stockholder of the Stock Holding Company, and so long as the Mutual Holding
Company is in existence, the Mutual Holding Company will be required to own at
least a majority of the Voting Stock of the Stock Holding Company. However, the
Stock Holding Company may issue any amount of Non-Voting Stock to persons other
than the Mutual Holding Company, and will be authorized to undertake one or more
Minority Stock Offerings provided the aggregate amount of Voting Stock sold in
such Minority Stock Offerings of less than a majority in the aggregate of the
total outstanding
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Voting Stock of the Stock Holding Company, subject to any required regulatory
approvals. The Stock Holding Company will own 100% of the Voting Stock of the
Stock Bank so long as the Mutual Holding Company is in existence.
The initial members of the board of directors of the Stock Holding
Company will be the existing members of the board of directors of the Bank.
Thereafter, the holders of shares of the Stock Holding Company's Voting Stock
will elect the members of the Board of Directors of the Stock Holding Company
for three year terms with approximately one-third of the members of the Stock
Holding Company's board of directors elected annually.
The Stock Holding Company will be able to exercise all of the powers
authorized to a New Jersey corporation, subject to the restrictions applicable
to savings bank holding companies under the BHCA and New Jersey law. Initially,
the sole business activity of the Stock Holding Company will be the ownership of
100% of the Voting Stock of the Bank.
The Bank will apply to the Commissioner to have the Stock Holding
Company receive or retain (as the case may be) up to $500,000 in connection with
the Reorganization. The Stock Bank may distribute additional capital to the
Stock Holding Company following the Reorganization, subject to applicable state
and Federal regulations governing capital distributions.
D. Ownership and Operation of the Stock Bank
The Stock Bank will be a capital stock savings bank organized under New
Jersey Law. The initial members of the Board of Directors of the Stock Bank will
be the existing Board of Directors of the Bank. Thereafter, the Stock Holding
Company, as the sole stockholder of the Stock Bank, will elect the members of
the Stock Bank's Board of Directors for three year terms with approximately
one-third of the directors up for election each year. The present management of
the Bank will continue as the management of the Stock Bank following the
Reorganization.
The Stock Bank will be authorized to exercise any and all powers,
rights and privileges of, and shall be subject to all limitations applicable to,
capital stock savings banks under New Jersey law. The Reorganization will not
result in any reduction of the amount of retained earnings (other than the
assets of the Bank retained by, or distributed to, the Mutual Holding Company or
the Stock 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 Mutual Holding Company, the Stock
Holding Company and the Stock Bank on a consolidated basis in accordance with
generally accepted accounting principles.
All insured deposit accounts of the Stock Bank will continue to be
federally insured up to the legal maximum by the FDIC in the same manner as
deposit accounts existing in the Bank immediately prior to 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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So long as the Mutual Holding Company is in existence, the Stock
Holding Company will be required to own 100% of the Voting Stock of the Stock
Bank. The Stock Bank may issue any amount of Non-Voting Stock to persons other
than the Stock Holding Company.
5. 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 two thirds of
the Board of Directors of the Bank.
B. Ratification of the Plan by the Depositors at the Special Meeting of
Depositors.
C. Approval by the Commissioner of the Plan, the certificate of
incorporation and bylaws of the Stock Bank and the Mutual
Holding Company, and all other transactions contemplated by
the Plan for which approval is required by the Commissioner.
D. Submission of the FDIC 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 Stock Holding
Company to become a bank holding company by owning or
acquiring 100% of the common stock of the Stock Bank to be
issued in connection with the Reorganization.
F. Approval by the FRB pursuant to the BHCA for the Mutual
Holding Company to become a bank holding company by owning or
acquiring 100% of the common stock of the Stock Holding
Company to be issued in connection with the Reorganization.
G. Approval by the FDIC pursuant to the BMA of the merger of
Interim with the Stock Bank or the transfer by the Bank to the
Stock Bank of substantially all of the Bank's assets and all
of its liabilities, including all of the deposit accounts of
the Bank, and if necessary approval by the FDIC of insurance
of accounts of the Stock Bank.
H. 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 Mutual Holding Company, the Stock
Holding Company, the Stock Bank and the Bank.
I. Receipt by the Bank of either a private letter ruling of the
New Jersey Department of Revenue or an opinion of counsel or
the Bank's independent public accountants as to the New Jersey
income tax consequences of the Reorganization to the
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Mutual Holding Company, the Stock Holding Company, the Stock
Bank and the Bank.
J. For regulatory, economic, timing or other business reasons,
the Board of Directors may elect to eliminate the Stock
Holding Company, as a middle tier, between the Mutual Holding
Company and Stock Bank.
The Bank intends to consummate the Reorganization as soon as possible
after all of the above approvals are obtained.
6. Ratification by Depositors
Pursuant to the laws of the State of New Jersey, the voting rights of
the Bank are held exclusively by the Board of Directors, which is required to
adopt the Plan by a vote of not less than two-thirds of its entire membership.
The FDIC has issued Regulations, under which all state savings banks are
generally required to have plans to reorganize from mutual to stock form
approved by Depositors. Accordingly, the Bank is expected to seek special
proxies from depositors to ratify the Plan. Subsequent to the approval of the
Plan by the Department, a Special Meeting of Depositors is expected to be
scheduled. At least ten days but not more than sixty days prior to the Special
Meeting, the Savings Bank is expected to distribute proxy solicitation materials
to all Depositors as of a Date of Record twenty to sixty days prior to the
Special Meeting.
Each Depositor as of the Date of Record shall receive one vote for
every $100 of deposits at the Bank. The Bank shall seek ratification of the Plan
by an affirmative vote of not less than a majority of the votes outstanding.
7. Stock Offering Documents
The Stock Holding Company and Bank intend to commence a Minority Stock
Offering concurrent with the formation of the Mutual Holding Company. The Stock
Holding Company and the Bank may also commence one or more stock offerings
following the Reorganization. The Stock Holding Company and the Bank may close
the Minority Stock Offering before the Effective Date, provided that the offer
and sale of the Common Stock shall be conditioned upon the receipt of all
required regulatory approvals and depositor ratification. The Bank may send
Participants a Summary of the Reorganization and require Participants, to return
to the Bank by a reasonable date certain a postage prepaid card or other written
communication requesting receipt of the Stock Offering Prospectus. The Stock
Holding Company and Bank shall not distribute the final Minority Stock Offering
Prospectus until such Offering Prospectus has been approved for use by the
Department.
Any shares of Common Stock sold in the Minority Stock Offering that are
not subscribed for in the Subscription Offering may be offered for sale in the
Community Offering, if any, as provided in this Plan and may be offered in a
Public Offering or Syndicated Public Offering, as provided herein, if necessary
and feasible. The Subscription Offering may be commenced prior to the Special
Meeting of Depositors and, in that event, the Community Offering, if any, or
Public Offering may also be commenced prior to the Special Meeting of
Depositors.
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The Stock Holding Company and Bank may elect to pay fees on either a
fixed fee or commission basis or combination thereof to an investment banking
firm which assists it in the sale of the Common Stock in the Minority Stock
Offering.
The Stock Holding Company and Bank may also elect to offer to pay fees
on a per share basis to brokers who assist Persons in determining to purchase
shares in the Syndicated Public Offering.
8. Stock Offering
A. Number of Shares. The number of shares and price per share of Common
Stock to be offered pursuant to the Plan shall be initially determined by the
Board of Directors of the Bank in conjunction with the determination of the
Independent Appraiser. The number of shares to be offered will be on a
minimum-maximum basis within a range determined by the Board of Directors (the
"Offering Range") and may be adjusted at or immediately subsequent to the
completion of the Minority Stock Offering without notifying Participants and
without a resolicitation of subscriptions. The number of shares to be offered or
Offering Range may be subsequently adjusted at or immediately subsequent to the
completion of the Minority Stock Offering for any reason, including a change in
the appraisal. The total number of shares of Common Stock that may be issued to
persons other than the Mutual Holding Company at the close of the Minority Stock
Offering must be less than 50% of the issued and outstanding shares of the Stock
Bank.
B. Independent Evaluation and Purchase Price of Shares. All shares of
Common Stock sold in the Minority Stock Offering shall be sold at a uniform
price per share, referred to in this Plan as the "Purchase Price". The Purchase
Price and number of shares shall be determined by the Board of Directors of the
Bank immediately prior to the simultaneous completion of all such sales
contemplated by this Plan on the basis of the estimated pro forma market value
of the Bank and the fact that the shares offered represent a minority interest
in the Stock Bank (the "Independent Evaluation"). Therefore, the Independent
Evaluation and the resulting Purchase Price may reflect a discount to the
valuation applied to a standard mutual-to-stock conversion. The aggregate
purchase price for the Common Stock will not be inconsistent with such market
value of the Bank. The Independent Evaluation of the Bank shall be determined
for such purpose by an Independent Appraiser on the basis of such appropriate
factors as are not inconsistent with Department regulations. The total amount of
Common Stock that may be issued to persons other than the Mutual Holding Company
must be less than 50% of the outstanding stock of the Stock Holding Company. The
Common Stock to be issued in the Minority Stock Offering shall be fully paid and
nonassessable.
C. Minority Ownership Percentage. Based upon the Independent
Appraiser's valuation of the Bank as updated prior to the commencement of the
Minority Stock Offering, the Board of Directors will establish the minimum and
maximum ownership percentage applicable to the Minority Stock Offering
("Ownership Range"). The final minority ownership percentages or interest will
be determined by the Bank as follows: (a) the product of (x) the total number of
shares of Common Stock to be issued and sold and (y) the Purchase Price shall be
by divided by (b) the estimated aggregate pro forma market value of the Bank
immediately after the Minority Stock Offering as determined by the Independent
Appraiser, expressed in
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terms of a specific aggregate dollar amount upon the closing of the Minority
Stock Offering or sale of all the Common Stock.
D. Method of Offering Shares. Subject to the discretion of the Bank and
the limitations set forth herein, the opportunity to purchase Common Stock will
be given at no cost to: (i) Eligible Account Holders, (ii) Tax-Qualified
Employee Plans, (iii) Supplemental Eligible Account Holders, and (iv) Current
Depositors pursuant to priorities established by the Board of Directors. The
Minority Stock Offering shall be conducted on a minimum-maximum basis, setting
forth the minimum and maximum amount of stock that must be offered and sold
before closing. The Bank and the Stock Holding Company, in their absolute
discretion, have the right to refuse in part or in whole any order for stock
sold in the Minority Stock Offering either at the time of receipt or as soon as
practicable following the termination of the Minority Stock Offering in
accordance with the Plan of Reorganization. No person shall be allowed to
purchase the lesser of 100 shares or $1,000 of Common Stock. The Bank shall be
entitled to retain an adviser and pay fees to assisting brokers in connection
with the Minority Stock Offering. The shares of Common Stock may be offered on a
minimum - maximum basis. The priorities for the purchase of Common Stock are as
set forth below:
9. Subscription Rights of Eligible Account Holders (First Priority)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Common Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Common Stock offered; or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 15 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 15 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Common Stock in excess of the total number of
such shares eligible for subscription, the shares of Common Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Common Stock
equal to the lesser of 100 shares or the number of shares subscribed for by the
Eligible Account Holder. Any shares remaining after that allocation will be
allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
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C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
10. Subscription Rights of Employee Plans (Second Priority)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 9, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Common Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 15.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Stock
Holding Company or the Bank.
11. Subscription Rights of Supplemental Eligible Account Holders (Third
Priority)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the application filed prior to
Department approval, then, and only in that event, each Supplemental Eligible
Account Holder shall receive, without payment, nontransferable subscription
rights entitling such Supplemental Eligible Account Holder to purchase that
number of shares of Common Stock which is equal to the greater of: (i) the
maximum purchase limitation established for the Community Offering; (ii)
one-tenth of 1% of the Common Stock Offered; and (iii) or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Common Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders. All such purchases are subject to the
maximum and minimum purchase limitations in Section 15 and are exclusive of an
increase in the total number of shares issued due to an increase in the maximum
of the Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Common Stock received
by an Eligible Account Holder in accordance with Section 9 shall reduce to the
extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Common Stock
pursuant to this Section, shares of Common Stock shall be allocated among the
subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Common Stock shall be
allocated so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to
purchase a number of shares of Common Stock
sufficient to make his
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total allocation (including the number of shares of
Common Stock, if any, allocated in accordance with
Section 9) equal to 100 shares of Common Stock or the
total amount of his subscription, whichever is less.
(2) Any shares of Common Stock not allocated
in accordance with subparagraph (1) above shall be
allocated among the subscribing Supplemental Eligible
Account Holders on an equitable basis, related to the
amounts of their respective Qualifying Deposits as
compared to the total Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders.
12. Subscription Rights of Current Depositors (Fourth Priority)
A. Each Current Depositor shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Common Stock in
an amount equal to the greater of the maximum purchase limitation established
for the Community Offering or one-tenth of one percent of the Common Stock
offered, subject to the maximum and minimum purchase limitations specified in
Section 15 and exclusive of an increase in the total number of shares issued due
to an increase in the maximum of the Estimated Valuation Range of up to 15%,
which will be allocated only after first allocating to Eligible Account Holders,
the Employee Plans and Supplemental Eligible Account Holders all shares of
Common Stock subscribed for pursuant to Sections 9, 10 and 11 above.
B. In the event that such Current Depositors subscribe for a number of
shares of Common Stock which, when added to the shares of Common Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Common Stock being issued, the subscriptions of such Current Depositors will
be allocated among the subscribing Current Depositors so as to permit each
subscribing Current Depositor, to the extent possible, to purchase a number of
shares sufficient to make his total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Current
Depositor. Any shares remaining will be allocated among the subscribing Current
Depositors whose subscriptions remain unsatisfied on a 100 shares (or whatever
lesser amount is available) per order basis until all orders have been filled or
the remaining shares have been allocated.
13. Community Offering
If less than the total number of shares of Common Stock to be
subscribed for in the Minority Offering are sold in the Subscription Offering,
it is expected that shares remaining unsubscribed may be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to that number of shares of Common Stock as shall equal $100,000
divided by the Purchase Price per share, subject to the maximum and minimum
purchase limitations specified in Section 15 and exclusive of an increase in the
total number of shares issued due to an increase in the maximum of the Estimated
Valuation Range of up to 15%. The shares may be made available in the Community
Offering through a direct community marketing program which may provide for
utilization of a broker, dealer, consultant or investment banking
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firm, experienced and expert in the sale of savings institution securities. In
the Community Offering, if any, shares will be available for purchase by the
general public with preference given first to natural persons residing in the
Local Community and second, to natural person residing in the State of New
Jersey ("Community Purchasers"). The Bank shall make distribution of the Common
Stock to be sold in the Community Offering in such a manner as to promote a wide
distribution of Common Stock.
If the Community Purchasers in the Community Offering (if any), whose
orders would otherwise be accepted, subscribe for more shares than are available
for purchase, the shares available to them will be allocated among persons
submitting orders in the Community Offering in an equitable manner as determined
by the Board of Directors. The Bank may establish all terms and conditions of
such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to Community Purchases. The Community Offering, if any,
must be completed within 45 days after the completion of the Subscription
Offering unless otherwise extended by the Department.
The Bank, in its absolute discretion, reserves the right to reject any
or all orders in whole or in part which are received in the Community Offering,
at the time of receipt or as soon as practicable following the completion of the
Community Offering.
14. Public Offering and Syndicated Public Offering
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may then be sold through the Underwriter to the
general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Trustees
of the Bank, in a manner that will achieve the widest distribution of the Common
Stock and subject to the right of the Bank, in its absolute discretion, to
accept or reject in whole or in part all subscriptions in the Public Offering.
In the Public Offering, if any, any person together with any Associate or group
of persons Acting in Concert may purchase up to the maximum purchase limitation
established for the Community Offering, subject to the maximum and minimum
purchase limitations specified in Section 15 and exclusive of an increase in the
total number of shares issued due to an increase in the maximum of the Estimated
Valuation Range of up to 15%. Shares purchased by any Person together with any
Associate or group of persons Acting in Concert pursuant to Section 13 shall be
counted toward meeting the maximum purchase limitation specified for this
Section. Provided that the Subscription Offering has commenced, the Bank may
commence the Public Offering at any time after the mailing to the Current
Depositors of the Proxy Statement to be used in connection with the Special
Meeting of Depositors, provided that the completion of the offer and sale of the
Common Stock shall be conditioned upon the ratification of this Plan by the
Current Depositors. It is expected that the Public Offering, if any, will
commence just prior to, or as soon as practicable after, the termination of the
Subscription Offering. The Public Offering shall be completed within 45 days
after the termination of the Subscription Offering, unless such period is
extended as provided above.
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Shares of Common Stock not subscribed for in the Subscription Offering,
Community Offering, if any, and Public Offering may be sold in a Syndicated
Public Offering, subject to such terms, conditions and procedures as may be
determined by the Boards of Trustees of the Bank, in a manner that will achieve
the widest distribution of the Common Stock subject to the right of the Bank and
the Underwriter, in their absolute discretion, to accept or reject in whole or
in part all subscriptions in the Syndicated Public Offering. In the Syndicated
Public Offering, any person together with any Associate or group of persons
Acting in Concert may purchase up to the maximum purchase limitation established
for the Public Offering, subject to the maximum and minimum purchase limitations
specified in Section 15 and exclusive of an increase in the total number of
shares issued due to an increase in the maximum of the Estimated Valuation Range
of up to 15%. Shares purchased by any Person together with any Associate or
group of persons Acting in Concert pursuant to Section 13 shall be counted
toward meeting the maximum purchase limitation specified for this Section.
Provided that the Subscription Offering has commenced, the Bank may commence the
Syndicated Public Offering at any time after the mailing to the Current
Depositors of the Proxy Statement to be used in connection with the Special
Meeting of Depositors, provided that the completion of the offer and sale of the
Common Stock shall be conditioned upon the ratification of this Plan by the
Current Depositors. If the Syndicated Public Offering is not sooner commenced
pursuant to the provisions of the preceding sentence, the Syndicated Public
Offering will be commenced as soon as practicable following the date upon which
the Subscription Offering and Community Offering, if any, terminate.
If for any reason a Public Offering or Syndicated Public Offering of
shares of Common Stock not sold in the Subscription and Community Offerings can
not be effected, other purchase arrangements will be made for the sale of
unsubscribed shares by the Bank, if possible. Such other purchase arrangements
will be subject to the approval of the Department.
15. Limitation on Purchases
The following limitations shall apply to all purchases of shares of
Common Stock in the Minority Stock Offering:
A. The maximum number of shares of Common Stock which may be purchased
in the Subscription Offering by any person (or persons through a single account)
in the First Priority, Third Priority and Fourth Priority shall not exceed such
number of shares as shall equal $100,000 divided by the Purchase Price.
B. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Minority Stock Offering by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $200,000 divided by the Purchase Price per share, except for
Employee Plans, which in the aggregate may subscribe for up to 10% of the Common
Stock issued in the Minority Stock Offering.
C. The maximum number of shares of Common Stock which may be purchased
in all categories in the conversion by Officers and Directors of the Bank and
their Associates in
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the aggregate shall not exceed 31% of the total number of shares of Common Stock
issued in the Minority Stock Offering.
D. A minimum of 100 shares of Common Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Common Stock purchased times the price per
share exceeds $1,000.
E. If the number of shares of Common Stock otherwise allocable pursuant
to Sections 9 through 14, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Common Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his Associates complies with the above maximums, and such maximum number of
shares shall be reallocated among that Person and his Associates in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
F. Depending upon market or financial conditions, the Board of
Directors of the Bank, without further approval of the Members, may decrease or
increase the purchase limitations in this Plan, provided that the maximum
purchase limitations may not be increased to a percentage in excess of 5% of the
Minority Stock Offering. If the Bank increases the maximum purchase limitations,
the Bank is only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the Bank, resolicit certain
other large subscribers. For purposes of this Section 15, the Trustees of the
Bank shall not be deemed to be Associates or a group affiliated with each other
or otherwise Acting in Concert solely as a result of their being Trustees of the
Bank.
G. In the event of an increase in the total number of shares offered in
the Minority Stock Offering due to an increase in the maximum of the Estimated
Valuation Range of up to 15% (the "Adjusted Maximum") the additional shares will
be used in the following order of priority: (i) in the event that there is an
oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 9; (ii) in the event that there is an oversubscription at
the Employee Plan level, fill the Employees Plan's subscription up to 10% of the
Adjusted Maximum; (iii) in the event that there is an oversubscription at the
Supplemental Eligible Account Holder level, to fill unfilled subscriptions of
Supplemental Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 11; (iv) in the event that there is an oversubscription at
the Current Depositor level, to fill unfilled subscriptions of Current
Depositors exclusive of the Adjusted Maximum in accordance with Section 11; and
(v) to fill unfilled Subscriptions in the Community Offering exclusive of the
Adjusted Maximum, with preference given to Persons residing in the Local
Community.
H. Each Person purchasing Common Stock in the Minority Stock Offering
shall be deemed to confirm that such purchase does not conflict with the above
purchase limitations contained in this Plan.
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I. For a period of three years following the Reorganization, no
Officer, Director or their Associates shall purchase, without the prior written
approval of the Department, any outstanding shares of common stock of the Bank,
except from a registered broker-dealer. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Bank, the exercise of any options pursuant to a
stock option plan or purchases of common stock of the Bank, made by or held by
any Tax-Qualified Employee Stock Benefit Plan or Non-Tax Qualified Employee
Stock Benefit Plan of the Bank (including the Employee Plans) which may be
attributable to any Officer or Trustee. As used herein, the term "negotiated
transaction" means a transaction in which the securities are offered and the
terms and arrangements relating to any sale are arrived at through direct
communications between the seller or any person acting on its behalf and the
purchaser or his investment representative. The term "investment representative"
shall mean a professional investment advisor acting as agent for the purchaser
and independent of the seller and not acting on behalf of the seller in
connection with the transaction.
16. Payment for Common Stock
All payments for Common Stock subscribed for in the Subscription,
Community (if any), Public and Syndicated Public Offerings (if applicable) must
be delivered in full to the Bank, together with a properly completed and
executed original Order Form, or purchase order in the case of the Syndicated
Public 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, however, that if the Employee Plans subscribes for shares during the
Subscription Offering, the Employee Plan will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of Common
Stock upon consummation of the Reorganization. The Bank may make scheduled
discretionary contributions to an Employee Plan provided such contributions do
not cause the Bank to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the Bank and the Stock Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community (if any),
Public or Syndicated Public Offering and to thereafter submit payment for the
Common Stock for which they are subscribing in the Community (if any), Public or
Syndicated Public Offering at any time prior to the completion of the
Reorganization.
Payment for Common Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription, Community (if any) and Public Offerings may pay for the shares
subscribed for by authorizing the Bank on the Order Form to make a withdrawal
from the subscriber's Savings 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
requirement, 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 subscriber's
Savings Account but may not be used by the subscriber until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
Department) following the Subscription Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect
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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 not less than the passbook annual rate on
payments for Common Stock received in cash or by money order or check. Such
interest will be paid from the date payment is received by the Bank until
consummation or termination of the conversion. If for any reason the conversion
is not consummated, all payments made by subscribers in the Subscription,
Community (if any), Public and Syndicated Public Offerings will be refunded to
them with interest. In case of amounts authorized for withdrawal from Savings
Accounts, refunds will be made by canceling the authorization for withdrawal.
The Bank is prohibited by regulation from knowingly making any loans or
granting any lines of credit for the purchase of stock in the Reorganization,
and therefore, will not do so.
17. Manner of Exercising Subscription Rights Through Order Forms
As soon as practicable after the Offering Prospectus prepared by the
Stock Holding Company and the Bank has been authorized for use by the
Department, Order Forms will be distributed to the Participants at their last
known addresses appearing on the records of the Bank for the purpose of
subscribing to shares of Common Stock in the Subscription Offering and will be
made available for use in the Community Offering. Notwithstanding the foregoing,
the Bank may elect to send Order Forms only to those Persons who request them
after such notice as is approved by the Department and is adequate to apprise
the Participants of the pendency of the Subscription Offering has been given.
Such notice may be included with the proxy statement for the Special Meeting and
may also be included in a notice of the pendency of the Reorganization and the
Special Meeting sent to all Eligible Account Holders in accordance with
regulations of the Department.
Each Order Form will be preceded or accompanied by the Offering
Prospectus describing the Bank, the Common Stock and the Subscription, Community
and Syndicated 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 twenty (20), nor more than forty-five
(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, Community (if any), Public and Syndicated Public Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community (if any), Public or Syndicated
Public Offerings;
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;
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E. An acknowledgment that the recipient of the Order Form has received
a final copy of the Offering Prospectus, as the case may be, prior to execution
of the Order Form.
F. 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 within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money 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 Savings Account at the Bank)
to 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 reserves the right in its sole
discretion to accept or reject orders received on photocopied or facsimiled
order forms or whose payment is to be made by wire transfer.
18. Undelivered, Defective or Late Order Forms: 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, or, in the case
of institutional investors in the Community (if any), Public or Syndicated
Public Offering, by delivering irrevocable orders together with a legally
binding commitment to pay in cash, check, money order or wire transfer the full
amount of the purchase price prior to 48 hours before the completion of the
conversion for the shares of Common Stock subscribed for (including cases in
which savings 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 completed Order Form within the time period
specified thereon; provided, however, 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 of
the Bank of terms and conditions of the Plan and of the Order Forms will be
final, subject to the authority of the Department.
19. Restrictions on Resale or Subsequent Disposition
A. All shares of Common Stock purchased by Directors or Officers of the
Bank in the Minority Stock Offering shall be subject to the restriction that,
except as provided in Section B, below, or as may be approved by the Department,
no interest in such shares may be sold or otherwise disposed of for value for a
period of one (1) year following the date of purchase.
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B. The restriction on disposition of shares of Common Stock set forth
in Section A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the Bank or the Holding Company, which has been approved
by the Department; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Common Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply;
(i) Each certificate representing shares restricted within the
meaning of Section A, above, shall bear a legend prominently stamped on its face
giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Bank not to recognize or effect any transfer of any certificate or
record of ownership of any such shares in violation of the restriction on
transfer; and
(iii) Any shares of capital stock of the Bank issued with
respect to a stock dividend, stock split, or otherwise with respect to ownership
of outstanding shares of Common Stock subject to the restriction on transfer
hereunder shall be subject to the same restriction as is applicable to such
Common Stock.
20. Certificate of Incorporation and Bylaws of the Mutual Holding Company
As part of the Reorganization, the Certificate of Incorporation and
Bylaws of the Mutual Holding Company shall be adopted under the name of
Ridgewood Financial, MHC to operate as a New Jersey mutual holding company. A
copy of the proposed Certificate of Incorporation and Bylaws of the Mutual
Holding Company, Stock Holding Company and the Stock Bank are required to be
provided only to those depositors requesting them. By their ratification of the
Plan, the Depositors of the Bank shall have approved and adopted the Certificate
and Bylaws of the Mutual Holding Company.
21. Certificate of Incorporation and Bylaws of the Stock Holding Company
As part of the Reorganization, a Certificate of Incorporation and
Bylaws of the Stock Holding Company shall be adopted pursuant to New Jersey law.
By their ratification of the Plan, Depositors shall have approved and adopted
the Certificate of Incorporation and Bylaws of the Stock Holding Company. The
number of shares of Common Stock authorized under the Stock Holding Company
Certificate of Incorporation will exceed the shares of Common Stock to be issued
to the Mutual Holding Company in the Reorganization. The Certificate of
Incorporation may include any provision authorized under New Jersey law.
23
<PAGE>
22. Certificate of Incorporation and Bylaws of the Stock Bank
As part of the Reorganization, a Certificate of Incorporation and
Bylaws of the Stock Bank shall be adopted to authorize the Stock Bank to operate
as a New Jersey-chartered stock savings bank. By their ratification of the Plan,
Depositors shall have approved and adopted the Certificate of Incorporation and
Bylaws of the Stock Bank. The number of total shares of Common Stock authorized
under the Stock Bank Certificate of Incorporation will exceed the shares of
Common Stock to be issued to the Stock Holding Company in the Reorganization.
The Certificate of Incorporation may contain provisions that, for a period of
five years from the effective date of the Certificate of Incorporation, (i)
prohibit any person from acquiring beneficial ownership of greater than 10% of
the Common Stock of the Stock Bank held by those other than the Stock Holding
Company, except for the Stock Holding Company and Non-Tax- Qualified and
Tax-Qualified Employee Stock Benefit Plans; and (ii) prohibit persons other than
the Board of Directors of the Stock Bank or committees of the Board of Directors
of the Stock Bank from calling special meetings of the stockholders of the Stock
Bank. Prior to completion of the Reorganization, the Certificate of
Incorporation and Bylaws may be amended in accordance with the provisions and
limitations for amending the Plan under Paragraph 27.
23. Status of Deposit Accounts and Loans Subsequent to Reorganization
All Deposit Accounts in the Bank shall retain the same status after the
Reorganization as these accounts had prior to the Reorganization, except that
each Deposit Account holder shall retain, without payment, a withdrawable
Deposit Account or accounts in the Stock Bank after the Reorganization, equal in
amount to the withdrawable value of such holder's Deposit Account or accounts
prior to the Reorganization. All Deposit Accounts which are transferred to the
Stock Bank will continue to be insured on the same terms up to the applicable
limits of FDIC insurance coverage. All loans shall retain the same status with
the Stock Bank after the Reorganization as they had with the Bank prior to the
Reorganization.
24. Minority Stock Offering
The Stock Holding Company will be authorized, subject to Commissioner
and applicable regulatory approvals, to undertake one or more Minority Stock
Offerings, simultaneous with, or following completion of, the Reorganization.
Depositors will be offered subscription rights in any Minority Stock Offering;
however a Minority Stock Offering will not require the approval of Depositors.
25. Conversion of Mutual Holding Company to Stock Form
Once the Reorganization is completed, the Mutual Holding Company may,
if approved by the NJDB and the appropriate federal banking agencies, elect to
convert to the stock form of ownership pursuant to applicable State and federal
law. The terms and conditions of such a conversion cannot be determined at this
time and there is no assurance when, if ever, such a conversion will occur. If
the conversion does not occur, the Mutual Holding Company will always own a
majority of the Common Stock of the Stock Holding Company.
24
<PAGE>
If the Mutual Holding Company converts to stock form, either on a
stand-alone basis or in the context of a conversion-merger ("Conversion
Transaction"), under applicable law, shares of stock issued in connection with
the Conversion Transaction shall be subject to subscription rights granted to
eligible account holders at the time of the transaction. In addition, pursuant
to applicable federal law and regulation and NJDB regulations or policies, in
the Conversion Transaction, the shares of stock held by the stockholders of the
Stock Bank or the Stock Holding Company shall be exchanged for shares of the
converted Mutual Holding Company in a proportion established by independent
appraisals of the Mutual Holding Company, the Stock Holding Company, and the
Stock Bank. If, in a Conversion Transaction, the stockholders of the Stock Bank
or the Stock Holding Company do not receive, for any reason, shares of the
converted Mutual Holding Company (or its successor) on such proportionate basis,
the Holding Company (or its successor) shall be obligated to purchase all shares
not owned by its simultaneously with the closing of such Conversion Transaction
at the fair market value of such shares, determined as if such shares had such
exchange rights, as determined by the independent appraisals. Moreover, in the
event that the Mutual Holding Company converts to stock form in a Conversion
Transaction, any options or other convertible securities held by any Officer,
Director, or Employee of the Stock Bank or the Stock Holding Company,
convertible into shares of the Stock Bank or the Stock Holding Company shall be
convertible into shares of the converted Mutual Holding Company (or its
successor), provided, that any exchange ratio shall provide the holder of such
options or convertible securities with shares at least equal in value to those
exchanged; provided, further however, that if such shares cannot be so
converted, the holders of such options or other convertible securities shall be
entitled to receive cash payment for such options and other convertible
securities in an amount equal to the appraised value of the underlying
securities represented by such options or other convertible securities.
In any Conversion Transaction, stockholders of the Stock Holding
Company other than the Mutual Holding Company ("Minority Stockholders"), if any,
will be entitled to maintain the same percentage ownership interest in the Stock
Holding Company after the Conversion Transaction as their ownership interest in
the Stock Holding Company immediately prior to the Conversion Transaction,
subject only to certain adjustments (i.e., waiver of dividends and the transfer
of assets held solely by the Mutual Holding Company to the resulting stock
company) that may be required by the FDIC or FRB. These adjustments may result
in a decrease of ownership interest of the Minority Stockholders.
Each certificate representing shares of Common Stock of the Stock Bank
or the Stock Holding Company shall bear a legend giving appropriate notice of
the provisions applicable to a Conversion Transaction.
26. Interpretation
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the Commissioner.
25
<PAGE>
27. Amendment or Termination of the Plan
If necessary or desirable, the terms of the Plan may be amended by a
two-thirds vote of the Bank's Board of Directors, with the concurrence of the
Commissioner and the FDIC, at any time prior to or after submission of the Plan
to Depositors for ratification. The Plan may be terminated at any time, before
or after Depositor ratification, by a two-thirds vote of the Board of Directors.
26
EXHIBIT 3(i)
<PAGE>
CERTIFICATE OF INCORPORATION
OF
RIDGEWOOD FINANCIAL, INC.
ARTICLE I
Name
----
The name of the corporation is Ridgewood Financial, Inc.
(herein the "Corporation").
ARTICLE II
Registered Office
-----------------
The address of the Corporation's registered office in the State of New
Jersey in the County of Bergen is 55 North Broad Street, Ridgewood, New Jersey.
The Corporation's registered agent at such address is Susan E. Naruk, President
and Chief Executive Officer of the Corporation.
ARTICLE III
Powers
------
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the New Jersey Business
Corporation Act.
ARTICLE IV
Term
----
The Corporation is to have perpetual existence.
ARTICLE V
Incorporator
------------
The name and address of the incorporator is Susan E. Naruk, 55 North
Broad Street, Ridgewood, New Jersey.
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<PAGE>
ARTICLE VI
Initial Directors
-----------------
The number of directors constituting the initial board of directors of
the Corporation is nine (9) and the names of the persons who are to serve as
directors until their successors are elected and qualified are as follows:
Michael W. Azzara, Nelson Fiordalisi, Jerome Goodman, Bernard J. Hoogland, John
Kandravy, Robert S. Monteith, Susan E. Naruk, John J. Repetto, and Paul W.
Thornwall.
The business address of the initial board of directors is 55 North
Broad Street, Ridgewood, New Jersey.
ARTICLE VII
Capital Stock
-------------
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 15,000,000 of which 10,000,000 are to
be shares of common stock, $.10 par value per share and of which 5,000,000 are
to be shares of serial preferred, no par value. The shares may be issued by the
Corporation from time to time as approved by the board of directors of the
Corporation without the approval of the stockholders except as otherwise
provided in this Certificate or the rules of a national securities exchange or
association, if applicable. The consideration for the issuance of the shares
shall be paid to or received by the Corporation in full before their issuance
and shall not be less than the par value per share. The consideration for the
issuance of the shares may be paid in whole or in part, in cash, real property,
in tangible or intangible personal property, including stock of another
corporation, in labor or services actually performed for the Corporation or in
its formation, or as otherwise permitted by New Jersey law. In the absence of
actual fraud in the transaction, the judgment of the board of directors or the
stockholders as the case may be as to the value of such consideration shall be
conclusive. Upon payment of such consideration such shares shall be deemed to be
fully paid and nonassessable. In the case of a stock dividend, the part of the
surplus of the Corporation 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 (if any) of the
Corporation's capital stock, and a statement of the relative rights, preferences
and limitations of the shares of each class and series (if any) of capital
stock, are as follows:
A. Common Stock. Except as provided in this Certificate, 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 for each share held by such
holder.
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 sinking fund or 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 of the Corporation.
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<PAGE>
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock, 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 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.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, 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 powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, including, but not limited to determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series; and
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; and
3. the voting powers, full or limited, if any, of the shares of such
series; and
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which, such
shares may be redeemed; and
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; and
6. whether the shares of such series shall be entitled to the benefits
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 funds; and
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or 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; and
8. the subscription or purchase price and form of 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 serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
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<PAGE>
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series.
ARTICLE VIII
Preemptive Rights
-----------------
No holder of any of the shares of any class or series of capital stock
or of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series, or any unissued bonds, certificates of indebtedness, debentures of other
securities convertible into or exchangeable for stock of any class or series or
carrying any right to purchase stock of any class or series; but any such
unissued stock, bonds, certificates or indebtedness, debentures or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the board of directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof, and upon such terms as may be deemed advisable by the board
of directors in the exercise of its sole discretion.
ARTICLE IX
Repurchase of Shares
--------------------
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of capital stock of any class, bonds,
debentures, notes, script, warrants, obligations, evidences of indebtedness, or
other securities of the Corporation in such manner, upon such terms, and in such
amounts as the board of directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Corporation outstanding at the time of the purchase
or acquisition in question or as are imposed by law.
ARTICLE X
Meetings of Stockholders; Cumulative Voting; Proxies
----------------------------------------------------
A. Notwithstanding any other provision of this Certificate or the
bylaws of the Corporation, any action required to be taken or which may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, if all shareholders entitled to vote thereon consent thereto
in writing. The power of shareholders to take action by non-unanimous consent is
specifically denied. In the case of a merger, consolidation, acquisition of all
capital shares of the Corporation or sale of assets, such action may be taken
without a meeting only if all shareholders consent in writing, or if all
shareholder entitled to vote consent in writing and all other shareholders are
provided the advance notification required by Section 14A: 5-6(2)(b) of the New
Jersey Business Corporation Act.
B. Unless otherwise required by law, special meetings of the
stockholders of the Corporation for any purpose or purposes may be called at any
time by the board of directors of the Corporation, by a committee of the board
of directors which has been duly designated by the board of directors and whose
powers and authorities, as provided in a resolution of the board of directors or
in the bylaws of the
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<PAGE>
Corporation, include the power and authority to call such meetings, by the
President, or by such other officers, directors or stockholders, as may be
provided in the bylaws.
C. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after eleven months from its date, unless the
proxy provides for a longer period. Without limiting the manner in which a
stockholder may authorize another person or persons to act for him or her as
proxy, the following shall constitute a valid means by which a stockholder may
grant such authority.
1. A stockholder may execute a writing authorizing another
person or persons to act for him or her as proxy. Execution may be
accomplished by the stockholder or his or her authorized officer,
director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature.
2. A stockholder may authorize another person or persons to
act for him or her as proxy by transmitting or authorizing the
transmission of a facsimile telecommunication, telegram, cablegram, or
other means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided
that any such facsimile telecommunication, telegram, cablegram or other
means of electronic transmission, must either set forth or be submitted
with information from which it can be determined that the facsimile
telecommunication, telegram, cablegram or other electronic transmission
was authorized by the stockholder. If it is determined that such
facsimile telecommunications, telegrams, cablegrams or other electronic
transmission are valid, the inspectors or, if there are no inspectors,
such other persons making that determination shall specify the
information upon which they relied.
3. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this
section may be substituted or used in lieu of the original writing or
transmission for any or 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.
D. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
E. Meetings of stockholders may be held within or without the State of
New Jersey, as the bylaws may provide.
ARTICLE XI
Notice for Nominations and Proposals
------------------------------------
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.
-5 -
<PAGE>
ARTICLE XII
Directors
---------
A. Number; Vacancies. The number of directors of the Corporation shall
be such number, not less than five nor more than 21, as shall be provided from
time to time in or in accordance with the bylaws, provided that a decrease in
the number of directors shall not have the effect of shortening the term of any
incumbent director, and provided further than no action shall be taken to
decrease or increase the number of directors from time to time unless at least
two-thirds of the directors then in office shall concur in said action.
Vacancies in the board of directors of the Corporation, however caused, and
newly-created directorships shall be filled by a vote of a majority of the
directors then in office, whether or not a quorum, or by a sole remaining
director, and any director so chosen shall hold office for a term expiring at
the next annual meeting of stockholders. Directors shall not be required to own
any shares of the Corporation's common stock and need not be residents of any
particular state, country or other jurisdiction.
B. Classified Board. The board of directors of the Corporation shall be
divided into three classes of directors which shall be designated Class I, Class
II and Class III, respectively. The members of each class shall be elected for a
term of three years and until their successors are elected and qualified. Such
classes shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. Should the number of
directors not be equally divisible by three, the excess director or directors
shall be assigned to Classes I or III as follows: (i) if there shall be an
excess of one directorship over a number equally divisible by three, such extra
directorship shall be classified in Class I; and (ii) if there shall be an
excess of two directorships over a number equally divisible by three, one shall
be classified in Class I and the other in Class III. At the first annual meeting
of stockholders, directors of Class I shall be elected to hold office for a term
expiring at the third succeeding annual meeting thereafter. At the second annual
meeting of stockholders, directors of Class II shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
third annual meeting of stockholders, directors of Class III shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three-year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
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<PAGE>
ARTICLE XIII
Removal of Directors
--------------------
Notwithstanding any other provision of this Certificate or the bylaws
of the Corporation, any director or the entire board of directors of the
Corporation may be removed for cause, at any time, by the affirmative vote of
the holders of at least 80% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. In addition, the board of directors shall have the power to remove
directors for cause and to suspend directors pending a final determination that
cause exists for removal.
ARTICLE XIV
Certain Limitations on Voting Rights
------------------------------------
Notwithstanding any other provision of this Certificate of
Incorporation, except as otherwise provided herein, in no event shall any record
owner, other than Ridgewood Financial, MHC, a New Jersey mutual savings bank
holding company created by Ridgewood Savings Bank of New Jersey, of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted
to any vote in respect of the shares held in excess of the Limit. The number of
votes which may be cast by any record owner by virtue of the provisions hereof
in respect of Common Stock beneficially owned by such person owning shares in
excess of the Limit shall be a number equal to the total number of votes which a
single record owner of all Common Stock owned by such person would be entitled
to cast, multiplied by a fraction, the numerator of which is the number of
shares of such class or series which are both beneficially owned by such person
and owned of record by such record owner and the denominator of which is the
total number of shares of Common Stock beneficially owned by such person owning
shares in excess of the Limit.
A. The following definitions shall apply to this Article XIV.
1. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on the date of filing of this Certificate of Incorporation.
2. "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934 (or
any successor rule or statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
(2) which such person or any of its affiliates has (i) the right
to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be
the beneficial owner of any
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<PAGE>
voting shares solely by reason of an agreement, contract, or
other arrangement with this Corporation to effect any
transaction which is described in any one or more of sections
of Article XV) or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (ii)
sole or shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for
such meeting, with respect to shares of which neither such
person nor any such affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of
this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any affiliate of any such Director or Officer) shall, solely by
reason of any or all of such Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or any affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For purposes of computing the percentage
beneficial ownership of Common Stock of a person, the outstanding Common Stock
shall include shares deemed owned by such person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
3. A "person" shall mean any individual, firm, corporation, or other
entity.
B. The Board of Directors shall have the power to construe and apply
the provisions of this Article XIV and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article XIV.
C. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holders of record of Common Stock beneficially owned by any person
in excess of the Limit) supply the Corporation with complete information as to
(i) the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this Article XIV as may
reasonably be requested of such person.
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<PAGE>
D. Except as otherwise provided by law or expressly provided in this
Article XIV, the presence in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Article XIV) entitled to be cast by the holders of shares of capital stock
of the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
E. The provisions of this Article XIV shall not be applicable to the
acquisition of more than 10% of any class of equity security of the Corporation
if such acquisition has been approved by a majority of the Continuing Directors,
as defined in Article XV of this Certificate; provided, however, that such
approval shall only be effective if such continuing directors shall have the
power to construe and apply the provisions of this Article XIV and to make all
determinations necessary or desirable to implement such provisions, including
but not limited to matters with respect to (a) the number of shares beneficially
owned by any person, (b) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition of
beneficial ownership, (c) the application of any other material fact relating to
the applicability or effect of this Article XIV. Any constructions,
applications, or determinations made by the Continuing Directors pursuant to
this Article XIV in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Corporation and its stockholders.
F. In the event any provision (or portion thereof) of this Article XIV
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article XIV shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken here from or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Article XIV remain,
to the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE XV
Approval of Business Combinations
---------------------------------
A. Definitions and Related Matters. For the purposes of this Article XV
and as otherwise expressly referenced hereto in this Certificate of
Incorporation:
1. "Affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified person.
2. "Announcement date," when used in reference to any business
combination, means the date of the first public announcement of the final,
definitive proposal for that business combination.
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3. "Associate," when used to indicate a relationship with any
person, means (1) any corporation or organization of which that person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of voting stock, (2) any trust or other estate in which that
person has a substantial beneficial interest or as to which that person serves
as trustee or in a similar fiduciary capacity, or (3) any relative or spouse of
that person, or any relative of that spouse, who has the same home as that
person.
4. "Beneficial owner," when used with respect to any stock,
means a person:
(1) that, individually or with or through any of
its affiliates or associates, beneficially owns that stock, directly or
indirectly;
(2) that, individually or with or through any of
its affiliates or associates, has (a) the right to acquire that stock (whether
that right is exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding (whether or not in
writing), or upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise; provided, however, that a person shall not be deemed
the beneficial owner of stock tendered pursuant to a tender or exchange offer
made by that person or any of that person's affiliates or associates until that
tendered stock is accepted for purchase or exchange; or (b) the right to vote
that stock pursuant to any agreement, arrangement or understanding (whether or
not in writing); provided, however, that a person shall not be deemed the
beneficial owner of any stock under this subparagraph if the agreement,
arrangement or understanding to vote that stock (i) arises solely from a
revocable proxy or consent given in response to a proxy or consent solicitation
made in accordance with the applicable rules and regulations under the Exchange
Act, and (ii) is not then reportable on a Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(3) that has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except voting pursuant to a revocable proxy or consent as
described in subparagraph (b) of paragraph (2) of this subsection, or disposing
of that stock with any other person that beneficially owns, or whose affiliates
or associates beneficially own, directly or indirectly, that stock.
5. "Business combination," when used in reference to the
Corporation and any interested stockholder of the Corporation, means:
(1) any merger or consolidation of the Corporation or
any subsidiary of the Corporation with (a) that interested stockholder or (b)
any other corporation (whether or not it is an interested stockholder of the
Corporation) which is, or after a merger or consolidation would be, an affiliate
or associate of that interested stockholder;
(2) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with that interested stockholder or any affiliate or associate of that
interested stockholder of assets of the Corporation or any subsidiary of the
Corporation (a) having an aggregate market value equal to 10% or more of the
aggregate market value of all the assets, determined on a consolidated basis, of
the Corporation, (b) having an aggregate market value equal to 10% or more of
the aggregate market value of all the outstanding stock of the Corporation, or
(c) representing 10% or more of the earnings power or income, determined on a
consolidated basis, of the Corporation;
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<PAGE>
(3) the issuance or transfer by the Corporation
or any subsidiary of the Corporation (in one transaction or a series of
transactions) of any stock of the Corporation or any subsidiary of the
Corporation which has an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding stock of the Corporation to that
interested stockholder or any affiliate or associate of that interested
stockholder, except pursuant to the exercise of warrants or rights to purchase
stock offered, or a dividend or distribution paid or made, pro rata to all
stockholders of the Corporation;
(4) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by, on behalf of or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with that interested stockholder or any affiliate or associate of that
interested stockholder;
(5) any reclassification of securities (including,
without limitation, any stock split, stock dividend, or other distribution of
stock in respect of stock, or any reverse stock split), or recapitalization of
the Corporation, or any merger or consolidation of the Corporation with any
subsidiary of the Corporation, or any other transaction (whether or not with, or
into, or otherwise involving that interested stockholder), proposed by, on
behalf of or pursuant to any agreement, arrangement or understanding (whether or
not in writing) with that interested stockholder or any affiliate or associate
of that interested stockholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class or
series of stock or securities convertible into voting stock of the Corporation
or any subsidiary of the Corporation which is directly or indirectly owned by
that interested stockholder or any affiliate or associate of that interested
stockholder, except as a result of immaterial changes due to fractional share
adjustments; or
(6) any receipt by that interested stockholder or
any affiliate or associate of that interested stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of the
Corporation), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by or through the
Corporation; provided, however, that the term "business combination" shall not
be deemed to include the receipt of any of the foregoing benefits by the
Corporation or any of the Corporation's affiliates arising from transactions
(such as intercompany loans or tax sharing arrangements) between the Corporation
and its affiliates in the ordinary course of business.
6. "Common stock" means any stock other than preferred stock.
7. "Consummation date," with respect to any business
combination, means the date of consummation of that business combination.
8. "Control," including terms "controlling" "controlled by"
and "under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting stock, by contract, or
otherwise. A person's beneficial ownership of 10% or more of the voting power of
the Corporation's voting stock shall create a presumption that that person has
control of the Corporation. Notwithstanding the foregoing in this subsection, a
person shall not be deemed to have control of a corporation if that person holds
voting power, in good faith and not for the purpose of circumventing this
section, as an agent, bank, broker, nominee, custodian or trustee for one or
more beneficial owners who do not individually or as a group have control of the
Corporation.
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<PAGE>
9. "Exchange Act" means the "Securities Exchange Act of 1934,"
48 Stat. 881 (15 U.S.C. ss.78a et seq.) as the same has been or hereafter may be
amended from time to time.
10. "Interested stockholder," when used in reference to the
Corporation, means any person (other than the Corporation or any subsidiary of
the Corporation) that:
(1) is the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding voting stock of the
Corporation; or
(2) is an affiliate or associate of the Corporation
and at any time within the five-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding stock of the Corporation. For the purpose
of determining whether a person is an interested stockholder pursuant to this
subsection, the number of shares of voting stock of the Corporation deemed to be
outstanding shall include shares deemed to be beneficially owner by the person
through application of subsection 4. of this section but shall not include any
other unissued shares of voting stock of the Corporation which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
11. "Market value," when used in reference to property of the
Corporation, means:
(1) in the case of stock, on the principal United
States securities exchange registered under the Exchange Act on which that stock
is listed, or, if that stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of that stock during the 30-day
period preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System, or any system then in use, or if no
such quotations are available, the fair market value on the date in question of
a share of the Corporation's stock as determined by the board of directors of
the Corporation in good faith; and
(2) in the case of property other than cash or stock,
the fair market value of
that property on the date in question as determined by the board of directors of
the Corporation in good faith.
12. "Stock" means:
(1) any stock or similar security, any certificate
of interest, any participation in any profit sharing agreement, any voting trust
certificate, or any certificate of deposit for stock; and
(2) any security convertible, with or without
consideration, into stock, or any warrant, call or other option or privilege of
buying stock without being bound to do so, or any other security carrying any
right to acquire, subscribe to or purchase stock.
13. "Stock acquisition date," with respect to any person and
the Corporation, means the date that that person first becomes an interested
stockholder of the Corporation.
14. "Subsidiary" of the Corporation means any other
corporation of which voting stock having a majority of the votes entitled to be
cast is owned, directly or indirectly, by the Corporation.
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<PAGE>
15. "Voting stock" means shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
B. Approval of Business Combinations.
The Corporation shall not engage in any business combination with any
interested stockholder of the Corporation for a period of five years following
that interested stockholder's stock acquisition date unless:
1. the business combination is approved by the board of directors
of the Corporation prior to that interested stockholder's stock acquisition
date.
2. the business combination is approved by the affirmative vote of the
holders of 80% of the voting stock not beneficially owned by that interested
stockholder at a meeting called for such purpose.
3. the business combination meets all of the following conditions:
(1) the aggregate amount of the case and the market value, as
of the consummation date, of consideration other than cash to be received per
share by holders of outstanding shares of common stock of the Corporation in
that business combination is at least equal to the higher of the following:
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that
interested stockholder for any shares of common stock of the same class or
series acquired by it (i) within the five-year period immediately prior to the
announcement date with respect to that business combination, or (ii) within the
five-year period immediately prior to, or in, the transaction in which that
interested stockholder became an interested stockholder, whichever is higher;
plus, in either case, interested stockholder became an interested stockholder,
whichever is higher; plus, in either case, interest compounded annually from the
earliest date on which that highest per share acquisition price was paid through
the consummation date at the rate for one-year United States Treasury
obligations from time to time in effect; less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid other than in cash,
per share of common stock since that earliest date, up to the amount of that
interest; and
(b) the market value per share of common stock on
the announcement date with respect to that business combination or on that
interested stockholder's stock acquisition date, whichever is higher; plus
interest compounded annually from that date through the consummation date at the
rate for one-year United States Treasury obligations from time to time in
effect; less the aggregate amount of any cash dividends paid, and the market
value of any dividends paid other than in cash, per share of common stock since
that date, up to the amount of that interest;
(2) the aggregate amount of the cash and the market value as
of the consummation date of consideration other than cash to be received per
share by holders of outstanding shares of any class or series of stock, other
than common stock, of that resident domestic corporation is at least equal to
the highest of the following (whether or not that interested stockholder has
previously acquired any shares of that class or series of stock);
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<PAGE>
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that
interested stockholder for any shares of that class or series of stock acquired
by it (i) within the five-year period immediately prior to the announcement date
with respect to that business combination, or (ii) within the five-year period
immediately prior to, or in, the transaction in which that interested
stockholder became an interested stockholder, whichever is higher; plus, in
either case, interest compounded annually from the earliest date on which the
highest per share acquisition price was paid through the consummation date at
the rate for one-year United States Treasury obligations from time to time in
effect; less the aggregate amount of any cash dividends paid, and the market
value of any dividends paid other than in cash, per share of that class or
series of stock since that earliest date, up to the amount of that interest;
(b) the highest preferential amount per share to
which the holders of shares of that class or series of stock are entitled in the
event of any liquidation, dissolution or winding up of the Corporation, plus the
aggregate amount of any dividends declared or due to which those holders are
entitled prior to payment of dividends on some other class or series of stock
(unless the aggregate amount of those dividends is included in that preferential
amount); and
(c) the market value per share of that class or
series of stock on the announcement date with respect to that business
combination or on that interested stockholder's stock acquisition date,
whichever is higher; plus interest compounded annually from that date through
the consummation date at the rate for one-year United States Treasury
obligations from time to time in effect; less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid other than in cash,
per share of that class or series of stock since that date, up to the amount of
that interest;
(3) the consideration to be received by holders of a
particular class or series of outstanding stock (including common stock) of the
Corporation in that business combination is in cash or in the same form as the
interested stockholder has used to acquire the largest number of shares of that
class or series of stock previously acquired by it;
(4) the holders of all outstanding shares of stock of the
Corporation not beneficially owned by that interested stockholder immediately
prior to the consummation of that business combination are entitled to receive
in that business combination cash or other consideration for those shares in
compliance with paragraphs (1), (2) and (3) of this subsection; and
(5) after that interested stockholder's stock acquisition date
and prior the consummation date with respect to that business combination, that
interested stockholder has not become the beneficial owner of any additional
shares of stock of the Corporation, except:
(a) as part of the transaction which resulted in
that interested stockholder becoming an interested stockholder;
(b) by virtue of proportionate stock splits, stock
dividends or other distributions of stock in respect of stock not constituting a
business combination;
(c) through a business combination meeting all of
the conditions of paragraph (3) and this paragraph; or
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<PAGE>
(d) through purchase by that interested stockholder
at any price which, if that price had been paid in an otherwise permissible
business combination, the announcement date and consummation date of which were
the date of that purchase, would have satisfied the requirements of paragraphs
(1), (2) and (3) of this subsection.
Exceptions. The provisions of this Article XV shall not apply to any
Business Combination approved by 66 2/3% of the whole Board of Directors of the
Corporation at any time at which the person involved who theretofore was or
thereafter became an interested stockholder was not such an interested
stockholder or to any business combination approved by 66 2/3% of the whole
Board of Directors, including a majority of the Continuing Directors, at any
time at which the person involved was an interested stockholder.
Evaluation of Business Combinations. In connection with the exercise of
its judgment in determining what is in the best interests of the Corporation and
of the stockholders, when evaluating a business combination or a tender or
exchange offer, the board of directors of the Corporation shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition, and other likely financial obligations of the acquiring person or
entity, and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVI
Elimination of Directors' and Officers' Liability
-------------------------------------------------
Directors and officers of the Corporation shall have no personal
liability to the Corporation or its stockholders for damages for breach of any
duty owed to the Corporation or its stockholders, provided that this Article XVI
shall not relieve a director or officer from liability for any breach of duty
based upon an act or omission (i) in breach of the director's or officer's duty
of loyalty to the Corporation or its stockholders, (ii) not in good faith or
involving a knowing violation of law, or (iii) resulting in receipt by such
person of an improper personal benefit. If the New Jersey Business Corporation
Act is amended to further limit the personal liability of directors and
officers, then such liability will be eliminated to the fullest extent permitted
under the law.
ARTICLE XVII
Indemnification
---------------
A. Indemnification. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative, arbitrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent
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<PAGE>
of the Corporation or of any constituent corporation absorbed by the Corporation
in a consolidation or merger, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, sole proprietorship, trust or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the full extent permissible under New Jersey
law.
B. Advance Payment. The Corporation may pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification under
Section A of this Article XVII if the person receiving the payment undertakes in
writing to repay the same if it is ultimately determined that he is not entitled
to indemnification by the Corporation under New Jersey law.
C. Nonexclusive. The indemnification and advancement of expenses
provided by Sections A and B of this Article XVII or otherwise granted pursuant
to New Jersey law shall not be exclusive of any other rights to which a person
may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested
directors, or otherwise.
D. Continuation. The indemnification and advance payment provided by
Sections A and B shall continue as to a person who has ceased to hold a position
named in paragraph A of this Article XVII and shall inure to his heirs,
executors and administrators.
E. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in Section A
of this Article XVII, against any liability incurred by him in any such
position, or arising out of his status as such, whether or not the Corporation
would have power to indemnify him against such liability under this Article and
New Jersey law.
F. Savings Clause. If this Article XVII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, including an action by or in the right of the
Corporation to the full extent permitted by any applicable portion of this
Article XVII that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE XVIII
Amendment of Bylaws
-------------------
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, repeal, alter, amend and rescind the bylaws of the Corporation by a vote
of two-thirds of the board of directors present at a legal meeting held in
accordance with the provisions of the bylaws. Notwithstanding any other
provision of this Certificate or the bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law),
the bylaws shall not be made, repealed, altered, amended or rescinded by the
stockholders of the Corporation except by the vote of the holders of not less
than 80% of the outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such
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<PAGE>
proposed adoption, repeal, alteration, amendment or rescission is included in
the notice of such meeting), or, as set forth above, by the board of directors.
ARTICLE XIX
Supermajority Provision
-----------------------
Any merger, consolidation, liquidation, or dissolution of the
Corporation or any action that would result in the sale or other disposition of
all or substantially all of the assets of the Corporation shall require the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of stock of the Corporation eligible to vote at a legal
meeting. This provision shall not apply to any transaction, and such transaction
shall require only such stockholder vote, if any, as would be required by New
Jersey law, if the transaction is approved by 66 2/3% of the entire Board of
Directors of the Corporation, as in existence prior to the transaction.
ARTICLE XX
Amendment of Certificate of Incorporation
-----------------------------------------
The Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles VIII, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and
this Article XX of this Certificate may not be repealed, altered, amended or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than 80% of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is properly included in
the notice of such meeting).
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EXHIBIT 3(ii)
<PAGE>
BYLAWS
OF
RIDGEWOOD FINANCIAL, INC.
ARTICLE I - Home Office
The home office of Ridgewood Financial, Inc. (the "Corporation") shall
be located at 55 North Broad Street, Ridgewood, in the County of Bergen, in the
State of New Jersey. The Corporation may also have offices at such other places
within or without the State of New Jersey as the board of directors shall from
time to time determine.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place in the State of New Jersey as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
Section 3. Special Meetings. Notwithstanding any other provision of
these Bylaws, any action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting, as provided in the Certificate of Incorporation.
Unless otherwise required by law, special meetings of the stockholders
of the Corporation for any purpose or purposes may be called at any time by the
board of directors of the Corporation, by a committee of the board of directors
which has been duly designated by the board of directors and whose powers and
authorities, as provided in a resolution of the board of directors or in the
Bylaws of the Corporation, include the power and authority to call such
meetings, or by the president.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the board of
directors.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is so called
shall be delivered not fewer than ten nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
president, or the secretary, or the directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the Corporation as of the record date prescribed in Section 6 of this Article
II with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
<PAGE>
Section 6. Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or the shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of shareholders. Such date in any case shall be
not more than 60 days and, in case of a meeting of shareholders, not fewer than
10 days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 6 of Article II, such determination shall apply to any
adjournment.
Section 7. Voting Lists. A list of shareholders shall be kept on file
at the home office of the Corporation and shall be subject to inspection by any
shareholder, for a proper purpose and upon five days written demand, who has
been a shareholder of record for at least six months preceding his or her demand
or, any person holding at least 5% of the outstanding shares, or so authorized
in writing by the holders of at least 5% of the outstanding shares.
Section 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time, subject to the notice
requirements of Section 5 of this Article II. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed by the stockholder in the manner provided by the
Certificate of Incorporation. 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. No proxy shall
be valid after eleven months from the date of its execution unless otherwise
provided in the proxy.
Section 10. Voting. At each election for directors, every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him or her. Directors shall be elected by a plurality of votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Unless otherwise provided in the
Certificate of Incorporation, by statute, or by these Bylaws, in matters other
than the election of directors, a majority of the shares present in person or
represented by proxy at a lawful meeting and entitled to vote on the subject
matter, shall be sufficient to pass on a transaction or matter.
Section 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation, any one or more of such shareholders 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 and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
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Section 12. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of shares into his or her name. Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer into his or her name if authority to do so is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulation of the board, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of Article II, Section 15 of these Bylaws.
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Section 15. Notice for Nominations and Proposals. Nominations of
candidates for election as directors at any annual meeting of stockholders may
be made (a) by, or at the direction of, a majority of the board of directors or
(b) by any stockholder entitled to vote at such annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 15 shall
be eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated for election as directors at an
annual meeting in accordance with the procedures set forth in this Section 15
shall be provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the board
of directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 15. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal office of the Corporation not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Corporation; provided, however, that with respect to the first scheduled
annual meeting, notice by the stockholder must be so delivered or received no
later than the close of business on the tenth day following the day on which
notice of the date of the scheduled meeting must be delivered or received no
later than the close of business on the fifth day preceding the date of the
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Corporation
stock which are Beneficially Owned (as defined in Article XIV of the Certificate
of Incorporation) by such person on the date of such stockholder notice, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including, but not limited to, information
required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed with
the Securities and Exchange Commission (or any successors of such items or
schedule); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of Corporation stock which are Beneficially
Owned by such stockholder on the date of such stockholder notice and, to the
extent known, by any other stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice. At the request
of the board of directors, any person nominated by, or at the direction of, the
Board for election as a director at an annual meeting shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
Proposals, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 15. For stockholder proposals to
be included in the Corporation's proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal office of the Corporation not less than
60 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders of the Corporation. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal 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 and, to the extent known,
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any other stockholders known by such stockholder to be supporting such proposal,
(c) the class and number of shares of the Corporation stock which are
Beneficially Owned by the stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder notice, and (d) any
financial interest of the stockholder in such proposal (other than interests
which all stockholders would have).
The board of directors may reject any nomination by a stockholder or
stockholder proposal not timely or properly made in accordance with the
requirements of this Section 15. If the board of directors, or a designated
committee thereof, determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section 15 in any
material respect, the Secretary of the Corporation shall notify such stockholder
of the deficiency in the notice. The stockholder shall have an opportunity to
cure the deficiency by providing additional information to the Secretary within
such period of time, not to exceed five days from the date such deficiency
notice is given to the stockholder, as the board of directors or such committee
shall reasonably determine. If the deficiency is not cured within such period,
or if the board of directors or such committee reasonably determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 15 in any
material respect, then the board of directors may reject such stockholder's
nomination or proposal. The Secretary of the Corporation shall notify a
stockholder in writing whether his or her nomination or proposal has been made
in accordance with the time and informational requirements of this Section 15.
Notwithstanding the procedures set forth in this paragraph, if neither the board
of directors nor such committee makes a determination as to the validity of any
nominations or proposals by a stockholder, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the nomination
or proposal was made in accordance with the terms of this Section 15. If the
presiding officer determines that a nomination or proposal was made in
accordance with the terms of this Section 15, he shall so declare at the annual
meeting and ballots shall be provided for use at the meeting with respect to
such nominee or proposal. If the presiding officer determines that a nomination
or proposal was not made in accordance with the terms of this Section 15, he
shall so declare at the annual meeting and the defective nomination or proposal
shall be disregarded.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
may annually elect a chairman of the board and one or more vice chairmen from
among its members and shall designate who will preside at its meetings.
Section 2. Number, Term and Election. The board of directors shall
initially consist of nine members and shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected or qualified.
The board of directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors are to be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting of stockholders at which a quorum is present. The board of directors may
increase the number of members of the board of directors but in no event shall
the number of directors be increased in excess of 21.
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Section 3. Place of Meeting. All annual and special meetings of the
board of directors shall be held at the principal office of the Corporation or
at such other place within or outside the state in which the principal office of
the Corporation is located as the board of directors may determine and as
designated in the notice of such meeting.
Section 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president or one-third of the
directors. The persons authorized to call special meetings of the board of
directors may fix any place, within or outside the State of New Jersey, as the
place for holding any special meeting of the board of directors called by such
persons.
Members of the board of directors may participate in special meetings
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.
Section 6. Notice of Special Meeting. Written notice of at least 24
hours regarding any special meeting of the board of directors or of any
committee designated thereby shall be given to each director in accordance with
these Bylaws, although such notice may be waived by the director. The attendance
of such director at a meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any meeting need be specified in the notice of waiver of notice of such
meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. 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, unless a greater number is prescribed by these Bylaws, the
Certificate of Incorporation or the laws of New Jersey.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the president. Unless otherwise specified, such resignation shall
take effect upon receipt by the chairman of the board or the president.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of
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directors may be filled by election by the board of directors for a term of
office continuing only until the next election of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any
Corporation 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 or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
Corporation 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.
Section 14. Removal of Directors. Directors of the Corporation may be
removed only in accordance with the Corporation's Certificate of Incorporation.
Section 15. Age Limitation on Directors. No person seventy (70) years
of age or older will be eligible for election, re-election, appointment, or
reappointment to the Board of Directors. The foregoing limitation shall not
apply to members of the Board of Directors who were serving as members of the
Board of Directors of Ridgewood Savings Bank of New Jersey, as of November 30,
1992, who will be eligible for continuing re-election as members of the Board of
Directors of the Corporation.
Section 16. Directors Emeritus. The Board of Directors may by a vote of
two-thirds of the directors present at any meeting appoint one or more Directors
Emeritus to serve as consultants or advisors to the Board of Directors. A
Director Emeritus shall have previously served as a director of the Corporation
or a successor entity. Each Director Emeritus shall have the privilege of
attending all Board meetings and serving on Committees of the Corporation, and
shall be compensated in the same manner as other Directors. Directors Emeritus
shall not have the privilege to vote on any matter concerning the Corporation.
Directors Emeritus shall be elected to serve a one-year term, and may be
re-elected to future one year terms. The Board of Directors shall have the right
at any time, to terminate a Director Emeritus with or without cause.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and
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except also that the executive committee shall not have the authority of the
board of directors with reference to: the declaration of dividends; the
amendment of the Certificate of Incorporation or these Bylaws of the
Corporation, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting. Any member of the executive committee may
waive notice of any meeting and no notice of any meeting need be given to any
member thereof who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Corporation. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The board of directors may by resolution
establish any other committee composed of directors as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation and
may prescribe the duties, constitution, and procedures thereof. The President
shall be appointed as a voting member of all committees, unless prohibited by
law or regulation.
ARTICLE V - Officers
Section 1. Positions. The officers of the Corporation shall include a
chief executive officer, president, one or more vice presidents, a secretary and
a treasurer, each of whom shall be elected by the board of directors. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer,
but no such contract shall impair the right of the board of directors to remove
any officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors, by employment contracts or
otherwise.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. Except as otherwise prescribed by these Bylaws
with respect to certificates for shares, the board of directors may authorize
any officer, employee, or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
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Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees, or
agents of the Corporation, which may include facsimile signatures, in such
manner as shall from time to time be determined by the board of directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the board of directors. Such certificates shall be signed by the chief executive
officer or by any other officer of the Corporation authorized by the board of
directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar other than the Corporation itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and canceled, except that in the case of a
lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Corporation as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
Section 3. Payment for Shares. No certificate shall be issued for any
shares until such share is fully paid.
Section 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of New Jersey
law.
Section 5. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of Article II of these Bylaws or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
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Section 6. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the 31st day of
December of each year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE IX - Dividends
Subject only to the terms of the Corporation's Certificate of
Incorporation and applicable law, the board of directors may, from time to time,
declare and the Corporation may pay, dividends on its outstanding classes of
capital stock which are eligible for dividends.
ARTICLE X - Corporate Seal
The board of directors shall provide a corporate seal which shall be
two concentric circles between which shall be the name of the Corporation. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These Bylaws may be amended only as specified in the Corporation's
Certificate of Incorporation.
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EXHIBIT 5.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
August 26, 1998
Board of Directors
Ridgewood Financial, Inc.
55 North Broad Street
Ridgewood, New Jersey 07450
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement on
Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 1,616,095 shares
of common stock, par value $0.10 per share (the "Common Stock"), of Ridgewood
Financial, Inc. (the "Company"), including shares to be issued to certain
employee benefit plans of the Company and its subsidiary. The Common Stock is
proposed to be issued pursuant to the Plan of Reorganization and Stock Issuance
(the "Plan") of Ridgewood Savings Bank of New Jersey, (the "Savings Bank") in
connection with the Savings Bank's reorganization from a mutual savings bank
form of organization to a mutual savings bank holding company form of
organization, whereby the Savings Bank will convert to the stock form of
organization and become a wholly owned subsidiary of the Company, the mutual
savings bank holding company, Ridgewood Financial, MHC (in organization) (the
"MHC"), will own a majority of the shares of the Company, and a minority of the
shares of the Company are to be offered and sold to the public (the
"Reorganization"). As special counsel to the Savings Bank, the MHC and the
Company, we have reviewed the corporate proceedings relating to the Plan and the
Reorganization and such other legal matters as we have deemed appropriate for
the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non- assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
<PAGE>
Board of Directors
August 26, 1998
Page Two
We hereby consent to the use of this opinion and to the reference to our
firm appearing in the Company's Prospectus under the headings "The
Reorganization - Federal and State Tax Consequences of the Reorganization" and
"Legal and Tax Opinions." We also consent to any references to our legal opinion
referred to under the aforementioned headings in the Prospectus.
Very truly yours,
/s/MALIZIA, SPIDI, SLOANE & FISCH, P.C.
---------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITERS'S DIRECT DIAL NUMBER
August 25, 1998
Board of Directors
Ridgewood Savings Bank of New Jersey
531 North Maple Avenue
Ridgewood, New Jersey 07450
Dear Board Members:
In accordance with your request, set forth herein below is the opinion
of this firm regarding certain federal income tax consequences of the proposed
reorganization of Ridgewood Savings Bank of New Jersey (the "Bank") from a New
Jersey-chartered mutual savings bank into a New Jersey mutual savings bank
holding company (the "Mutual Holding Company"), the formation of a capital stock
corporation as a majority-owned subsidiary of Mutual Holding Company (the "Stock
Holding Company"), and the conversion of the Bank to a New Jersey- chartered
stock savings bank successor to the Bank (the "Reorganization") which will
subsequently become the wholly-owned subsidiary of the Stock Holding Company
pursuant to the Plan of Reorganization and Stock Issuance from a State Mutual
Savings Bank to a State Mutual Savings Bank Holding Company adopted by the Board
of Directors of the Bank on June 22, 1998 (the "Plan of Reorganization"). The
Reorganization and its component and related transactions are described in the
Plan of Reorganization. We are rendering this opinion pursuant to Section 5.H.
of the Plan of Reorganization. As used in this letter, "Mutual Bank" refers to
the Bank before the Reorganization and "Stock Bank" refers to the Bank after the
Reorganization. All other capitalized terms used but not defined in this letter
shall have the meanings assigned to them in the Plan of Reorganization.
The Reorganization will be effected, pursuant to the Plan of
Reorganization, as follows: (i) Mutual Bank will organize the Mutual Holding
Company which will initially be organized in stock form and exist as Mutual
Bank's wholly-owned subsidiary; (ii) Mutual Holding Company will organize the
Stock Holding Company under New Jersey law as a wholly owned subsidiary; and
(iii) Mutual Holding Company will also organize an interim New Jersey stock
savings bank as its wholly-owned subsidiary ("Interim"). The following
transactions will then occur simultaneously: (iv) Mutual Bank will exchange its
charter for a New Jersey stock savings bank charter and thereby become Stock
Bank (the "Conversion"); (v) the Mutual Holding Company will cancel its
outstanding stock and exchange its charter for a New Jersey mutual savings bank
holding company charter and thereby become the "Mutual Holding Company;" (vi)
Interim will merge with and into Stock Bank with Stock Bank being the surviving
institution; and (vii) the initially issued shares of common stock of Stock Bank
(which will be constructively
<PAGE>
Board of Directors
August 25, 1998
Page 2
received by former Mutual Bank members when Mutual Bank becomes Stock Bank
pursuant to step (iv) will be issued to the Mutual Holding Company in exchange
for membership interests in the Mutual Holding Company (the "Exchange"). As a
result of these transactions, (a) Stock Bank will be a wholly-owned subsidiary
of the Mutual Holding Company, (b) Stock Holding Company will also be a
wholly-owned subsidiary of the Mutual Holding Company, and (c) the former
members of Mutual Bank will own membership interests in the Mutual Holding
Company. Finally, the Mutual Holding Company will transfer 100% of the
outstanding stock of Stock Bank into Stock Holding Company, making Stock Bank
the wholly-owned subsidiary of Stock Holding Company.
The Stock Holding Company may in the future offer for sale up to 49.9%
of its common stock, with priority subscription rights granted in descending
order to certain depositors in the Mutual Bank, to certain employee stock
benefit plans of the Stock Bank, to other members of the Mutual Bank and to
certain members of the general public. Although the Stock Holding Company may in
the future sell its common stock, the Stock Holding Company will always remain a
majority-owned subsidiary of the Mutual Holding Company.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan of Reorganization and of such corporate records of the
parties to the Reorganization as we have deemed appropriate. We have also
relied, without independent verification, upon the representations of Mutual
Bank included in the letter dated August 24, 1998 from this law firm to the
Internal Revenue Service (the "Service") requesting certain rulings as to the
federal income tax treatment of the Reorganization (the "Ruling Request"). We
have assumed that such representations are true and that the parties to the
Reorganization will act in accordance with the Plan of Reorganization. In
addition, we have made such investigations of law as we have deemed appropriate
to form a basis for the opinions expressed below.
Based on and subject to the foregoing, it is our opinion that for
federal income tax purposes, under current law -
(a) With regard to the Conversion:
(1) the Conversion will constitute a reorganization under section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the Code"), and
the Bank (in either its status as Mutual Bank or Stock Bank) will recognize no
gain or loss as a result of the Conversion;
(2) The basis of each asset of Mutual Bank held by Stock Bank
immediately after the Conversion will be the same as Mutual Bank's basis for
such asset immediately prior to the Conversion;
<PAGE>
Board of Directors
August 25, 1998
Page 3
(3) the holding period of each asset of Mutual Bank held by Stock Bank
immediately after the Conversion will include the period during which such asset
was held by Mutual Bank prior to the Conversion:
(4) for purposes of Code section 381(b), Stock Bank will be treated as
if there had been no reorganization and, accordingly, the taxable year of the
Mutual Bank will not end on the effective date of the Conversion and the tax
attributes of Mutual Bank (subject to application of Code sections 381, 382 and
384) will be taken into account by Stock Bank as if the Conversion had not
occurred;
(5) Mutual Bank's members will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank common stock solely in exchange for
their mutual interest (i.e., liquidation and voting rights) in Mutual Bank;
(6) no gain or loss will be recognized by members of Mutual Bank upon
the issuance to them of deposits in Stock Bank in the same dollar amount and
upon the same terms as their deposits in Mutual Bank;
(b) With regard to the Exchange:
(7) the Exchange will qualify as an exchange of property for stock
under Code section 351;
(8) the initial shareholders of Stock Bank (the former Mutual Bank
members) will recognize no gain or loss upon the constructive transfer to the
Mutual Holding Company of the shares of Stock Bank common stock they
constructively receive in the Conversion in exchange for mutual interests (i.e.,
liquidation and voting rights) in the Mutual Holding Company;
(9) the Mutual Holding Company will recognize no gain or loss upon its
receipt from the initial shareholders of Stock Bank of shares of Stock Bank
common stock in exchange for interests in the Mutual Holding Company;
(c) With regard to the Mutual Holding Company's transfer of 100% of the
common stock of Stock Bank to Stock Holding Company:
(10) the Stock Holding Company will recognize no gain or loss upon its
receipt of 100% of the common stock of Stock Bank from the Mutual Holding
Company;
(11) the Stock Holding Company's basis for each share of Stock Bank
common stock received from Mutual Holding Company will be equal to the Mutual
Holding Company's basis in such share of common stock transferred to the Stock
Holding Company;
<PAGE>
Board of Directors
August 25, 1998
Page 4
(12) the Mutual Holding Company will recognize no gain or loss upon its
transfer of 100% of the common stock of Stock Bank to the Stock Holding Company;
and
This opinion is given solely for the benefit of the parties to the Plan
of Reorganization, the shareholders of Stock Holding Company and the members of
the Mutual Bank on the effective date of the Conversion, and may not be relied
upon by any other party or entity or referred to in any document without our
express written consent. We consent to the filing of this opinion as an exhibit
to (i) the Registration Statement on Form SB-2 to be filed with the Securities
and Exchange Commission on behalf of the Stock Holding Company, and (i) the
regulatory applications which are required to be filed with the Commissioner of
Banking of the State of New Jersey, the Federal Deposit Insurance Corporation,
and the Board of Governors of the Federal Reserve System.
Very truly yours,
/s/MALIZIA, SPIDI, SLOANE & FISCH, P.C.
---------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITERS'S DIRECT DIAL NUMBER
August 25, 1998
Board of Directors
Ridgewood Savings Bank of New Jersey
531 North Maple Avenue
Ridgewood, New Jersey 07450
Re: New Jersey Tax Consequences of Plan of Reorganization
-----------------------------------------------------
Dear Board Members:
You have asked us to give certain limited opinions as to the New Jersey
income tax consequences of the Plan of Reorganization and Stock Issuance from a
State Mutual Savings Bank to a State Mutual Savings Bank Holding Company of
Ridgewood Savings Bank of New Jersey (herein, the "Plan"). The capitalized terms
used in this letter, but not otherwise defined herein, have the same definitions
provided to such terms in the Plan.
Under the Plan: (i) Ridgewood Savings Bank of New Jersey ("Bank") will
form Mutual Holding Company ("MHC") as a wholly owned subsidiary; (ii) the MHC
will then form Stock Holding Company as a wholly owned subsidiary; (iii) the MHC
will also organize a New Jersey interim stock savings bank ("Interim"); (iv)
Bank will convert from a New Jersey mutual savings bank to a New Jersey stock
savings bank, with the Members of Bank constructively receiving all of the stock
of the Stock Bank; (v) Interim will merge with and into the Stock Bank, with the
said Members receiving all of the mutual interests in MHC in exchange for their
constructively held stock in Stock Bank; (vi) in a separate transaction, MHC
will transfer 100% of the common stock of Stock Bank to Stock Holding Company;
and (vii) the Stock Holding Company will offer up to 49.9% of its common stock
pursuant to the Plan.
Based on the foregoing, it is our opinion that for purposes of the New
Jersey corporate income tax:
1. The Bank (in either its status as a mutual or stock institution)
will recognize no gain or loss as a result of its conversion from mutual to
stock.
2. Mutual Bank's depositors will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank's common stock solely in exchange
for their mutual interest (i.e., liquidation and voting rights) in Mutual Bank.
<PAGE>
Ridgewood Savings Bank of New Jersey
August 25, 1998
Page 2
3. The initial shareholders of Stock Bank (the former Mutual Bank
depositors) will recognize no gain or loss upon the transfer to the MHC of the
shares of Stock Bank common stock they constructively received in the Conversion
in exchange for mutual interests (i.e., liquidation and voting rights) in the
MHC.
This opinion is limited to the effect of the income tax laws of the
State of New Jersey and to the specific conclusions set forth above, and no
other opinions are expressed or implied. Changes to the law or its
interpretation that we have relied upon may be applied retroactively and may
affect the opinion expressed herein.
This opinion is given solely for the benefit of the parties to the Plan
and the shareholders of Stock Bank and may not be relied upon by any other
person or entity or referred to in any document without our express written
consent. We consent to the filing of this opinion as an exhibit to (i) the
Registration Statement on Form SB-2 to be filed with the Securities and Exchange
Commission on behalf of the Stock Holding Company, and (i) the regulatory
applications which are required to be filed with the Commissioner of Banking of
the State of New Jersey, the Federal Deposit Insurance Corporation, and the
Board of Governors of the Federal Reserve System.
Sincerely,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
---------------------------------------
Malizia, Spidi, Sloane & Fisch, P.C.
EXHIBIT 8.3
<PAGE>
[FINPRO, INC. LETTERHEAD]
August 25, 1998
Board of Directors
Ridgewood Financial, Inc.
Ridgewood Savings Bank of New Jersey
531 North Maple Avenue
Ridgewood, New Jersey 07450
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Reorganization from Mutual Savings Bank to
Mutual Holding Company and Stock Issuance Plan (the "Plan") adopted by the Board
of Directors of Ridgewood Savings Bank of New Jersey (the "Bank"), whereby the
Bank will reorganize into the Mutual Holding Company form of organization by
converting from a New Jersey chartered mutual savings bank to a New Jersey
chartered stock savings bank and issuing 100% of its stock to a middle tier
stock holding company ("Mid Tier Company") and the Mid Tier Company issuing in
excess of 50% of its outstanding capital stock to the Company so long as the
Mutual Holding Company remains in the mutual form.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Common Stock are to be issued to (i) Eligible Account Holders;
(ii) the ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other
Members, collectively referred to as the "Recipients." Based solely on our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and will
afford the Recipients the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in the Community,
Public or Syndicated Public Offerings, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are exercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe for shares of Common Stock in the
reorganization will thereafter be able to buy or sell such shares at the same
price paid in the Subscription Offering.
Very truly yours,
FinPro, Inc.
/s/ Donald J. Musso
----------------------------------
Donald J. Musso
President
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 22nd day of June 1998, ("Effective
Date") by and between Ridgewood Savings Bank of New Jersey, Ridgewood, New
Jersey (the "Savings Bank") and Susan E. Naruk (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the President and Chief Executive Officer and is experienced in all phases of
the business of the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of President and Chief Executive Officer. The Executive hereby accepts
said employment and agrees to render such administrative and management services
to the Savings Bank and to any to-be-formed parent holding company ("Parent") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the
Savings Bank and Parent. The Executive's other duties shall be such as the Board
of Directors for the Savings Bank (the "Board of Directors" or "Board") may from
time to time reasonably direct, including normal duties as an officer of the
Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$157,500 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with her then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall not be entitled to receive any additional
compensation from the Savings Bank for failure to take a vacation or sick leave,
nor shall she be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the Savings
Bank, including, but not by way of limitation,
2
<PAGE>
automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Savings Bank. If such expenses are
paid in the first instance by the Executive, the Savings Bank shall reimburse
the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote her full time and attention to the
performance of her employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
(c) Executive hereby agrees that for a period of one year
following Executive's voluntary termination of employment, absent a Change in
Control of the Bank, Employee shall not engage in providing professional
services or enter into employment as an employee, director, consultant,
representative, or similar relationship to any financial services enterprise
(including but not limited to a savings and loan association, bank, credit
union, or insurance company) whereby the Executive will have a work location
within seven miles of any office of the Bank existing as of the date of
termination of employment of the Executive. This limitation on future activities
shall not affect the payment of previously vested benefits under the
compensation and benefit plans of the Bank or for compensation payable in
accordance with Section 9 of the Agreement.
5. Standards. During the term of this Agreement, the Executive shall
perform her duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
3
<PAGE>
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the third calendar month
following the date of the Executive's death.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination for "Just Cause" shall include termination because of
the Executive's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions. Notwithstanding anything herein to the
contrary, any payments made to the Executive pursuant to the Agreement, or
otherwise, shall be subject to and conditioned upon compliance with 12 USC
ss.1828(k) and any regulations promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that she is unable to perform her duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 6 months, but
not exceeding the remaining term of the Agreement, and 50% thereafter for an
additional
4
<PAGE>
six month period, not exceeding the remaing Term. Such benefits noted herein
shall be reduced by any benefits otherwise provided to the Executive during such
period under the provisions of disability insurance coverage in effect for
Savings Bank employees. Thereafter, Executive shall be eligible to receive
benefits provided by the Savings Bank under the provisions of disability
insurance coverage in effect for Savings Bank employees. Upon returning to
active full-time employment, the Executive's full compensation as set forth in
this Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Executive returns to active employment on
other than a full-time basis, then her compensation (as set forth in Section
3(a) of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement, whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise entitled to receive under Section 6 of
this Agreement. Further, such Employee and dependents shall continue to be
eligible to participate in the life insurance and medical/dental insurance
reimbursement program maintained by the Savings Bank or its successor entity for
a period of not less than 36 months following termination of employment and
continue to have such costs for enrollment and benefits coverages paid by the
Savings Bank or Parent. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Executive by
the Savings Bank or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "Change in Control" shall
refer to (i) the control of voting proxies whether related to stockholders or
mutual members by any person, other than the Board of Directors of the Savings
Bank, to direct more than 25% of the outstanding votes of the Savings Bank, the
control of the election of a majority of the Savings Bank's directors, or the
exercise of a controlling influence over the management or policies of the
Savings Bank by any person or by persons acting as a group within the meaning of
Section 13(d) of the Exchange Act, (ii) an event whereby the FDIC, the New
Jersey Department of Banking ("Department") or any other department, agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Savings Bank, a change in the corporate structure or organization of the
Savings Bank; (iii) an event whereby the FDIC, the Department or any other
agency or quasi-agency of the federal government cause or bring about, without
the consent of the Savings Bank, a taxation or involuntary distribution of
retained earnings or proceeds from the sale of securities to depositors,
borrowers, any government
5
<PAGE>
agency or organization or civic or charitable organization; or (iv) a merger or
other business combination between the Savings Bank and another corporate entity
whereby the Savings Bank is not the surviving entity. In the event that the
Savings Bank shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Bank or the Parent; (ii) the merger or
recapitalization of the Savings Bank or the Parent whereby the Savings Bank or
the Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Department, the
FDIC, the Federal Reserve Board or regulations promulgated by such agencies; or
(iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate her employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive (or
the Executive's estate in the event of death after a Change in Control but prior
to payment) shall thereupon be entitled to receive the payment described in
Section 9(a) of this Agreement, upon the occurrence, or within 120 days
thereafter, of any of the following events, which have not been consented to in
advance by the Executive in writing: (i) if Executive would be required to move
her personal residence or perform her principal executive functions more than
thirty-five (35) miles from the Executive's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Savings Bank,
Executive would be required to report to a person or persons other than the
Board of Directors of the Savings Bank; (iii) if the Savings Bank should fail to
maintain Executive's base compensation in effect as of the date of the Change in
Control and the existing employee benefits plans, including material fringe
benefit, stock option and retirement plans; (iv) if Executive would be assigned
duties and responsibilities other than those normally associated with her
position as referenced at Section 1, herein; (v) if Executive's responsibilities
or authority have in any way been materially diminished or reduced; or (vi) if
Executive would not be reelected to the Board of Directors of the Savings Bank.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
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11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating her rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such
7
<PAGE>
dispute, proceedings or actions, or the Board of the Savings Bank or the Parent
may authorize such reimbursement of such reasonable costs and expenses by
separate action upon a written action and determination of the Board following
settlement of the dispute. Such reimbursement shall be paid within ten (10) days
of Executive furnishing to the Savings Bank or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during her
employment she will learn and have access to confidential information regarding
the Savings Bank and the Parent and its customers and businesses ("Confidential
Information"). The Executive agrees and covenants not to disclose or use for her
own benefit, or the benefit of any other person or entity, any such Confidential
Information, unless or until the Savings Bank or the Parent consents to such
disclosure or use or such information becomes common knowledge in the industry
or is otherwise legally in the public domain. The Executive shall not knowingly
disclose or reveal to any unauthorized person any Confidential Information
relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or
to any of the businesses operated by them, and the Executive confirms that such
information constitutes the exclusive property of the Savings Bank and the
Parent. The Executive shall not otherwise knowingly act or conduct herself (a)
to the material detriment of the Savings Bank or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Savings Bank or the Parent. Executive acknowledges and
agrees that the existence of this Agreement and its terms and conditions
constitutes Confidential Information of the Savings Bank, and the Executive
agrees not to disclose the Agreement or its contents without the prior written
consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank
reserves the right in its sole discretion to make disclosure of this Agreement
as it deems necessary or appropriate in compliance with its regulatory reporting
requirements. Notwithstanding anything herein to the contrary, failure by the
Executive to comply with the provisions of this Section may result in the
immediate termination of the Agreement within the sole discretion of the Savings
Bank, disciplinary action against the Executive taken by the Savings Bank,
including but not limited to the termination of employment of the Executive for
breach of the Agreement and the provisions of this Section, and other remedies
that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.2
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 22nd day of June 1998, ("Effective
Date") by and between Ridgewood Savings Bank of New Jersey, Ridgewood, New
Jersey (the "Savings Bank") and Nelson Fiordalisi (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the Executive Vice President and Chief Operating Officer and is experienced
in all phases of the business of the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of Executive Vice President and Chief Operating Officer. The Executive
hereby accepts said employment and agrees to render such administrative and
management services to the Savings Bank and to any to-be-formed parent holding
company ("Parent") as are currently rendered and as are customarily performed by
persons situated in a similar executive capacity. The Executive shall promote
the business of the Savings Bank and Parent. The Executive's other duties shall
be such as the Board of Directors for the Savings Bank (the "Board of Directors"
or "Board") may from time to time reasonably direct, including normal duties as
an officer of the Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$113,276 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall not be entitled to receive any additional
compensation from the Savings Bank for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the Savings
Bank, including, but not by way of limitation,
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<PAGE>
automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Savings Bank. If such expenses are
paid in the first instance by the Executive, the Savings Bank shall reimburse
the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
(c) Executive hereby agrees that for a period of one year
following Executive's voluntary termination of employment, absent a Change in
Control of the Bank, Employee shall not engage in providing professional
services or enter into employment as an employee, director, consultant,
representative, or similar relationship to any financial services enterprise
(including but not limited to a savings and loan association, bank, credit
union, or insurance company) whereby the Executive will have a work location
within seven miles of any office of the Bank existing as of the date of
termination of employment of the Executive. This limitation on future activities
shall not affect the payment of previously vested benefits under the
compensation and benefit plans of the Bank or for compensation payable in
accordance with Section 9 of the Agreement.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
3
<PAGE>
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the third calendar month
following the date of the Executive's death.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination for "Just Cause" shall include termination because of
the Executive's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions. Notwithstanding anything herein to the
contrary, any payments made to the Executive pursuant to the Agreement, or
otherwise, shall be subject to and conditioned upon compliance with 12 USC
ss.1828(k) and any regulations promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 6 months, but
not exceeding the remaining term of the Agreement, and 50% thereafter for an
additional
4
<PAGE>
six month period, not exceeding the remaing Term. Such benefits noted herein
shall be reduced by any benefits otherwise provided to the Executive during such
period under the provisions of disability insurance coverage in effect for
Savings Bank employees. Thereafter, Executive shall be eligible to receive
benefits provided by the Savings Bank under the provisions of disability
insurance coverage in effect for Savings Bank employees. Upon returning to
active full-time employment, the Executive's full compensation as set forth in
this Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Executive returns to active employment on
other than a full-time basis, then his compensation (as set forth in Section
3(a) of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 200% of the prior
thirty-six month's taxable compensation paid by the Savings Bank or the Parent
to the Executive (whether paid or deferred by the Executive), but in no event in
an amount greater than 2.999 times the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder. Said sum shall be paid, at the option of
Executive, either in one (1) lump sum within thirty (30) days of such
termination of service or in periodic payments over the next 24 months or the
remaining term of this Agreement, whichever is less, as if Executive's
employment had not been terminated, and such payments shall be in lieu of any
other future payments which the Executive would be otherwise entitled to receive
under Section 6 of this Agreement. Further, such Employee and dependents shall
continue to be eligible to participate in the life insurance and medical/dental
insurance reimbursement program maintained by the Savings Bank or its successor
entity for a period of not less than 24 months following termination of
employment and continue to have such costs for enrollment and benefits coverages
paid by the Savings Bank or Parent. Notwithstanding the forgoing, all sums
payable hereunder shall be reduced in such manner and to such extent so that no
such payments made hereunder when aggregated with all other payments to be made
to the Executive by the Savings Bank or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Code and be subject to
the excise tax provided at Section 4999(a) of the Code. The term "Change in
Control" shall refer to (i) the control of voting proxies whether related to
stockholders or mutual members by any person, other than the Board of Directors
of the Savings Bank, to direct more than 25% of the outstanding votes of the
Savings Bank, the control of the election of a majority of the Savings Bank's
directors, or the exercise of a controlling influence over the management or
policies of the Savings Bank by any person or by persons acting as a group
within the meaning of Section 13(d) of the Exchange Act, (ii) an event whereby
the FDIC, the New Jersey Department of Banking ("Department") or any other
department, agency or quasi-agency of the federal government cause or bring
about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event whereby the FDIC,
the Department or any other agency or quasi-agency of the federal
5
<PAGE>
government cause or bring about, without the consent of the Savings Bank, a
taxation or involuntary distribution of retained earnings or proceeds from the
sale of securities to depositors, borrowers, any government agency or
organization or civic or charitable organization; or (iv) a merger or other
business combination between the Savings Bank and another corporate entity
whereby the Savings Bank is not the surviving entity. In the event that the
Savings Bank shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Bank or the Parent; (ii) the merger or
recapitalization of the Savings Bank or the Parent whereby the Savings Bank or
the Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Department, the
FDIC, the Federal Reserve Board or regulations promulgated by such agencies; or
(iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive (or
the Executive's estate in the event of death after a Change in Control but prior
to payment) shall thereupon be entitled to receive the payment described in
Section 9(a) of this Agreement, upon the occurrence, or within 120 days
thereafter, of any of the following events, which have not been consented to in
advance by the Executive in writing: (i) if Executive would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Executive's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Savings Bank,
Executive would be required to report to a person or persons other than the
President or the Board of Directors of the Savings Bank; (iii) if the Savings
Bank should fail to maintain Executive's base compensation in effect as of the
date of the Change in Control and the existing employee benefits plans,
including material fringe benefit, stock option and retirement plans; (iv) if
Executive would be assigned duties and responsibilities other than those
normally associated with his position as referenced at Section 1, herein; or (v)
if Executive's responsibilities or authority have in any way been materially
diminished or reduced.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
6
<PAGE>
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such
7
<PAGE>
dispute, proceedings or actions, or the Board of the Savings Bank or the Parent
may authorize such reimbursement of such reasonable costs and expenses by
separate action upon a written action and determination of the Board following
settlement of the dispute. Such reimbursement shall be paid within ten (10) days
of Executive furnishing to the Savings Bank or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.3
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 22nd day of June 1998, ("Effective
Date") by and between Ridgewood Savings Bank of New Jersey, Ridgewood, New
Jersey (the "Savings Bank") and John Scognamiglio (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the Senior Vice President and is experienced in all phases of the business of
the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of Senior Vice President. The Executive hereby accepts said employment
and agrees to render such administrative and management services to the Savings
Bank and to any to-be-formed parent holding company ("Parent") as are currently
rendered and as are customarily performed by persons situated in a similar
executive capacity. The Executive shall promote the business of the Savings Bank
and Parent. The Executive's other duties shall be such as the Board of Directors
for the Savings Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$92,500 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall not be entitled to receive any additional
compensation from the Savings Bank for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the Savings
Bank, including, but not by way of limitation,
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automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Savings Bank. If such expenses are
paid in the first instance by the Executive, the Savings Bank shall reimburse
the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
(c) Executive hereby agrees that for a period of one year
following Executive's voluntary termination of employment, absent a Change in
Control of the Bank, Employee shall not engage in providing professional
services or enter into employment as an employee, director, consultant,
representative, or similar relationship to any financial services enterprise
(including but not limited to a savings and loan association, bank, credit
union, or insurance company) whereby the Executive will have a work location
within seven miles of any office of the Bank existing as of the date of
termination of employment of the Executive. This limitation on future activities
shall not affect the payment of previously vested benefits under the
compensation and benefit plans of the Bank or for compensation payable in
accordance with Section 9 of the Agreement.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
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6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the third calendar month
following the date of the Executive's death.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination for "Just Cause" shall include termination because of
the Executive's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions. Notwithstanding anything herein to the
contrary, any payments made to the Executive pursuant to the Agreement, or
otherwise, shall be subject to and conditioned upon compliance with 12 USC
ss.1828(k) and any regulations promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 6 months, but
not exceeding the remaining term of the Agreement, and 50% thereafter for an
additional
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six month period, not exceeding the remaing Term. Such benefits noted herein
shall be reduced by any benefits otherwise provided to the Executive during such
period under the provisions of disability insurance coverage in effect for
Savings Bank employees. Thereafter, Executive shall be eligible to receive
benefits provided by the Savings Bank under the provisions of disability
insurance coverage in effect for Savings Bank employees. Upon returning to
active full-time employment, the Executive's full compensation as set forth in
this Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Executive returns to active employment on
other than a full-time basis, then his compensation (as set forth in Section
3(a) of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 200% of the prior
thirty-six month's taxable compensation paid by the Savings Bank or the Parent
to the Executive (whether paid or deferred by the Executive), but in no event in
an amount greater than 2.999 times the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder. Said sum shall be paid, at the option of
Executive, either in one (1) lump sum within thirty (30) days of such
termination of service or in periodic payments over the next 24 months or the
remaining term of this Agreement, whichever is less, as if Executive's
employment had not been terminated, and such payments shall be in lieu of any
other future payments which the Executive would be otherwise entitled to receive
under Section 6 of this Agreement. Further, such Employee and dependents shall
continue to be eligible to participate in the life insurance and medical/dental
insurance reimbursement program maintained by the Savings Bank or its successor
entity for a period of not less than 24 months following termination of
employment and continue to have such costs for enrollment and benefits coverages
paid by the Savings Bank or Parent. Notwithstanding the forgoing, all sums
payable hereunder shall be reduced in such manner and to such extent so that no
such payments made hereunder when aggregated with all other payments to be made
to the Executive by the Savings Bank or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Code and be subject to
the excise tax provided at Section 4999(a) of the Code. The term "Change in
Control" shall refer to (i) the control of voting proxies whether related to
stockholders or mutual members by any person, other than the Board of Directors
of the Savings Bank, to direct more than 25% of the outstanding votes of the
Savings Bank, the control of the election of a majority of the Savings Bank's
directors, or the exercise of a controlling influence over the management or
policies of the Savings Bank by any person or by persons acting as a group
within the meaning of Section 13(d) of the Exchange Act, (ii) an event whereby
the FDIC, the New Jersey Department of Banking ("Department") or any other
department, agency or quasi-agency of the federal government cause or bring
about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event
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whereby the FDIC, the Department or any other agency or quasi-agency of the
federal government cause or bring about, without the consent of the Savings
Bank, a taxation or involuntary distribution of retained earnings or proceeds
from the sale of securities to depositors, borrowers, any government agency or
organization or civic or charitable organization; or (iv) a merger or other
business combination between the Savings Bank and another corporate entity
whereby the Savings Bank is not the surviving entity. In the event that the
Savings Bank shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Bank or the Parent; (ii) the merger or
recapitalization of the Savings Bank or the Parent whereby the Savings Bank or
the Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Department, the
FDIC, the Federal Reserve Board or regulations promulgated by such agencies; or
(iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive (or
the Executive's estate in the event of death after a Change in Control but prior
to payment) shall thereupon be entitled to receive the payment described in
Section 9(a) of this Agreement, upon the occurrence, or within 120 days
thereafter, of any of the following events, which have not been consented to in
advance by the Executive in writing: (i) if Executive would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Executive's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Savings Bank,
Executive would be required to report to a person or persons other than the
President, Executive Vice President or the Board of Directors of the Savings
Bank; (iii) if the Savings Bank should fail to maintain Executive's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1, herein; or (v) if Executive's responsibilities or
authority have in any way been materially diminished or reduced.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
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11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such
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dispute, proceedings or actions, or the Board of the Savings Bank or the Parent
may authorize such reimbursement of such reasonable costs and expenses by
separate action upon a written action and determination of the Board following
settlement of the dispute. Such reimbursement shall be paid within ten (10) days
of Executive furnishing to the Savings Bank or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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EXHIBIT 10.4
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 22nd day of June 1998, ("Effective
Date") by and between Ridgewood Savings Bank of New Jersey, Ridgewood, New
Jersey (the "Savings Bank") and Jean M. Miller (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the Senior Vice President and is experienced in all phases of the business of
the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of Senior Vice President. The Executive hereby accepts said employment
and agrees to render such administrative and management services to the Savings
Bank and to any to-be-formed parent holding company ("Parent") as are currently
rendered and as are customarily performed by persons situated in a similar
executive capacity. The Executive shall promote the business of the Savings Bank
and Parent. The Executive's other duties shall be such as the Board of Directors
for the Savings Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$76,750 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with her then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall not be entitled to receive any additional
compensation from the Savings Bank for failure to take a vacation or sick leave,
nor shall she be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the Savings
Bank, including, but not by way of limitation,
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automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Savings Bank. If such expenses are
paid in the first instance by the Executive, the Savings Bank shall reimburse
the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote her full time and attention to the
performance of her employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
(c) Executive hereby agrees that for a period of one year
following Executive's voluntary termination of employment, absent a Change in
Control of the Bank, Employee shall not engage in providing professional
services or enter into employment as an employee, director, consultant,
representative, or similar relationship to any financial services enterprise
(including but not limited to a savings and loan association, bank, credit
union, or insurance company) whereby the Executive will have a work location
within seven miles of any office of the Bank existing as of the date of
termination of employment of the Executive. This limitation on future activities
shall not affect the payment of previously vested benefits under the
compensation and benefit plans of the Bank or for compensation payable in
accordance with Section 12 of the Agreement.
5. Standards. During the term of this Agreement, the Executive shall
perform her duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
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6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the third calendar month
following the date of the Executive's death.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination for "Just Cause" shall include termination because of
the Executive's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions. Notwithstanding anything herein to the
contrary, any payments made to the Executive pursuant to the Agreement, or
otherwise, shall be subject to and conditioned upon compliance with 12 USC
ss.1828(k) and any regulations promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that she is unable to perform her duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 6 months, but
not exceeding the remaining term of the Agreement, and 50% thereafter for an
additional
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six month period, not exceeding the remaing Term. Such benefits noted herein
shall be reduced by any benefits otherwise provided to the Executive during such
period under the provisions of disability insurance coverage in effect for
Savings Bank employees. Thereafter, Executive shall be eligible to receive
benefits provided by the Savings Bank under the provisions of disability
insurance coverage in effect for Savings Bank employees. Upon returning to
active full-time employment, the Executive's full compensation as set forth in
this Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Executive returns to active employment on
other than a full-time basis, then her compensation (as set forth in Section
3(a) of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 200% of the prior
thirty-six month's taxable compensation paid by the Savings Bank or the Parent
to the Executive (whether paid or deferred by the Executive), but in no event in
an amount greater than 2.999 times the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder. Said sum shall be paid, at the option of
Executive, either in one (1) lump sum within thirty (30) days of such
termination of service or in periodic payments over the next 24 months or the
remaining term of this Agreement, whichever is less, as if Executive's
employment had not been terminated, and such payments shall be in lieu of any
other future payments which the Executive would be otherwise entitled to receive
under Section 6 of this Agreement. Further, such Employee and dependents shall
continue to be eligible to participate in the life insurance and medical/dental
insurance reimbursement program maintained by the Savings Bank or its successor
entity for a period of not less than 24 months following termination of
employment and continue to have such costs for enrollment and benefits coverages
paid by the Savings Bank or Parent. Notwithstanding the forgoing, all sums
payable hereunder shall be reduced in such manner and to such extent so that no
such payments made hereunder when aggregated with all other payments to be made
to the Executive by the Savings Bank or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Code and be subject to
the excise tax provided at Section 4999(a) of the Code. The term "Change in
Control" shall refer to (i) the control of voting proxies whether related to
stockholders or mutual members by any person, other than the Board of Directors
of the Savings Bank, to direct more than 25% of the outstanding votes of the
Savings Bank, the control of the election of a majority of the Savings Bank's
directors, or the exercise of a controlling influence over the management or
policies of the Savings Bank by any person or by persons acting as a group
within the meaning of Section 13(d) of the Exchange Act, (ii) an event whereby
the FDIC, the New Jersey Department of Banking ("Department") or any other
department, agency or quasi-agency of the federal government cause or bring
about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event
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whereby the FDIC, the Department or any other agency or quasi-agency of the
federal government cause or bring about, without the consent of the Savings
Bank, a taxation or involuntary distribution of retained earnings or proceeds
from the sale of securities to depositors, borrowers, any government agency or
organization or civic or charitable organization; or (iv) a merger or other
business combination between the Savings Bank and another corporate entity
whereby the Savings Bank is not the surviving entity. In the event that the
Savings Bank shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Bank or the Parent; (ii) the merger or
recapitalization of the Savings Bank or the Parent whereby the Savings Bank or
the Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Department, the
FDIC, the Federal Reserve Board or regulations promulgated by such agencies; or
(iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate her employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive (or
the Executive's estate in the event of death after a Change in Control but prior
to payment) shall thereupon be entitled to receive the payment described in
Section 9(a) of this Agreement, upon the occurrence, or within 120 days
thereafter, of any of the following events, which have not been consented to in
advance by the Executive in writing: (i) if Executive would be required to move
her personal residence or perform her principal executive functions more than
thirty-five (35) miles from the Executive's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Savings Bank,
Executive would be required to report to a person or persons other than the
President, Executive Vice President or the Board of Directors of the Savings
Bank; (iii) if the Savings Bank should fail to maintain Executive's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with her position as
referenced at Section 1, herein; or (v) if Executive's responsibilities or
authority have in any way been materially diminished or reduced.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
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11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating her rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such
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dispute, proceedings or actions, or the Board of the Savings Bank or the Parent
may authorize such reimbursement of such reasonable costs and expenses by
separate action upon a written action and determination of the Board following
settlement of the dispute. Such reimbursement shall be paid within ten (10) days
of Executive furnishing to the Savings Bank or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during her
employment she will learn and have access to confidential information regarding
the Savings Bank and the Parent and its customers and businesses ("Confidential
Information"). The Executive agrees and covenants not to disclose or use for her
own benefit, or the benefit of any other person or entity, any such Confidential
Information, unless or until the Savings Bank or the Parent consents to such
disclosure or use or such information becomes common knowledge in the industry
or is otherwise legally in the public domain. The Executive shall not knowingly
disclose or reveal to any unauthorized person any Confidential Information
relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or
to any of the businesses operated by them, and the Executive confirms that such
information constitutes the exclusive property of the Savings Bank and the
Parent. The Executive shall not otherwise knowingly act or conduct herself (a)
to the material detriment of the Savings Bank or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Savings Bank or the Parent. Executive acknowledges and
agrees that the existence of this Agreement and its terms and conditions
constitutes Confidential Information of the Savings Bank, and the Executive
agrees not to disclose the Agreement or its contents without the prior written
consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank
reserves the right in its sole discretion to make disclosure of this Agreement
as it deems necessary or appropriate in compliance with its regulatory reporting
requirements. Notwithstanding anything herein to the contrary, failure by the
Executive to comply with the provisions of this Section may result in the
immediate termination of the Agreement within the sole discretion of the Savings
Bank, disciplinary action against the Executive taken by the Savings Bank,
including but not limited to the termination of employment of the Executive for
breach of the Agreement and the provisions of this Section, and other remedies
that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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EXHIBIT 10.5
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
SUPPLEMENTAL RETIREMENT PLAN
FOR SENIOR OFFICERS
-------------------
AS AMENDED
WHEREAS, Ridgewood Savings Bank of New Jersey ("Bank") wishes to reward
the years of extensive service provided by its Senior Officers and to retain the
best talent available to serve the Bank and its Board of Directors, and
WHEREAS, it is deemed advisable and in the best interests of the Bank
to offer such Senior Officers with additional financial incentives in the form
of deferred compensation to encourage such continued participation and service
to the Bank, and whereas an analysis of the retirement plan of the Bank
indicates that such Senior Officers would receive a significant reduction in
their retirement benefits in the event that their employment with the Bank
terminates prior to attainment of age 65, whether voluntarily or as part of a
sale or merger of the Bank.
NOW THEREFORE, BE IT RESOLVED that the Ridgewood Savings Bank of New
Jersey Supplemental Retirement Plan for Senior Officers ("Supplemental Plan"),
be adopted and implemented effective May 18, 1998, as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose
of this Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content, except to the
extent that such terms which are not defined herein shall be defined under the
Pension Plan:
1.1 "Bank" means Ridgewood Savings Bank of New Jersey, Ridgewood, New
Jersey, or any successor thereto.
1.2 "Beneficiary" shall mean the Participant's surviving spouse, if
any, the Participant's named beneficiary as reflected on the records of the
Bank, or the Participant's estate, in descending order of priority.
1.3 "Board" means the Board of Directors of the Bank, as constituted
from time to time and successors thereto.
1.4 "Change in Control" means (i) the control of voting proxies whether
related to stockholders or mutual members by any person, other than the Board of
Directors of the Bank, to direct more than 25% of the outstanding votes of the
Bank, the control of the election of a majority of the Bank's directors, or the
exercise of a controlling influence over the management or policies of the Bank
by any person or by persons acting as a group within the meaning of
<PAGE>
Section 13(d) of the Exchange Act, (ii) an event whereby the FDIC, the New
Jersey Department of Banking ("Department") or any other department, agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Bank, a change in the corporate structure or organization of the Bank;
(iii) an event whereby the FDIC, the Department or any other agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Bank, a taxation or involuntary distribution of retained earnings or
proceeds from the sale of securities to depositors, borrowers, any government
agency or organization or civic or charitable organization; or (iv) a merger or
other business combination between the Bank and another corporate entity whereby
the Bank is not the surviving entity. In the event that the Bank shall convert
in the future from mutual-to-stock form, the term "Change in Control" shall also
refer to: (i) the sale of all, or a material portion, of the assets of the Bank
or the Parent; (ii) the merger or recapitalization of the Bank or the Parent
whereby the Bank or the Parent is not the surviving entity; (iii) a change in
control of the Bank or the Parent, as otherwise defined or determined by the
Department, the FDIC, the Federal Reserve Board or regulations promulgated by
such agencies; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of twenty-five percent (25%) or more of the outstanding
voting securities of the Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding. However, a Change in
Control shall not be deemed to have occurred as a result of a holding company
reorganization of the Bank and simultaneous acquisition of more than 50% of the
Bank's stock (following the Bank's conversion to stock form) by a Parent.
1.5 "Committee" means the Executive Committee of the Board of the Bank.
1.6 "Corporation" or "Parent" means any parent bank holding company or
savings and loan holding company of the Bank, and any successor thereto.
1.7 "Director" means a member of the Board of the Bank.
1.8 "Disability" (total and permanent disability) means a mental or
physical disability which prevents the Participant from performing the normal
duties of his or her position with the Bank. Such disability must have prevented
the Participant from performing his or her duties for at least three months, and
a physician satisfactory to both the Participant and the Bank must certify that
the Participant is disabled from performing his or her normal duties with the
Bank.
1.9 "Early Retirement Date" shall mean the first day of the calendar
month following attainment of not less than age 55 of the Participant or
thereafter whereby the Participant retires as an employee of the Bank following
completion of not less than ten (10) years of service with the Bank, except as
otherwise provided at Section 2.3 herein.
1.10 "Effective Date" means May 18, 1998.
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<PAGE>
1.11 "Participant" means a senior officer of the Bank as determined by
action of the Board and as named at Attachment A hereto, as may be amended from
time to time. Such participation shall continue as long as such Participant
fulfills all requirements for participation subject to the right of termination,
amendment and modification of the Plan hereinafter set forth.
1.12 "Pension Plan" means the tax-qualified defined benefit plan
sponsored by the Bank for the benefit of the Bank's employees in effect as of
the Effective Date. All terms and definitions not otherwise defined in the Plan
shall be defined as set forth in the Pension Plan.
1.13 "Plan" means the Ridgewood Savings Bank of New Jersey Supplemental
Retirement Plan for Senior Officers, as herein set forth, as may be amended from
time to time.
1.14 "Retirement Date" means the first day of the calendar month
following attainment of age 65 of the Participant or thereafter whereby the
Participant retires as an employee of the Bank, following completion of not less
than ten (10) years of service with the Bank.
1.15 "Service" means all years of service as an employee of the Bank
and all predecessor and successor entities. Years of service need not be
continuous. All years of service prior to the Effective Date shall be recognized
for benefits determination.
1.16 "Trust" shall mean any trust agreement entered into on behalf of
the Plan by the Bank for the purpose of holding assets of the Bank in order to
promote the efficient administration of the Plan.
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ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as an
employee of the Bank on or after the Retirement Date or the Early Retirement
Date, the Bank shall pay to the participant a pension benefit in an amount
approved by the Board and set forth herein at Article II, Section 2.4,
commencing on the first business day of the calendar month commencing on or
after the Retirement Date or the Early Retirement Date. Except as provided at
Article II, Section 2.2, 2.3 and 2.5 herein, upon a Participant's termination
from service as an employee of the Bank prior to the Retirement Date or the
Early Retirement Date, the Bank shall have no financial obligations to the
Participant under the Plan.
2.2 Disability. In the event of the Disability of the Participant, the
Participant will be entitled to a pension benefit equal to 100% of the amount
specified at Article II, Section 2.4, payable on the first day of the month
following certification of such Disability based upon actual years of service
completed as of such date and without regard to any other provisions herein to
the contrary and assuming that the Participant has attained not less than age
55.
2.3 Change in Control. All benefits payable, or that would become
payable if the Participant were to retire prior to such Change in Control, shall
remain payable thereafter. Upon termination of service following a Change in
Control, all benefits shall be deemed payable immediately in accordance with
Article II, Section 2.4; provided that if the Participant is not yet age 55 as
of such date of termination of service and has not yet completed at least 20
Years of Service with the Bank, such Participant shall nevertheless be deemed to
be not less than age 55 as of the date of such termination and have completed
not less than ten (10) Years of Service with the Bank following a Change of
Control for purposes of calculation of benefits payable in accordance with
Section 2.4 herein, and further that it shall be assumed that benefits payable
under the Pension Plan shall be paid as of the date of termination of service,
or as of the date of such Change of Control (if later), in order to calculate
benefits payable hereunder. Actual Years of Service for benefits calculation
purposes following a Change in Control shall include all years of service
remaining under any employment agreement between the Participant and the Bank.
2.4 Benefit Payments. The Participant shall be eligible to receive
benefit payments under the Plan, as follows:
a. Benefits payable hereunder shall be calculated in the same manner as
benefits payable under the Pension Plan, except however notwithstanding anything
herein or in the Pension Plan to the contrary, in calculation of such benefits
payable, (i) Average Annual Earnings shall be based upon the average of the
highest three (3) consecutive calendar years Compensation; provided that such
Compensation shall not be limited by the provisions of Section 401(a)(17)(B) of
the Internal Revenue Code ("Code"), (ii) the maximum annual pension benefit
payable shall not be limited by Sections 415(b)(1)(A) or 415(e) of the Code, and
(iii) the Normal Retirement Benefit shall be calculated as sixty (60) percent of
Average Annual Earnings. Benefits payable hereunder shall be reduced to the
extent of benefits payable under the Pension Plan calculated as a 10 year
certain payment and life annuity, and benefits payments under the Federal Social
Security Act calculated as a monthly benefit payable to the Participant based
upon their personal
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<PAGE>
career earnings and with payments commencing as of the first of the month on or
after attainment of age 65.
b. Notwithstanding any provisions of the Pension Plan to the contrary,
benefits payable prior to the Retirement Date shall be reduced at the rate of
1.0% per year (and 0.08333% per month) for each year (or full month) that the
Participant commences receipt of such benefits prior to attainment of age 65.
c. Benefits payable hereunder shall be paid in the form of 120 monthly
payments certain, except to the extent that the Committee shall otherwise
authorize payments in the form of a lump-sum distribution.
2.5 Benefit Payments Following Death. A Participant receiving benefits
in accordance with Article II, Sections 2.1, 2.2 or 2.3 shall, upon death,
continue to have the balance of any such payments due be paid to the
Participant's Beneficiary in the same manner as benefits payable in accordance
with the provisions of the Pension Plan. Upon the death of a Participant after
completion of not less than 10 years of service, benefits payable in accordance
with Section 2.4 herein shall be immediately and 100% payable to the Beneficiary
without regard to any other provisions to the Plan to the contrary and assuming
that the Participant has attained not less than age 55.
2.6 Notice of Retirement. A Participant electing to retire in
accordance with the Plan shall deliver written notice ("Notice") to the Board
not less than ninety (90) days prior to the actual Retirement Date. A
Participant who terminates service upon death, Disability, or a Change in
Control shall not be required to deliver such Notice in order to be entitled to
receive benefits under the Plan.
2.7 Alternative Forms Of Benefit Payment. The Committee may at any time
distribute the benefits payable with respect to all future benefits payable
pursuant to Sections 2.1, 2.2, 2.3, and 2.5 of the Plan, in a lump sum payment
equal to the present value of all future benefits payable to such Participant.
The interest rate in effect for a two year U.S. Treasury Note on the date of the
lump sum payment shall be used for purposes of calculating the present value of
amounts payable in accordance with Section 2.4.
ARTICLE III
INSURANCE
3.1 Ownership of Insurance. The Bank, in its sole discretion, may elect
to purchase one or more life insurance policies on the lives of Participants in
order to provide funds to the Bank to pay part or all of the benefits accrued
under this Plan. All rights and incidents of ownership in any life insurance
policy that the Bank may purchase insuring the life of the Participant
(including any right to proceeds payable thereunder) shall belong exclusively to
the Bank or its designated Trust, and neither the Participant, nor any
beneficiary or other person claiming under or through him or her shall have any
rights, title or interest in or to any such insurance policy. The Participant
shall not have any power to transfer, assign, hypothecate or otherwise encumber
in advance any of the benefits payable thereunder, nor shall any benefits be
subject to seizure for the benefit of any debts or judgments, or be transferable
by operation
5
<PAGE>
of law in the event of bankruptcy, insolvency or otherwise. Any life insurance
policy purchased pursuant hereto and any proceeds payable thereunder shall
remain subject to the claims of the Bank's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, the Participant, as may be requested by the Bank from
time to time shall take a physical examination by a physician approved by an
insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Bank to establish
certain costs associated with obtaining insurance coverages as may be deemed
necessary under this Plan. Such examination shall remain confidential among the
Participant, the physician and the insurance carrier and shall not be made
available to the Bank in any form or manner.
3.3 Death of Participant. Upon the death of the Participant, the
proceeds derived from any such insurance policy held by the Bank or any related
Trust, if any, shall be paid to the Bank or its designated Trust.
ARTICLE IV
TRUST / NON-FUNDED STATUS
4.1 Trust. Except as may be specifically provided, nothing contained in
this Plan and no action taken pursuant to the provisions of this Plan shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Bank and the Participant or any other person. Any funds
which may be invested under the provisions of this Plan shall continue for all
purposes to be a part of the general funds of the Bank. No person other than the
Bank shall by virtue of the provisions of this Plan have any interest in such
funds. The Bank shall not be under any obligation to use such funds solely to
provide benefits hereunder, and no representations have been made to a
Participant that such funds can or will be used only to provide benefits
hereunder. To the extent that any person acquires a right to receive payments
from the Bank under the Plan, such rights shall be no greater than the right of
any unsecured general creditor of the Bank.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Bank under this Plan (including the provision of funds necessary to
pay premiums with respect to any life insurance policies purchase pursuant to
Article III above and to pay benefits to the extent that the cash value and/or
proceeds of any such policies are not adequate to make payments to a Participant
or his or her beneficiary as and when the same are due under the Plan), the Bank
may enter into a Trust Agreement. The Bank, in its discretion, may elect to
place any life insurance policies purchased pursuant to Article III above into
the Trust. In addition, such sums shall be placed in said Trust as may from time
to time be approved by the Board of Directors, in its sole discretion. To the
extent that the assets of said Trust and/or the proceeds of any life insurance
policy purchased pursuant to Article III are not sufficient to pay benefits
accrued under this Plan, such payments shall be made from the general assets of
the Bank.
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<PAGE>
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to the Retirement Date or Early Retirement Date. All benefits
payable hereunder shall be deemed 100% earned and non-forfeitable by the
Participant and his or her Beneficiary as of the Retirement Date or Early
Retirement Date. Notwithstanding the foregoing, all benefits payable hereunder
shall be deemed 100% earned and non-forfeitable by the Participant and his or
her Beneficiary upon the death or the Disability of the Participant, or upon
termination of employment following a Change in Control of the Bank. No benefits
shall be deemed payable hereunder for any time period prior to termination of
employment prior to the Retirement Date or Early Retirement Date, except in the
event of death, Disability or termination of employment following a Change in
Control of the Bank, in which case such benefits shall be immediately payable as
of such date of termination of employment.
ARTICLE VI
TERMINATION
6.1 Termination. All rights of the Participant hereunder shall
terminate immediately upon the Participant ceasing to be in the active service
of the Bank prior to the time that the benefits payable under the Plan shall be
deemed to be 100% earned and non-forfeitable. A leave of absence approved by the
Board shall not constitute a cessation of service within the meaning of this
paragraph, within the sole discretion of the Committee.
ARTICLE VII
FORFEITURE OR SUSPENSION OF BENEFITS
7.1 Forfeiture or Suspension of Benefits. Notwithstanding any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Bank following the commencement of
benefit payments, within the sole discretion of the Committee.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Other Benefits. Nothing in this Plan shall diminish or impair the
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Bank now or
hereinafter in effect.
8.2 No Effect on Employment. This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Bank any right to be
retained in the employment or service of the Bank, or to interfere with the
right of the Bank to terminate any Participant or such other person at any time
and to treat him or her without regard to the effect which such treatment mights
have upon him or her as a Participant in this Plan.
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<PAGE>
8.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Bank and binding
upon the Bank, its successors and assigns.
8.4 Modification. The Bank, by action of the Board, reserves the
exclusive right to amend, modify, or terminate this Plan. Any such termination,
modification or amendment shall not terminate or diminish any rights or benefits
accrued by any Participant prior thereto. The Bank shall give thirty (30) days'
notice in writing to any Participant prior to the effective date of any such
amendment, modification or termination of this Plan. Notwithstanding the
foregoing, in no event shall such benefits payable to a Participant under the
Plan be reduced below those provided for in Section 2.4 herein. In the event
that the Plan benefits payable under Section 2.4 of the Plan are reduced or the
Plan is terminated, a Participant shall be immediately 100% vested in all
benefits calculated in accordance with Section 2.4 as of the date of such Plan
amendment or Plan termination without regard to such Plan amendment or Plan
termination.
8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association unless otherwise mutually agreed to by the Participant
and the Bank, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
8.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. Rights of Participants hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant or a Beneficiary.
Such rights are not subject to the debts, contracts, liabilities, engagements,
or torts of any Participant or his or her Beneficiary. No Participant shall have
any right under this Plan or any Trust referred to in Article IV or against any
assets held or acquired pursuant thereto other than the rights of a general,
unsecured creditor of the Bank pursuant to the unsecured promise of the Bank to
pay the benefits accrued hereunder in accordance with the terms of this Plan.
The Bank has no obligation under this Plan to fund or otherwise secure its
obligations to render payments hereunder to Participants. No Participant shall
have any voice in the use, disposition, or investment of any asset acquired or
set aside by the Bank to provide benefits under this Plan.
8.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither
an "employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant or a Beneficiary prior to the actual receipt of a payment under the
Plan for purposes of the Internal Revenue Code of 1986, as amended ("IRC"). No
representation is made to any Participant to the effect that any insurance
policies purchased by the Bank or assets of any Trust established pursuant to
this Plan will be used solely to provide benefits under this Plan or in any way
shall constitute security for the payment of such benefits. Benefits payable
under this Plan are not in any way limited to or governed by the proceeds of any
such insurance policies or the assets of any such Trust. No Participant in the
Plan has any preferred claim against the proceeds of any such insurance policies
or the assets of any such Trust.
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8.8 Conduct of Participants. Notwithstanding anything contained to the
contrary, no payment of any then unpaid benefits shall be made and all rights
under the Plan payable to a Participant, or any other person, to receive
payments thereof shall be forfeited if the Participant shall engage in any
activity or conduct which in the opinion the Board of the Bank is inimical to
the best interests of the Bank.
8.9 Incompetency. If the Bank shall find that any person to whom any
payment is payable under the Plan is deemed unable to care for his or her
personal affairs because of illness or accident, or is a minor, any payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse, a
child, a parent, or a brother or sister, or to any person deemed by the Bank to
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Committee, in its sole discretion, may determine.
Any such payments shall constitute a complete discharge of the liabilities of
the Bank under the Plan.
8.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Bank and members of
the Committee shall not be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to his or her own willful, gross misconduct or intentional lack of
good faith.
8.11 Plan Administration. The Board of the Bank shall administer the
Plan; provided, however, that the Board may appoint an administrative committee
("Committee") to provide administrative services or perform duties required by
this Plan. The Committee shall have only the authority granted to it by the
Board.
8.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of New Jersey, except to the extent that
Federal law shall be deemed to apply. No payments of benefits shall be made
hereunder if the Board of the Bank, or counsel retained thereby, shall determine
that such payments shall be in violation of applicable regulations, or likely
result in imposition of regulatory action, by the New Jersey Department of
Banking, the Federal Deposit Insurance Corporation or other appropriate banking
regulatory agencies.
8.13 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Bank, and unless clearly inapplicable, reference
herein to the Bank shall be deemed to include any successor or successors of the
Bank.
8.14 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Bank and any Participants and Beneficiaries hereto with respect to
the subject matter hereof.
8.15 Regulatory Matters.
(a) The Participant or Beneficiary shall have no right to receive
compensation or other benefits in accordance with the Plan for any period after
termination of service for Just Cause. Termination for "Just Cause" shall
include termination because of the Participant's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit,
9
<PAGE>
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 the Plan.
(b) Notwithstanding anything herein to the contrary, any payments made
to a Participant or Beneficiary pursuant to the Plan shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10
EXHIBIT 16
<PAGE>
[LOGO] DORFMAN, ABRAMS, MUSIC & CO.
CERTIFIED PUBLIC ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Pursuant to 17 C.F.R. ss.228.304(a)(3) ("Item 304"), we have reviewed the
language under the heading "CHANGE IN AUDITOR" in the prospectus included as
part of the Registration Statement on Form SB-2 to be filed with the Securities
and Exchange Commission by Ridgewood Financial, Inc., the proposed parent
holding company for Ridgewood Savings Bank of New Jersey. We do not disagree
with the statements contained therein concerning our firm. However, aside from
receipt of notification of such action, we have no basis for determining whether
the board of directors or audit committee met concerning this matter.
/s/Dorfman, Abrams, Music & Co.
Fair Lawn, New Jersey
August 24, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
21-00 Route 208 South, Fair Lawn, NJ 07410-2604 Tel: (201) 796-9100 Fax: (201) 796-0900 E-Mail:[email protected]
Member of Affiliated Conference of Practicing Accountants International
</TABLE>
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ridgewood Savings Bank of New Jersey:
We consent to the use of our report dated February 27, 1998 relating to the
statements of financial condition of Ridgewood Savings Bank of New Jersey as of
December 31, 1997 and 1996 and the related statements of income, equity, and
cash flows for the years then ended included herein, and to the reference to our
firm under the heading "Experts" and "Statements of Income" in the registration
statement/prospectus.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
August 19, 1998
EXHIBIT 23.3
<PAGE>
[FINPRO, INC. LETTERHEAD]
Board of Directors
Ridgewood Financial, Inc.
Ridgewood Savings Bank of New Jersey
531 North Maple Avenue
Ridgewood, New Jersey 07450
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form SB-2 Registration Statement, and amendments thereto, of Ridgewood
Financial, Inc. to be filed with the Securities and Exchange Commission, the
combined Notice of Mutual Holding Company Reorganization and Application for
Approval of a Minority Stock Issuance ("MHC Application") filed by Ridgewood
Savings Bank of New Jersey and any amendments thereto, and the Conversion
Valuation Appraisal Report ("Report") regarding the valuation of the Bank
provided by FinPro, and our opinion regarding subscription rights filed as
exhibits to the form SB-2. We also consent to the use of our firm's name and the
inclusion of, summary of and references to our Report and Opinion in the
Prospectus included in the form SB-2, and the MHC Application, and any
amendments thereto.
Very truly yours,
/s/ Donald J. Musso
--------------------------------------
Donald J. Musso
President
Liberty Corner, New Jersey
August 25, 1998
EXHIBIT 23.4
<PAGE>
[LOGO] DORFMAN, ABRAMS, MUSIC & CO.
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts"
included in the Registration Statement on form SB-2 filed by Ridgewood
Financial, Inc. and to the use therein of our report dated February 29, 1996,
concerning the financial statements of Ridgewood Savings Bank of New Jersey.
/s/Dorfman, Abrams, Music & Co.
Fair Lawn, New Jersey
August 24, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
21-00 Route 208 South, Fair Lawn, NJ 07410-2604 Tel: (201) 796-9100 Fax: (201) 796-0900 E-Mail:[email protected]
Member of Affiliated Conference of Practicing Accountants International
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
REGISTRATION STATEMENT ON FORM SB-2 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 2,520 1,574
<INT-BEARING-DEPOSITS> 608 624
<FED-FUNDS-SOLD> 16,400 13,200
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 97,409 77,053
<INVESTMENTS-CARRYING> 112,698 101,075
<INVESTMENTS-MARKET> 112,858 101,299
<LOANS> 105,726 106,742
<ALLOWANCE> 750 618
<TOTAL-ASSETS> 242,662 229,065
<DEPOSITS> 198,602 193,889
<SHORT-TERM> 6,700 15,525
<LIABILITIES-OTHER> 1,277 1,700
<LONG-TERM> 18,732 757
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 17,351 17,194
<TOTAL-LIABILITIES-AND-EQUITY> 242,662 229,065
<INTEREST-LOAN> 4,150 8,562
<INTEREST-INVEST> 3,365 6,602
<INTEREST-OTHER> 512 670
<INTEREST-TOTAL> 8,027 15,834
<INTEREST-DEPOSIT> 4,792 8,982
<INTEREST-EXPENSE> 5,312 10,287
<INTEREST-INCOME-NET> 2,715 5,547
<LOAN-LOSSES> 132 12
<SECURITIES-GAINS> 24 19
<EXPENSE-OTHER> 1,969 3,676
<INCOME-PRETAX> 732 2,091
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 487 1,250
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 2.38 2.58
<LOANS-NON> 6 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 618 606
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 750 618
<ALLOWANCE-DOMESTIC> 750 618
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
EXHIBIT 99.1
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
[Ridgewood Savings Bank of New Jersey Letterhead]
__________ , 1998
Dear Depositor:
I am pleased to inform you that the Board of Directors of Ridgewood Savings Bank
of New Jersey (the "Bank") has unanimously approved a Plan of Reorganization and
Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will convert to a
stock savings bank and form a New Jersey- chartered stock holding company which
will own 100% of the outstanding common stock of the converted savings bank. The
Plan will permit the proposed stock holding company to issue capital stock, a
source of capital not available to mutual savings institutions. Our new mutual
holding company structure will enable us to continue to serve you as an
independent community-oriented institution.
Our proposed stock holding company, Ridgewood Financial, Inc., is offering
between 1,038,700 and 1,616,095 shares of common stock at $10.00 per share to
certain of our customers and members of the public. The shares of stock sold to
investors will represent a minority interest in Ridgewood Financial, Inc. Our
newly-formed mutual holding company, Ridgewood Financial, MHC, will own the
remainder of the outstanding shares.
The Plan is subject to a favorable vote of our members. Our officers and
directors urge you to vote "FOR" the Plan. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope or bring
your card(s) into any of our offices. In order to ensure that your vote will be
counted, we must receive your proxy card(s) by 12:00 noon, New Jersey time, on
_______, 1998.
We have also enclosed a Prospectus, Stock Order Form, reply envelope and
Questions & Answers Brochure. We urge you to read the Prospectus carefully
before submitting your Stock Order Form. If you are interested in purchasing
shares, you may do so during the Offering without paying a commission or fee.
Your completed Stock Order Form, along with payment or authorization to withdraw
funds from your deposit account(s) at the Bank, must be received by us by 12:00
noon, New Jersey time, on _______, 1998.
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 2
Interest will be paid on all funds received by us at our annual rate of interest
on passbook savings accounts, or at the account contract rate with respect to
withdrawals from existing accounts. You may purchase the common stock through a
withdrawal from your savings or certificate account without the customary early
withdrawal penalty.
Please call the Stock Information Center early in the Offering period if you
intend to utilize IRA or other tax-qualified funds to purchase the common stock.
Additional processing time is required as the common stock must be purchased
through a self-directed IRA held with an outside trustee. Please note that your
Ridgewood Savings Bank of New Jersey IRAs are not self-directed.
Please remember:
o YOUR SAVINGS ACCOUNTS, CERTIFICATES OF DEPOSIT AND CHECKING ACCOUNTS AT THE
BANK WILL CONTINUE TO BE INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION UP TO APPLICABLE LIMITS.
o THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
o CUSTOMERS WILL ENJOY THE SAME SERVICES WITH THE SAME STAFF.
o YOUR VOTE IN FAVOR OF THE PLAN DOES NOT OBLIGATE YOU TO BUY COMMON STOCK.
o CERTAIN DEPOSITORS OF THE BANK MAY BUY COMMON STOCK BEFORE IT IS SOLD TO
THE GENERAL PUBLIC.
If you have any questions, please call the Stock Information Center at (201)
445-2109, 9:00 a.m. to 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as
stockholders of Ridgewood Financial, Inc.
Sincerely,
Susan E. Naruk
President and Chief Executive Officer
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 3
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 OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
55 North Broad Street
Ridgewood, New Jersey
(201) 445-2109
<PAGE>
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
[Ridgewood Savings Bank of New Jersey Letterhead]
__________ , 1998
Dear Sir/Madam:
I am pleased to inform you that the Board of Directors of Ridgewood Savings Bank
of New Jersey (the "Bank") has unanimously approved a Plan of Reorganization and
Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will convert to a
stock savings bank and form a New Jersey-chartered stock holding company, which
will own 100% of the outstanding common stock of the converted savings bank. The
Plan will permit the proposed stock holding company to issue capital stock, a
source of capital not available to mutual savings institutions. Our new mutual
holding company structure will enable us to continue to serve you as an
independent community-oriented institution.
Our proposed stock holding company, Ridgewood Financial, Inc., is offering
between 1,038,700 and 1,616,095 shares of common stock at $10.00 per share to
certain of our customers and members of the public. The shares of stock sold to
investors will represent a minority interest in Ridgewood Financial, Inc. Our
newly-formed mutual holding company, Ridgewood Financial, MHC, will own the
remainder of the outstanding shares.
AS A DEPOSITOR OF THE BANK AS OF MAY 31, 1997 OR SEPTEMBER 30, 1998,
YOU HAVE PRIORITY TO BUY COMMON STOCK BEFORE IT IS SOLD TO THE GENERAL
PUBLIC.
We have enclosed a Prospectus, Stock Order Form, reply envelope and Questions
and Answers Brochure. If you are interested in purchasing shares, you may do so
during the Offering without paying a commission or fee. We urge you to read the
Prospectus carefully before submitting your Stock Order Form. Your completed
Stock Order Form, along with payment must be received by the Bank by 12:00 noon,
New Jersey time, on _______, 1998.
Interest will be paid by the Bank at our passbook savings account annual rate on
all funds received until the Offering is completed.
If you have any questions, please call the Stock Information Center at (201)
445-2109, 9:00 a.m. to 4:00 p.m., Monday through Friday.
<PAGE>
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
Page 2
We hope that you will take advantage of this opportunity to join us as
stockholders of Ridgewood Financial, Inc.
Sincerely,
Susan E. Naruk
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 OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
55 North Broad Street
Ridgewood, New Jersey
(201) 445-2109
<PAGE>
POTENTIAL INVESTOR LETTER (Non-Customers)
[Ridgewood Savings Bank of New Jersey Letterhead]
__________ , 1998
Dear Potential Investor:
I am pleased to inform you that the Board of Directors of Ridgewood Savings Bank
of New Jersey (the "Bank") has unanimously approved a Plan of Reorganization and
Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will convert to a
stock savings bank and form a New Jersey-chartered stock holding company, which
will own 100% of the outstanding common stock of the converted savings bank. The
Plan will permit the proposed stock holding company to issue capital stock, a
source of capital not available to mutual savings institutions. Our new mutual
holding company structure will enable us to continue to serve you as an
independent community-oriented institution.
Our proposed stock holding company, Ridgewood Financial, Inc., is offering
between 1,038,700 and 1,616,095 shares of common stock at $10.00 per share to
certain of our customers and members of the public. The shares of stock sold to
investors will represent a minority interest in Ridgewood Financial, Inc. Our
newly-formed mutual holding company, Ridgewood Financial, MHC, will own the
remainder of the outstanding shares.
We have enclosed a Prospectus, Stock Order Form and Questions and Answers
Brochure. If you are interested in purchasing shares, you may do so during the
Offering without paying a commission or fee. We urge you to read the Prospectus
carefully before submitting your Stock Order Form. To order, your completed
Stock Order Form, along with payment must be received by the Bank by 12:00 noon,
New Jersey time, on _______, 1998.
Interest will be paid by the Bank at our passbook savings account annual rate on
all funds received until the Offering is completed.
If you have any questions, please call our Stock Information Center at (201)
445-2109, 9:00 a.m. to 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as
stockholders of Ridgewood Financial, Inc.
<PAGE>
POTENTIAL INVESTOR LETTER (Non-Customers)
Page 2
Sincerely,
Susan E. Naruk
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 OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
55 North Broad Street
Ridgewood, New Jersey
(201) 445-2109
<PAGE>
"BLUE SKY" MEMBER LETTER
[Ridgewood Savings Bank of New Jersey Letterhead]
__________ , 1998
Dear Member:
I am pleased to inform you that the Board of Directors of Ridgewood Savings Bank
of New Jersey (the "Bank") has unanimously approved a Plan of Reorganization and
Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will convert to a
stock savings bank and form a New Jersey-chartered stock holding company, which
will own 100% of the outstanding common stock of the converted savings bank. The
Plan will permit the proposed stock holding company to issue capital stock, a
source of capital not available to mutual savings institutions. Our proposed
mutual holding company, Ridgewood Financial, MHC, will remain an independent
community-oriented institution.
The Plan is subject to a favorable vote of our members. Our officers and
directors urge you to vote "FOR" the Plan. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope. In
order to ensure that your vote will be counted, we must receive your proxy
card(s) by 12:00 noon, New Jersey time, on _______, 1998.
The Board of Directors of the Bank believes that the mutual holding company
formation and related stock offering are in the best interest of its customers
and the communities it serves. Please remember:
THERE WILL BE NO CHANGE IN YOUR DEPOSIT ACCOUNTS OR LOANS.
YOUR DEPOSIT ACCOUNTS AT THE BANK WILL CONTINUE TO BE INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION UP TO APPLICABLE
LIMITS.
Although you may vote on the Plan, we regret that our proposed stock holding
company, Ridgewood Financial, Inc., is unable to offer or sell its common stock
to you because the small number of depositors in your state makes registration
or qualification of the common stock under your state securities laws
impractical.
<PAGE>
"BLUE SKY" MEMBER LETTER
Page 2
If you have any questions about your voting rights or the Plan, please call the
Stock Information Center at (201) 445-2109, 9:00 a.m. to 4:00 p.m., Monday
through Friday.
Sincerely,
Susan E. Naruk
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 OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
55 North Broad Street
Ridgewood, New Jersey
(201) 445-2109
<PAGE>
RYAN, BECK "BROKER DEALER" LETTER
[Ryan, Beck Letterhead]
__________ , 1998
Dear Sir/Madam:
At the request of Ridgewood Savings Bank of New Jersey and Ridgewood Financial,
Inc., we are enclosing materials regarding its stock offering. The materials
include a Prospectus, Stock Order Form and Questions and Answers Brochure
describing the Ridgewood Savings Bank of New Jersey mutual holding company
reorganization and the related offering of the Ridgewood Financial, Inc. common
stock. Ryan, Beck & Co., Inc. has been retained by Ridgewood Savings Bank of New
Jersey and Ridgewood Financial, Inc. as the 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 OR ANY OTHER GOVERNMENT AGENCY.
- ------------------------
This letter goes only in packages located in specified states.
<PAGE>
PROXYGRAM
[Ridgewood Savings Bank of New Jersey Letterhead]
PROXYGRAM
DEAR RIDGEWOOD SAVINGS BANK OF NEW JERSEY MEMBER:
TIME IS RUNNING OUT TO VOTE ON THE PLAN OF REORGANIZATION AND STOCK ISSUANCE!
YOU SHOULD HAVE RECENTLY RECEIVED A PROXY STATEMENT AND PROXY CARD(S). HOWEVER,
WE HAVE NOT YET RECEIVED YOUR PROXY VOTE.
YOUR VOTE IS IMPORTANT TO US. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN. PLEASE VOTE AND SIGN ALL OF THE ENCLOSED PROXY CARD(S) AND RETURN
THEM PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR DELIVER THEM TO ANY OF
OUR OFFICES! VOTES WILL BE CAST ON _______, 1998.
VOTING ON THE PLAN DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN OUR COMMON STOCK
OFFERING.
IF YOU HAVE ANY QUESTIONS, OR WOULD LIKE TO RECEIVE ANOTHER COPY OF THE PROXY
STATEMENT, PLEASE CALL THE STOCK INFORMATION CENTER AT (201) 445-2109 9:00 A.M.
TO 4:00 P.M., MONDAY THROUGH FRIDAY.
Sincerely,
Susan E. Naruk
President and Chief Executive Officer
THIS PROXYGRAM 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 OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER ACKNOWLEDGMENT LETTER
[Ridgewood Savings Bank of New Jersey Letterhead]
[Name]
[Social Security Number]
Dear Investor:
We are pleased to confirm the receipt of your order in the amount of $______ for
the purchase of Ridgewood Financial, Inc. Common Stock.
The Common Stock will be registered in the name(s) shown above. Please verify
the Social Security number and the spelling and accuracy of your name and
address. If this information is incorrect, please contact our conversion agent,
(Name and Address to Follow).
Please note this acknowledgment does not represent the total number of shares
that you may receive. The actual purchase will be determined by the total number
of orders received. The allocation process is described in more detail in the
Prospectus.
If you have any questions, please call our Stock Information Center at (201)
445-2109.
We appreciate your confidence in our future and look forward to having you as a
stockholder.
- -----------------------------
Printed and mailed by conversion agent. (The contact name/phone is at conversion
agent's office.)
<PAGE>
STOCK CERTIFICATE MAILING LETTER
__________, 1998
Dear Stockholder:
On behalf of the Board of Directors of Ridgewood Financial, Inc., I would like
to welcome you as a shareholder. A total of ________ shares were issued; of
these, _____ were purchased by investors at $10.00 per share. Our mutual holding
company, Ridgewood Financial, MHC, owns the balance of the outstanding shares.
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 or write our Transfer Agent:
[NAME & ADDRESS TO BE PROVIDED]
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 Ridgewood Financial, Inc. stockholder
communications.
If you paid for your shares by check, please find enclosed a check representing
the interest which accrued on the amount of your check between the date of
receipt and the close of the Offering. However, if we were not able to fully
fill your order, this check also represents a refund of the amount of your
subscription that we were unable to fill.
If you paid for your shares by authorizing withdrawal from a Ridgewood Savings
Bank of New Jersey deposit account, that withdrawal has now been made. If we
were unable to fill your entire order, and you paid for your subscription in
this manner, only the amount necessary to pay for your allotment was withdrawn
from your account(s). Accrued interest earned during the Offering remains in
your account.
We thank you for your participation in our Offering.
Sincerely,
Susan E. Naruk
President and Chief Executive Officer
<PAGE>
INVITATION (Optional)
An Opportunity . . .
YOU ARE CORDIALLY INVITED
To a Community Investor Meeting and Reception
to learn about the formation of
Ridgewood Financial, MHC
and the related Common Stock offering of
Ridgewood Financial, Inc.
___________, 1998
or
___________, 1998
7:00 p.m.
LOCATIONS TO FOLLOW
Light Refreshments Served
Senior executives of Ridgewood Savings Bank of New Jersey will present
information and answer your questions about Ridgewood Savings Bank of New
Jersey's Plan of Reorganization from a New Jersey- chartered mutual savings bank
to a New Jersey-chartered stock savings bank and related Stock Offering. You'll
also be presented with information about Ridgewood Savings Bank of New Jersey's
business focus and results of operations.
SEATING IS LIMITED Please call
and make your reservation.
(201) 445-2109
Stock Information Center
[LOGO]
THIS INVITATION 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 OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
LOBBY POSTER
1,616,095 Shares of Common Stock
Ridgewood Savings Bank of New Jersey. is conducting an offering of Common Stock.
If you have any questions, please call the Stock Information Center at (201)
445-2109, 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 THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
TOMBSTONE ADVERTISEMENT (Optional)
(Post-Community Meetings)
[LOGO]
Ridgewood Financial, Inc.
Proposed Holding Company for
Ridgewood Savings Bank of New Jersey
UP TO __________ SHARES
Common Stock
$10.00 Per Share
(Purchase Price)
Shares may be purchased during the Offering, without payment of additional
commissions or fees.
This Offering expires at 12:00 noon, New Jersey time, on ________, 1998.
To receive a copy of the Prospectus, please call the Stock Information Center at
(201) 445-2109, 9:00 a.m. to 4:00 p.m., Monday through Friday.
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 OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
COMMUNITY MEETING ADVERTISEMENT (Optional)
Ridgewood Savings Bank of New Jersey is reorganizing from a New Jersey-chartered
mutual savings bank to a mutual holding company. As part of its reorganization,
Ridgewood Financial, Inc. is offering up to 1,616,095 shares of common stock at
a subscription price of $10.00 per share. Purchasers will not be required to pay
a commission or brokerage fee.
YOU ARE INVITED
to a Community Investors Meeting and Reception
to meet senior officers and Directors of the
Ridgewood Savings Bank of New Jersey
In addition to hearing a discussion about the benefits of the mutual holding
company structure and stock offering, you'll learn more about Ridgewood Savings
Bank of New Jersey's business focus and results of operations.
Community Investors Meeting
____________, 1998
or
____________, 1998
7:00 p.m.
[Location]
To receive a copy of the Prospectus, or to make a reservation to attend a
meeting, please call our Stock Information Center at (201) 445-2109.
Ridgewood Savings Bank of New Jersey [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 OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE
CONTACT: Susan E. Naruk, President and Chief Executive Officer
TELEPHONE: (201) 445-4000
FOR IMMEDIATE RELEASE
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Ridgewood, New Jersey. ______, 1998 -- Ridgewood Savings Bank of New Jersey has
received conditional approval from regulatory authorities to begin an offering
of common stock in connection with its mutual holding company reorganization as
a subsidiary of Ridgewood Financial, Inc. Shares of common stock of Ridgewood
Financial, Inc. are being offered to its depositors and borrowers. Any remaining
shares will be offered to the public.
Ridgewood Financial, Inc. is offering up to 1,616,095 shares of voting common
stock at a purchase price of $10.00 per share. The offering will represent 47%
of the total issued and outstanding shares of Ridgewood Financial, Inc.
Outstanding shares not issued in the Offering will be owned by Ridgewood
Financial, MHC, the newly-formed mutual holding company.
The best-efforts offering, which is being managed by Ryan, Beck & Co., Inc. is
expected to conclude on _______, 1998.
The Bank's deposits are and will continue to be insured up to the applicable
limits by the FDIC.
Further information, including details of the Offering, and business and
financial information about Ridgewood Savings Bank of New Jersey are described
in a prospectus, which is available upon request by calling the Stock
Information Center at (201) 445-2109.
THIS NOTICE 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 OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE
CONTACT: Susan E. Naruk, President and Chief Executive Officer
TELEPHONE: (201) 445-4000
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Ridgewood, New Jersey. ______, 1998. Susan E. Naruk, President & Chief Executive
Officer of Ridgewood Savings Bank of New Jersey announced today the completion
of its reorganization and common stock offering.
In connection with the stock offering by the bank's holding company, Ridgewood
Financial, Inc., a mutual holding company named Ridgewood Financial, MHC was
also formed. Shares of voting common stock of Ridgewood Financial, Inc. were
sold to its eligible depositors and to the employee stock ownership plan at
$10.00 per share. The ______ shares sold in the Offering represent a 47%
minority interest in Ridgewood Financial, Inc. The remaining outstanding shares
of stock are owned by Ridgewood Financial, MHC.
Ms. Naruk expressed his appreciation to the more than individuals who have
become stockholders of Ridgewood Financial, Inc. Ms. Naruk was delighted by the
support and confidence shown by customers and the local community.
Net proceeds of approximately $ million were realized in the Offering, a
portion of which will add to Ridgewood Savings Bank of New Jersey's capital base
and will support traditional investment and lending activities. Ryan, Beck &
Co., Inc. served as financial advisor and selling agent with regard to the
transaction. Ryan, Beck & Co. makes a market in Ridgewood Financial's common
stock which will start trading on , 1998 and be listed on the Nasdaq
National Market under the symbol "____".
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FOLDER COVER
Ridgewood Savings Bank of New Jersey
[LOGO]
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BROCHURE
Cover:
Questions & Answers
[LOGO]
Inside Cover:
The reorganization of Ridgewood Savings Bank of New Jersey into a mutual holding
company structure, including the organization of Ridgewood Financial, Inc. and
its related stock offering, is referred to as the "Transaction" in this
pamphlet. References herein to Ridgewood Savings Bank of New Jersey include the
Bank 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 Ridgewood Financial, Inc. Please carefully 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 the Transaction?
A. Ridgewood Savings Bank of New Jersey (the "Bank") is changing its
legal form from a New Jersey-chartered mutual (no stockholders)
savings bank to a New Jersey-chartered capital stock savings bank
that will be a subsidiary of Ridgewood Financial, Inc. a New
Jersey-chartered stock holding company (the "Company"). In
addition, the Bank will organize Ridgewood Financial, MHC (the
"Mutual Holding Company") which will own the majority of voting
common stock of the Company. The Transaction concurrently
involves the public 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.
1
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Q. Why is the Bank pursuing this Transaction?
A. The Board of Directors has determined that the Transaction is in
the best interests of the Bank and its customers for a number of
reasons including:
o The Offering gives customers (including directors, 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 with an
opportunity to share in the Bank's future growth and potential
earnings. There can be no assurances, however, as to the Bank's
future growth or potential earnings.
o While the Bank currently exceeds all regulatory capital
requirements, raising equity capital through the Offering permits
the Bank to enlarge its capital base and will help the Bank take
advantage of future business opportunities.
o The Transaction will convert the Bank to stock form which is the
corporate form of organization used by commercial banks and most
savings institutions.
Q. Will there be any changes in directors, officers or employees as
a result of the Transaction?
A. No. The directors, officers and employees of the Bank will not
change as a result of the Transaction. The management and
employees of the Bank will continue in their current capacities
and its directors and officers will serve as the initial
directors and officers of the Company and the Mutual Holding
Company. The day-to-day activities of the Bank will not change as
a result of the Transaction.
Q. Will the Transaction affect deposit accounts or loan accounts?
A. No. The Transaction will not affect the amount, interest rate or
withdrawal rights of deposit accounts, which will continue to be
insured by the FDIC to the maximum legal limit. Likewise, the
loan accounts and rights of borrowers will not be affected.
VOTING RIGHTS
Q. Who is eligible to vote on the Transaction?
A. Depositors of the Bank as of ______, 1998, the Voting Record
Date, are eligible to vote. These members have been provided with
a Proxy Statement describing the Transaction.
2
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Q. If I received Proxy Cards, am I required to vote on the
Transaction?
A. No. However, the Board of Directors urges you to vote "FOR" the
Plan and sign all of the Proxy Cards and either hand-deliver them
to any of our offices or send them to us using the enclosed reply
envelope.
Q. Why did I get several Proxy Cards?
A. If you have more than one account, you may have received more
than one Proxy Card, depending on the ownership structure of your
accounts. Please complete, sign and submit all Proxy Cards.
Q. Am I required to purchase stock if I vote in favor of the
Transaction?
A. No. To become a stockholder, you must submit a Stock Order Form
and payment, as described below.
Q. May I vote in person at the Special Meeting?
A. Yes. If you attend the Special Meeting, you may revoke your
existing proxy, if any, and vote in person.
PURCHASING STOCK
Q. Who may purchase the common stock?
A. The Bank's depositors and members of the general public may
subscribe for the Company's common stock during the offering
period. In the event, however, that orders exceed the 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 May 31, 1997; (2) the Bank's Employee Stock
Ownership Plan; (3) depositors of the Bank with aggregate
deposits of $50 or more on September 30, 1998; (4) depositors of
the Bank as of _______, 1998 (the "Voting Record Date"); 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 1,038,700 and 1,616,095 shares of
common stock, which will represent 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 $22.1 and $34.4 million as of
_______, 1998. The final appraisal value will depend upon market
and financial conditions at the time the Offering is consummated.
3
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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 directors 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 the Bank with
payment by 12:00 noon, New Jersey time, on ______, 1998. You may
hand-deliver the Stock Order Form to any of the Bank's offices,
or you may use the enclosed Reply Envelope. Payment may be made
by check or money order or by authorization of withdrawal from
one or more Ridgewood Savings Bank of New Jersey deposit
accounts. (Note that any applicable penalty for early withdrawal
will be waived for such withdrawals.)
Q. Will I receive interest on funds I submit for stock purchases?
A. Yes. Funds received will be placed in a deposit account at the
Bank and interest will be paid at the Bank's passbook account
rate 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. The minimum purchase is 100 shares ($1,000). The maximum
individual order in the Offering is 10,000 shares ($100,000) and
no person, together with associates of and persons acting in
concert with such person, may purchase more than 20,000 shares
($200,000).
Q. Is the common stock insured by the FDIC?
A. No. Stock cannot be insured by the FDIC or any other government
agency.
Q. May I obtain a loan from the Bank to pay for my shares?
A. No. Regulations do not allow the Bank to make loans for this
purpose, but other financial institutions may be able to make
such a loan.
4
<PAGE>
Q. Can I subscribe for shares using funds in my IRA at Ridgewood
Savings Bank of New Jersey?
A. Yes. However, applicable regulations do not allow for the
purchase of common stock in an Ridgewood Savings Bank of New
Jersey IRA. To use such funds to purchase common stock, you need
to establish a self-directed account with an outside trustee.
Please call the Stock Information Center if you wish to use funds
in your Ridgewood Savings Bank of New Jersey IRA, or any
tax-qualified funds at other institutions to purchase common
stock in the offering. IRA and tax-qualified procedures require
additional processing time, so please contact us as soon as
possible.
Q. When does the Offering terminate?
A. The Offering will terminate at 12:00 noon, New Jersey 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 previously discussed.) There is no
guarantee that an order will be filled either in whole or in
part. 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 promptly refunded with interest. If
payment for the stock is made by authorization to withdraw the
funds from an Ridgewood Savings Bank of New Jersey 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.
Q. How may I purchase or sell shares in the future?
A. You may purchase or sell shares through a stockbroker. The
Company anticipates that following the offering the common stock
will be listed on the Nasdaq National Market System under the
symbol "____". There can be no assurance, however, that an active
and liquid market for the common stock will develop.
5
<PAGE>
QUESTIONS?
PLEASE CALL THE STOCK INFORMATION CENTER AT (201) 445-2109 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 or any other government agency.
6
<PAGE>
RIDGEWOOD FINANCIAL, INC.
STOCK ORDER FORM
Please read and complete this Stock Order Form.
Instructions are included on the reverse side of this form.
Please note that after consummation of the Offering,
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DEADLINE FOR DELIVERY FOR OFFICE USE ONLY
- ----------------------------------------------------- -------------------------------------------------------------------------
12:00 noon, New Jersey time, on ______, 1998
Please mail the completed Stock Order Form in the
enclosed business reply envelope to the address ---------- -------- ------- -------
listed below or hand-deliver to any Ridgewood Savings Date Rec'd Batch # Order # Deposit
Bank of New Jersey office. Copies and facsimiles
of Stock Order Forms will not be accepted. -------------------------------------------------------------------------
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) NUMBER OF SHARES
- --------------------------------- ------------------------------------- --------------------------------------------------
Number of Shares Price per Share Total Amount Due
X $10.00 = $
- --------------------------------- ------------------------------------- --------------------------------------------------
(100 Share Minimum)
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<CAPTION>
<S> <C>
(2) METHOD OF PAYMENT (3) PURCHASER INFORMATION
- -------------------------------------------------------------------------------- ---------------------------------------------------
[ ] Enclosed is a check or money order payable to Ridgewood Savings Check the box which applies.
Bank of New Jersey for $______________. (a) [ ] Eligible Account Holder - Check here if
you were a depositor with at least $50 at Ridgewood
[ ] I authorize Ridgewood Savings Bank of New Jersey to make the Savings Bank of New Jersey on May 31, 1997. List
withdrawal(s) from the Ridgewood Savings Bank of New Jersey any account(s) you had at that date below.
account(s) listed below, and understand that the amounts I authorize (b) [ ] Supplemental Eligible Account Holder -
below will not otherwise be available to me once this Stock Order Form Check here if you were a depositor with at least
is submitted. (There is no early withdrawal penalty for the purchase $50 at Ridgewood Savings Bank of New Jersey on
of stock.) September 30, 1998, but are not an Eligible Account
Holder. List any account(s) you had at that date
Account Number(s) Amount(s) (c) [ ] Other Member - Check here if you were a
----------------- --------- depositor of Ridgewood Savings Bank of New Jersey
on ____, 1998, but are not an Eligible or Supple-
- ----------------------------------------------------------------------------- mental Eligible Account Holder.List any account(s)
you had at that date below.
- ----------------------------------------------------------------------------- (d) [ ] Check here if you were not a Ridgewood
Savings Bank of New Jersey account holder at any of
- ----------------------------------------------------------------------------- the above dates.
Account Title (Name(s) on Account) Account Number
- ----------------------------------------------------------------------------- ---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------- ---------------------------------- --------------
---------------------------------- --------------
If additional space is needed, please attach a
separate page and submit it with this Stock Order
Total Withdrawal: Form.
- -------------------------------------------------------------------------------- ---------------------------------------------------
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<CAPTION>
(4) STOCK REGISTRATION (Please Print Clearly - The registration information you list below will be utilized for subsequent mailings,
including the registration of stock certificates. Please make sure the information is complete and legible).
<S> <C>
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(First Name, Middle Initial, Last Name) Social Security No./Tax ID# (certificate will show this number)
- ------------------------------------------------------------------------------------------------------------------------------------
(First Name, Middle Initial, Last Name) Social Security No./Tax ID#
- ------------------------------------------------------------------------------------------------------------------------------------
(Street Address) (Daytime Phone Number)
- ------------------------------------------------------------------------------------------------------------------------------------
(City, State, Zip Code) (Evening Phone Number)
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</TABLE>
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<CAPTION>
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(5) FORM OF STOCK OWNERSHIP (check one - see reverse side of this Form for ownership definitions)
<S> <C> <C> <C>
|_| Individual |_| Joint Tenants |_| Tenants in Common |_| Uniform Transfer to Minors
|_| IRA (for broker use only) |_| Corporation |_| Fiduciary (Under Agreement Dated___, 199__) |_| Other ______________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<CAPTION>
<S> <C>
(6) NASD AFFILIATION (Check and initial only 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 issuance;
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)
- --------------------------------------------------------------------------------
(7) ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
- --------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _________, 1998, and that I(we) have been advised to read the Prospectus
(including the section entitled "Risk Factors"). I(we) understand that, after receipt by Ridgewood Savings Bank of New Jersey,
this order may not be modified or withdrawn without the consent of Ridgewood. 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) confirm that my(our) order does not conflict with the purchase limitation
and ownership limitation provisions in the Plan of Reorganization and Stock Issuance. I(we) acknowledge that the common
stock being ordered is not a deposit or savings account, is not insured by the FDIC and is not guaranteed by Ridgewood
Savings Bank of New Jersey, 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 an Ridgewood Savings Bank of New Jersey 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 Signature Title (if applicable) Date
THIS ORDER NOT VALID UNLESS SIGNED - WE RECOMMEND RETAINING A COPY OF THIS FORM FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
QUESTIONS? Please call (201) 445-2109 from 9:00 am to 4:00 pm, Monday-Friday
Stock Information Center: 55 North Broad Street, Ridgewood, New Jersey
- ------------------------------------------------------------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
</TABLE>
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
(1) NUMBER OF SHARES -- Indicate the number of shares of Ridgewood Financial,
Inc. common stock that you wish to purchase and indicate the amount due. The
minimum purchase is 100 shares or $1,000. No individual person may purchase more
than $100,000 in the Offering. No person, together with associates or persons
acting in concert with such person, may purchase more than $200,000 in the
Offering. Ridgewood Savings Bank of New Jersey reserves the right to accept or
reject orders placed in the Community Offering, if any.
(2) METHOD OF PAYMENT -- Payment for shares may be made by check or money order
payable to Ridgewood Savings Bank of New Jersey. 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
Ridgewood Savings Bank of New Jerseys annual passbook rate (currently __%) from
the time funds are received until the Offering is consummated.
You may pay for your shares by withdrawal from your Ridgewood Savings Bank of
New Jersey 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 accounts contractual rate until the Offering
is consummated. Please contact the Stock Information Center early in the
Offering period, if you are intending to utilize Ridgewood Savings Bank of New
Jersey IRA funds (or any other IRA funds) to make your stock purchase.
(3) PURCHASER INFORMATION -- Check the applicable box. This information is very
important because eligibility dates are utilized to prioritize your order in the
event 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 Reorganization and
Offering - Subscription Offering and Subscription Rights for a detailed
explanation of how shares will be allocated in the event the Offering is
oversubscribed. Failure to complete this section, completing this section
incorrectly or omitting information in this section could result in a loss of
all or part of your stock allocation.
(4) STOCK REGISTRATION -- 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 Ridgewood
Savings Bank of New Jersey (i) eligible depositor as of 5/31/97 or (ii) eligible
depositor as of 9/30/98, or (iii) other depositor as of __/__/98, 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.
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 for tax
purposes. Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
(5) FORM OF STOCK OWNERSHIP -- Please check the one type of ownership applicable
to your 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 Ridgewood Financial, 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 Right of Survivorship and not 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
TRANSFER
TO MINORS: Stock may be held in the name of a custodian for a minor under
the Uniform Transfers to Minors laws of the individual 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 appropriate
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 NJ
- ---------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary(ies):
o If an individual, list the first given name, middle
initial and last name.
o If a corporation, list the corporate title
o If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity: Adminstrator, Concervator,
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
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
(6) NASD AFFILIATION -- Check the box and initial, if applicable.
(7) ACKNOWLEDGMENT AND SIGNATURE -- Stock order forms submitted without a
signature will not be accepted. Only one signature is required, unless the
method of payment section of this Form includes authorization to withdraw
from an Ridgewood Savings Bank of New Jersey account requiring more than
one signature. If signing as a custodian, trustee, corporate officer, etc.,
please include your title. If exercising a Power of Attorney, you must
submit a copy of the POA agreement with this Form.
EXHIBIT 99.2
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Ridgewood Financial, Inc.
Conversion
Valuation
Appraisal
Date Issued: August 25, 1998
Date of Market Prices: August 13, 1998
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<PAGE>
Table of Contents
Ridgewood Financial, Inc.
Ridgewood, New Jersey
INTRODUCTION 1
- --------------------------------------------------------------------------------
1. OVERVIEW AND FINANCIAL ANALYSIS 3
- --------------------------------------------------------------------------------
General Overview 3
History 4
Strategic Direction 5
Balance Sheet Trends 6
Loan Portfolio 8
Investments 11
Investments and Mortgage-Backed Securities 12
Asset Quality 13
Funding Composition 16
Asset/Liability Management 18
Net Worth and Capital 19
Income and Expense Trends 20
Subsidiaries 25
Legal Proceedings 25
2. Market Area Analysis 26
- --------------------------------------------------------------------------------
Market Area Demographics 27
Market area Deposit Characteristics 28
3. Comparisons With Publicly Traded Thrifts 30
- --------------------------------------------------------------------------------
Introduction 31
Selection Screens 31
Selection Criteria 33
Comparable Group Profiles 35
4. Market Value Determination 41
- --------------------------------------------------------------------------------
Introduction 41
Balance Sheet Strength 43
Asset Quality 46
Earnings Quality, Predictability and Growth 47
Market Area 51
- --------------------------------------------------------------------------------
<PAGE>
Management 52
Dividends 53
Liquidity of the Issue 55
Recent Regulatory Matters 57
Market for Seasoned Thrift Stocks 57
Acquisition Market 61
Adjustments to Value in Relation to the Comparable Group 63
5. Other Adjustments 64
- --------------------------------------------------------------------------------
Market for MHC Stocks 64
Subscription Interest 67
6. Valuation 69
- --------------------------------------------------------------------------------
Full Offering Value in Relation to Comparables 70
MHC Value in Relation to MHC's 73
Valuation Conclusion 75
- --------------------------------------------------------------------------------
<PAGE>
List of Figures
Ridgewood Financial, Inc.
Ridgewood, New Jersey
Figure 1 - Current Facilities List 3
Figure 2 - Asset and Retained Earnings Chart 6
Figure 3 - Key Balance Sheet Data 7
Figure 4 - Key Ratios 7
Figure 5 - Net Loans Receivable Chart 8
Figure 6 - Loan Mix as of June 30, 1998 Chart 9
Figure 7 - Loan Mix 10
Figure 8 - Securities Chart 11
Figure 9 - Investment Mix 12
Figure 10 - Non-Performing Assets Chart 13
Figure 11 - Non-Performing Loans 14
Figure 12 - Allowance for Possible Loan and Lease Losses Chart 15
Figure 13 - Deposit and Borrowing Trend Chart 16
Figure 14 - Deposit Mix 17
Figure 15 Interest Rate Sensitivity Gap 18
Figure 16 - Capital Analysis 19
Figure 17 - Net Income Chart 20
Figure 18 - Average Yields and Costs 21
Figure 19 - Spread and Margin Chart 22
Figure 20 - Income Statement Trends 23
Figure 21 - Profitability Trend chart 24
Figure 22 - Population Demographics 26
Figure 23 - Household Characteristics 27
Figure 24 - Market Share 28
Figure 25 - Potential Comparables 32
Figure 26 - Comparables Eliminated 32
Figure 27 - Comparable Group 33
Figure 28 - Key Financial Indicators 39
Figure 29 - Key Balance Sheet Data 43
Figure 30 - Balance Sheet Growth Data 44
Figure 31 - Capital Data 45
Figure 32 - Asset Quality Table 46
Figure 33 - Net Income Trend 48
Figure 34 - Profitability Data 49
Figure 35 - Income Statement Data 50
Figure 36 - Dividend Data 54
Figure 37 - Market Capitalization Data 55
Figure 38 - SNL Thrift Index Chart 57
Figure 39 - Historical SNL Index 58
Figure 40 - Equity Indices 58
Figure 41 - Historical Market Indices 59
Figure 42 - Historical Rates 59
Figure 43 - Deals for Last Fourteen Quarters 61
Figure 44 - Deal Multiples 62
Figure 45 - MHC Reorganizations (Since 1/1/97) Pro Forma Data 64
Figure 46 - MHC Reorganizations (Since 1/1/97) Price Appreciation 64
Figure 47 - MHC Trading Multiples 65
- --------------------------------------------------------------------------------
<PAGE>
Figure 48 - Recent Second Step Price Change, Since 1/1/97 65
Figure 49 - MHC Trading Discount 66
Figure 50 - Recent Standard Conversion Performance 68
Figure 51 - Value Range Full Offering Data 70
Figure 52 - Value Range Offering Data 71
Figure 53 - Comparable Pricing Multiples to the Banks Pro forma Midpoint 71
Figure 54 - Comparable Pricing Multiples to the Banks Pro forma Supermaximum 72
Figure 55 - Value Range MHC Offering Data 63
Figure 56 - Value Range Offering Data 73
Figure 57 - MHC Pricing Multiples to the Banks Pro forma Midpoint 74
Figure 58 - MHC Pricing Multiples to the Banks Pro forma Supermaximum 74
- --------------------------------------------------------------------------------
<PAGE>
List of Exhibits
Ridgewood Financial, Inc.
Ridgewood, New Jersey
Exhibit
- -------
1 Profile of FinPro, Inc.
2 Balance Sheets
3 Statements of Income
4 Statements of Changes in Net Worth
5 Statements of Cash Flows
6 Selected Data on All Public Thrifts
7 Industry Multiples
8 Recent Standard Conversions 1997 to Date
9 MHC Conversions 1997 to Date
9A All MHC Conversions
10 Appraisal Pro Forma June 30, 1998 - Full Offering 12 Months Data
Adjusted
11 Appraisal Pro Forma June 30, 1998 - MHC 12 Months Data djusted
12 Offering Circular Pro Forma June 30, 1998 - MHC 12 Months Data
Unadjusted
13 Offering Circular Pro Forma December 31, 1997 - MHC 6 Months Data
Unadjusted
- --------------------------------------------------------------------------------
<PAGE>
Conversion Valuation Appraisal Report Page 1-1
- --------------------------------------------------------------------------------
Introduction
This report represents FinPro, Inc.'s ("FinPro") independent appraisal of the
estimated pro forma market value of the common stock (the "Common Stock") of
Ridgewood Financial, Inc. in connection with the Reorganization and stock
issuance (the "Reorganization") of Ridgewood Savings Bank of New Jersey (the
"Bank") from a New Jersey chartered mutual savings bank to a New Jersey
chartered stock savings bank. As part of the reorganization, the Bank will
become a wholly owned subsidiary of Ridgewood Financial, Inc. (the "Company"), a
New Jersey-chartered stock corporation. Upon consummation of the reorganization,
the Company will own all of the shares of the Bank. A majority of the common
stock of the Company to be issued will be owned by a New Jersey-chartered mutual
savings bank holding company that will have the same directors and officers as
the Bank. The remainder (less than half) of the common stock of the Company is
being offered to the public in accordance with a plan of reorganization and
stock issuance.
It is our understanding that the Company will offer its stock in a subscription
and community offering to the Bank's Eligible Account Holders, to Supplemental
Eligible Account Holders of the Bank, to Other Participants, to the board
members, officers and employees of the Bank, and to the community. This
appraisal has been prepared in accordance with Regulation 563b.7 and with the
"Guidelines for Appraisal Reports for the Valuation of Savings and Loan
Associations Converting from Mutual to Stock Form of Organization" of the Office
of Thrift Supervision ("OTS") which have been adopted in practice by the Federal
Deposit Insurance Corporation ("FDIC"), including the most recent revisions as
of October 21, 1994, and applicable regulatory interpretations thereof.
In the course of preparing our report, we reviewed the financial statements of
the Bank's operations for the six months ended June 30, 1998, the year ended
December 31, 1997 and the Bank's operations and financials for the prior year
ended December 31, 1996. We also reviewed the Bank's Application for Approval of
Conversion including the Proxy Statement and the Company's Form SB-2
registration statement as filed with the Securities and Exchange Commission
("SEC"). We have conducted due diligence analysis of the Bank and the Company
(hereinafter, collectively referred to as "the Bank") and held due diligence
related discussions with the Bank's management and board, KPMG Peat Marwick,
LLP, (the Bank's independent auditor), Ryan, Beck & Co., Inc. (the Bank's
underwriter), and Malizia, Spidi, Sloane and Fisch, P.C. (the Bank's special
counsel). The valuation parameters set forth in the appraisal were predicated on
these discussions but all conclusions related to the valuation were reached and
made independent of such discussions.
Where appropriate, we considered information based upon other publicly available
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 reviewed the market area economic condition. We also reviewed
the competitive environment in which the Bank operates and its relative
strengths and weaknesses. We compared the Bank's performance with selected
publicly traded thrift institutions. We reviewed conditions in the securities
markets in general and in the market for savings institutions in particular. Our
analysis included a review of the estimated effects of the Reorganization of the
Bank, operation and expected financial performance as they related to the Bank's
estimated pro-forma value.
In preparing our valuation, we relied upon and assumed the accuracy and
completeness of financial and other information provided to us by the Bank and
its independent accountants. We did not independently verify the financial
statements and other information provided by the Bank and its independent
accountants, nor did we independently value any of the Bank's assets or
liabilities. This estimated valuation considers the Bank only as a going concern
and should not be considered as an indication of its liquidation value.
Our valuation is not intended, and must not be construed, to be a recommendation
of any kind as the advisability of purchasing shares of Common Stock in the
stock issuance. Moreover, 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 who purchase
shares of Common Stock in the stock issuance will thereafter be able to sell
such shares at prices related to the foregoing valuation of the pro-forma market
value thereof. FinPro is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by FinPro shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
The estimated valuation herein will be updated as appropriate. These updates
will consider, among other factors, any developments or changes in the Bank
financial condition, operating performance, management policies and procedures
and current conditions in the securities market for thrift institution common
stock. Should any such developments or changes, in our opinion, be material to
the estimated pro forma market value of the Bank, appropriate adjustments to the
estimated pro forma market value will be made. The reasons for any such
adjustments will be explained at that time.
<PAGE>
Conversion Valuation Appraisal Report Page 1-3
- --------------------------------------------------------------------------------
1. Overview and Financial Analysis
- -----------------------------------
General Overview
- -----------------------------------
The Bank, after the Reorganization, will be a New Jersey chartered stock savings
bank. As of June 30, 1998, the Bank had $242.7 million in total assets, $198.6
million in deposits, $104.6 million in net loans and $17.4 million in equity.
The following table shows the Bank's facilities as of June 30, 1998.
Figure 1 - Current Facilities List
Broad Street Office
55 North Broad Street
Ridgewood, NJ 07450 1964 Leased $292,000
Mahwah Office
6 East Ramapo Avenue
Mahwah, NJ 07430 1995 Leased 246,000
Maple Avenue Office
531 North Maple Avenue
Ridgewood, NJ 07450 1995 Owned 1,101,000
TOTAL $1,639,000
The Broad Street office lease is dated April 6, 1975 with a term of thirty
years. The Mahwah office lease has a term of twelve years. Each lease has a
renewal option.
<PAGE>
Conversion Valuation Appraisal Report Page 1-4
- --------------------------------------------------------------------------------
- -----------------------------------
History
- -----------------------------------
The Ridgewood Savings Bank of New Jersey is a New Jersey-chartered mutual
savings bank, originally chartered in 1885 as The Ridgewood Building and Loan
Association. In 1942, the Bank became a New Jersey-chartered savings and loan
association. In December 1992, the Bank converted its mutual charter from a New
Jersey-chartered savings and loan association to a New Jersey-chartered savings
bank. The Bank became a member of the FHLB System in 1933 and the Bank's
deposits are currently insured by the SAIF as administered by the FDIC. The Bank
is regulated by the New Jersey Department of Banking and Insurance and the FDIC.
<PAGE>
Conversion Valuation Appraisal Report Page 1-5
- --------------------------------------------------------------------------------
- -----------------------------------
Strategic Direction
- -----------------------------------
Ridgewood Savings Bank of New Jersey was founded in 1885 and primarily serves
northwest Bergen County, New Jersey. The Bank is a community and customer
oriented mutual savings bank chartered by the State of New Jersey. The Bank
provides financial services primarily to individuals, families and small
businesses. The Bank emphasizes residential mortgage lending, primarily
originates one-to-four family mortgage loans and funds these loans with
deposits. The Bank originates other loans secured by real estate, purchases
investment and mortgage-backed securities, and uses borrowings as a secondary
source of funding.
Ridgewood is a community-oriented retail savings bank offering traditional
deposit, residential real estate mortgage loans and, to a lesser extent,
consumer loans and other loans. Ridgewood, through its three offices located in
Ridgewood and Mahwah, New Jersey provides retail banking services, with an
emphasis on one-to-four family residential mortgages. Currently, the Bank
originates 20 year and 30 year conforming fixed rate residential mortgage loans
primarily for sale on the secondary market. All other mortgage loans are
originated for portfolio. At June 30, 1998, loans receivable amounted to
approximately $104.6 million or 43.1% of total assets, of which approximately
$84.0 million or 70.4% of such total was secured by one-to-four family
residential real estate. The Bank invests excess liquidity in mortgage-backed
and investment securities (consisting primarily of U.S. government and
government agency securities and obligations of states and political
subdivisions). Investment and mortgage-backed securities amount to $112.7
million or 46.4% of total assets at June 30, 1998. At June 30, 1998, Ridgewood
has total assets, deposits and total equity of $242.7 million, $198.6 million,
and $17.4 million, respectively.
<PAGE>
Conversion Valuation Appraisal Report Page 1-6
- --------------------------------------------------------------------------------
- -----------------------------------
Balance Sheet Trends
- -----------------------------------
The Bank's balance sheet increased by $25.9 million, or 11.94%, from $216.8
million at December 31, 1996 to $242.7 million at June 30, 1998.
Retained earnings has increased $2.0 million from $15.4 million at December 31,
1996 to $17.4 million at June 30, 1998. The retained earnings to assets ratio is
currently 7.15%.
Figure 2 - Asset and Retained Earnings Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-7
- --------------------------------------------------------------------------------
The following tables set forth certain information concerning the financial
position of the Bank along with selected ratios at the dates indicated.
Figure 3 - Key Balance Sheet Data
[GRAPHIC OMITTED]
Source: Offering Prospectus
Figure 4 - Key Ratios
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-8
- --------------------------------------------------------------------------------
- -----------------------------------
Loan Portfolio
- -----------------------------------
The Bank's loan portfolio has decreased by $3.3 million from December 31, 1996
to June 30, 1998, and as a percent of assets, the loan portfolio has decreased
from 49.80% at December 31, 1996 to 43.12% at June 30, 1998.
Figure 5 - Net Loans Receivable Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-9
- --------------------------------------------------------------------------------
The Bank is primarily a residential one-to-four family lender.
Figure 6 - Loan Mix as of June 30, 1998 Chart
[GRAHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-10
- --------------------------------------------------------------------------------
The Bank's loan mix has been diversified between 1996 to 1998 but remains
primarily residential in its composition. Commercial real estate loans have
increased as have the consumer equity loans.
Figure 7 - Loan Mix
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-11
- --------------------------------------------------------------------------------
- -----------------------------------
Investments
- -----------------------------------
The Bank maintains a high level of liquidity in its investment portfolio, which
has grown from $73.5 million at December 31, 1995, to $112.7 million at June 30,
1998.
Figure 8 - Securities Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-1
- --------------------------------------------------------------------------------
- -----------------------------------
Investments and Mortgage-
Backed Securities
- -----------------------------------
The Bank currently invests in United State Government, federal agency, and
equity securities. The following table illustrates the Bank's investment
portfolio.
Figure 9 - Investment Mix
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-13
- --------------------------------------------------------------------------------
- -----------------------------------
Asset Quality
- -----------------------------------
The Bank's non-performing assets to total assets ratio has declined from 1.48%
at December 31, 1993 to 0.0025% at June 30, 1998.
Figure 10 - Non-Performing Assets Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
Note: The Bank had no REO for the periods presented above after December 31,
1993 as illustrated by the zeros.
<PAGE>
Conversion Valuation Appraisal Report Page 1-14
- --------------------------------------------------------------------------------
At June 30, 1998, the Bank's non-performing loans to loan ratio was 0.01% and
the non-performing assets to total assets ratio was approximately 0.00%,
indicating strong asset quality.
Figure 11 - Non-Performing Loans
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-15
- --------------------------------------------------------------------------------
The ALLL has increased from $464 thousand at December 31, 1993 to $750 at June
30, 1998. The Bank's ALLL to loans ratio was 0.72% at June 30, 1998.
Figure 12 - Allowance for Possible Loan and Lease Losses Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-16
- --------------------------------------------------------------------------------
- -----------------------------------
Funding Composition
- -----------------------------------
Overall, deposits have increased from $170.6 million at December 31, 1996 to
$198.6 million at June 30, 1998. The Bank utilizes borrowings as an alternative
to retail deposits to fund its operations. The Bank had $25.4 million in
outstanding borrowings at June 30, 1998.
Figure 13 - Deposit and Borrowing Trend Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-17
- --------------------------------------------------------------------------------
The Bank's deposit mix as of June 30, 1998 is presented below. Time deposits
comprised 75.77% of total deposits.
Figure 14 - Deposit Mix
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-18
- --------------------------------------------------------------------------------
- -----------------------------------
Asset/Liability Management
- -----------------------------------
The following table illustrates the Bank's internally generated interest rate
sensitivity gap. The Bank's one year gap was negative 8.80%.
Figure 15 - Interest Rate Sensitivity Gap
[GRAPHIC OMITTED]
Source: Ridgewood Savings Bank
<PAGE>
Conversion Valuation Appraisal Report Page 1-19
- --------------------------------------------------------------------------------
- -----------------------------------
Net Worth and Capital
- -----------------------------------
At June 30, 1998, the Bank had capital in excess of the minimum requirements for
all capital ratios.
Figure 16 - Capital analysis
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-20
- --------------------------------------------------------------------------------
- -----------------------------------
Income and Expense Trends
- -----------------------------------
The Bank had net income of $1.25 million for the year ended December 31, 1997.
The annualized net income for the six month period ended June 30, 1998 was $974
thousand. Profitability has fluctuated due to the expenses related to the
opening of two de-novo branches. Net income for the year ended December 31, 1996
was low due to the one-time SAIF assessment which amounted to $830 thousand
pre-tax for the Bank.
Figure 17 - Net Income Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
Note: The 1998 net income is for the six months ended June 30, 1998 annualized.
<PAGE>
Conversion Valuation Appraisal Report Page 1-1
- --------------------------------------------------------------------------------
Interest rate spread and margin decreased for the six months ended June 30, 1998
from the ratios for the year ended December 31, 1997.
Figure 18 - Average Yields and Costs
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-21
- --------------------------------------------------------------------------------
The following chart illustrates that the Bank's spread and margin have declined
since December 31, 1995.
Figure 19 - Spread and Margin Chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-22
- --------------------------------------------------------------------------------
The Bank had net income of $487 thousand for the six months ended June 30, 1998,
compared with $662 thousand for the six months ended June 30, 1997.
Figure 20 - Income Statement Trends
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-24
- --------------------------------------------------------------------------------
The ROAA and ROAE, consistent with net income, have fluctuated due to the
one-time events.
Figure 21 - Profitability Trend chart
[GRAPHIC OMITTED]
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page 1-25
- --------------------------------------------------------------------------------
- -----------------------------------
Subsidiaries
- -----------------------------------
The Bank does not have any subsidiaries.
- -----------------------------------
Legal Proceedings
- -----------------------------------
The Bank, from time to time, is a party to routine litigation, which arises in
the normal course of business, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claim
involving the making and servicing of real property loans, and other issues
incident to the business of the Bank. In the opinion of management, there were
no lawsuits pending or known to be contemplated against the Bank at June 30,
1998 that would have a material effect on operations or income.
<PAGE>
Conversion Valuation Appraisal Report Page 1-26
- --------------------------------------------------------------------------------
2. Market Area
- -------------------------------------
Analysis Market Area Demographics
- -------------------------------------
The following tables summarize the demographics for the Bank's markets. The
analysis defines the Bank's market as the town in which each branch resides.
Figure 22 - Population Demographics
Source: Claritas
<PAGE>
Conversion Valuation Appraisal Report Page 1-27
- --------------------------------------------------------------------------------
Figure 23 - Household Characteristics
[GRAPHIC OMITTED]
Source: Claritas
<PAGE>
- -----------------------------------
Market area Deposit
Characteristics
- -----------------------------------
The Bank's branches, as mentioned earlier, are located in Ridgewood and Mahwah,
New Jersey. Due to the nature of the Bank's service area, the competition was
defined as all branches within each town in which the Bank has a branch.
Figure 24 - Market Share
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Source: Sheshunoff data, FinPro calculations.
<PAGE>
Conversion Valuation Appraisal Report Page 1-29
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Source: Sheshunoff data, FinPro calculations.
<PAGE>
Conversion Valuation Appraisal Report Page 1-30
- --------------------------------------------------------------------------------
3. Comparisons With Publicly Traded Thrifts
- -----------------------------------
Introduction
- -----------------------------------
This chapter presents an analysis of the Bank's operations against a Comparable
Group of publicly traded savings institutions. The Comparable Group was selected
from a universe of 395 public thrifts as of August 13, 1998. The Comparable
Group was selected based upon similarity of characteristics to the Bank. The
Comparable Group multiples provide the basis for the fair market valuation of
the Bank. Factors that influence the Bank's value such as balance sheet
structure and size, profitability, income and expense trends, capital levels,
credit risk, and recent operating results can be measured against the Comparable
Group. The Comparable Group current market pricing, coupled with the appropriate
adjustments for differences between the Bank and the Comparable Group, will then
be utilized as the basis for the pro-forma valuation of the Bank to-be-issued
common stock.
<PAGE>
Conversion Valuation Appraisal Report Page 1-31
- --------------------------------------------------------------------------------
- -----------------------------------
Selection Screens
- -----------------------------------
When selecting the Comparables, it was determined that the balance sheet size of
the institution was of greater importance than geography due to the importance
of economies of scale in a small organization. Additionally, the Bank originates
a large volume of residential mortgages, selling the majority of them in the
secondary market. To match operating strategies, one of the criteria employed in
the comparable selection was to include institutions with low loans to assets
ratios.
The selection screens utilized to identify possible Comparables from the list of
395 public thrifts at August 13, 1998 included:
1. The IPO date had to be before June 30, 1997, eliminating any new
conversions.
2. The conversion type had to be a full standard conversion.
3. The total asset size had to be greater than or equal to $200 million and
less than or equal to $500 million.
4. The Comparables had to be located in the New England, Mid-Atlantic or
Mid-West Regions.
5. The Comparable net loans to assets ratio had to be less than or equal to
55.00%.
6. The Comparables had to have a price to tangible book multiple of less than
or equal to 200%
7. The Comparables could not be involved in a pending merger or acquisition.
<PAGE>
Conversion Valuation Appraisal Report Page 1-32
- --------------------------------------------------------------------------------
Applying these criteria against the 395 public thrifts resulted in the following
14 institutions.
Figure 25 - Potential Comparables
[GRAPHIC OMITTED]
Two institution were eliminated from this list as they are announced merger and
acquisition targets.
Figure 26 - Comparables Eliminated
The list of comparable institutions is as follows:
<PAGE>
Conversion Valuation Appraisal Report Page 1-33
- --------------------------------------------------------------------------------
Figure 27 - Comparable Group
[GRAPHIC OMITTED]
- -----------------------------------
Selection Criteria
- -----------------------------------
Excluded from the Comparable Group were institutions that were involved in
pending mergers or acquisitions. Also, institutions that completed their
conversions within the last year were also excluded as the earnings of newly
converted institutions do not reflect a full years benefit from the reinvestment
of proceeds, and thus the price/earnings multiples and return on equity measures
for these institutions tend to be skewed upward and downward respectively.
In an ideal world, all of the Comparable Group would contain the exact
characteristics of the Bank. The goal of the selection criteria process is to
find those institutions that most closely match those of the Bank None of the
Comparables selected will be exact clones of the Bank.
<PAGE>
Conversion Valuation Appraisal Report Page 1-34
- --------------------------------------------------------------------------------
The members of the Comparable Group were selected based upon the following
criteria:
1. Asset size
2. Profitability
3. Capital Level
4. Balance Sheet Mix
5. Operating Strategy
6. Date of conversion
1. Asset Size The Comparable Group should have a similar asset size to the Bank.
Large institutions are not appropriate for the peer group due to a more
extensive branch network, greater financial strength, more access to diverse
markets and more capacity in terms of infrastructure. The Comparable Group
ranged in size from $200.3 million to $495.2 million in total assets with a
median of $356.2 million. The Bank's asset size was $242.7 million as of June
30, 1998 and will be $253.7 million on a pro forma basis at the midpoint of the
estimated valuation range.
2. Profitability The Comparable Group had a median ROAA of 0.89% and a median
ROAE of 7.92% for the most recent quarter available. The Comparable Group
profitability measures had a dispersion about the mean for the ROAA measure
ranging from a low of 0.58% to a high of 2.59% while the ROAE measure ranged
from a low of 3.30% to a high of 25.22%. The Bank had a ROAA of 0.42% and ROAE
of 5.59% for the six month period ended June 30, 1998.
3. Capital Level The median equity to assets ratio for the Comparable Group was
10.70% with a high of 22.04% and a low of 6.67%. At June 30, 1998, the Bank had
an equity to assets ratio of 7.15%. On a pro forma basis, at the midpoint, the
Bank would have an equity to assets ratio of 11.20%.
4. Balance Sheet Mix At June 30, 1998, the Bank had a net loan to asset ratio of
43.12%. The median loan to asset ratio for the Comparables was 51.56%, ranging
from a low of 24.12% to a high of 53.73%. On the liability side the Bank's
deposit to asset ratio was 81.84% at June 30, 1998 while the Comparable median
was 65.35%, ranging from 56.44% to 79.95%. Additionally, the Bank's borrowings
to assets ratio was 10.48% as of June 30, 1998 and the Comparable median
borrowings to assets ratio was 21.58% with a range of 6.49% to 31.60%.
<PAGE>
Conversion Valuation Appraisal Report Page 1-35
- --------------------------------------------------------------------------------
5. Operating strategy An institution's operating characteristics are important
because they determine future performance. They also affect expected rates of
return and investor's general perception of the quality, risk and attractiveness
of a given company. Specific operating characteristics include profitability,
balance sheet growth, asset quality, capitalization, and non-financial factors
such as management strategies and lines of business.
6. Date of conversion Recent conversions, those completed after June 30, 1997,
were excluded since the earnings of a newly converted institution do not reflect
a full year's benefits of reinvestment of conversion proceeds. Additionally, new
issues tend to trade at a discount to the market averages.
- -----------------------------------
Comparable Group Profiles
- -----------------------------------
o Big Foot Financial Corp. BFFC is a SAIF insured institution that operates 3
branches and is headquartered in Long Grove, Illinois and has $209.5
million in assets. BFFC had the highest efficiency and overhead ratios at
75.41% and 74.39% respectively. BFFC had the lowest level of nonperforming
assets to equity ratio, 0.52%, reserves to loans ratio, 0.28%, ROAA, 0.58%,
ROAE, 3.30%, interest income to average assets, 6.62%, and noninterest
income to average assets, 0.12%. BFFC was selected to the Group based on
number of offices, profitability, noninterest income.
o Bancorp Connecticut Inc. BKCT is a BIF insured institution that had the
highest assets of the comparable group at $495.2 million, is headquartered
in Southington, Connecticut and operates 3 branches. BKCT had the second
highest return on average assets, 1.44%, return on average equity, 14.00%,
and interest income to average assets, 7.43%. BKCT had the lowest total
capital to risk adjusted assets, 17.32%. BKCT was selected to the Group
based on number of offices, profitability, and asset growth rate.
o Catskill Financial Corp. CATB is a BIF insured thrift that operates 5
offices, is headquartered in Catskill, New York, and had assets of $309.6
million. CATB had the highest equity to assets ratio, 22.04%, equity +
reserves to assets, 22.66%, net interest margin, 3.97%, and net interest
income to average assets, 3.88%. CATB had second highest regulatory core
capital to assets, 19.61%. Catskill Financial had the second lowest
borrowings to assets ratio, 8.36%, interest expense to average assets,
3.31%, efficiency ratio, 47.94%, and overhead ratio, 45.94%. CATB was
selected to the Group based on asset size and borrowings to asset ratio.
o 1st Bergen Corp. FBER is a SAIF insured thrift that operates 4 offices, is
headquartered in Wood-Ridge, New Jersey and had assets of $300.8 million.
FBER had the second highest nonperforming assets to assets ratio, 0.96%,
nonperforming assets to equity ratio, 8.26%, and reserves to loans ratio,
2.41%. FBER had the lowest noninterest income to average assets, 0.12%. It
was selected as a comparable based on its number of branches, asset size,
efficiency ratio, overhead ratio, and deposit growth rate.
o First Keystone Financial FKFS is a SAIF insured institution with 6 offices,
is headquartered in Media, Pennsylvania, and had assets of $385.2 million.
FKFS had the highest nonperforming assets to assets ratio, 1.34% and
nonperforming assets to equity ratio, 20.06%. FKFS had the lowest equity to
assets ratio, 6.67%, regulatory core capital to assets, 8.50%, equity +
reserves to assets, 7.13%, reserves to nonperforming loans 57.73%, and
reserves to nonperforming assets + 90, 34.27%. FKFS was selected as a
comparable based on its equity to assets ratio, deposit growth rate, and
loans to assets.
o Fidelity Bancorp Inc. FSBI is a SAIF insured institution with 8 offices,
headquartered in Pittsburgh, Pennsylvania, and has $402.9 million in
assets. FSBI had the highest reserves to nonperforming loans ratio,
704.67%, reserves to nonperforming assets + 90, 658.57%, and the second
highest interest expense to average assets ratio, 4.30%, and the second
highest deposit growth rate, 12.08%. FSBI had the lowest nonperforming
assets to assets, 0.08%, the second lowest nonperforming loans to loans,
0.15%. FSBI was selected to the Group based on asset quality, asset growth
rate, and equity to assets ratio.
<PAGE>
Conversion Valuation Appraisal Report Page 1-37
- --------------------------------------------------------------------------------
o Lawrence Savings Bank LSBX is a BIF insured thrift that is headquartered in
North Andover, Massachusetts, operates 5 branches and had $344.9 million in
assets. LSBX had the highest return on average assets, 2.59%, return on
average equity, 25.22%, and the second highest loans to assets ratio,
53.05%, and deposits to assets ratio, 74.59%. LSBX had the lowest
nonperforming loans to loans, 0.14%, asset growth rate, -5.85%, and the
second lowest total capital to risk adjusted assets ratio, 18.09%. It was
included as a comparable based on its borrowing to assets ratio,
efficiency, and overhead ratio.
o NewMil Bancorp Inc. NMSB is a BIF insured institution that operates 15
offices, is headquartered in New Milford, Connecticut, and had assets of
$367.6 million. NMSB had the highest deposits to assets ratio, 79.95%,
reserves to loans ratio, 2.98%, noninterest income to average assets ratio,
0.45%, and noninterest expense to average assets ratio, 2.80%. NMSB had the
lowest loan growth rate, -2.18%. NMSB was selected as a comparable based on
its loan growth rate, efficiency ratio, overhead ratio, borrowings to
assets ratio, deposits to assets ratio, and loans to assets ratio.
o Peekskill Financial Corp. PEEK is a SAIF insured thrift that operates 3
offices, is headquartered in Peekskill, New York, and had the lowest level
of assets of the comparable group at $200.3 million. PEEK had the highest
regulatory core capital to assets ratio, 21.80%, total capital to risk
adjusted assets, 88.60%, and nonperforming loans to loans ratio, 2.32%.
PEEK had the lowest loans to deposits ratio, 34.54%, loans to assets ratio,
24.12, borrowings to assets ratio, 6.49%, interest expense to average
assets, 3.20%, and noninterest income to average assets ratio, 0.12%. PEEK
was selected to the Group based on its deposit growth rate and number of
offices.
o Permanent Bancorp Inc. PERM is a SAIF insured institution with 11 offices,
is headquartered in Evansville, Indiana, and had $439.1 million in total
assets. PERM had the highest intangible assets to equity ratio, 1.06%,
interest expense to average assets, 4.53%, and noninterest income to
average assets, 0.45%. PERM had the lowest net interest income to average
assets ratio, 2.62%. PERM was selected as a comparable based on its level
of equity.
o WVS Financial Corp. WVFC is a SAIF insured institution with 6 offices, is
headquartered in Pittsburgh, Pennsylvania, and had $297.1 million in total
assets. WVFC had the highest loans to deposits ratio, 95.19%, loans to
assets ratio, 53.73%, and the highest interest income ratio, 7.61%. WVFC
had the lowest deposits to assets ratio, 56.44%, and the lowest deposit
growth rate, -1.88%. WVFC was selected as a comparable based on its number
of offices and total capital to risk adjusted assets ratio.
<PAGE>
Conversion Valuation Appraisal Report Page 1-38
- --------------------------------------------------------------------------------
o Yonkers Financial Corp. YFCB is a SAIF insured institution with 5 offices,
headquartered in Yonkers, New York, and had $401.6 million in total assets.
YFCB had the highest borrowings to assets ratio, 31.60%, asset growth rate,
39.39%, loan growth rate, 97.68%, and deposit growth rate, 13.77%. YFCB had
the lowest nonperforming loans to loans ratio, 0.14%. YFCB was selected as
a comparable based on its profitability and equity + reserves to assets.
<PAGE>
Conversion Valuation Appraisal Report Page 1-38
- --------------------------------------------------------------------------------
All data presented in Figure 28 is from SNL Securities utilizing the most recent
quarter for balance sheet and income statement related items. All data for the
Bank is from the offering circular.
Figure 28 - Key Financial Indicators
[GRAPHICS OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page 1-40
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Source: The Bank Offering Circular, FinPro calculations and SNL Securities
Note: All of the Bank data is for the six months ended June 30, 1998, annualized
where appropriate.
Note: All of the Comparable data is as of the most recent quarter.
<PAGE>
Conversion Valuation Appraisal Report Page 1-38
- --------------------------------------------------------------------------------
4. Market Value Determination
- -----------------------------------
Introduction
- -----------------------------------
The estimated pro-forma market value of the Bank, along with certain adjustments
to its value relative to market values for the Comparable Group are delineated
in this section. The adjustments delineated in this section are made from
potential investors' viewpoints. A potential investor includes depositors
holding subscription rights and unrelated parties who may purchase stock in the
community offering and who are assumed to be aware of all relevant and necessary
facts as they pertain to the value of the Bank relative to other publicly traded
thrift institutions and relative to alternative investment opportunities.
There are numerous criteria on which the market value adjustments are based, but
the major ones utilized for purposes of this report include:
o Balance Sheet Strength
o Asset Quality
o Earnings Quality, Predictability and Growth
o Market Area
o Management
o Dividends
o Liquidity of the Issue
o Subscription Interest
o Recent Regulatory Matters
o Market for Seasoned Thrift Stocks
o Acquisition Market
After identifying the adjustments that should be made to market value, the
pro-forma market value for the Bank is computed and adjusted. The estimated
pro-forma market value for the Bank is then compared with the market valuation
ratios of the Comparable Group, recently converted public thrifts, New Jersey
thrifts and the aggregate ratios for all public thrifts.
<PAGE>
Conversion Valuation Appraisal Report Page 1-42
- --------------------------------------------------------------------------------
After adjusting the Bank's market value in relation to the Comparable Group,
consideration was given to the type of conversion the Bank is undertaking. In
this particular case it was appropriate to compare and adjust the Bank's market
value in relation to the performance of other mutual holding companies.
<PAGE>
Conversion Valuation Appraisal Report Page 1-43
- --------------------------------------------------------------------------------
- -----------------------------------
Balance Sheet Strength
- -----------------------------------
The balance sheet strength of an institution is an important market value
determinant, as the investment community considers such factors as bank
liquidity, capitalization, asset composition, funding mix, intangible levels and
interest rate risk in assessing the attractiveness of investing in the common
stock of a thrift. The following tables summarize the key financial elements of
the Bank measured against the Comparable Group.
Figure 29 - Key Balance Sheet Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
Asset Composition - The Bank's net loan to asset ratio of 43.12% is below the
median for the Comparable Group of 51.56%. Both of these loans to assets ratios
are low relative to the industry.
Funding Mix - The Bank is funded primarily through deposits, 81.84% of assets,
and retained earnings, 7.15% of assets. The Comparable Group has a greater
reliance on equity and borrowings than the Bank with a median deposits to assets
ratio of only 65.35%, a borrowing ratio of 21.58% of assets and equity to assets
ratio of 10.70%. The Bank has a low level of borrowings, 10.48%, which leaves
room for an additional funding source in the future.
<PAGE>
Conversion Valuation Appraisal Report Page 1-44
- --------------------------------------------------------------------------------
Liquidity - The liquidity of the Bank and the Comparable Group appear similar
and were sufficient to meet all regulatory guidelines.
The Bank has experienced growth similar to the Comparable Group in terms of
assets and deposits, but has a significant disadvantage in terms of loan growth.
Figure 30 - Balance Sheet Growth Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
<PAGE>
Conversion Valuation Appraisal Report Page 1-45
- --------------------------------------------------------------------------------
Figure 31 - Capital Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
Capitalization - The Comparable Group's median equity to assets ratio of 10.70%
is higher than the Bank's ratio of 7.15%, however the Bank's pro forma equity to
assets ratio is projected to be 10.81% at the midpoint of the valuation range.
Intangible Levels - One of the most important factors influencing market values
is the level of intangibles that an institution carries on its books. Thrifts
trade more on tangible book than on book. One of the Comparables has intangible
assets. The Bank had no intangible assets.
Interest Rate Risk - The Bank has a moderate level of interest rate risk,
evidenced by the negative one year cumulative gap of 8.80%.
The Bank's asset mix, pro forma capital levels, and intangible levels are
in-line with the Comparables. The Comparables have a slightly higher reliance on
borrowings. Based on the similarity of the balance sheet structure between the
Comparable Group and the Bank, no adjustment is warranted for this measure.
<PAGE>
Conversion Valuation Appraisal Report Page 1-46
- --------------------------------------------------------------------------------
- -----------------------------------
Asset Quality
- -----------------------------------
The asset quality of an institution is an important determinant of market value.
The investment community considers levels of nonperforming loans, REO and levels
of ALLL in assessing the attractiveness of investing in the common stock of an
institution.
Figure 32 - Asset Quality Table
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
The Bank has a lower level of non-performing loans ("NPL") to total loans at
0.01% when compared to the Comparable Group at 0.41%. The Bank had a
non-performing assets to assets ratio of approximately 0.00%, which was lower
than the Comparable median of 0.25%. The Bank's reserve level, 0.72% of total
loans, is lower than the Comparable median of 1.29% of loans. The Bank's
stronger asset quality is offset by the lower level of reserves, when compared
to the Comparable Group. Therefore, no adjustment is warranted.
<PAGE>
Conversion Valuation Appraisal Report Page 1-47
- --------------------------------------------------------------------------------
- -----------------------------------
Earnings Quality,
Predictability and Growth
- -----------------------------------
The earnings quality, predictability and growth are critical components in the
establishment of market values for thrifts. Thrift earnings are primarily a
function of:
o net interest income
o loan loss provision
o non-interest income
o non-interest expense
The quality and predictability of earnings is dependent on both internal and
external factors. Some internal factors include the mix of the balance sheet,
the interest rate sensitivity of the balance sheet, the asset quality, and the
infrastructure in place to deliver the assets and liabilities to the public.
External factors include the competitive market for both assets and liabilities,
the global interest rate scenario, local economic factors and regulatory issues.
Each of these factors can influence the earnings of an institution, and each of
these factors is volatile. Investors prefer stability and consistency. As such,
solid, consistent earnings are preferred to high but risky earnings. Investors
also prefer earnings to be diversified and not entirely dependent on interest
income.
<PAGE>
Conversion Valuation Appraisal Report Page 1-48
- --------------------------------------------------------------------------------
The Bank had net income of $1,250 for the year ended December 31, 1997. The
annualized net income for the six month period ended June 30, 1998 was $974.
Figure 33 - Net Income Trend
[GRAPHIC OMITTED]
Sources: Offering Circular
<PAGE>
Conversion Valuation Appraisal Report Page 1-49
- --------------------------------------------------------------------------------
The return on asset and return on equity ratios are below the Comparable Group
median.
Figure 34 - Profitability Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
<PAGE>
Conversion Valuation Appraisal Report Page 1-50
- --------------------------------------------------------------------------------
Figure 35 - Income Statement Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
Compared to the Comparable Group average, the Bank's yield on assets is 30 basis
points lower while the cost of funds is 64 basis points higher. These
disadvantages are partially offset by the Bank's lower level of noninterest
expense, which is 37 basis points lower than the Comparables.
Taken collectively, the income of the Bank can be measured by the efficiency
ratio, where the Bank has a disadvantage of 8.01% as compared to the Comparable
median.
Currently, investors are focusing on earnings sustainability as the interest
rate volatility has caused a wide variation in income levels. With the intense
competition for both assets and deposits, banks can not easily replace lost
spread and margin with balance sheet growth.
The Bank's inability to grow loans, will result in further reliance on the
wholesale market for assets and provide lower yield. Based on this factor and
the Bank's historical earnings performance, a downward adjustment is warranted
to the market value for earnings.
<PAGE>
Conversion Valuation Appraisal Report Page 1-51
- --------------------------------------------------------------------------------
- -----------------------------------
Market area
- -----------------------------------
The market area that an institution serves has a significant impact on value, as
future success is interrelated with the economic, demographic and competitive
aspects of the market.
Demographic Data - The town of Ridgewood has experienced a population
decline of 4.34% between 1980 and 1990. However, Ridgewood's population is
expected to grow 4.90% through 2002. The median household income in
Ridgewood is extremely high at $90,033. The Bank's other market is Mahwah
which has experienced population growth of 48.41% between 1980 and 1990,
and is projected to grow 37.82% between 1990 and 2002. Mahwah's median
household income is also high at $66,238.
Competitive Data - Deposits in Ridgewood have grown 6.20% between 1993 and
1997, which is approximately half of the state's growth rate during the
same time period. The town of Ridgewood has a high average branch size of
$62.0 million. Mahwah has experienced a deposit decline of 10.20% between
1993 and 1997. The average branch size in Mahwah is $20.5 million, which is
low.
Based on these factors no adjustment is warranted for this factor.
<PAGE>
Conversion Valuation Appraisal Report Page 1-52
- --------------------------------------------------------------------------------
- -----------------------------------
Management
- -----------------------------------
The Bank has developed a good management team with considerable banking
experience. The Bank's organizational chart is reasonable for an institution of
its size and complexity. The Board is active and oversees and advises on all key
strategic and policy decisions and holds the management to high performance
standards.
As such, no adjustment appears to be warranted for this factor.
<PAGE>
Conversion Valuation Appraisal Report Page 1-53
- --------------------------------------------------------------------------------
- -----------------------------------
Dividends
- -----------------------------------
Historically, banks have not established dividend policies immediately at or
after conversion to stock ownership. Rather, newly converted institutions, in
general, have preferred to establish an earnings track record, fully invest the
conversion proceeds, and allow for seasoning of the stock before establishing a
dividend policy. In the late 1980's and early 1990's however, there has been a
tendency toward initiating dividend policies concurrent with the conversion as a
means of increasing the attractiveness of the issue and to utilize the proceeds.
The last few years have seen yet another shift away from dividend policies
concurrent with conversion. Recent issues have been fully or oversubscribing
without the need for the additional enticement of dividends. After the
conversion is another issue, however. Recent pressures on ROE and on internal
rate of returns to investors has prompted the industry toward cash dividends.
This trend is exacerbated by the lack of growth potential. Typically, when
institutions are in a growth mode, they issue stock dividends or do not declare
a dividend. When growth is stunted, these institutions shift toward reducing
equity levels and thus utilize cash dividends as a tool in this regard.
<PAGE>
Conversion Valuation Appraisal Report Page 1-54
- --------------------------------------------------------------------------------
Figure 36 - Dividend Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
Ten of the twelve Comparable institutions had declared dividends. The median
dividend payout ratio for the Comparable Group was 27.60%, ranging from a high
of 153.06% to a low of 0.00%. The Bank on a pro forma basis (at the mid point of
the value range) will have an equity to assets ratio of 10.81% compared to the
Comparable Group's median of 10.70%. It will therefore, be able to afford to pay
dividends. As such, no adjustment is indicated for this factor.
<PAGE>
Conversion Valuation Appraisal Report Page 1-55
- --------------------------------------------------------------------------------
- -----------------------------------
Liquidity of the Issue
- -----------------------------------
The Comparable Group is by definition composed only of companies that trade in
the public markets with all of the Comparables trading on NASDAQ. Typically, the
number of shares outstanding and the market capitalization provides an
indication of how much liquidity there will be in a given stock. The actual
liquidity can be measured by volume traded over a given period of time.
Figure 37 - Market Capitalization Data
[GRAPHIC OMITTED]
Sources: SNL and Offering Circular Data, FinPro Computations
The market capitalization values of the Comparable Group range from a low of
$34.7 million to a high of $87.3 million with a median market capitalization of
$47.3 million. The Bank expects to have $12.22 million of market capital at the
midpoint on a pro forma basis.
Since the size of the offering is small and the resultant entity will be a
mutual holding company, it is unlikely that an active and liquid trading market
will develop and be maintained. Therefore, a slight downward adjustment for this
factor appears warranted.
<PAGE>
Conversion Valuation Appraisal Report Page 1-56
- --------------------------------------------------------------------------------
- -----------------------------------
Recent Regulatory Matters
- -----------------------------------
The recent interest in thrift IPO's has caused large oversubscriptions, which in
turn have caused large price appreciation's in the aftermarket. Recently,
regulators have been indicating the need for increased pricing of new issues in
the attempt lessen the aftermarket appreciation. Also, regulators have been
concerned with capital redistributions from thrifts which have converted within
the past three years. Regulatory agencies are publicly indicating that they will
enforce the limits of stock buy backs to: 0% in the first year, 5% in the second
year and 5% in the third year.
Additionally, the regulatory agencies are forcing second step conversions to
adjust the ownership computation for any waived dividends paid to the holding
company, thereby, diluting the minority shareholders. Additionally, any assets
held by the Holding Company will also dilute the minority ownership in a second
step by regulatory decree.
This threat to newly converted institutions, of not being able to use all of the
capital markets tools available, will hurt the stock's attractiveness, as it
will put them at a significant competitive disadvantage to the rest of the
industry.
As such, a downward adjustment for this measure is warranted based on the
uncertainty surrounding the regulatory environment.
<PAGE>
Conversion Valuation Appraisal Report Page 1-57
- --------------------------------------------------------------------------------
- -----------------------------------
Market for Seasoned Thrift Stocks
- -----------------------------------
Data for all public thrifts as of August 13, 1998 is provided in Exhibit 7. A
common measure utilized as a proxy for the performance of the thrift industry is
the SNL thrift index graphically shown below and tabularly shown on the
following page:
Figure 38 - SNL Thrift Index Chart
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page 1-58
- --------------------------------------------------------------------------------
Figure 39 - Historical SNL Index
[GRAPHIC OMITTED]
Source: SNL Securities
Figure 40 - Equity Indices
[GRAPHIC OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page 1-59
- --------------------------------------------------------------------------------
Figure 41 - Historical Market Indices
As the Figures 38 and 39 illustrate, the performance of the SNL index has been
robust through 1992, 1993, 1994 and 1995. The dip in the index, occurring in
late 1994, was the product of the interest rate rise during that period along
with the overall uneasiness in the stock market in general. The rate scenario
covering the same period as the SNL index can be seen in the following chart.
Figure 42 - Historical Rates
[GRAPHIC OMITTED]
Source: Prudential Bache Securities
<PAGE>
Conversion Valuation Appraisal Report Page 1-60
- --------------------------------------------------------------------------------
As the graph demonstrates, the rate rise in late 1994 correlates closely to the
fall in thrift prices. The drop in rates in 1995 was one of the primary drivers
of the rapid rise in the SNL index. During 1996, rates increased slightly and
then remained stable, fueling the rise in the conversion prices. 1997 has seen a
continuation of this trend, with the median IPO pricing at 71.1%, 71.4%, 72.5%,
and 76.6% of book value for the first, second, third, and fourth quarters of
1997, respectively, and 78.4%, 76.6% and 77.8% in the first, second, and third
quarters of 1998, respectively.
Thrift pricing in general was robust in 1995 due to the falling interest rates,
the industry consolidation and renewed earnings. Contrasting this view, in late
1994 investors faced shrinking spreads and margins due to rising rates and
consolidation that was tailing off and slowing down.
As Figure 40 and 42 show, in 1997, the flat interest rate environment has
contributed to the appreciation in the SNL index. However, thrift market prices
in 1998 have leveled off and not kept pace with the S&P 500 and the Dow Jones
Industrial Average.
A downward adjustment for this measure is warranted, as the institution will
trade at a discount to the market until the capital is adequately invested, and
since investors have a stated preference to see a few full quarters of earnings
in a newly converted institution.
<PAGE>
Conversion Valuation Appraisal Report Page 1-61
- --------------------------------------------------------------------------------
- ------------------------------------
Acquisition Market
- ------------------------------------
Figure 43 - Deals for Last Fourteen Quarters
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page 1-62
- --------------------------------------------------------------------------------
From 1994 through August 13, 1998, thrift deal prices remained high. Nationally,
all pricing multiples are up in 1998. Regionally, price to book and price to
tangible book are down, while price to earnings, price to assets and price to
deposits are up. Deals $10-50 million were priced at lower multiples.
Figure 44 - Deal Multiples
[GRAPHIC OMITTED]
Currently, there are four thrift acquisitions pending in New Jersey. Richmond
County Financial is in the process of acquiring Bayonne Bancshares. Bayonne
Bancshares was priced at 175% of book and 40.0X LTM earnings. Sovereign Bancorp
is purchasing First Home Bancorp for 235% of book value and 18.2X earnings. IBS
Financial Corp. is being acquired by HUBCO Inc. for 187% of book and 38.4X
earnings. Pulse Bancorp. is being acquired by First Source Bancorp. for 221% of
book and 18.2X earnings.
No adjustment is warranted for this factor, as the Bank will not be readily
available for acquisition immediately following the reorganization and the
Comparable Group has been screened to attempt to eliminate stocks with
speculation included in their pricing.
<PAGE>
Conversion Valuation Appraisal Report Page 1-63
- --------------------------------------------------------------------------------
- -----------------------------------
Adjustments to Value in
Relation to the Comparable
Group
- -----------------------------------
Overall, FinPro believes that the Bank pro-forma market value should be
discounted relative to the Comparable Group, reflecting the following
adjustments.
Key Valuation Parameters Valuation Adjustment
Balance Sheet Strength No Adjustment
Asset Quality No Adjustment
Earnings Quality, Predictability and Growth Downward
Market Area No Adjustment
Management No Adjustment
Dividends No Adjustment
Liquidity of the Issue Slight Downward
Recent Regulatory Matters Downward
Market for Seasoned Thrift Stocks Downward
Acquisition Market No Adjustment
As a result of all the factors discussed, a full offering discount of
approximately 11% on a price to earnings basis and a 50% discount on a price to
book basis appears to be reasonable.
<PAGE>
Conversion Valuation Appraisal Report Page 1-64
- --------------------------------------------------------------------------------
5. Other Adjustments
- -----------------------------------
Market for MHC Stocks
- -----------------------------------
As the Bank is undergoing an MHC reorganization, it should be compared to other
publicly traded institutions which have undergone a similar process. MHC's trade
at discounts to full converted thrifts due to a number of factors which include:
reduced liquidity, insider control and lack of acquisition speculation. However,
these negative factors are slightly offset by trading premiums built into MHC's
for the possibility for a secondary offering.
Figure 45 - MHC Reorganizations (Since 1/1/97) Pro Forma Data
[GRAPHIC OMITTED]
Source: SNL Securities
Figure 46 - MHC Reorganizations (Since 1/1/97) Price Appreciation
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page 1-65
- --------------------------------------------------------------------------------
Figure 47 - MHC Trading Multiples
[GRAPHIC OMITTED
Source: SNL Securities
Figure 48 - Recent Second Step Price Change, Since 1/1/97
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page 1-66
- --------------------------------------------------------------------------------
Figure 49 - MHC Trading Discount
[GRAPHIC OMITTED]
Source: SNL Securities
Note: The MHC multiples have been adjusted by SNL to provide a reasonable
comparison by assuming a full conversion.
Using data compiled to SNL Securities as of July 31, 1998, the most recent data
available, the MHC values on a fully converted basis should be compared to the
trading values for all fully public thrifts to arrive at MHC premiums and
discounts.
As shown in Figure 49, MHC's that have not announced a second step are presently
trading at a 13.83% premium on an earnings basis and a 29.75% discount on a book
basis, when compared to fully converted thrifts. Even the adjusted MHC have the
second step speculation built into their pricing. There will be little
speculation of the Bank under-going a second step conversion for at least one
year. A downward adjustment is warranted for this factor as the Bank will not
trade on a fully converted basis, as the Comparables do.
<PAGE>
Conversion Valuation Appraisal Report Page 1-67
- --------------------------------------------------------------------------------
- -----------------------------------
Subscription Interest
- -----------------------------------
Based on the stock appreciation for both thrift stocks and for the U.S. equity
market in general, the market for public offerings has attracted a significant
level of attention. The market for public offerings is driven by the lack of
supply of stocks to meet the demand created primarily by the growth of mutual
funds. Thrift IPO's have received a greater amount of attention due to the price
"pops" of recent standard conversions.
<PAGE>
Conversion Valuation Appraisal Report Page 1-67
- --------------------------------------------------------------------------------
Figure 50 - Recent Standard Conversion Performance
[GRAPHIC OMITTED]
Source: SNL Securities, FinPro calculations
As illustrated, thrift stocks have appreciated substantially on the first day of
trading, however, this trend is decreasing, with one day price appreciations of
52.50%, 51.25% and 25.63% for the first, second and third quarters of 1998.
Additionally, the vast majority of the recent conversions have closed at the
supermaximum of the estimated value range. As such, slight upward adjustment for
subscription interest is still warranted at this time.
<PAGE>
Conversion Valuation Appraisal Report Page 1-69
- --------------------------------------------------------------------------------
6. Valuation
In applying the accepted valuation methodology promulgated by the regulators,
i.e., the pro-forma market value approach, four key pricing multiples were
considered. The four multiples include:
Price to earnings ("P/E")
Price to tangible book value ("P/TB")
Price to book value ("P/B")
Price to assets ("P/A")
All of the approaches were calculated on a pro-forma basis including the effects
of the conversion proceeds. All of the assumptions utilized are presented in
Exhibits 10, 11, 12 and 13.
To ascertain the pro-forma estimated market value of the Bank, the market
multiples for the Comparable Group, all publicly traded thrifts and the recent
(1997 to date) standard conversions were assessed.
Since thrift earnings in general have had a high degree of volatility over the
past decade, the P/B approach had gained in importance and is utilized
frequently as the benchmark for market value. It is interesting to note that the
P/B approach is more of a benchmark than a reliable valuation technique. A
better approach is the P/TB approach. In general, investors tend to price
financial institutions on a tangible book basis, because it incorporates the P/B
approach adjusted for intangibles. Most recently, the P/E approach has regained
favor among investors.
The evidence of the movement towards the P/E Multiple can be seen in the
acquisition, trading and IPO markets. The P/LTM EPS multiple for the completed
mergers is 22.4x, for all public thrifts the trading P/LTM EPS is 27.0x and for
recent standard conversions is 19.6x.
As such, in estimating the market value for the Bank, the most emphasis was
placed on the P/E approach. The P/B and P/TB were given much less weight and the
P/A ratio was not given much weight at all.
In terms of the market multiples, most weight was given to the Comparable Group.
The second highest weight was afforded to recent MHC's than to recent standard
conversions. Less weight was ascribed to all public thrifts and all New Jersey
thrifts. The multiples for the Comparable Group, all publicly traded thrifts,
and New Jersey publicly traded thrifts are shown in Exhibit 8.
<PAGE>
Conversion Valuation Appraisal Report Page 1-70
- --------------------------------------------------------------------------------
- -----------------------------------
Full Offering Value in
Relation to Comparables
- -----------------------------------
Based upon the premiums and discounts defined in the section above, the Bank
pricing at the midpoint for a full standard conversion is estimated to be
$26,000,000. Based upon a range below and above the midpoint value, the relative
values are $22,100,000 at the minimum and $29,900,000 at the maximum
respectively. At the supermaximum of the range the offering value would be
$34,385,000.
At the various levels of the estimated value range, the full offering would
result in the following offering data:
Figure 51 - Value Range Full Offering Data
[GRAPHIC OMITTED]
Source: FinPro Inc. Pro forma Model
<PAGE>
Conversion Valuation Appraisal Report Page 1-71
- --------------------------------------------------------------------------------
Figure 52 - Value Range Offering Data
[GRAPHIC OMITTED]
This equates to the following multiples:
Figure 53 - Comparable Pricing Multiples to the Bank's Pro forma Midpoint
[GRAPHIC OMITTED]
Source: FinPro Calculations
As Figure 53 demonstrates, the Bank is priced at a discount of 17.25% on a core
earnings basis. A discount of 50.42% is applied to the Bank relative to the
Comparable Group on a price to book basis.
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Conversion Valuation Appraisal Report Page 1-72
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Figure 54 - Comparable Pricing Multiples to the Bank's Pro forma Supermaximum
[GRAPHIC OMITTED]
Source: FinPro Calculations
Recently, thrift public offerings have been over-subscribing and have been
closing at the supermaximum of the estimated value range. Therefore, a more
meaningful comparison would be the Bank's multiples at the supermaximum of the
EVR to the Comparable Group. Figure 54 shows the Bank (at the supermaximum) is
priced at a 1.54% discount on a core earnings basis and at a 44.77% discount on
a book basis.
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Conversion Valuation Appraisal Report Page 1-73
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MHC Value in Relation to
MHC's
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The Bank pricing at the midpoint for a MHC Conversion is estimated to be
$12,200,000. Based upon a range below and above the midpoint value, the relative
values are $10,387,000 at the minimum and $14,053,000 at the maximum,
respectively. At the supermaximum of the range the offering value would be
$16,160,950.
At the various levels of the estimated value range, the full offering would
result in the following offering data:
Figure 55 - Value Range MHC Offering Data
[GRAPHIC OMITTED]
Source: FinPro Inc. Pro forma Model
Figure 56 - Value Range Offering Data
[GRAPHIC OMITTED]
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Conversion Valuation Appraisal Report Page 1-74
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This equates to the following multiples:
Figure 57 - MHC Pricing Multiples to the Bank's Pro forma Midpoint
[GRAPHIC OMITTED]
Source: FinPro Calculations
As Figure 57 demonstrates, the Bank is priced at a discount of 44.13% on a core
earnings basis. A discount of 50.01% is applied to the Bank relative to the MHC
median trading price to book trading multiple.
Figure 58 - MHC Pricing Multiples to the Bank's Pro forma Supermaximum
[GRAPHIC OMITTED]
Source: FinPro Calculations
Recently, MHC offerings have been over-subscribing and have been closing at the
supermaximum of the estimated value range. Therefore, a more meaningful
comparison would be the Bank's multiples at the supermaximum of the EVR to the
MHC trading median. Figure 58 shows the Bank (at the supermaximum) is priced at
a 30.15% discount on a core earnings basis and at a 41.40% discount on a book
basis.
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Conversion Valuation Appraisal Report Page 1-38
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Valuation Conclusion
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It is, therefore, our opinion that as of August 13, 1998, the estimated
pro-forma market value of the Bank in a full offering was $26,000,000 at the
midpoint of a range with a minimum of $22,100,000 to a maximum of $29,900,000 at
15% below and 15% above the midpoint of the range respectively. Assuming an
adjusted maximum value of 15% above the maximum value, the adjusted maximum
value or supermaximum value in a full offering is $34,385,000. The stock will be
issued at $10.00 per share.
Using the pro forma market values for a full offering shown above, the amount of
stock publicly offered as part of the MHC reorganization issuing 47% will equal
1,038,700 shares, 1,222,000 shares, 1,405,300 shares and 1,616,095 shares at the
minimum, midpoint, maximum and supermaximum, respectively.
Pro-forma comparisons of the Bank's value range with the Comparable Group, all
public thrifts, and New Jersey public thrifts is shown in Exhibits 10, 11, 12
and 13.
